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Operator: Good day. And welcome to the 2026 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key. After today's presentation, please note this event is being recorded. I would now like to turn the conference over to Kris Newton, Vice President, Investor Relations. Please go ahead. Kris Newton: Hi, everyone. Thanks for joining us. With me today are CEO, George Kurian, and CFO, Wissam Jabre. This call is being webcast live and will be available for replay on our website at netapp.com. During today's call, we will make forward-looking statements and projections with respect to our financial outlook and future prospects, including without limitation, our guidance for the third quarter and fiscal year 2026, our expectations regarding future revenue, profitability, and shareholder returns, and other growth initiatives and strategies. These statements are subject to various risks and uncertainties, which may cause our actual results to differ materially. For more information, please refer to the documents we file from time to time with the SEC and on our website, including our most recent Form 10-Ks and Form 10-Q. We disclaim any obligation to update our forward-looking statements and projections. During the call, all financial measures presented will be non-GAAP unless otherwise indicated. Reconciliations of GAAP to non-GAAP estimates are available on our website. I'll now turn the call over to George. George Kurian: Thanks, Kris. Good afternoon, everyone. Thank you for joining us. We delivered a strong Q2 with revenue of $1.71 billion, up 3% year over year. Excluding the divested spot business, total revenue was up 4%. All flash and public cloud, which address growth markets and carry higher gross margins, made up 70% of Q2 revenue. This shift, combined with our continued operational discipline, has enabled us to drive profitability metrics higher. Our gross margin set a Q2 record and exceeded our guidance range. Both operating margin and EPS surpassed expectations and marked all-time highs. Expected softness in USPS revenue was offset by growth in all other geographies. We saw strong demand for our AI solutions, first-party and marketplace cloud storage services, and all flash offerings. In the age of data and intelligence, customers are choosing NetApp for our unified data platform that delivers exceptional value and operational efficiencies, fueling our success in the face of the ongoing macro environment. In October, we hosted our annual customer conference, NetApp Insight, where we unveiled major advancements to our enterprise-grade data platform, including enhanced AI workload capabilities, stronger cyber resilience, and deeper AI integrations and data solutions with our hyperscaler partners. Customers and partners shared how NetApp is driving their success in the age of data-enabled intelligence. Their feedback and achievements underscore our commitment to innovation and delivering value in a rapidly evolving landscape. We launched AFX, an ultra-scalable, extreme-performance disaggregated storage platform certified for NVIDIA SuperPOD, designed to power demanding AI workloads and AI service providers. AFX seamlessly integrates into an organization's hybrid multi-cloud data estate with the proven enterprise-grade data management and security features of ONTAP. We also introduced the NetApp AI data engine, an end-to-end AI data service integrated into ONTAP. The AI data engine, referred to as AIDE, simplifies data discovery, querying, searching, and analysis. It helps operationalize and scale data pipelines for AI, with integrated data discovery, curation, policy-driven guardrails, and real-time vectorization. This enables fast data access, efficient transformation, and trusted governance. Together, AFX and AIDE transform how enterprise customers achieve positive AI outcomes by accelerating data discovery and simplifying data pipelines while maintaining security, access controls, and data integrity. Native integration with leading AI platforms, including Domino, NVIDIA, and Informatica, enables compatibility with enterprise workflows. Our zero-copy caching and native cloud connectivity help organizations unify data and apply advanced AI capabilities across any site, cloud, or model, speeding time to insight. We also enhanced our rapidly growing Keystone storage as a service for enterprise AI, offering AFX and AIDE under a single subscription for elastic scaling and usage-based billing, encouraging broader enterprise AI adoption. These innovations build on our growing success in AI workloads. In Q2, we closed approximately 200 AI infrastructure and data lake modernization deals across diverse geographies, industries, and use cases. Our massive installed base of unstructured data, advanced data and metadata movement services, industry-leading data security, and unique hybrid multi-cloud capabilities make us the clear choice for enterprise AI. Here's an example of why we are winning in enterprise AI deployments. A global semiconductor capital equipment manufacturer selected NetApp to unify its enterprise AI data foundation across on-premises and cloud environments. Our hybrid multi-cloud data visibility and secure governance drove confidence in the compliance and operational efficiency of their AI workloads. We enable them to create a single searchable view of corporate knowledge across millions of documents, emails, and engineering datasets, providing employees with faster, more accurate access to institutional knowledge. A large amount of AI innovation takes place in the public cloud. ONTAP is the only unified data platform natively integrated in the public cloud, putting us in a unique position to enable customers to leverage any of the major AI models without the complexities of moving data. In Q2, we expanded our native AI capabilities in Azure and Google Cloud, adding to what is already available in Amazon Web Services. Giving customers the flexibility to run AI workloads wherever they choose. Adding to existing multi-protocol support in AWS, we launched support for block storage capabilities in Google Cloud NetApp volumes in Q2. This brings the full power of ONTAP to Google Cloud with high-performance unified storage, integrated data management and protection, and a common cloud control plane. We introduced new capabilities in Azure NetApp files, including single file restore and a flexible service level for independent scaling of throughput and capacity. And in Amazon, FSx for NetApp ONTAP, we announced support for Amazon Elastic VMware service, enabling secure, efficient migration of VMware workloads to AWS. By continuously adding new functionalities to our public cloud storage services, we are broadening our addressable market, driving new customer acquisition, and positioning ourselves for continued growth. This strategy has yielded rapid expansion in our highly differentiated first-party and marketplace cloud storage services, with revenue increasing approximately 32% from Q2 a year ago. In Q2, a leading cloud-based media production company selected FSXN as its standard for file and block storage. In addition to multi-protocol support, FSXN delivered cost savings through storage efficiency, high availability, superior multi-tenancy, and intelligent caching to put data closer to its users. The company believes that FSXN gives it a competitive advantage in optimizing cloud storage and enhancing performance for its customers, creating these capabilities for a key customer win. Customers are choosing NetApp to provide a unified, cyber-resilient, and efficient way to manage their entire data estate. Built for the age of data-enabled intelligence, the NetApp Data Platform redefines what a modern enterprise foundation should be. Unified, enterprise-grade, intelligent, cloud-connected, and ecosystem-ready. We help organizations modernize, secure, transform, and use AI with confidence. Continued strong customer engagement and interest in our unified and block-optimized all-flash storage portfolio delivered 9% year-over-year growth in all-flash array revenue to $1 billion in Q2, or an annualized run rate of $4.1 billion. Exiting the quarter, approximately 46% of installed base systems under active support contracts are all-flash. NetApp helps customers confidently safeguard their data with built-in security through real-time threat detection, protection, and recovery. In Q2, we enhanced the NetApp Data Platform's industry-leading cyber resilience by launching the NetApp Ransomware Resilience Service for both structured and unstructured data. This service is designed to stop cyber threats before they cause extensive damage by proactively detecting data breaches in real-time and providing isolated environments for safe, clean data recovery. Our industry-leading cyber resilience capabilities are helping us win new customers and displace competitors. In Q2, a major Asian life insurance company chose NetApp for its mission-critical private cloud environment, replacing its long-standing storage vendor. Ransomware protection was a top priority, and our ability to provide strong cyber resiliency for critical workloads was a key factor in the decision to choose NetApp. We also announced the latest version of StorageGRID, with new capabilities designed to enhance AI initiatives, improve data security, and modernize organizations' data infrastructure. Many customers begin their AI journey by updating data lake environments, and StorageGRID object storage delivers the optimized performance, intelligent data management, and modern cloud integrations needed to manage massive datasets. In Q2, a leading financial services company selected StorageGRID to modernize its legacy Hadoop environment. With capabilities for a hybrid architecture featuring data durability, a global namespace, robust security, and automated zero-intervention backup and disaster recovery, StorageGRID addresses the company's next-gen AI workload requirements. In summary, strong execution and operational discipline delivered an outstanding second quarter. Our focus on growing markets, all-flash, public cloud, and AI continues to yield top-line growth. The substantial innovation we introduced this quarter extends our differentiation and helps solidify our leadership position as the intelligent data infrastructure company. Looking ahead, we are focused on leveraging our alignment to customers' top data initiatives and pressing our significant competitive advantage. Despite the unsettled macro environment and near-term USPS headwinds, we remain confident that our visionary approach to a data-driven future will enable us to outgrow the market and capture additional share. I'll now turn it over to Wissam. Wissam Jabre: Thanks, George, and good afternoon, everyone. As George mentioned, in the fiscal second quarter, we delivered strong results, exceeding both the midpoint of the revenue guidance range and the high end of the EPS guidance range. Total revenue for the quarter was $1.71 billion, up 3% year over year. Non-GAAP earnings per share was $2.05. Excluding the divested spot business, which generated $23 million of revenue in the year-ago quarter, total revenue was up 4% year over year. The effect of foreign currency exchange rates was favorable to revenue growth by approximately one percentage point year on year, while it was immaterial relative to guidance. Looking at revenue by segment, Hybrid Cloud revenue of $1.53 billion was up 3% year over year, driven by product support and Keystone. Keystone continues to show great progress with growth of 76% year over year. Public Cloud revenue of $171 million increased by 2% year over year. Excluding spot, public cloud revenue was up 18% year over year, driven by strong demand in first-party and marketplace storage services. At the end of the second quarter, our deferred revenue balance was $4.45 billion, up 8% year over year and 7% year over year in constant currency. Remaining performance obligations were $4.9 billion, growing 11% year over year. Unbilled RPO, a key indicator of future key revenue, was $456 million, up 39% year over year. Moving to the rest of the income statement, please note my comments will be related to non-GAAP results unless stated otherwise. Gross margin for the fiscal second quarter was 72.6%, above our guidance range. Sequentially, gross margin was up 1.5 percentage points. Gross profit was $1.24 billion, up 4% compared to Q2 2025. Hybrid cloud gross margin was 71.4%, up 1.4 percentage points sequentially due to product gross margin improving by 5.5 percentage points to 59.5%. Our support business continues to be highly profitable at 92.1%. Professional Services gross margin was 30.3%, improving 40 basis points sequentially, driven by higher Keystone revenue mix. Public Cloud gross margin was 83%, up nearly three percentage points sequentially and over nine percentage points year over year. Operating expenses of $707 million were flat sequentially and down 2% year over year despite the unfavorable effect of foreign currency exchange rates. Operating income was $530 million, up 12% compared to Q2 2025. Operating margin was 31.1%, up 2.4 percentage points year over year, driven by higher revenue and gross margin combined with lower operating expenses. Earnings per share was $2.05, growing 10% year on year. Both operating margin and EPS exceeded the high end of our guidance ranges. Our results demonstrate strong execution on key growth opportunities in our flash, public cloud, and AI, as well as continued focus on operational discipline. Cash flow from operations was $127 million, and free cash flow was $78 million. During the second quarter, we returned $353 million of capital to our shareholders, with $250 million in share repurchases and $103 million paid in dividends of $0.52 per share. Q2 diluted share count of 202 million decreased by 8 million shares or 4% year over year. At the end of the quarter, cash and short-term investments were $3 billion, and gross debt outstanding was $2.5 billion, resulting in a net cash position of approximately $528 million. I'll now turn to non-GAAP guidance starting with Q3. We expect revenue of $1.69 billion, plus or minus $75 million. At the midpoint, this implies a growth of 3% year over year. Excluding the divested spot business from the year-ago comparison, our revenue guidance implies a 5% growth. We expect Q3 gross margin of 72.3% to 73.3%. Operating margin is anticipated to be in the range of 30.5% to 31.5%. We expect EPS to be between $2.01 to $2.11, with a midpoint of $2.06. Turning now to full year 2026. We continue to expect fiscal year 2026 revenue to be between $6.625 billion and $6.875 billion, which at the $6.75 billion midpoint reflects 3% growth year over year. Excluding spot, our revenue guidance implies a growth of 5% year over year. Based on our Q2 performance and the confidence in our outlook for the second half, we are raising gross margin, operating margin, and EPS ranges for the fiscal year. We now expect our fiscal year 2026 gross margin to be in the range of 71.7% to 72.7% and are increasing our operating margin to 29.5% to 30.5%. We expect other income and expenses to be approximately negative $15 million. For the year, we expect the tax rate in the range of 20.2% to 21.2%. We are raising our EPS range to $7.75 to $8.05, with a midpoint of $7.90. In closing, as we look ahead to the rest of fiscal year 2026, our commitment to executing our strategy remains strong. We are poised to seize the expanding opportunities in all flash, cloud, and AI and remain focused on consistently delivering exceptional value to our customers and shareholders. I'll now turn the call over to Kris for Q&A. Kris Newton: Thanks, Wissam. Operator, let's begin the Q&A. Simply press star 1 again. Your first question comes from the line of Aaron Rakers with Wells Fargo. Please go ahead. Aaron Rakers: Yes. Thanks for taking the question. I guess the first question would be as we think about the component environment, both from a potential pricing perspective as well as whether or not you might be seeing any kind of constraints. I'm curious to how the company is managing that. Have you leaned in on any kind of strategic purchases? And any thoughts on the duration of those strategic purchases as far as the next couple of quarters? How much visibility do you have on the pricing dynamics underpinning the gross margin outlook? Thank you. Wissam Jabre: Hey, Aaron. Thanks for the question. So on the components, we know we did mention last quarter that we did lock in some prices. And based on that, we do have visibility for a couple more quarters, I would say, at least until the end of this fiscal year. When you look at where we are, obviously, Q2 product margin was slightly better than our long-term model, which is in the mid to high 50%. And then when we look at the rest of the year, we expect product margin or product gross margin to be relatively stable to where we ended in Q2. Looking ahead, if I think of the component pricing, look, this is an environment that could be volatile. And so we're not going to make a call on that. But what we do is we look at various scenarios. We have a very capable supply chain team that has been through many of these past cycles of tight supply and some of the commodities that we buy. With rising cost environments, for instance, we've been able to manage very efficiently over the years, in fact, while also in some cases, growing EPS. And so we will continue to manage our input cost and maintain our supply continuity. We haven't seen any disruptions so far. We heard of any as such. Now ultimately, our goal is really to focus on our total gross margin. And this comes down to the various components of our revenue and the mix. And so there's the rate there and the mix. If we continue to see current levels, let's say, of some of the commodities, in particular, let's say, I know you probably have in mind that one of the things, for instance, is NAND. We continue to see similar levels, we'll probably have a bit of headwind into fiscal 2027 from a product gross margin perspective. But when we look at the mix of the business, going forward, we continue to see high growth in the cloud business, which is now operating between 80-85%. I mean, Q2, it was at 83% gross margin. We continue to see good growth in Keystone. And so the mix is very much favorable to us. The couple of the last couple of points, I would say, as we think through all of this, we're focused on driving growth in gross profit dollars, which is foundational to the profitability engine of our business. And lastly, you know, if we are faced with higher commodity prices, relative to where we are today, we will always reconsider our pricing. Commodity prices are typically passed through for us, and we don't have an issue passing them through. Aaron Rakers: And, Wasson, I appreciate that. That's a very thorough answer. Looking back historically, how quickly could you pass those through? Is that within a given quarter? Does it take a couple of quarters to see that flow through? Wissam Jabre: Look, this is probably more of a hypothetical, obviously. As I said, where we are today, we have good visibility till the end of the fiscal year. But we don't necessarily need a lot of time to pass them through. We can always adjust prices as needed. Aaron Rakers: Thank you, sir. Thank you. Kris Newton: Thanks, Aaron. Next question? Your next question comes from the line of Eric Woodring with Morgan Stanley. Please go ahead. Eric Woodring: Great. Thank you guys for taking my question. Maybe I'm going to ask a similar question to Aaron. And Wassam, that is you're effectively at 60% product gross margins. I know you said we should expect them to be relatively unchanged through the rest of the year. First part of that is just, is this a function of, you know, mix to all flash? Is this still pricing tailwinds? Is this kind of bomb cost down? I'd love if you could just maybe contextualize what the real drivers are of that product gross margin expansion. And then second, I'll just ask both questions at once is, I realize you don't really need to talk to fiscal year 2027, it's too early in the commodity cost environment is quite volatile. But are we kind of at peak product gross margins? Can product gross margins expand from here? Like I just love to understand how you think about the sustainability of where we are even regardless of the memory cycle. Thank you so much, guys. Wissam Jabre: Yes. Thanks, Eric. Hey, look. What I said, yeah, for the rest of the year, we expect product gross margin to be more or less where we are now. We're in the 59%, I think, and change. When we think about the drivers, you know, it's a combination of things. If I sort of look at where we are year on year, for instance, cost is now roughly flattish. And so we are seeing differences mostly driven by mix and pricing. That's pretty much what drives the margin. And as sort of I look forward, obviously, as you mentioned, it's too early to talk about 2027. But I'm gonna talk about, theoretically, how we think of the long-term product margin of our business. You know, we are targeting mid to high 50% margin. And so that's really we are operating a little bit better than that now. But our target is a mid to high 50% because, ultimately, to drive better gross margins for the company, is the mix that's going to be also a tailwind as our fast-growing cloud business continues growing at the high and delivering higher gross margin than the corporate average. This should help us improve on our margins. I wouldn't put a cap on our product margin ultimately, we continue to be very operationally disciplined in how we conduct the business. But I hope this answers your question. Kris Newton: Alright. Next. Your next question comes from the line of Samik Chatterjee with JPMorgan. Please go ahead. Samik Chatterjee: Hi. Thanks for taking my questions. And maybe if I can pivot a bit more to the revenue side. George, you talked about sort of the AI-related transaction or deals that you closed. Looks like 200 versus 125 last quarter. Wondering sort of what you're seeing in terms of trends there. It sounds like an expiration on the sort of headline number of deals you're seeing. And is the AFX solution that you launched at Insights, what sort of customer feedback are you getting? And is that playing into those deals that you're now seeing? I have a quick follow-up after that. Thank you. George Kurian: We are seeing a fairly stable mix of transactions. The volume is growing. The mix has stayed roughly the same, which is data prep and, you know, data lake modernization about 45% of the mix, training and fine-tuning, about 25 to 30% of the mix, and the rest is kind of rag and inferencing. I think you can see the pace of, you know, kind of wins have grown. A year ago, it was about a 100 greater than a 100. Now it's close to 200 or 200 across. So we're seeing the growth in the number of wins. And the mix staying roughly stable. With regard to the AFX platform, listen, we have had a huge amount of interest in it. It's going through customer qualifications. It's too early to say that it's because of the results. In the quarter. It takes a few quarters for a new system and architecture to get qualified, but we're seeing strong early interest in it. Samik Chatterjee: Got it. Got it. And then, maybe a quick follow-up for Wissam here. When I look at the 3Q revenue guide, it's roughly sort of flat, modestly maybe down quarter over quarter. I realized last year you had the same seasonality, but for most of the previous years, prior years, you typically sort of have a seasonal growth from Q2 to Q3. So obviously it's a dynamic macro and you have sort of public sector headwinds, but anything sort of driving this seasonality to be a bit below average relative to your prior years into Q3? Wissam Jabre: So Samik, the really the couple of reasons are pretty much what you mentioned. You know, there's a bit of a dynamic macro. We're expecting our U.S. Public sector business to be slightly below seasonality. Given, obviously, the most recent shutdown in a little bit of time for government to reopen. Having said that, we view these as temporary and long term. We expect that business to get back to normal levels. Samik Chatterjee: Got it. Thank you. Thanks, Mick. My question. Kris Newton: Thank you, Samik. Your next question comes from the line of David Vogt with UBS. Please go ahead. David Vogt: Great. Thanks, guys, for taking my question. I'm going to roll them into one. So maybe George and Wissam, when I think about kind of the demand drivers going into the second half of this year, and I think you said you still expect federal to be sub-seasonal. How do we marry that sort of outlook and then going into 2027 with kind of how you're thinking about inventory and purchase commitments because your inventory on the balance sheet is still relatively modest doesn't seem like you took in a lot of finished goods. From my quick look. I'm just trying to think how we should think about marrying maybe a recovery and of the verticals like U.S. Federal next year. Hopefully, that's behind us. And how you're thinking about adding purchase commitments and working capital to support the business next year? Thanks. George Kurian: I think maybe I can start and then Wissam can add color. I think, first of all, if you look at the second half implied growth rate, it is up if you look at x spot relative to the first half. So we are seeing some acceleration despite the U.S. public sector headwinds in the second half of the year. We see the, you know, the non-U.S. public segments had a strong result in Q2. Our flash business accelerated from 6% to 9% in the quarter despite a tough compare a year ago. So we feel good about momentum. We are aligned to what customers are spending. Despite the choppy macro, customers are spending on AI projects, on data infrastructure modernization to get ready for AI. They are implementing additional cyber resilience protection. We feel good about our alignment to customer spending. And then I think the third thing is that the faster-growing parts of our business are now a bigger part of the overall number. Cloud and flash are now 70% of the overall number. The slower, you know, the parts of the business that are not growing, are both smaller and also stabilizing more. And so that gives us belief that second half, hopefully, once U.S. public sector gets clarified, we should have a strong set of results going forward. Wissam Jabre: Yeah. And, David, with respect to purchasing commitments, look, as I mentioned, we have good visibility till the end of this fiscal year and we would be opportunistic as we go forward. We will be obviously looking at fiscal 2027 and we enter the year, we would want to be able to have good visibility and in many cases secure whatever would he. And so we won't hesitate to take the right actions. To make sure we protect our business and we have the supply that's needed. David Vogt: Wissam, can I follow-up or full year kind of purchase commitments given the environment? Like what's your philosophy going into next year? Wissam Jabre: I would say it all depends on what buying and when. And so there isn't really one answer that fits all. We will be very dynamic. We'll make decisions very fast. But as I said in my earlier remarks, we have a very capable supply chain team. We the commodities and we don't hesitate to take action as needed. We do have a strong balance sheet. And if we need to take any specific action to protect our supply or to sort of lock in good prices, we won't hesitate to do that. David Vogt: Great. Thank you. Kris Newton: Alright. Thanks, David. Your next question comes from the line of Krish Sankar with TD Cowen. Please go ahead. Krish Sankar: Yes, hi. Thanks for taking my question. The first question, George, is for you. You kind of spoke about the 200 AI deals that you closed in the quarter. What is the average size of these deals? And also, where are we in the pilot to production journey for enterprises of AI? Is there a way to think about that into 2026? I have a quick follow-up. George Kurian: Listen, the deal sizes are all over the map. I think that there are some that are smaller in proof of concept, and there are others that are in scale deployments that are much larger. So I would not share a particular number related to the average deal size. It would misrepresent the answer. With regard to the, you know, broad themes, I think, first of all, you know, data lakes and data prep are usually prior to scale deployments. They are in the get ready to use AI, bring all of my data together. I think fine-tuning and inferencing are at various stages of the, you know, kind of proof of concept to production deployments pipeline. I think if you look at the industry, life sciences, financial services, some parts of manufacturing, and public sector are areas where we see AI being broadly adopted. With the most advanced use cases in life sciences, and I think that you know, the adoption use cases depend on industry. Krish Sankar: Got it. And then as a quick follow-up, Peter, for you or Wissam, you spoke about the first-party hyperscale services demand was very strong last quarter. Can you just quantify how much did that grow last quarter, that services business? Wissam Jabre: The first-party at marketplace services business grew 32% year on year. Krish Sankar: Great. Thanks, Josh. Kris Newton: Yep. You're welcome. Thank you, Krish. Next question comes from the line of Steven Fox with Fox Advisors. Please go ahead. Steven Fox: Hi. Good afternoon. I just had one question. Given all the supply shortages that you're talking about, which seem to have accelerated, I guess, in the last several months. And I understand that you've taken some tactical moves to secure supply. Why do we think or is there a risk, I guess, that you run into next year sometime? Not saying first quarter or second quarter, but is there a risk that at some point that the lack of supply hurts overall demand, whether because of overall price of product or just your availability to ship? Thanks. George Kurian: I'll just clarify the comment by saying we did not suggest that we have any supply shortages. We said that we have secured supply commitments and pricing through the end of the fiscal year. And we'll take appropriate actions to guarantee supply across a broad ecosystem of suppliers through the next fiscal year depending on what we see. Steven Fox: Okay. So that you're confident that the price whatever price you're talking about a year from now, George, is sustainable in the marketplace, I guess? George Kurian: Listen. There's a lot of puts and takes in the bill of in our products. And so and we have a broad ecosystem of suppliers. So we work with them both to look at, you know, a variety of different price points and offering. And we'll have the right mix. As we said, you know, the historic pattern of this industry is that when component prices, commodity prices go up, there are pricing actions taken to share some of those price increases with. And if it reaches that point, we will have we have the experience to do that. Steven Fox: Great. Thank you for the color. Kris Newton: Thank you. Thanks, Dave. Your next question comes from the line of Tim Long with Barclays. Please go ahead. Tim Long: Thank you. Two if I could as well. Hate to kill the commodities here, but just curious, a lot of talk about NAND, but HDDs are tight and going up as well. So is there what's the impact on the business of QLC being used more than hybrid or maybe more than TLC? Any moving parts that might actually benefit the move towards all flash, number one? And then number two, the cloud revenues have been pretty consistent, high teens x spot. George, you mentioned a lot of new offerings on the big cloud players. Could you just talk about that kind of xSpot growth rate? Do you think that high teens is sustainable? Or can some of these newer offerings help accelerate that number even though the base is fairly large? Thank you. George Kurian: Yeah. On the first question, listen. HDDs actually performed well for us this quarter. It performed, you know, in my expectation, better than we had planned. And so we are seeing a broad range of use cases for these products. We don't see that one type of technology replaces the other. There are use cases for TLC, QLC, and HDDs, and we are seeing that pattern in our business. I think with regard to your question on cloud, listen, I think broadly speaking, we are super positive. About the growth of our first-party and marketplace cloud services business. They have been kicking along nicely north of 30% representing strong customer demand for our differentiated. I think that, you know, the scale of the business, if you look at the Q2 quarter on quarter growth, it was the highest quarter on quarter, you know, incremental revenue the history of the cloud business. So we feel really strong about that. And broadly speaking, we have a really good set of tools for enterprise workloads on the cloud. The next big push is to capture the AI and data-intensive workloads on the cloud. And so you'll see us bring innovations in the market. We already talked about some of them, and you'll see a lot more of that over the next, you know, six to twelve months. And so super excited. This is really about scaling the go-to-market. It is almost, you know, we can bring on as many clients as we want. It's really bringing effectively scaling go-to-market motion. For our cloud offerings. Kris Newton: K. Thank you. Your next question comes from the line of Simon Leopold with Raymond James. Please go ahead. Simon Leopold: I wanted to see how you thought about your opportunities to win business with some of the sovereign or neo clouds who are not necessarily hyperscale and, you know, building their own storage solutions. How do you see that fitting into your strategy? And what kind of opportunities have you seen so far there? George Kurian: Yeah. We are part of a large number of sovereign clouds. Across the globe for many, many years. With regard to their AI landscapes, we have mentioned, you know, sovereign AI wins. Solution. We have expanded the range of offerings with the AFX that allows us to participate in a broader range of, you know, footprints within those, you know, sovereign AI cloud. And we are bringing more innovation to the market, you know, over the next few months. So stay tuned. Simon Leopold: And how do you think about the competitive landscape in that application and broadly the AI opportunities? George Kurian: I think that as those sovereign providers look to serve enterprise clients, with AI workloads, all of the value that we have both in terms of the differentiated capabilities around security, multi-tenancy, data protection, hybrid landscape, play to our advantage. We are seeing some of that momentum. With the introduction of the AFX. People have been super interested in our ability to serve those new use cases that those AI cloud providers are trying to go after. Kris Newton: Thanks. Thank you, Simon. Your next question comes from the line of Jason Ader with William Blair. Please go ahead. Jason Ader: Yes. Thank you. Good afternoon. Wanted to first ask just on the performance in the quarter. You had a nice roughly $20 million beat. And then you reiterated for the year. So I just wanted to understand why you didn't flow through the beat. Is it just a little bit extra conservatism? Based on public sector or supply chain or any other factors? George Kurian: Yeah. I mean, I think we saw, you know, in the quarter, some really strong we talked about large deals. We had a, you know, good set of those that helped offset the really steep decline in the U.S. public sector business. We had not anticipated when we guided the quarter that USPS would suffer such a long shutdown. And I think as we look out to the second half of the year, if you look at the overall guide for the second half of the year ex spot, it actually is an acceleration year on year from the first half. But you know, clearly, we want to have more line of sight into how U.S. public sector plays out. As Wissam mentioned, it takes a while for the governmental agencies to get back to procurement and spending, and so we're being a tad cautious about that. There are no implications from the supply chain in our guidance. Jason Ader: Okay. Great. And then just a quick follow-up, on Keystone. Don't think that's come up in the Q&A yet. Know, you've been in this space for a long time, George. I mean, do you feel like we're hitting some type of an inflection in the storage as a service model? Maybe it's not an inflection. Maybe it's just sort every year, it's going to get bigger and sort of be more of a slow burn. But it does seem like that part of the business is incredibly strong, and we've seen strength across other suppliers as well. So do you think that this is just going to be more of the norm in the storage market over the next decade or so? George Kurian: I think this is, you know, a new way for customers to buy infrastructure. I think it is driven both by maturity of the offering as well as customers, you know, kind of maturity in using these business models coming from the cloud. Right? So they've learned how to buy infrastructure and a consumption model from the cloud. And so we see that growing as a part of the overall business. You know, like all things, enterprise infrastructure is a very large market. And so it will grow as a part of that market. We're excited to lean into that trend. I don't think the whole market switches overnight. Nothing ever happens that way, but it'll grow as it'll grow faster than the rest of the enterprise infrastructure buying models. Jason Ader: Thank you. Kris Newton: Thank you, Jason. Your next question comes from the line of Ananda Baruah with Loop Capital. Please go ahead. Ananda Baruah: Yes. Thanks, guys, for taking the question. George, with video, such a big theme at Insight, let me just since we have you take the opportunity to ask you anything notable or interesting on video that you saw over the last ninety days that you're seeing emerge? And I guess, video specifically, but unstructured generally? You know? In your customer base or in some of the proof of concepts. Thanks. I have a quick follow-up too, if I could. Thanks. George Kurian: Yeah. Unstructured is clearly the place that customers are spending time organizing. We talked about the use cases where, you know, large semiconductor equipment manufacturer brought together millions of documents across a variety of applications to better understand what their engineers and their operations teams were working on so that they could, you know, kind of continue to optimize yield and, you know, efficiency in their business. We see that more and more across organizations. I think with video itself, you know, we talked about the content production house. That is using AI to build better, more enriched experiences for their digital clients. And so you're seeing that in certain use cases. We are also seeing the use of multimodal applications starting to grow. And then video analytics, for example, in weather forecasting, weather analysis, things like that. And so it's growing. I wouldn't say it's been the dramatic inflection, but multimodal is growing. We are seeing demand from customers for support for more complex multimodal language models, for example. Ananda Baruah: That's helpful. Thanks. And just a quick follow-up on memory. The hard drive makers seem, as we go through next year, like, they're pretty intense. On mixing up pretty quickly from 20 TB drives to 30 TB drives. Is that consistent relatively speaking with what your customer base is looking for also? I guess I'm wondering if that's organically in tandem with what your customers also would want. Thanks. That's it for me. George Kurian: I think broadly speaking, customers are looking for aerial density improvements from above, you know, all of the silicon. We work with our supplier ecosystem to qualify different media sites and density points. And we'll do the same. We follow customer demand. We look at what the supplier ecosystem is telling us. Broadly speaking, you know, performance, cost, and density are the key drivers of new silicon adoption. Kris Newton: Thanks, George. For that. Your next question comes from the line of Louis Miscioscia with Dowry Capital Markets America Inc. Please go ahead. Louis Miscioscia: Hey, George. On the latest earnings call, you'd seem to be a lot more encouraged about AI. And, obviously, you have a lot more wins this quarter. And I guess, you sort of were asked this question before, but let me just try again. Obviously, there's been a massive growth in many areas, mostly in servers, but storage in general hasn't really seen a big, big pickup from AI. So when do you think inference applications really start to create more data? That would then drive material new revenue for you? Do you see it as maybe first half calendar 2026, second half? I mean, I assume at some point it has to hit. George Kurian: Yeah. I think we've always set compute and network build out would be both bigger and earlier than the storage build out. I think it is because the training of large language models and the algorithms that are being used for AI does not require a lot of storage. Right? Nobody is creating a second copy of all the Internet data to train OpenAI. And so that build out, of course, will be bigger and earlier than storage. I think as we said, storage is 80% of the storage use is actually from inferencing. So as inferencing becomes a bigger part of the overall AI landscape, you will see more storage consumption. I think we are seeing it in our business also in the data lake, data modernization business where people are building large multi-terabyte repositories to bring all their data together. I think if you were to look at, you know, what we said, we said, hey. You know, the number of proof of concepts would pick up in fiscal year 2026. We are seeing that. I think with regard to broader enterprise AI adoption, we've always believed it's use case by use case. It's not a horizontal technology that gets deployed. And so it really depends on the ROI from the use cases. That we see. There, we are seeing, like we said, health care and life science was ahead of the market. You know, some of the other ones, you know, kind of heavy in proof of concept, but not yet in production. Kris Newton: Okay. Thank you. Thank you. Your next question comes from the line of Wamsi Mohan with Bank of America. Please go ahead. Wamsi Mohan: Yes. Thank you so much. George, you said at the end of your prepared remarks that you would be capturing share in the market. And I was wondering how much of that is predicated on some of the flexibility you have in pricing given the supply that you have secured versus product portfolio mix capability? How are you thinking about that? And I have a follow-up. George Kurian: Mean, broadly speaking, once the in a transaction, the majority of the value is in software. And the data platform that the company that the customer is signing on to. Right? They train their teams on the use of the platform. I think our growing differentiation, not only with cloud, but cyber bringing more advanced data management capabilities. This the leading indicator. I think when you are trying to displace the competitor, having a, you know, kind of flexible set of tools both things like Keystone or, you know, subscription type services and the ability price aggressively is helpful. Wamsi Mohan: Okay. Okay. Thanks, George. And just a follow-up. You just raised your public cloud gross margin range and you're already kind of at, you know, more than halfway through that, range with slight increase in revenue in the quarter. I'm just kind of wondering like what's a natural ceiling with for this business? That you see? And maybe you can just maybe, Wissam, can just comment on cash flow as well. A little bit weak in the quarter. Just thinking through sort of trajectory over there, that would be helpful. Thank you. Wissam Jabre: Sure, Wamsi. So let me start with the first part of your question. On the cloud gross margin, look, this is the second quarter we're operating within our upgraded target range. We feel comfortable operating within this range. We've seen the mix in that business shifting a little bit more towards software. And as we talked about before, we've had some roll-off and depreciation. Having said that, there could be potentially an upward bias, but it's too early to talk about that today. I would say, we're still comfortable operating in that within that sort of 80% to 85% range that we published last quarter. Respect to the cash flow, it is there's a bit of seasonality in our cash flow. And so Q2 is typically lower, in some cases, sometimes the lowest point in the year. Also in Q2, we had the last installment of the tax payment, which had to do with the transition tax that was related to the law that was enacted back in 2017, I believe. So those are, I would say, the couple of factors influencing Q2 cash flow. Wamsi Mohan: Okay, great. Thank you so much. Kris Newton: Thanks, Wamsi. Next question comes from the line of Param Singh with Oppenheimer. Please go ahead. Param Singh: Yes. Hi, and thank you for taking my questions. So really wanna dive a little bit more into, you know, your AI wins. You talked a little bit about AI differentiation, the AFX, and what's helping you win versus competitors. Wanted to understand, you know, what are you hearing from customers technically? Do you feel you're there yet? And if you could share, what mix of your AI wins are with existing customers as opposed to taking share from new customers? George Kurian: I think with our, you know, AI win, just like with our all-flash business, we are bringing on a lot of new customers. And then I'm talking about the on-prem business. The cloud business has been a very strong contributor to new clients. As we have shared, roughly half of all our cloud customers are net new to NetApp. Right? And that's pattern has stayed the same for a very, very long period of time. So if you talk about the enterprise storage business, the, you know, number of new customers that are signing on to us has been strong. A lot of that is because of unified data management, you know, hybrid cloud, you know, kind of deployment options. And an increasing number of customers coming because of our built-in Mist two compliant cyber resilience solutions. And so those are the key sources of wins. I think with regard for enterprise AI, we feel really, really strong. Yeah. We are we don't have we are ahead of all the competition. Most of the competitors have, you know, kind of point products. They don't have an integrated stack. They don't have hybrid. They don't have all of those pieces that we have. Do we feel good? You know, clearly, in our installed base, we have an enormous because we hold all the data. And as we talked about at our inside conference, we can bring AI to your data rather than copy all your data over and do AI. Param Singh: Got it. And, before my follow-up, anything sorry. So just a quick follow-up. You know, assuming that, you know, you keep winning and you, you know, your revenue trajectory is gonna improve on the product side with incremental workloads coming into AI inferencing. After that, you have Keystone going faster, easier comps with Spot, increasing public cloud mix, wouldn't it be reasonable to assume that off of 5% you know, normalized go through this year, you should see an acceleration to next year. Would that be the right way to think about it? George Kurian: I'll just say people guide fiscal year 2027 when we guide fiscal year 2027. All of the comments you made are in terms of a growing part of our business is coming from faster-growing, you know, components of our business. Like cloud, Keystone, all flash, and AI. And I think that as that mix gets to be a bigger part of our business, you should expect acceleration. But we'll guide fiscal year 2027 when we get there. Param Singh: Thank you so much. Appreciate it. Wissam Jabre: Yep. Thank you. Kris Newton: Your next question comes from the line of Ari Terjanian with Cleveland Research Company. Please go ahead. Ari Terjanian: First, just on the quarter, good to hear the uptick in large deal activity. I know, George, at the start of the year, you referenced some larger deals in the pipeline. What do you think drove some of the larger deal activity this quarter? Was it execution or maybe there's some pull forward ahead of potential shortages? And then, you know, my second question, you know, it seems like topics was down year over year. It seems like it's been trending that way. How sustainable is that? Is that more timing related of hiring? How should we think about that in the second half? And next year? Thank you. George Kurian: Yeah. I think, first of all, with regard to, you know, Quinn, listen. This is execution. Right? We said we had good pipeline, and we are executing to that. I do not think that there are pull-ins due to supply chain. Right? I mean, listen. We have never said there's a supply chain issue in our, you know, kind of our pipeline. And so I just we'll just say, hey. These are wins. You always get some that get closed earlier than others and some that get closed later. I think that, you know, our strength in the business helped offset a significant, you know, kind of deterioration in U.S. public sector. Due to the shutdown. And so we feel good about that. With regard to OpEx, I'll let Wissam comment on it. Wissam Jabre: Yeah. With regards to OpEx, look, this is a matter of time. We expect it to be potentially slightly higher from here for the second half. We do wanna continue to invest in the business. We wanna invest in the growth of our business. And so, I'll leave it at that. Kris Newton: Thanks, Ari. Your next question comes from the line of Amit Daryanani with Evercore. Please go ahead. Amit Daryanani: Hi. This is Hannah for Amit. Was just wondering for All Flash, the growth accelerated rather well. This quarter. Can you just touch on what drove that? And was it pricing, portfolio refresh? Or was it AI? George Kurian: I think that, from a workload perspective, AI was noticeable. With regard to the mix, listen, I think we have refreshed the full set of systems last year, Anna. And so we're seeing the benefit of that as customers have qualified the systems and started to use it. And then we saw strong results, especially in the high-performance flash area. Where our offerings are, you know, did really well in the quarter. Kris Newton: Thanks, Anna. Your final question comes from the line of Asiya Merchant with Citigroup. Please go ahead. Asiya Merchant: Great. Thank you for taking my question. Just I was wondering, you answered partly that about the high-performance mix shift. I think there was some mix shift that worked the other way in the prior quarter. So just as you look ahead, the guide for the, you know, overall gross margins ticking higher here, you can just kind of lay out how you're thinking about the mix here. And then what's embedded in terms of public cloud revenues? Because obviously that's the higher margin. What's embedded in terms of public cloud revenue growth expectations? For the third quarter? Thank you. Wissam Jabre: Hey, Asiya. Thanks for the question. Look, we don't guide to that level of granularity. I think I've said enough with respect to product gross margin to sort of give an indication as to how we expect the next couple quarters to shape up. With respect to public cloud, I would expect as I said, from a margin perspective, we're comfortable in where we are operating exiting Q2. And from a revenue perspective, we talked about the growth being very much in line with what we've seen over the past, let's say, couple of quarters. So hopefully, this helps. Kris Newton: Alright. Thanks, Asiya. I'm gonna turn it over to George for some final remarks. George Kurian: Thank you, Kris. Strong execution and operational discipline enabled us to deliver a strong second quarter. Our focus on AI, all flash, and public cloud continues to yield top-line growth in an uncertain macro environment. In the quarter, we introduced substantial innovation to extend our differentiation and further solidify our leadership position. Looking ahead, we remain confident that our visionary approach to a data-driven future will enable us to outgrow the market and capture additional share, driving value for customers, partners, and shareholders. Thank you. Have a great Thanksgiving. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Greetings, and welcome to the Titan Machinery Inc. third quarter fiscal 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Jeff Sonnek with ICR. Thank you. You may begin. Jeff Sonnek: Welcome to the Titan Machinery Inc. third quarter fiscal 2026 Earnings Conference Call. On the call today from the company are Bryan J. Knutson, President and Chief Executive Officer, and Bo Larsen, Chief Financial Officer. By now, everyone should have access to the earnings release for the fiscal third quarter ended October 31, 2025, which is also available on Titan Machinery Inc.'s Investor Relations website at ir.titanmachinery.com. In addition, we are providing a supplemental presentation to accompany today's prepared remarks along with the webcast and replay information, which can also be found on Titan Machinery Inc.'s Investor Relations website within the Events and Presentations section. We would like to remind everyone that the prepared remarks contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Statements do not guarantee future performance and therefore undue reliance should not be placed upon them. Forward-looking statements are based on management's current expectations and involve inherent risks and uncertainties, including those identified in the forward-looking statements section of today's earnings release and the company's filings with the SEC, including the Risk Factors section of Titan Machinery Inc.'s most filed annual report on Form 10-K and quarterly reports on Form 10-Q. These risks and uncertainties could cause actual results to differ materially from those projected in any forward-looking statements. Except as may be required by applicable law, Titan Machinery Inc. assumes no obligation to update any forward-looking statements that may be made in today's release or call. Please note that during today's call, we may discuss non-GAAP financial measures, including results on an adjusted basis. We believe these adjusted financial measures can facilitate a more complete analysis and greater transparency into Titan Machinery Inc.'s ongoing financial performance, particularly comparing underlying results from period to period. We have included reconciliations of these non-GAAP financial measures to their most directly comparable GAAP financial measures in today's release and supplemental presentation. At the conclusion of our prepared remarks, we will open the call to take your questions. And with that, I would now like to introduce the company's President and CEO, Bryan J. Knutson. Please go ahead, Bryan. Bryan J. Knutson: Thank you, Jeff. And good morning to everyone on the call. I will start by providing an update on our inventory optimization progress and operational focus areas. And then discuss the current environment across our segments before turning the call over to Bo for his financial review and comments on our fiscal 2026 modeling assumptions. Nine months into the fiscal 2026, we are making meaningful progress on our inventory optimization initiatives which will position us to emerge from this cycle leaner and stronger. Our team did an excellent job executing in what remains a very challenging market environment. As we head into the final quarter of the year, our focus is on finishing strong and continuing to drive inventory optimization while maintaining the customer relationships and service excellence that differentiate us in the market. We have made substantial progress through the first nine months of the fiscal year, reducing total inventory by $98 million. As I just mentioned, I am extremely proud of the disciplined work our teams have been doing all year to move equipment in a very difficult demand environment. And we are confident we will significantly exceed our $100 million full-year reduction target. As such, we are raising our inventory reduction target to $150 million. The quality of our inventory also continues to improve. It is fresher and has an increased mix of more high-demand categories. But we are not stopping there. We still have excess inventory in certain seasonal new equipment categories as well as our overall used equipment level. Our focus remains on finishing this fiscal year in a healthier inventory position, so that we can return to the more normalized equipment margins that we have historically achieved. Regarding equipment margins, they beat expectations for the quarter driven largely by a more favorable sales mix and our improved inventory position. Bo will provide further details but I do expect equipment margins to moderate somewhat in the fourth quarter given less favorable sales mix and additional inventory optimization efforts as we finish the year. The work we are doing now on inventory optimization is about setting ourselves up properly for next year over maximizing near-term margins. Our customer care initiative continues to demonstrate strategic value and remains central to our operating strategy. While equipment demand remains under pressure at this phase of the cycle, our parts and service businesses are generating well over half of our gross profit dollars. The stabilizing force of our parts and service business is essential in times like these. Keeping us closely engaged with our customers allowing us to add value to their operations, and positioning us well for when equipment demand eventually recovers. This relentless focus on our customers optimization, both domestically and abroad, dovetails with our recent activity surrounding footprint. As you may recall, we acquired Heartland Ag Systems in 2022, which allowed us to gain access to the full product line of Case IH application equipment. Including self-propelled sprayers and fertilizer applicators, along with incremental sales opportunities to the commercial ag application segment of the market. As a part of the integration process of that business, we have recently divested certain stores outside of our core footprint and sold them to local CNH dealers in the respective areas. This change will allow us to focus our resources on markets where we can best leverage our broader service network to provide best-in-class service and support to our customers and deliver improved shareholder returns. In that same vein, we have also taken an objective look at our international operations to ensure we are allocating capital to high-performing markets. Our German operations have faced challenges that have historically weighed on returns within our year operating segment. And as such, are in the process of divesting our dealership operations located in Germany, working in close coordination with CNH and local New Holland dealers in the region. An additional part of our footprint optimization is continuing to build upon the dual-brand strategy that we previously implemented in approximately one-third of our US store network over the years. For instance, in Australia, we recently gained access to the New Holland distribution rights in six of our 15 rooftops. While we are not adding new rooftops in the country, we now have both Case IH and New Holland brands available in these markets, helping us provide better scale and customer service through improved coverage. To drive increased market share while capturing synergies from both brands. We remain focused on organic growth through market share gains and focusing on our customer care strategy to drive higher parts and service revenues. At the same time, we are well-positioned to continue to pursue M&A opportunities that align within our strategy that focuses on leveraging our service network to provide best-in-class customer service while driving scale and efficiencies to achieve higher levels of profitability. With that, I will now turn to our segments. In domestic ag, the quarter performed within our expected range. Despite an environment that remains challenging for our farmer customers. While the harvest season is now largely complete, and yields were generally solid across our footprint, farmers continued to face multiple headwinds. These include depressed commodity prices, which is the fundamental issue pressuring farm profitability, as well as the government shutdown, which slowed payments to farmers adding to current cash flow challenges, along with higher interest expense. While we have seen some improvement in commodity prices recently, they generally remain below breakeven levels for our customers. And while it is encouraging to see China committing to resume soybean purchases, it is unlikely that this will result in a sustainable inflection in commodity prices in the near term. Further, while the reinstatement of 100% bonus depreciation is a positive for those customers who find themselves in a taxable position, many simply do not have the income to take advantage of it this year. The bottom line is that without a significant improvement in commodity prices, or substantial additional government support, equipment demand is likely to remain at trough-type levels for the near term. Now turning to our construction segment, which continues to face some softness reflecting the broader economic uncertainty. Equipment margins remain subdued, pressured by some of the same variables that are impacting our domestic ag segment. Infrastructure and data center projects are providing a baseline level of activity, while the overall demand environment remains somewhat softer than the highs of recent years. But still at healthy levels. Europe had a strong third quarter, as Romania continued to drive segment performance as customers capitalized on EU subvention funds up to the September deadline. However, absent this temporary stimulus, the underlying demand in the region remains soft and is tied to the broader ag cycle. Australia continues to experience a similar backdrop as their domestic ag business with industry volumes below prior trough levels. However, the third quarter also reflected some difficult comparables relative to the prior year. The market remains challenging, but the fourth quarter revenue should be closer to what we saw in the prior year. In closing, we have accomplished a great deal over the past year reducing total inventory by over $500 million from peak levels in Q2 of the prior year. This has been a full team effort, and why I want to express my appreciation for how our people have maintained exceptional customer service while executing these initiatives by outperforming the market. The agricultural equipment market remains challenging and the industry is not expecting a near-term recovery. However, we are staying disciplined in our execution managing what we can control, and positioning the business to perform well when market conditions eventually improve. With that, I will turn the call over to Bo for his financial review. Bo Larsen: Thanks, Bryan, and good morning, everyone. Starting with our consolidated results for the fiscal 2026 third quarter. Total revenue was $644.5 million compared to $679.8 million in the prior year period. Reflecting a 4.8% decrease in same-store sales driven by weaker demand in our domestic ag, construction, and Australia segments, largely offset by stimulus-driven strength in our European segment as Bryan discussed earlier. Despite the sales headwind in the third quarter, gross profit was essentially flat at $111 million compared to $110.5 million in the prior year period. While gross profit margin expanded to 17.2% as compared to 16.3% in the prior year. This was largely driven by a 70 basis point improvement in our equipment margins for the third quarter versus the prior year comparative period. Notably, equipment margins for our domestic ag segment were 7% in this year's third quarter. Which is a significant improvement from the 3.1% that was achieved in the first half of this fiscal year. This improvement is largely driven by our improved inventory position and a favorable sales mix. But also benefited from a $3.7 million accrual for manufacturer incentive plans for which nothing was accrued in the first half of the year. Operating expenses were $100.5 million for 2026. Compared to $98.8 million in the prior year period. Our headcount and discretionary spending is down year over year as a result of disciplined expense management. However, the small increase in total operating expense was led by higher variable compensation and some transaction-related expenses. Lower plan and other interest expense was $10.9 million as compared to $14.3 million in the prior year period reflecting our continued efforts to reduce interest-bearing inventory over the past year. In 2026, net income was $1.2 million with earnings per diluted share of $0.05 compared to net income of $1.7 million or earnings per diluted share of $0.07 for the same period last year. Now turning to a brief overview of our segment results for the third quarter. Our domestic ag segment realized a same-store sales decrease of 12.3% which took segment revenue to $420.9 million. Segment pretax income was $6.1 million compared to pretax income of $1.8 million in the third quarter of the prior year. Reflecting the positive equipment margin dynamics that I discussed earlier, as well as lower operating expenses, and lower floorplan interest expense as compared to the prior year. In our Construction segment, same-store sales decreased 10.1% to $76.7 million which was driven by lower equipment sales. Pretax loss was $1.7 million compared to a pretax loss of $0.9 million in the third quarter of the prior year. In our Europe segment, same-store sales increased 88% to $117 million which includes a $6.1 million positive foreign currency impact. Net of the effect of these foreign currency fluctuations, revenue increased 78%. Which was primarily driven by Romania as customers capitalized on EU subvention funds ahead of the September deadline. Pretax income for the segment increased to $3.5 million compared to a pretax loss of $1.2 million in the third quarter of last year. In our Australia segment, same-store sales decreased 40% to $29.9 million which included a 1.3% negative foreign currency impact. Net of the effect of these foreign currency fluctuations, revenue decreased 39%. This decrease reflects the continued normalization of sprayer deliveries in fiscal 2026 after having caught up on a multiyear backlog of deliveries during fiscal 2025. Pretax loss was $3.8 million compared to a pretax loss of $0.3 million in the third quarter of last year. Now on to our balance sheet and inventory position. We had cash of $49 million and an adjusted debt to tangible net worth ratio of 1.7 times as of October 31, 2025. Which is well below our bank covenant of 3.5 times. Regarding inventory, as Bryan mentioned, we reduced our total inventory by $98 million through the first nine months of the year to $1 billion. Of that $98 million reduction, approximately $15 million came from equipment sold through three domestic divestitures we completed. The vast majority of the reduction reflects the disciplined work our team has been doing to move equipment in a challenging demand environment. Our cumulative total inventory reduction from peak levels in Q2 of the prior year now stands at $517 million. Beyond the headline inventory reduction number, we are also seeing a meaningful improvement in the quality of our inventory. We continue to focus on reducing aged inventory. Which we define as equipment that has been on our lots for more than twelve months. Aged equipment inventory peaked in May fiscal year and we have been able to reduce this by a total of $94 million over the last five months. This aged inventory reduction is critical to returning more normalized equipment margin levels. Given the progress we have made and the programs we have in place to continue to drive sales in the fourth quarter, we have confidence in making further progress on aged inventory and inventory levels overall. As such, as Bryan mentioned previously, we are increasing our inventory reduction target to $150 million for the full fiscal year. Turning to our fiscal 2026 modeling assumptions. We are refining our revenue expectations for both the Construction and Europe segments based on our year-to-date performance. While keeping our assumptions for domestic ag and Australia intact. We are now expecting construction to be down 5% to 10% compared to our prior expectation of down 3% to 8%. And Europe is expected to be up 35% to 40%, an improvement from our prior range of up 30% to 40%. Reflecting the strong performance in Romania during the third quarter. From an equipment margin perspective, I want to provide some additional context for the fourth quarter. As Bryan mentioned, our third quarter consolidated equipment margins of 8.1% benefited from our improved inventory position and favorable sales mix. Given a less favorable sales mix, and additional inventory optimization efforts in the fourth quarter, we anticipate consolidated equipment margins to moderate back to approximately 7% for the fourth quarter. This reflects three primary factors. First, the fourth quarter is traditionally a big quarter of delivery of multiunit deals for larger ticket cash crop equipment and generally speaking, those tend to have moderately lower margins than other transactions. Second, we continue to work through aged inventory as part of our optimization effort. And third, we anticipate some moderation in Europe following the September expiration of subvention fund availability in Romania. Consistent with our prior expectations, operating expenses are expected to decrease year over year on an absolute basis. And I continue to expect them to be approximately 16% of sales for the full fiscal year. Forward plan and other interest expense is expected to continue to decline as we make additional progress on inventory reduction and mix optimization and we should see some of those benefits in the fourth quarter given the reduction in aged inventory we have seen in recent months. As a preface to our earnings per share expectations, I want to call out the anticipated recognition of a non-cash valuation allowance that is expected to be recognized in the fourth quarter and result in an increase in our reported tax expense by approximately $0.35 to $0.45 per share. Reflecting a variable that was not considered in our previous assumptions. This is dictated by accounting guidance and is influenced by the degree to which our profitability is being impacted by the broader cycle. It is something that we had to recognize in the prior downturn as well, and then subsequently reversed as the industry recovered from the prior trough. I expect a subsequent reversal at some point in the future this time as well. However, this will result in an increase to tax expense for the time being. Based on guidance from regulators, we do not plan to adjust this incremental tax expense out of our presentation of full-year adjusted earnings per share. So I mention it here so you can better appreciate the magnitude that the underlying equipment margin improvement is having on our results in the second half of the fiscal year. To be clear, our margin improvement is being negated by the valuation allowance and as a result, we are reaffirming our adjusted diluted loss per share guidance a range of a loss of $1.50 to $2. In summary, we are pleased with the progress we have made in a challenging demand environment, with industry volumes below prior trough levels. And we are poised to make further progress in the fourth quarter. Our team's hard work advancing our inventory reduction and footprint optimization initiatives are positioning the business for improved financial performance as we move into fiscal 2027. This concludes our prepared comments. Operator, we are now ready for the question and answer session of our call. Operator: Thank you. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. To allow for as many questions as possible, and one follow-up. Thank you. We ask that you each keep to one question. Our first question comes from the line of Liam Burke with B. Riley Securities. Please proceed with your question. Liam Burke: Thank you. Good morning, Bryan. Good morning, Bo. Morning. Morning. We saw very nice results on parts and service, excuse me, service was down 4%. Is that just normal quarter-to-quarter seasonality, or is there something within that number on that down year-over-year number that is influencing it? Bo Larsen: Yeah. So there is some noise there from a quarter-to-quarter perspective. The way service is reflected does get impacted by how much new equipment we are delivering and how much of their labor is going towards PDI, which ultimately shows up as whole good versus service revenue. Overall and big picture, service generally speaking is flattish this year in a world where large ag new equipment is down about 30%. Pretty happy with that. Certainly driving initiatives and expecting over the long term, as we have talked about for a while now to be able to drive sustainable growth. But, again, stability in this environment, will take for now as we work on some underlying things such as driving higher take rates on extended warranties, preventative maintenance agreements, and the like. To really help us accomplish what we want and that is to see something more like mid-single-digit growth on average over a longer period of time. Still feeling good about all that. Liam Burke: Great. And then on the construction, same-store sales just do not seem to be recovering. More in line with ag. We would think that there would be less decline, but it seems to be either the same or no getting worse. When most of the larger infrastructure players and larger construction players are doing okay. Bo Larsen: Yeah. The first thing I would say, and I am sure Bryan will add to it as well. Underneath that for us, I would say that there are some specific factors that are not necessarily reflective of the market. Specifically, last year was a big year for us recovering and catching up on the delivery of wheel loaders. That extends back to the production or COVID production supply chain constraints. So last year, we received a lot in, we delivered a lot of them. Q3 was a big quarter for that specifically. So that was less about the market conditions and more about catching up on that backlog. You know, underneath that, we do see more stability ourselves and kind of reflective of what the overall market environment is like. I do not know if you wanted to add anything. Bryan J. Knutson: Yeah. Just as it relates maybe to the overall infrastructure impact we certainly do not play as much in that market as, say, Caterpillar would, but, you know, a good a better portion of our business is tied to ag in general. With, as Bo mentioned, wheel loaders and a lot of material handling equipment. As well as Razwitch with the interest rates where they are know, has still been lagging. But we are certainly seeing some good stability and data center projects up up here in the Midwest. And, again, it is basically hanging in there, mainly what you are seeing in the comparables is what Bo mentioned with just the year-over-year comparison to the change in the wheel loader backlog shipment that we had. But we are expecting, you know, potentially here rate cut in December, which could be positive news and a lot of our contractors are you know, I will say, cautiously optimistic here as they start to look to at their 2026 schedules. And so yeah, we are looking at potential uplift for next year in that market. Liam Burke: Great. Thank you, Bryan. Thank you, Bo. Bryan J. Knutson: Yep. Thank you. Operator: Our next question comes from the line of Mig Dobre with Baird. Please proceed with your question. Mig Dobre: Good morning, and congratulations on really good progress your team seems to be making here. So I guess my first question, I would like to talk a little bit about Europe. And appreciate the guidance raised here, but if I heard you correctly, the tailwind in Romania from those subsidies is going to dissipate, went away in September. What are you seeing in that region more broadly? Is and I guess, really, the answer to my question is at this point, all of us really kinda focus on fiscal 2027, you know, the current fiscal year is pretty much done. What is the right way to think about this portion of the business for fiscal 2027, recognizing that the comparisons here are really difficult. Bo Larsen: Yeah. No. I appreciate the question. And for sure, Romania, you know, this year, essentially doubled up year over year. And kudos to the team for on that and capitalizing on all the opportunity that was there. You know, first of all, just in terms of what we are seeing in the region, both for Romania and Bulgaria, I would say they have not had the best weather conditions in both calendar 2024 and 2025. So whereas more broadly in Europe, some of the yields were better. They were not as well off there. So that is a bit of a headwind. Obviously, the funds kinda helped us mask some of that and overperform there. From a next year backdrop perspective, I would say and, again, this is directionally speaking, we will provide guidance when we get on our March call. But for Romania, the pullback, you know, 30% to 40% we will sharpen our pencil on that, but that is not out of the range of reasonable given the backdrop that they have and the significant growth they had this year. For Bulgaria and Ukraine, I would say more stable and opportunity for growth. So ex Germany, of course, which we are talking about divesting of, mix all that in, you are talking about something, again, directionally speaking, we will sharpen the pencil, some high teens, maybe 20% down year over year forge are up or for Europe ex Germany. Mig Dobre: That is really helpful. And, you know, you guys are not hearing of any other stimulus packages or anything of the sort that might be might be going on in region outside of Romania? And we can you know, Ukraine as well. Obviously, those guys have been put a lot. Bo Larsen: So it does actually continue a bit. And, again, we will continue to sharpen our pencil. But there are still funds in play even in Romania through 2027 for certain categories of equipment. They are pretty prescriptive. We feel like we are in a decent position to continue to take or to execute on those opportunities. We will continue to sharpen our pencil, provide more clarity. But again, I would say, you know, an amazing job by the team to double up the business year over year. Some pullback expected. We will continue to sharpen. Funds are there. Maybe not as significant as we saw this year. Mig Dobre: Sure. Reverting back to The US business, it sounds like you guys are doing some more on the footprint which, you know, you have done in prior downturns. As well. I guess the commentary, as I heard it from Bryan in the prepared remarks, was pretty subdued as we think about fiscal 2027. And, again, directionally, I am sort of wondering a couple of things here. Should we plan for another year of decline in fiscal 2027 on what you know today about your North American business? And if that is the case, what is the right way to think about margins As you have reduced the inventory, are we to the point where we can see on the equipment side, more normalized margins even if we have to deal with another year of top line or volume And then I will have one final follow-up. Bo Larsen: Yep. From a margin perspective, and then I will turn it over to Bryan to talk more about just about footprint in general there. So, yeah, back half of the year, obviously, you saw a pretty significant So I am talking domestic ag here, setting aside the other stake. Segments, which have not had as much volatility. First half of the year, equipment margins were about 3.1%. Back half of the year, equipment margins about 6.5%. If you set aside manufacturer incentives, we are generally accruing and recognizing in the back half of the year as we gain certainty, But back half of the year margins would be more like 5.25 So if we go into next year and there is an assumption that, you know, industry volume is down again and kind of setting a new historical low at least for the past couple of decades, that five and a quarter is maybe a decent proxy to start with for the first half of next year. And then continue to see us driving improvement from there. I do not know if you wanted to add any on the industry in general. Yeah. Make out maybe just add a little bit on footprint and then and then secondly on the industry industry next year. So with footprint, we work very hand in hand with CNH They do not get surprised by any acquisition we do, nor do they with any divestiture that we do. And so we have done a lot of work in recent years here on our strategic plan and we are just really continuing to work that plan. So if you look at, some of the larger acquisitions that we have done and as we refine those now such as some of the divestitures we have done related to our Heartland application business, We will continue to refine that. And, again, we are working hand in hand with CNH in our fellow CNH dealers on that. And we believe that is a great solution for our customers in the end. And we are very pleased with that acquisition, and, again, as we continue to refine it. Secondly is, you know, just continuing to get ready for additional acquisitions that are will be accretive and in line with our strategic plan. And so we will continue to refine our footprint and optimize in the areas where we perform the best. And can really maximize our customer care strategy And then third, you will see us doing a lot with the multi-brand strategy with CNH as you saw. We just added the contract at five or six of our rooftops in Australia where we did not actually add any rooftops, but we added the new Holland contract to six of our 15. As well as we have got a third of our North American footprint that is dual branded. And, there is a lot of value there that we can unlock for our shareholders and for our customers and give better customer services. We do that we are going to continue to execute on that strategy as well. And just with the overall demand, Meg, I mean, I think as you know, there are a lot of variables in play here. We and we will see what continues to happen with soybean sales and soybean consumption. So really on the demand side and as we continue to look at stock to use ratios here, Also with, Ren Fuel standards as we get into January here, think we will see some further development on that. Things around E15 and biodiesel especially. And then really, if you look at the government stimulus, it is going to be big wild card here. So with the shutdown, you know, no assistance came. We will see what comes yet in 2025. Of course, we are running out of time in the calendar year. So 2026, I think that is going to be the big question as at today's commodity prices, even though we have had a recent uptick, many of the farmers are still not at profitable levels here even with the good yields that we had. So, that is going to, I believe, be another big wild card for next year here that we should, get a lot more color on here as especially the February WASDE report comes out and as insurance rates get locked in at the February and so forth. Mig Dobre: Alright. And then my last question. From an inventory standpoint, maybe you can comment a little bit as to how you think about that I and I know I have asked this question before that you record dollar inventories. Right? But I we gotta sort of keep in mind that the price of the equipment that you have in inventory has gone up a lot over the years and, you know, your store count has increased as well. Is there a way to maybe help us understand or maybe frame for us where you are in terms of unit count of inventories and you know, maybe relative to the prior cycle or really any way that you think shareholders might find it helpful? Thank you. Bo Larsen: Yeah. And to start with, certainly, inventory being a big topic, trying to think about, you know, the best ways to provide transparency without overcomplicating things there. And so certainly super impactful to talk about the price increase You know, over the last year, we had talked about the cost of a four drive going up more than 80% since 2014. We have talked directionally speaking again in the last year. As we Versus where we started the last downturn, had about one third as many used combines which is, you know, an indicator an important indicator in terms of how much work there is to be done on the used equipment side of things. So we will keep working on, you know, the best ways to portray that info. But I mean, it is pretty easy to quickly just think about it in terms of like half the number of units. And, yeah, we are much better positioned than we previously were. And that is really shown in just what happened with our equipment margins in Q3, for example, versus the first half of the year. Our stance has been to aggressively manage our inventory, including the value in which sits on our balance sheet, that is pulled forward some of that. P and l pain, and that is where we saw lower margins than we had seen historically. But then you saw that significant inflection here in the third quarter. We feel really good about where things are priced the number of units we still have to move and exactly what we need to continue to accomplish this year to set ourselves up for success next year. We feel really good about where we are going to be to end the year. And then in a, you know, a market where North America is potentially down a bit again from there, it is going to be a continued focus on managing that aging profile but we are just going to be in a lot better position, to execute at the market instead of trying to be more aggressive out there. And so we should continue to see progress on those equipment margins and, of course, on that reduction in floor plan interest. Bryan J. Knutson: Yeah. Ming, I would just add, you know, good good point on your part, As you said, as we have had equipment prices, per unit in some categories nearly double in less than ten years here, Dollars is not in and of itself, a good way to look at it purely. And as you mentioned, also increasing our store count as well. So as you know, inventory turns is a really good way to look at that. And also interest expense in general. So you know, those are some of the key things in for us is just as we go forward to manage our interest, expense mitigate that as much as possible. Maximize our manufacturer floor plan terms, etcetera. And ultimately, presale with customers So the high dollar cash crop, high ticket equipment, is presold and not sitting on our balance sheet for any longer than possible and especially accruing interest expense. So you know, we will continue to monitor, turns and entered expense are a couple of big indicators there. Mig Dobre: Alright. Very helpful. Thank you, guys. Bryan J. Knutson: Thank you, Mig. Operator: Thank you. Our next question comes from the line of Ted Jackson with Northland Securities. Please proceed with your question. Ted Jackson: Thanks. Good morning. Bryan J. Knutson: Good morning. Good morning, Ted. Ted Jackson: So I wanted to start out and just kinda ask a few questions around inventory. Just to make sure, you know, I kinda understand everything and it will drive a few other things. So you commented. So your inventory year to date is down $98 million. But it would be down $75 million. You had not done the divestitures. Is that correct? Bo Larsen: Yeah. That is correct. Ted Jackson: Okay. So when I think about the and that is fabulous progress, by the way, so I wanted to make sure to say that. But when I think about the $150 guidance that has been put out, if you had not done any divestitures, what would that guidance be? Bo Larsen: Well, and there is a couple of through the end of the year. Right? Essentially, what I am saying is Australia acquisition that we did largely offset those divestitures. Then the other wrinkle, I guess, we have is the Germany divestiture. That will be helpful there as well. But yeah. I mean, somewhere in the $130, $140 range. But, again, there are some offsetting impacts. The other thing that was against us from a dollars perspective was just the FX. On the Europe side, which added to inventory without actually adding units. And last last thing I would say just to gauge the progress, and again, this is dollars, so it is not exactly units. But in the last down cycle, it took us two years to decrease inventory $348 million. It took us three years to decrease inventory, $543 million. You know, we are going to go past that in an eighteen-month period of time here. Again, it just speaks to the approach that we are taking into managing this down faster. To get position heading into the next year. Ted Jackson: So putting it into, like, context of, you know, when we were talking about inventories before and units and everything, the, the $150 to a $100 on a unit basis, you know I mean? Even if, like, if you will make it look organically, you are taking up your view of terms of what you are going to be able to take your inventory numbers down. Let us call it on a unit basis. You know, at you know, regardless of the divestitures that, you know, you are you know, it is a it is indeed a a a change. You see what I am saying? It is not it is not being driven by a change in your footprint. It is being driven by accomplish. change in your view with regards to what you are going to be able to. Bo Larsen: Oh, yeah. Absolutely. And, I mean, the biggest thing that has been reduced here to make sure that you are appreciating it is aged used equipment, which is you know, the biggest risk in turn of valuation. So just I mean, could not be happier with the progress the team has made. It about the additional progress we are going to be able to make. It reflects on the balance sheet in a given quarter. The reality is this is something that we have been at for more than two years now as we have seen how things have been evolving with lead times when we are getting stuff in from the OEMs, how we are digesting that. So really great progress, we look to make more here in the next couple of months. Ted Jackson: And then with regards to the change with with your outlook for inventory. Is it by chance being done because you have a is there is is there a is that change more pessimistic view of how you know, both this goal '26 looks to be Or you you understand what I am saying? I mean, is it you know, like, you know, if your view is that, you know, the the market going forward is weaker than I expected so I do not need as much inventory. So I am going to get try to get rid of more inventory. Do struggle with that? Is it a change in terms of know, how you kind of view the macro, or do you still kinda feel like we will move on? I mean, you often you know, been let us call it calendar '25, and we should have a more stable market in '26. And the that that that view that has been, you know, generally expressed across the ag market, the ag ag players for the last, you know, several quarters is still intact. Does that make sense for me? Yeah. Big picture wise, I do not think that things have. Bo Larsen: shifted drastically. I mean, the and the OEMs in the general space have been talking about North America potentially down somewhat next year. But not so much that it changes, you know, our trajectory of where we want to go. It is more a reflection of the work that we still feel like we, have and and can accomplish for the year. I would say, though, that as we flip the calendar into next year, so we are going to get to a pretty pretty darn good spot ending this year, all things considered. We do absolutely expect some seasonal build in the spring. Kinda refreshing some categories ahead of the selling season. So I would not expect further reduction in the back half of next year. But getting to a good spot at the end of this year, seasonal build in the first half of year. And then depending on where we see the market shaping up, probably, you know, taking it back down a bit in the direction of kinda where we ended this year. That that is kind of my base case scenario that I would lay out for you. Yeah. And, Ted, I would just add, you if we go back to. Bryan J. Knutson: the earlier discussion with Mig there around you know, we for our growers next year, we unless we see a significant uptick here in commodity prices or, again, the wildcard with government assistance. Next year, looks like it could be challenging again for our growers, so we want to be you know, prudent about how we are stocking our inventory accordingly. And then also as we talked about interest expense, you know, with interest rates, as high as they are, it is important that we are mitigating the interest expense. And then the third thing I would say for next year and going forward is just again, a strategic change for us. And in our balance sheet management. And really, as we talk about our footprint optimization, one of the benefits of that is we to refine and get our tighter contiguous footprint, which allows us to leverage that footprint and leverage our scale and share inventory more freely amongst our stores and still be able to you know, capture every sale. That is still the ultimate goal. And keep our customers up and running and satisfy their equipment needs and make them more efficient. So to never miss a sale, but to do that with leaner inventories. And so that is where we are headed. Ted Jackson: Okay. And then my last question, it is maybe more of just, like, actually for a little color. So, you know, I mean, a big thing with CNH is they really want to get, their their, their brands consolidated into, you know, under one roof. And you made a comment that in Australia, six of your 15 roofs now take both, you know, case and New Holland equipment. I was kinda curious when if you could provide a similar kind of metric for the other regions and maybe talk about you know, well, maybe it is too much. But, you know, area you know, like, many when you think about that, is there first of all, how much of your footprint at a region is you know, is that consolidation already taken place? And I do not know. Maybe to the extent that you can, how you think you are positioned for further consolidation of rooftops for CNH because it is such an important longer-term strategy for them. That is my last question. Yes. Bryan J. Knutson: Thank you. It is for sure. And so we are very much aligned with with CNA in our our fellow dealers in that strategy. And we think there is a lot of value for our our customers and our shareholders again there. And we can it gives us additional scale. It gives our customers most importantly, a lot of benefits as we do that and allowing us to give them quicker response times and less downtime ultimately. So we are very focused on that. We have been for a long time, We like that that we have seen that growing, you know, additional energy around that. Strategy, again, from other dealers and from CNH collectively, And we are going to continue to push on that. You asked how we are sitting now. So that is that six of 15 obviously brings us to just over a third in Australia. And we are going to keep pushing there. We are just about a third in The US, and, we will keep doing the same there. And then in Europe, again, you are seeing that in kind of the earlier stages. So working hand in hand with CNH, in Germany, in that case, we ended up selling, and we will look to again, in other areas be a buyer as continue to move around here, and we leverage that strategy. So that is also part of, again, our strategic strategic plan as we get some dry powder ready here and look to continue to execute on that strategy in coming years. Ted Jackson: Okay. Hey. Thank you very much for taking my questions. Bryan J. Knutson: Thanks, Ted. Operator: Thank you. Our next question comes from the line of Steve Dyer with Craig Hallum Capital Group. Matthew Joseph Raab: Hey. Thanks. This is Matthew Joseph Raab on for Steve. Just want to go back to the government payments. Are you starting to see flow through to your farmers in the footprint, or is it just too early to tell? And then I guess with that, was there any impact in the quarter or on order books given those payments? Bryan J. Knutson: So earlier in the year, they received some and then they received a little bit more in, early summer. And then as we speak, they are receiving a little bit more, which is the final 15%. They receive the 85% of some of the first assistance back in approximately June. And now they are receiving the last of that. However, you know, there was up to nearly $10 billion discussed for soybean assistance. We have not seen that yet. You know, there is a verbal agreement with China to that would potentially return them to about 25 million metric tons annually, which is about what they have historically produced, that is about in line with their five-year average. So you know, we will see if, if it looks like they are going to execute on those purchases, then maybe we see, prices come up and those funds do not need to come through. And vice versa. So I think the government will continue to monitor that. Again, as we look at what is left here for 2025, not optimistic about a lot more getting into our growers' hands other than what is already in motion. But certainly for 2026, I think there is a lot to look at there, when you look at the pricing levels of where they are at today, especially with the current price of wheat and corn and soybeans as an example. But really, generally, most of the commodities are pressured right now. And, again, it does come back to that supply and demand ratios. Matthew Joseph Raab: Understood. Thank you. And then, on the footprint optimization, and then really thinking about Germany, Maybe, Bo, any sense you can give us in the overall contribution Germany was to the Europe segment from the top and bottom line? Standpoint? And then I guess with that any is that enough to move the needle as we think about next year? And what that could mean from a sales perspective? Bo Larsen: Yeah. So overall, for Germany, over the last several years, they have averaged roughly $40 million low forties million top line. And pretax loss of somewhere in the, you know, $4 to $6 million range. So beneficial to transition that off from a bottom line perspective. In the context of our total whole goods revenues you know, not a not a massive impact there. Matthew Joseph Raab: That is great. Thank you very much. Operator: Thank you. That concludes our question and answer session. I will turn the floor back to management for any final comments. Bryan J. Knutson: Well, thank you, everybody, for your time this morning, and we look forward to updating you on our next call. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Hello, everyone, and welcome to Burlington Stores, Inc. Third Quarter 2025 Earnings Webcast. Please note that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. If you'd like to ask a question during that time, please press star followed by one on your telephone keypad. Thank you. I'd now like to hand the call over to Mr. David J. Glick, Group Senior Vice President, Investor Relations. Please go ahead. David J. Glick: Thank you, operator, and good morning, everyone. We appreciate everyone's participation in today's conference call to discuss Burlington Stores, Inc.'s fiscal 2025 third quarter operating results. Our presenters today are Michael O'Sullivan, our Chief Executive Officer, and Kristin Wolfe, our EVP and Chief Financial Officer. Before I turn the call over to Michael, I would like to inform listeners that this call may not be transcribed, recorded, or broadcast without our expressed permission. A replay of the call will be available until December 2, 2025. We take no responsibility for inaccuracies that may appear in this call by third parties. Our remarks and the Q&A that follows are copyrighted today by Burlington Stores, Inc. Remarks made on this call concerning future expectations, events, strategies, objectives, trends, or projected financial results are subject to certain risks and uncertainties. Actual results may differ materially from those that are projected in such forward-looking statements. Such risks and uncertainties include those that are described in the company's 10-Ks and in our other filings with the SEC, all of which are expressly incorporated herein by reference. Please note that the financial results and expectations we discuss today are on a continuing operations basis. Reconciliations of the non-GAAP measures we discuss today to GAAP measures are included in today's press release. As a reminder, as indicated in this morning's press release, all profitability metrics discussed on this call exclude costs associated with bankruptcy-acquired leases. These pretax costs amounted to $11 million during 2025 and 2024 and $28 million and $9 million respectively, for the first nine months of 2025 and 2024. Now here's Michael. Michael O'Sullivan: Thank you, David. Good morning, everyone, and thank you for joining us. I would like to cover four topics this morning. Firstly, I will discuss our third quarter results. Secondly, I will review our updated fourth quarter and full-year guidance. Thirdly, I will provide some early thinking on the outlook for 2026. And lastly, I will comment on the progress we are making towards our longer-range financial goals. Then I will turn the call over to Kristin to provide additional details. Okay. Let's start with our Q3 results. Total sales increased 7% in the third quarter at the high end of our guidance. This was on top of 11% sales growth last year. This means that year-to-date, total sales have increased 8% on top of 11% year-to-date growth last year. Comp store sales for the third quarter increased 1%. We started the quarter well with a strong back-to-school trend, but in September, we saw a significant drop-off in traffic to our stores driven by warmer-than-usual weather. As we have discussed previously, we have very strong brand equity in outerwear. Many shoppers still think of us as Burlington Coat Factory. Outerwear is a great business and a source of competitive strength. But this means that in Q3, our comp trend is very sensitive to weather, much more so than competitors. In some years, the impact is positive. In some years, it is negative. This year, it was negative. That said, in mid-October, once the weather turned cooler, our comp trend picked up to the mid-single digits. And that momentum of mid-single-digit comp growth continued through the first three weeks of November. Finishing up on Q3, I would like to comment on earnings. Despite the weather-driven slowdown in our sales trend in Q3, we still delivered margin expansion that was well ahead of last year and earnings growth that significantly beat our guidance. It's worth calling out that this was despite the considerable headwind that we faced from tariffs. Moving on to the fourth quarter, we are maintaining our previously issued comp store sales guidance of 0% to 2%. We feel good about our recent trend, but it is still early in the quarter, and in the coming weeks, we'll be up against very strong comparisons from last year. So it makes sense to remain cautious. That said, given the strong margin and expense trends that we are seeing, we are increasing our Q4 margin and EPS guidance. To be clear, we are adjusting our full-year 2025 earnings guidance, passing along all of our beat to earnings in Q3 and factoring in our higher Q4 earnings outlook. I would like to call out that we started this fiscal year with EBIT margin guidance of flat to up 30 basis points. Our updated full-year 2025 guidance now calls for expansion of 60 to 70 basis points. This is despite pressure from tariffs and is on top of 100 basis points of margin improvement in 2024. We are excited about the progress we are making on margin expansion. I will return to this topic in a few moments when I talk about our longer-range financial goals. But first, I would like to share our initial thoughts on the outlook for 2026. We are early in the budget process, but as a starting point, we're planning for total sales growth in the high single digits. We now expect to open 110 net new stores in 2026. This is higher than previously discussed and it reflects the strength of our new store pipeline and the performance we are seeing from new stores. We are excited for these new store openings. For comp sales, we are assuming growth of flat to 2% in 2026. This should sound familiar. It is our typical off-price playbook. There is significant economic uncertainty and we do not know how this might affect our business in 2026. So we will plan our business conservatively at 0% to 2% comp sales growth and then be ready to chase if the trend is stronger. In terms of operating margin expansion, for budgeting purposes, we are assuming that at 2% comp growth, our operating margin would be flat versus this year, then 10 to 15 basis points higher for each point of comp above 2%. Before I turn the call over to Kristin, there is one more topic that I would like to talk about. I would like to provide an update on our longer-range financial goals. As a reminder, two years ago, we shared our objective of getting to approximately $1.6 billion in operating income in 2028. The headline is that we feel good about the progress that we are making toward this goal. We are tracking in line with where we thought we would be at this point. We are especially pleased with the progress we have made in driving operating margin. This means that at the high end of our updated 2025 margin guidance, we will have achieved 170 basis points of the 400 basis points of opportunity that we identified two years ago. And of course, we will have achieved this despite the negative headwind from tariffs. Apart from margin expansion, the other drivers of our long-range financial model are new store sales and comp store sales growth. On new store sales, we are even more bullish now about our new store opening program than we were two years ago. Originally, we had assumed that we would open 100 net new stores a year in the period 2024 to 2028. In fact, this year, we will open 104, and in 2026, we are now planning to open 110 net new stores. Based on our new store pipeline, there is a possibility that we could sustain or even exceed this stronger pace of new store openings. The other major driver of our long-range model is comp sales growth. As I discussed in the context of our Q3 results, leaving weather aside, we feel good about the underlying comp trends that we are seeing. We believe that we can achieve average annual comp sales growth in the range of 4% to 5% over the remaining years of the long-range plan. In other words, between now and 2028. Of course, we recognize there are a lot of external variables that can affect comp growth. So in the nearer term, as we always do, we will plan our business conservatively. And then chase. Now I would like to turn the call over to Kristin to review our Q3 results, updated 2025 guidance, and high-level outlook for 2026 in more detail. Kristin Wolfe: Thank you, Michael. And good morning, everyone. I will start with some additional color on Q3. Then I will talk about our updated guidance. Lastly, I will comment on our initial outlook for 2026. Starting with the third quarter, total sales grew 7%, while comp store sales increased 1%, both within our guidance range. As Michael described, our comp trend in the third quarter fell off significantly after the back-to-school period driven by warmer weather, but then picked up to mid-single digits in mid-October. The gross margin rate for the third quarter was 44.2%, an increase of 30 basis points versus last year. This was driven by a 10 basis point increase in merchandise margin and a 20 basis point decrease in freight expenses. Moving down the P&L, our Q3 product sourcing costs were $2 million versus $29 million in the third quarter of last year. Product sourcing costs decreased 40 basis points compared to last year. This was primarily driven by leverage in supply chain, through continued cost savings and efficiency initiatives. Adjusted SG&A cost in Q3 levered 20 basis points versus last year. This leverage was primarily achieved in store-related costs. Our store teams drove significant leverage in store payroll, through numerous efficiency and productivity initiatives. Q3 adjusted EBIT margin was 6.2%, 60 basis points higher than last year. This was well above our guidance range of down 20 basis points to flat. Our Q3 adjusted earnings per share was $1.8, which came in well above our guidance range. This represents a 16% increase versus the prior year. At the end of the quarter, comparable store inventories were down 2% versus the end of 2024. Let me provide a little more context here. In Q3, we saw a significant slowdown in our comp trends, a weather-driven slowdown, but using our merchandising 2.0 tools, our planners and merchants were able to react very quickly to adjust receipts, especially in cold weather categories. So despite the slowdown, our store inventories are well balanced, current, and very clean going into the fourth quarter. Moving on to our reserve inventory. Reserve inventory was 35% of our total inventory versus 32% of our inventory last year. In dollar terms, reserve inventory was up 26% compared to last year. We are pleased with the quality of the merchandise and the values and brands that we have in reserve. And as a reminder, we use reserve inventory as ammunition to chase the sales trend. For example, our reserve includes great out-of-revise that we made earlier this year, that we've been pulling out over the last few weeks to fuel the trend since the weather turned cold in mid-October. We ended the third quarter with approximately $1.5 billion in liquidity. This consisted of $584 million in cash and $948 million in availability on our ABL. We had no outstanding borrowings on the ABL at the end of the quarter. During the third quarter, we repurchased $61 million in stock, and at the end of the quarter, we had $444 million remaining on our repurchase authorization. In Q3, we opened 73 net new stores, bringing our store count at the end of the quarter to 1,211 stores. This included 85 new store openings, 10 relocations, and two closings. We now expect to open 104 net new stores in fiscal 2025, up from our original estimate of 100 net new stores. Now I will turn to our outlook for the fourth quarter and full year for fiscal 2025. We are maintaining our fourth quarter fiscal 2025 guidance for comp sales and total sales. We are guiding comparable store sales to be flat to up 2% with total sales to increase 7% to 9% for the fourth quarter. We are raising our adjusted EBIT margin and adjusted earnings per share guidance for the fourth quarter. We now expect our adjusted EBIT margin to increase by 30 to 50 basis points. This margin outlook now translates to an adjusted earnings per share range of $4.5 to $4.7, an increase of 9% to 14% versus the fourth quarter of last year. For full-year fiscal 2025, after factoring in our actual Q3 results and our improved outlook for Q4, we expect comp store sales growth of 1% to 2%, total sales to increase approximately 8%, and EBIT margins to range from an increase of 60 to 70 basis points. As Michael noted earlier, this fiscal 2025 EBIT margin guidance is 40 basis points higher than our original full-year guidance at the high end, and this is despite the significant pressure from tariffs. Finally, factoring in Q3 actuals and updated Q4 guidance, adjusted earnings per share are now expected to be in the range of $9.69 to $9.89, an increase of 16% to 18% for the full year 2025. Finally, I would like to touch on our preliminary FY 2026 outlook. We are in the early stages of the budgeting process, so this could change. But at this point, we are planning on total sales growth in the high single digits. We are assuming at least 110 net new stores, and we're planning comp store sales in the range of flat to up 2%. For operating margin, as Michael said, we are assuming that at a 2% comp growth, our operating margin would be flat to this year. And we expect leverage of 10 to 15 basis points for each additional point of comp. And now I will turn the call back over to Michael. Michael O'Sullivan: Thank you, Kristin. Before I turn the call over to the operator for your questions, I would like to summarize a few of the key points from today's call. Firstly, Q3 was impacted by warmer weather in September through early October. Once the weather normalized, our trend improved to mid-single-digit comp growth. And we are off to a strong start for Q4 with comps up mid-single digits for the first three weeks of November. Secondly, we are pleased with our margin trends. We are updating our full-year 2025 guidance to reflect the earnings beat in Q3 as well as our improved earnings outlook for Q4. At this point, we are maintaining our previously issued Q4 comp guidance of 0% to 2%. Thirdly, we are pleased with how we are tracking towards our long-range financial goals, especially the pace of margin expansion. And within this long-range financial plan, we think there may be additional upside in terms of our new store opening program. Now I would like to turn the call over for your questions. Operator: We are now opening the floor for the question and answer session. Please press star followed by one on your telephone keypad. Your first question comes from the line of Matthew Robert Boss of JPMorgan. Your line is now open. Matthew Robert Boss: Great. Thanks. Good morning, Michael. Good morning, Matt. Good morning. So on relative performance, your comp this quarter came in below both of your off-price peers. This is a clear reversal from results in the second quarter and over the last year. Clearly, you cited weather was a factor, but how concerned are you by this change in your relative comp versus peers? Michael O'Sullivan: Well, good morning. Good morning, Matt. Thank you for the question. You're right. Just to lay out the facts, we ran a 1% comp in Q3, our peers were 6% to 7%. Very impressive. That's a very significant difference. I can't give you a complete bridge, but at a high level, let me try and dissect that gap. I'll start with the obvious. We know that weather was the biggest driver of our slowdown in Q3. It's not an excuse, but it is a partial explanation. You know, we changed our name some years ago, but shoppers still call us Burlington Coat Factory. So mild weather in September and October has a huge impact on our business. You know, this is a real thing, and it is unique to us, I think, versus our peers. Now in September and October, cold weather merchandise balloons to more than 20% of our assortment. In the third quarter, our comp sales for ladies and men's coats, jackets, boots, and cold weather accessories, all these important categories were down double digits. Now they bounced back in mid-October, once it turned cold, but by then it was too late to really drive the comps up. Let me go a little further and try to quantify the weather impact on our comp in Q3. If you strip out the drag on our overall comp from cold weather categories, the categories I just listed, and if I make an adjustment for the impact that lower weather-related traffic had on the rest of the store, then I can get to the low end of a mid-single-digit comp. In other words, I do not get to 6% or 7% comp. So in my view, weather only explains half of the gap versus peers. Now, you know, usually, in off-price, when your comp is lower than your peers, it's just the customer telling you that they preferred the value and the assortment that they found elsewhere. In the second quarter, when we ran a 5% comp, growth ahead of our peers, the customer was voting for us. But in Q3, that changed. Now we have some hypotheses on why, but we have more work to do to really tear that apart. And then aggressively go after that performance difference. But before I leave the question, let me just call out a silver lining. The comp numbers that our peers have just reported reaffirm that the off-price shopper at all income levels is alive and well. You know, leaving aside the weather, the major implication for us is that we need to take better advantage of that than we did in the third quarter. Matthew Robert Boss: Great. And then, Kristin, as a follow-up, could you provide more color on the 60 basis points of operating margin expansion in the quarter, particularly just given as we think about the pressures that you faced from tariffs and the 1% comp? Kristin Wolfe: Good morning, Matt. Thanks for the question. Yes. First, it's worth reiterating that we really are pleased with the 6.2% operating margin in the quarter, up 60 basis points versus last year on a 1% comp, as you noted in your question. Let me provide the major puts and takes starting with gross margin. First, our merchandise margin increased 10 basis points. And within merchandise margin, there was a lot going on. Tariffs had a negative impact on markup, but we were able to offset this impact through numerous actions such as negotiating with our vendors, adjusting the mix, and driving a faster turn. The net impact of all this was much more favorable than we originally guided back in August. This was really driven by our tariff mitigation strategies. Now staying in gross margin, freight levered by 20 basis points. This was due to greater efficiencies and cost savings initiatives, particularly in transportation. So our overall gross margin increased 30 basis points versus the third quarter of last year, all this despite the impact from tariffs. On product sourcing costs, moving down the P&L, we drove 40 basis points of leverage here. This was driven by supply chain and efficiency initiatives in our DCs. We're excited about the consistent progress we've made in streamlining our chain costs. And moving on to SG&A, we showed about 20 basis points of leverage here on a 1% comp, and this was driven by efficiency initiatives in stores, such as speeding up checkout times at point of sale. Offsetting this leverage was higher depreciation, which delevered about 20 basis points driven by increased CapEx in supply chain and new stores. So taken altogether, this drove the 60 basis points of EBIT expansion in the quarter. Thanks, Matt. Operator: Next question comes from the line of Ike Boruchow of Wells Fargo. Your line is now open. Ike Boruchow: Hey, good morning, Michael, Kristin, and David. I guess my question kind of piggybacking off of Matt's is, so the comp growth in Q3 was lower than peers. But the margin and earnings were actually pretty much better. How should we reconcile that? And then really more importantly, were there choices that you made during the quarter that may have driven the higher margin at the expense of sales? Michael O'Sullivan: Well, I'll take that, Ike. Good morning. Thank you for the questions. It's a good question. I think the direct answer is yes. There were decisions or choices that we made that helped drive our margin in Q3 but may have had a negative impact on our sales. And I'll give you a couple of examples, but maybe I should just preface what I'm gonna say with a couple of points. Firstly, our margin and earnings performance in Q3 was very strong. Margins were up 60 basis points and adjusted EPS grew 16%. We've also taken up full-year earnings guidance. In other words, we've rolled right over tariffs. Secondly, on comp sales, to reiterate, the biggest driver of the slowdown that we saw was weather. If I adjust our comp for weather, we probably would have been pretty happy with the outcome. But as I explained a moment ago, that only explains half of the gap between our 1% comp growth and our peers' 6% to 7% comp. So if I come back to your question, yes, there were choices that we made that might explain our relatively strong margin and earnings performance, and our weaker comp growth in Q3. Now these were choices that we made as part of our tariff mitigation strategies. And let me describe two specific examples. Firstly, when tariffs were first introduced, we reduced our sales and receipt plans for categories where the margin impact was too significant. We did not feel like we could raise retails in those categories. And we did not want to accept the margin compression. That meant that in some businesses, especially some categories in home, our inventory levels and assortments were very light in Q3. And we saw that in terms of the sales in those categories. The sales were lower. Now that wasn't an error. It was a deliberate decision. I would say it was an economically rational decision. And it worked. It may have hurt sales, but it drove our earnings in Q3. Now I should add that as tariff rates have come down, we've gone back and we've taken up sales and receipt plans in most of the categories that were affected. So I would expect this impact to be less significant in Q4. A second example, as Kristin described a moment ago, another step that we took to help offset tariffs was to trim inventory levels in many businesses across the store and force a faster turn. Again, this helped to offset the margin pressure from tariffs. Now we only really took that step in Q3, not in Q4. We already turned very fast in Q4, so we didn't want to try and force a faster turn going into holiday. But again, in Q3, that approach drove earnings, but it may have hurt sales. So for both of the examples I've just given, at a high level, those decisions worked. You know, we fully absorbed tariff pressure on our margin, and we drove very strong margin and earnings growth in Q3. And all this happened actually despite a slowdown in comp sales due to weather, normally a slowdown like that would drive deleverage. Anyway, with that said, we really need to do a full after-action assessment on Q3. Now that we have our competitors' comp results, we need to go back and hindsight our performance and identify anything we could have done or should have done differently. Ike Boruchow: Got it. Thanks, Michael. And then maybe, Kristin, just to elaborate maybe a little more on the 2026 initial outlook, key risk opportunities in the outlook, anything else you could share? Kristin Wolfe: Yes. Great. Thanks, Ike. It's still somewhat early in the process. We're actively working through the budget for 2026. But let me give some headlines or how we're thinking about it. The outlook for next year is pretty hard to predict, with significant economic and political uncertainty that could absolutely affect consumers' discretionary spending. There are potential tailwinds like the possibility of higher tax refunds in the early part of next year. And then there are potential headwinds like tariff-driven price increases, which could put additional inflationary pressure on our core customer. Michael spoke to this earlier, but given this uncertainty, we're planning to stick with our off-price playbook. That really means planning comps at flat to 2% and positioning us to chase the trend if it's stronger. In terms of new stores, we mentioned this in the prepared remarks, but it's worth reiterating, we feel very good about the new store pipeline. We are planning to open at least 110 net new stores in 2026. So combined with our comp guidance, this should drive a high single-digit increase in total sales. On the operating margin side, as we said, we're modeling operating margin flat to last year at the 2% comp. We do expect 10 to 15 basis points of leverage for every point above a 2% comp. And then there's a couple of things in the margin. A couple of puts and takes. We are planning for slightly higher merch margin as we look to offset any impact of tariffs, particularly as we lap the fall season next year. We're planning for continued supply chain productivity gains next year, but there will be offsets here due to the start costs and the initial ramp-up of our new Southeastern distribution center, which we plan to open in 2026. And finally, we do expect fixed cost leverage on the high single-digit total sales growth, but we also are expecting higher depreciation, which creates deleverage. The higher depreciation is really due to the higher CapEx spend in supply chain and our increased number of new stores. Those are really the main callouts for 2026 at this point. Operator: Your next question comes from the line of Lorraine Hutchinson of Bank of America. Your line is now open. Lorraine Hutchinson: Thank you. Good morning. Michael, one of your off-price peers is accelerating comps with more focus on marketing, more in-store inventory, and a store refresh. Do you see any risk that Burlington Stores, Inc. will lose market share? Michael O'Sullivan: Good morning, Lorraine. Thank you for the question. It's a good question. I'm going to avoid talking about any specific competitor, but I think I can still try to answer your question maybe in more general terms. You know, I'll start by saying that actually we like innovation and fresh ideas. We believe in off-price retail. And anything that drives off-price awareness and excitement is a good thing. In fact, I'd go further and say that a strong off-price sector is important for us. So it's good that our off-price peers are achieving very strong results. But your question was more about potential risks to Burlington Stores, Inc. So let me come at it from that angle. I think there are two important points that I would make here. Firstly, when we talk among each other and when we talk to analysts and when we talk to investors, I think we sometimes talk about off-price as if it were a separate isolated ring-fenced segment of retail. But the customer does not think of it that way. The customer does not respect the boundaries of off-price. If she needs a pair of pants or a dress, she might shop Burlington Stores, Inc. or one of our off-price peers, but we know from our own research that she also cross-shops department stores, specialty retailers. In fact, any retailer where she likes the assortment. She doesn't care about our off-price business definition. She just cares about finding a great deal and great value in the categories, brands, and styles that she's looking for. Now if you're an investor in off-price, I think it's very important that you understand this. This is not like the retail market for office supplies. We aren't three companies just scrapping it out for market share in a limited space off-price. It's bigger than that. We compete in a very large and competitively fragmented market for apparel, accessories, shoes, home, beauty, and so on. Off-price is really just a small part of that overall market. Our opportunity is to take share from non-off-price retailers. That's what has been happening over a long period of time. So, I mean, just to bring it up to just to throw in some numbers. Today, we announced 7% total sales growth in Q3, on top of 11% growth last year. You know, at those growth rates, it's self-evident that we are taking market share. But so are our off-price peers. These share gains are not coming at the expense of each other. Mathematically, that wouldn't be possible. These share gains are coming from non-off-price. And, you know, I think that the shift from traditional full-price retail to off-price is unlikely to end anytime soon. So that's the first point. The second point I would make is that despite everything I've just said, I think it's very important and useful for us to pay close attention to our off-price peers. They matter. They operate a similar business model to us. They've been very successful over the years, and we can learn a lot from them. So if our off-price peers come up with new ways of doing things, new processes in stores, new innovative marketing programs, then we need to pay close attention. Now not all of those ideas will work, of course. And certainly, not all of them will make sense for us. But we need to be open to new ideas that could help drive our business and actually drive off-price retail in general. Let me finish up. Your question was about risk to Burlington Stores, Inc. Right now, I see off-price as a whole as being very healthy. For 2025, we now expect to grow total sales by 8% on top of 11% last year. And at the high end of our guidance, we now expect to achieve EPS growth of 18% on top of 34% last year. Those are by any metric, those are very healthy numbers. I anticipate that our off-price peers are going to be successful too. But I don't see that as a risk. In fact, it's better for us if the off-price segment as a whole continues to perform well. Lorraine Hutchinson: Thank you. And I wanted to follow-up on pricing. Did you take price in 3Q? And what impact did that have on your comp? And then what's your strategy on pricing for the fourth quarter? Michael O'Sullivan: Yes. That's a good question. I would sum up our pricing strategy in three words: be very careful. We recognize that because of tariffs, prices are going up across the retail industry. But we will not raise prices unless we've seen them go up elsewhere. And even then, we will test and monitor the impact of those price increases. We've said this many times before, we have a very price-sensitive customer. We know that the reason that they shop at Burlington Stores, Inc. is that they're looking for a great deal. Our core strategy is to offer great value. And, of course, that means keeping prices low. Now our approach to tariffs this year has been to avoid retail pricing increases, and to focus instead on finding other margin and expense offsets. Kristin described those actions earlier. We're very pleased with how that approach has worked. It's allowed us to avoid price increases but still to grow margin and earnings this year. Now of course, we have tested some things. We've tried some higher prices. And in Q3, when we saw other retailers take prices up, we tested higher retails in some categories. But I would say that those pricing tests were in a very limited number of areas. And mostly, the higher retails worked. We saw very little resistance from customers. So going forward, I would say that we will probably get more aggressive, but we kind of have to see what happens in Q4. And, also, of course, we need to see what happens with tariff rates going forward. Operator: Your next question comes from the line of John David Kernan of TD Cowen. Your line is now open. John David Kernan: Good morning. Happy almost Thanksgiving. Michael, it sounds like you see store openings and the cadence of growth. Sounds like you see an opportunity to take up the number of new stores. Can you expand a bit upon this? What are you seeing in terms of the new store pipeline, both from a real estate perspective and also potential new store productivity? Kristin Wolfe: Good morning, John. It's Kristin. I'll take this one. We're really pleased with the performance of our new stores across the board. They've been delivering results that are in line or better than expectations as well as our financial hurdles. It really reinforces the strength of our site selection process and the Burlington Stores, Inc. brand really across markets. And it's worth pointing out just with some data. Our Q3 comp course is at the midpoint of our guidance. But our total sales growth in Q3 was at the high end of our guidance, up 7%. And this was driven by new stores. And based on our Q4 guidance, our total sales increase is planned at 9% at the high end as we benefit from the slew of new stores we just opened in the third quarter, 73 net new. Now as I mentioned in the prepared remarks, we now expect to open 104 net new stores this year. This is a modest step up from our original plan of 100 net new. And this increase reflects really two things. First, the ability to pull forward some openings that were originally slated for 2026, and secondly, the strength of our real estate pipeline. Looking ahead to 2026, we're raising that new store target to at least 110 net new stores. This is supported by this robust pipeline, but also by 40 leases we secured from the Joanne Fabrics bankruptcy. These incremental sites really give us confidence in sustaining the high level of growth next year. And as for the pipeline for 2027 and beyond, it's still early to provide specific numbers, but I will say we feel very good about the long-term opportunity. Our real estate team continues to identify attractive locations. And we already have a very healthy pipeline for new stores beyond 2026. John David Kernan: Got it. Maybe as a follow-up, obviously, three off-price retailers are resonating strongly with consumers. I like how Michael framed the industry's opportunity. You're clearly feeling more bullish on the number of stores, maybe a little bit more cautious on comp sales, but more bullish on the potential margin expansion potential for the business. Is that the right way to think about it? Kristin Wolfe: Great. Yes. John, thanks for that question. It's a good question. So two years ago, we shared our objective of getting to approximately $1.6 billion in operating income by 2028. The headline is that we feel very good about the progress we're making towards this goal. We're tracking in line with where we thought we would be at this point. And we're especially pleased with the progress we made in driving operating margin at the high end. Michael said this thoroughly, but worth repeating. At the high end of our updated 2025 margin guidance, we will have achieved 170 basis points of the 400 basis points of opportunity that we identified two years ago. And we will have achieved this despite the negative headwinds from tariffs. So really, to sum up, we're pleased with the progress. But the way you characterize the long-range model in your question is about right. It's true. We're more bullish on new stores. And we are more bullish on margin expansion. On the comp, we still believe we can drive an average annual comp growth of 4% to 5% over the remaining three years of the long-range plan, but we recognize that there is external uncertainty so we are slightly more cautious here. Operator: Your next question comes from the line of Brooke Siler Roach of Goldman Sachs. Your line is now open. Brooke Siler Roach: Good morning and thank you for taking our question. Michael, I'd like to ask you about the trends that you're seeing with the lower-income customer. How did these customers perform in the third quarter? And are there any other callouts in terms of customer demographics that are worth sharing? Michael O'Sullivan: Well, good morning. Good morning, Brooke. Thank you for the question. The headline is that we feel very good about the lower-income customer. We've been and the trends that we're seeing with that demographic. We've been watching this particular demographic segment very closely all year. This is a critical customer for us. You know, given the economic uncertainty and the cost of living issues, we've been concerned about lower-income customers. But the good news is that this customer has been very resilient. When we look at our stores in lower-income trade areas, they continue to outperform the chain. This has been true for several quarters now. I should say as we listen to other retailers, it seems like this is a consistent pattern. You know, many retailers are reporting strength with lower-income consumers. In terms of other demographic callouts, there's one other callout. Specifically relating to Hispanic customers. Again, we've been watching this demographic very closely all year. It's an important customer for us. We have many stores across the country that are in trade areas with a high proportion of Hispanic households. You may recall that in previous quarters, we've said that our stores that are in trade areas with a high proportion of Hispanic households have been slightly outperforming the chain in terms of comp growth. Well, in Q3, the trend in those stores slipped. They've gone from slightly outperforming the chain to trailing the chain. Now the change in trend for those stores varies a lot depending on the specific market and even the specific particular location of the store. In other words, it's very localized to what's happening in those particular cities. And, of course, it's difficult for us to say how long those localized slowdowns might last. Brooke Siler Roach: Great. And then my follow-up would be for Kristin. Kristin, can you give us more color about your guidance for the fourth quarter, both in terms of comp sales and for earnings? Kristin Wolfe: Good morning, Brooke. Thanks for the question. Sure. Let me repeat a little bit. I think it's worth reiterating some of what we described earlier. On comp store sales and total store sales, we're maintaining our Q4 previously issued guidance. So comp of flat to 2% and total sales growth 7% to 9%. We do, as we said, feel really good about our recent trend in Q4, but it's still early in the quarter. The critical weeks are ahead of us. And in those coming weeks, we'll be up against very strong comparisons from last year. So we'll continue to take a cautious approach on sales. On the margin side, we are increasing our margin and EPS guidance for Q4. We now expect our Q4 adjusted EBIT margin to increase by 30 to 50 basis points. We do anticipate some tariff-driven pressure on merch margin in Q4, but we expect to more than fully offset that pressure and drive overall operating margin expansion in Q4 versus last year. And the drivers of the margin leverage should be similar to what we saw in Q3. We expect continued cost savings in freight and supply chain and in-store related initiatives. And finally, we should also see additional leverage in SG&A given the higher incentive comp accrual in the fourth quarter of last year. Operator: Your next question comes from the line of Alexandra Ann Straton of Morgan Stanley. Your line is now open. Alexandra Ann Straton: Great. Thanks for taking the question. Michael, can you talk about the availability of off-price merchandise as you're heading into the fourth quarter? And then I have a quick follow-up. Michael O'Sullivan: Yes. Good morning, Alex. Thank you for the question. I would characterize the buying environment for off-price as very, very strong. Earlier in the year when tariffs were first introduced, there were some concerns, a lot of concerns about whether vendors would be reluctant to bring potentially excess merchandise into the country. But frankly, concerns have just not materialized. Even some of the categories where supply was tighter in the summer, categories like housewares and home, also housewares and toys, have come back. I think that's probably pretty consistent with what you've heard from our off-price peers. A lot of great merchandise at great values, and we're taking advantage of it, both to flow to stores and to build up reserve. Alexandra Ann Straton: Perfect. And then just on the cold weather merchandise in the quarter, is there any just detail you can provide on that dynamic, the impact on the overall comp for the chain? I know you've given a lot of details, but anything else worth highlighting there? Michael O'Sullivan: Sure. Yeah. So after back-to-school, the cold weather merchandise becomes very important to our mix. As I said earlier, it expands to more than 20% of our total assortment during the quarter. Now, cold weather merchandise, just to define it, includes categories like coats, jackets, boots, and accessories like gloves and scarves. It's only stuff you need if it's cold outside. And our customer is very need-driven. For September through mid-October, our comp sales in those businesses were down in the negative mid-teens. Then in the last two weeks of October, once the weather turned cold, they grew up double-digit comp. You know, maybe if I step back for a moment, there are two ways in which milder weather in September and October affects our business. There is the direct drag on our overall comp growth from lower sales in the cold weather categories that I just mentioned. That's one impact. But there is also an impact on our non-cold weather businesses. Because if you think about it, if the customer comes in to buy a coat, she's probably gonna put some other things in the basket too. So if because the weather is mild, she doesn't come into the store to buy that coat, then this doesn't just hurt our coat sales. It impacts other businesses as well. Now mathematically, the drag on our overall comp from cold weather categories alone was worth about 200 basis points in Q3. If you then add the impact that lower traffic had on other non-cold weather categories, you can easily get up to a few points of comp. And I think that's somewhat consistent with the fact that we saw a bounce back to mid-single-digit comp growth in October, once the weather had turned cold. Operator: Your last question comes from the line of Mark R. Altschwager of Baird. Your line is now open. Mark R. Altschwager: Kristen, could you give us some more detail on regional trends, category trends as well as any of the detailed comp metrics for Q3? Kristin Wolfe: Good morning, Mark. Yes, absolutely. In terms of regional performance, the Southeast was our strongest region in the quarter. The West, Northeast, and Midwest were in line with the chain, while the Southwest trailed the chain. On category performance, we saw the strongest performance in beauty, accessories, and shoes. Apparel comped slightly above the chain, while home was softer, comping below the chain in Q3. In terms of the comp metrics, our traffic was down in the third quarter. That was largely driven by September and early October when weather was unseasonably warm, and this lower traffic was offset by a higher average basket size. So for the quarter, we were pleased to see that both conversions and basket size or average transaction size were higher than last year. So this tells us that once she's in the store, she liked what she saw. Mark R. Altschwager: Excellent. Thank you. And then, Michael, as we look at the Q4 comp guidance, do you view that as conservative just given typically less weather sensitivity in the fourth quarter? Thank you. Michael O'Sullivan: Good morning, Mark. Sometimes when we give comp guidance, we'll also sort of signal, if you like, if we think there may be upside. I don't think I don't see a lot of upside in our Q4 comp guidance. The reason I say that is that we're up against 6% comp growth from Q4 last year. So 6%. If you take our 0% to 2% guidance, that gets you to a two-year stack of 6% to 8%. Now we exceeded that in Q2 of this year, but we were well below it in Q3. I should also add that when I look at our off-price peers, the way I'm interpreting their guidance, it looks like they are slightly below us on a two-year stack basis. So even though we're happy with our recent trends, and with how we started the quarter, and we're excited for our holiday assortments, we're not anticipating significant upside to our Q4 comp sales guidance at this point. Operator: I'd now like to hand the call back to Mr. Michael O'Sullivan for final remarks. Michael O'Sullivan: Let me close by thanking everyone on this call for your interest in Burlington Stores, Inc. We would like to wish you all a very happy Thanksgiving. We look forward to talking to you again in March to discuss our fourth quarter and full-year 2025 results. Thank you for your time today. Operator: Thank you for attending today's call. You may now disconnect. Goodbye.
Operator: Good morning, and welcome to the Alico Fourth Quarter and Fiscal Year Ended 2025 Earnings Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to your host, John Mills, Managing Partner at ICR. Please go ahead. John Mills: Thank you. Good morning, everyone, and thank you for joining us for Alico's Fourth Quarter and Fiscal Year 2025 Conference Call. On the call today are John Kiernan, President and Chief Executive Officer; and Brad Heine, Chief Financial Officer. By now, everyone should have access to the fourth quarter and fiscal year 2025 earnings release, which went out yesterday at approximately 4:15 p.m. Eastern Time. If you've not had a chance to view the release, it's available on the Investor Relations portion of the company's website at alicoinc.com. This call is being webcast, and a replay will be available on Alico's website as well. Before we begin, we'd like to remind everyone that the prepared remarks contain forward-looking statements. Such statements are subject to risks, uncertainties and other factors that may cause actual results to differ materially from those expressed or implied in these statements. Important factors that could cause or contribute to such differences include risks detailed in the company's quarterly reports on Form 10-Q, annual reports on Form 10-K, current reports on Form 8-K and any amendments thereto filed with the SEC and those mentioned in the earnings release. The company undertakes no obligation to subsequently update or revise the forward-looking statements made on today's call, except as required by law. During this call, the company may also discuss non-GAAP financial measures, including EBITDA, adjusted EBITDA and net debt. For more details on these measures, please refer to the company's press release issued yesterday. And with that, it is my pleasure to turn the call over to the company's President and CEO, Mr. John Kiernan. John Kiernan: Thank you, John. Good morning, everyone, and thank you for joining us for Alico's Fourth Quarter and Fiscal Year 2025 Earnings Call. This has been a truly transformational year for Alico. We successfully executed on our strategic pivot from a traditional citrus producer to a diversified land company, positioning ourselves for sustainable long-term value creation while maintaining our deep commitment to conservation and responsible stewardship. Fiscal year 2025 will be remembered as a milestone year in Alico's 125-plus year history. We delivered on the commitments we made to you, our shareholders, and demonstrated the disciplined execution that defines our approach to this transformation. Let me highlight our key accomplishments. First, we successfully completed our final major citrus harvest, officially concluding our capital-intensive citrus production operations. This achievement represents the culmination of a carefully planned 12-month transition that we executed while maintaining day-to-day agricultural operations. Second, we exceeded our financial guidance across key metrics. We achieved $22.5 million in adjusted EBITDA surpassing our $20 million target. Our land sales of $23.8 million also exceeded a $20 million guidance, demonstrating strong demand for our strategically located properties. Third, we strengthened our balance sheet significantly. We ended the year with $38.1 million in cash and reduced our net debt to $47.4 million providing us with the financial flexibility to fund operations through fiscal year 2027, while advancing our high-value development projects. The takeaway accomplishment for 2025 is that we have essentially lowered the financial risk for the company by reducing the volatility of weather-dependent and disease-affected citrus agricultural operations by leasing land to other agricultural crop growers while maintaining the stability of diversified land usage. Our development pipeline continues to advance on schedule with Corkscrew Grove Villages leading the way as the crown jewel of our portfolio. The establishment of the Corkscrew Grove Stewardship District represents a significant regulatory milestone that validates our development strategy and provides the framework for sustainable community focused growth. The Stewardship District approved unanimously by the Florida legislature positions us to effectively finance infrastructure, restore and manage natural areas and oversee the administration of our master planned communities. I'm particularly excited about our strategic partnership with the Florida Department of Transportation to design and construct a wildlife underpass as part of the State Road 82 expansion. This $5 million investment demonstrates our commitment to the Florida Wildlife Corridor and showcases the innovative conservation approach that sets Alico apart in the development community. We remain on track for the final decision from Collier County in 2026 with potential construction for Corkscrew beginning as early as 2028. The entitlement process -- I'm sorry, the entitlement progress with our Bonnett Lake property is also progressing well with our application moving through the review process as expected. Collectively, our 4 near-term real estate development projects Corkscrew Villages, Bonnett Lake, Saddlebag Grove and Plant World, totaling approximately 5,500 acres maintain their estimated present value of between $335 million and $380 million to be realized within the next 5 years. This represents significant value creation potential from just 10% of our land holdings, demonstrating the substantial embedded value within our diversified portfolio. Our conservation legacy continues to be a cornerstone of our strategy. Over the past 40 years, we've transferred lands that have become part of major conservation areas, including the CREW, Tiger Creek Preserve, and the Okaloacoochee Slough Wildlife Management Area. The Corkscrew Grove Villages project will continue that legacy by placing no less than 6,000 acres into permanent conservation, supporting the implementation of the Florida Wildlife Corridor and Collier Rural land stewardship program. We believe in responsible development that balances growth with conservation and believe it enhances the value and marketability of our development projects. Our approach creates the best of both worlds. With approximately 25% of our land identified for strategic development and 75% remaining for diversified agriculture, we've built a balanced platform for both near-term returns and long-term growth. We've successfully negotiated lease agreements for approximately 5,250 acres with third-party citrus growers and we're seeing strong interest from cattle operators, sugarcane growers and [ soy ] producers. This diversified approach generates revenue during our transition and also maintains productive use of our agricultural lands while preserving optionality for future development or continued agricultural use. Brad will provide detailed financial results in a moment. I want to emphasize our strong cash generation and disciplined capital allocation. The $20.4 million in crop insurance proceeds we received following Hurricane Milton, combined with our land sales, has created a robust liquidity position. We remain committed to returning capital to shareholders. We paid our fourth quarter dividend in October, maintaining our track record of consistent dividend payments. Since 2015, we've returned more than $190 million of capital through dividends, share repurchases and debt reduction. Management's comprehensive NPV analysis of our approximately 49,000 acres indicates a market value of assets between $650 million and $750 million. With our current market capitalization of approximately $240 million and net debt of $47.4 million, we believe Alico represents compelling value for investors seeking exposure to Florida's continued growth story. What differentiates Alico is our unique combination of strategic landholdings across 8 Florida counties, more than 125-plus years of local relationships and conservation credibility, a proven management team with deep expertise in both agriculture and real estate development and a balanced portfolio approach with 75% of our land remaining in agriculture. Looking ahead into fiscal 2026, we've already demonstrated continued execution of our land monetization strategy. Earlier this month, we completed the sale of 579 acres of citrus land for approximately $6.1 million and sold our office and shop in Frostproof, for approximately $1.7 million, further optimizing our real estate portfolio while generating additional cash flow. Our priorities for fiscal year 2026. To continue our transformation momentum, our first, to optimize our agricultural operations by maximizing revenue from our diversified leasing programs while maintaining rigorous cost controls across all properties. Second, to remain committed to advancing our residential and commercial development projects by continuing to progress through the entitlement process for our 4 priority projects with particular focus on securing final approvals for Corkscrew Grove Villages. Third, our capital allocation approach will balance required entitlement investments with shareholder returns while maintaining the financial flexibility necessary to execute our long-term strategy. And finally, to pursue operational excellence by leveraging our experienced management team and strong local relationships to execute efficiently across all of these initiatives. In closing, fiscal year 2025 was a year of successful transformation that positions Alico for sustainable long-term growth. We've derisked our business model, strengthened our balance sheet and created a clear path to unlock the significant value embedded in our land portfolio. Our approach of balancing specific high-value development projects with the diversified agricultural operations creates a business model that leverages our core strengths while adapting to market opportunities. We're well-capitalized, strategically focused and positioned to deliver sustainable value creation. The foundation is in place, and we're excited about the opportunities ahead. With that, I'll turn it over to Brad to walk through our detailed financial results, and then we'll be happy to take a few questions. Bradley Heine: Thank you, John, and good morning, everyone. I'll walk you through our fourth quarter and full fiscal year 2025 financial results, which demonstrate the successful completion of our strategic transformation. For the fourth quarter ended September 30, 2025, revenue was $802,000 compared to $935,000 in the prior year quarter, reflecting the substantial conclusion of our citrus operations. We reported a net loss attributable to legal common stockholders of $8.5 million or $1.11 per diluted share compared to a net loss of $18.1 million or $2.38 per diluted share in the prior year quarter. This improvement was driven by the completion of our transformation activities and reduced operational complexity. For the full fiscal year, revenue was $44.1 million compared to $46.6 million in fiscal 2024. While we reported a net loss of $147.3 million or $19.29 per diluted share, this was primarily due to noncash charges related to our strategic transformation including $162.7 million in accelerated depreciation and $25 million in asset impairments as we exited citrus operations. Importantly, our adjusted EBITDA for fiscal 2025 was $22.5 million, exceeding our $20 million guidance target. This demonstrates the underlying operational strength of our transformed business model. Our balance sheet transformation has been remarkable. We ended fiscal year 2025 with $38.1 million in cash and cash equivalents compared to just $3.2 million at the end of fiscal 2024. Our net debt decreased significantly to $47.4 million from $89 million, representing a $41.6 million improvement year-over-year. This strong liquidity position, combined with our $92.5 million available under our line of credit provides us with sufficient resources to fund operations through fiscal 2027, while advancing our development projects. Our working capital ratio improved to 9.56:1 demonstrating exceptional financial flexibility. We exceeded our land sales guidance, generating $23.8 million in proceeds from 96 acres sold during fiscal 2025, surpassing our $20 million target. These sales, combined with our operational improvements have created the financial foundation for our next phase of growth. Looking ahead, our financial position is strong, and we're well balanced to execute on our development pipeline while maintaining operational efficiency. Now I'd like to turn the call back to John for his closing remarks. John Kiernan: Thank you, Brad. Fiscal 2025 was truly transformational for Alico. We delivered on our commitments. We completed our final major citrus harvest, exceeded our financial guidance across key metrics and now have a balance sheet that provides the company with years of operational runway. Most importantly, we've eliminated citrus agricultural volatility while unlocking the value in our approximately 49,000 acre Florida portfolio. Our path forward has been set, and we believe it is compelling. We're optimizing agricultural leasing across our entire portfolio, advancing our high-value development projects through local, state and federal entitlement processes and maintaining our disciplined approach to capital allocation. With Corkscrew Grove Villages approaching the first set of approvals in 2026 and our other development projects advancing as well, we have multiple catalysts for value creation. The numbers tell the story. Our NPV analysis values our land portfolio between $650 million and $750 million, yet we trade at just $240 million today. We believe this represents a significant valuation disconnect that we expect will close as we execute. We remain committed to shareholder returns through our 50-year dividend legacy and multiple capital deployment options, including our authorized $50 million buyback program. As land sales accelerate, we have increasing flexibility to return more capital. Alico today is fundamentally transformed, well-capitalized, strategically focused and spread across Southwest Florida with more than 125 years of Florida heritage, proven conservation leadership, and a clear real estate development pipeline, we're very well positioned to deliver sustainable value creation. Mickey, we'll now open up the call for questions. Operator: [Operator Instructions] And we'll take our first question from [ George ] with [ Freedom Broadcast ]. Unknown Analyst: My only question, what is the expected current of the land sales in the next 12 months? Should we anticipate larger transactions similar to prior year disposals of more measured pace? John Kiernan: I'm sorry, are you asking if we're giving any sort of guidance or forecast on revenues for fiscal 2026? Unknown Analyst: Yes, if you have some guidance on land sales. John Kiernan: Right. So we have not provided any guidance on additional land sales at this time for fiscal year 2026. Operator: [Operator Instructions]. And we show no further questions in queue. At this time, I will turn the call back to John Kiernan for closing remarks. John Kiernan: Thank you. I want to thank all of our employees for their dedication during this transition. I'd like to thank our Board for their continued support of our strategic vision. And I'd like to thank you, our shareholders, for your patience and confidence as we execute this transformation. We look forward to updating you on our further progress in the new fiscal year. I wish everyone a happy holiday. Thank you. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, everyone, and thank you for joining us today for GBG First Half Results for Fiscal Year 2026. My name is Sammy, and I'll be coordinating your call today. [Operator Instructions] I'll now hand over to your host, Dev Dhiman, CEO, to begin. Please go ahead, Dev. Dev Dhiman: Good morning, everyone, and welcome to the GBG results announcement for the first half of fiscal year '26. We are pleased with the progress that we've delivered in the first half of the year, we're on track to meet our financial plan for FY '26, and we're confident in the acceleration that we'll see in the top line growth as we enter H2 and beyond. Whilst today is a chance for us to take you through the financial results, it's also a chance for us to remind you of the impact GBG has on the world at large in how we enable safe and rewarding digital lives for genuine people everywhere. The slide on the screen here speaks to that impact and the scale at which GBG operates. And I'm really proud of the mission that drives every one of Team GBG to show up and give more every day of the week. The statistics on this slide also serve to remind us all that the majority of the GBG business continues to perform strongly. However, we are very clear as to where the acceleration will come from, from here. 18 months ago, you heard me talk about the need for us to focus on 4 foundational areas. I'm really pleased with the progress we've made on each of these, whether that's in the way we've come together as a single global brand to remove complexity, whether that's how we've now recently signed to migrate our entire cloud to AWS to make sure we are globally aligned, whether that's the launch of GBG Go in April, driving our innovation agenda or whether that's the way we've rebalanced and reworked our entire performance frameworks for our people. We feel like a lot of the heavy lifting on these 4 areas are done, and therefore, our attention is now firmly turning towards driving shareholder value, in particular, through accelerating the top line. So how will we focus on creating shareholder value? We'll focus on 4 key areas. The first is around protecting and growing our amazing customer base. The second is about winning more new logos, more customers that need to work with GBG. Thirdly, we will unlock synergies in the GBG operating model. We've made some good progress on being globally aligned and removing complexity, but we think there's even more we can do, not just to drive efficiencies, but also to drive top line growth. And lastly, following a period of really hard work to get our balance sheet into a much stronger position, we'll talk about how we will optimize capital allocation. In my section, I'm going to focus on how we will drive revenue and unlock synergies. David will come back to talk about how we'll optimize capital allocation in his section. The good news is, underneath those key pillars, there are really only three things that matter. The first is how we complete the turnaround of our Americas business. The second is how we transition to the GBG Go platform. And the third is how we evolve our operating model to better serve customers, to innovate more quickly and to drive efficiencies that we can then redeploy into go-to-market. So let's start with, I'm sure what's on all of your minds, the Americas and where we're at with the turnaround. When I spoke to you 6 months ago, I talked about how we needed to strengthen the leadership team, execute the turnaround by driving productivity and focusing on metrics, evolve our commercial model away from pay-as-you-go towards subscriptions and commitments to lead with the GBG brand and to focus our teams on long-term growth and not distract them with short-term headaches. So where are we up to? So when it comes to our leadership team, in the first half of this year, we have appointed 6 new leaders. And it's important to stress those leaders come with deep industry experience. These are not people figuring out how to do this for the first time. Some of the measures that give us confidence that we're on pace for the turnaround. In the first half of this year, we have driven 4x more new business than we did in the first half of last year, and we're activating that new business more quickly with 28% faster in taking a deal from signature to go-live and ultimately when we start to earn revenue. In terms of our commercial model, standout progress with 8 renewals in the second quarter signed with a minimum commitment, almost the first time we've done that as a business. More encouragingly, as we look ahead, 74% of our upcoming renewal pipeline contains minimum commitment that's already been socialized with the customer. In terms of leading with the brand of GBG, you can see on the page a screenshot of the team at Money20/20, where we showed up as one team. That wasn't just Americas Identity. It was also the GBG Locate business showing up alongside our Americas Identity colleagues, really turning up as one business as GBG. And then lastly, as we focus on long-term growth, we took the decision this year to sunset a legacy platform, one that was creating significant distraction for the team and one that was never going to get our business to be a stronger underlying one, which is our complete intent as to how we focus on making decisions that drive the Americas business forward. Turning now to GBG Go and our transition to a platform business. At the end of FY '25 in our results presentation, you saw me demonstrate the benefits of Go for our customers. But today, I want to focus on the benefits of Go for GBG. We are confident that Go will increase the pace of our growth through the ability to win new customers. That momentum will build confidence in our teams and accelerate the opportunity to upgrade existing customers, driving cross-sell and upsell. Go is an adaptive platform. It's built for what's to come. It will meet evolving customer needs and drive advocacy and also improve NRR. From a technology perspective, Go enables us to rapidly innovate, build once and scale globally, releasing new capability to customers at the flick of a switch. The outcomes of our focus on Go will be accelerated growth, sustainable differentiation and a platform that unlocks efficiencies at GBG as we focus on 1 and not 16. And lastly, let me talk about how we will evolve and transform the GBG operating model. Really, there are three flavors to this initiative. The first is how we move to a functional organizational structure. Again, we've talked about the need for GBG to be simple and to align globally, and this is about taking that and ensuring it's embedded in our DNA. It enables us to ensure that we prioritize the key initiatives because we're now prioritizing across the whole portfolio and not by business unit or segment. And obviously, it reduces cost and duplication, which enables us to reinvest into our key initiatives, largely our go-to-market function. The second flavor of this initiative is how we innovate at a scale that we've not done before. By investing in a GBG-wide innovation system, we will deliver on the opportunity to combine all of the assets that we have in the GBG shop to create powerful new solutions for our customers. And lastly, this is also about driving improvements in our go-to-market. As a business, the majority of our revenue comes from about 15% of our customers. And we need to focus on those customers differently and treat them as GBG customers, not as identity or location or fraud. We believe our focus in this area is a meaningful revenue accelerator. And by increasing singular ownership of our largest accounts, we'll be hardwiring cross-sell into pay plans and the targets that we set to our salespeople, no longer relying on collaboration and lead sharing across teams. So what does all of that mean? It means that we are really clear on the three priorities that will make our boat go faster. And this is already turning into tangible benefits in the first half with more to come in H2 and beyond. So let's just give some of the key highlights. So driving the Americas turnaround. Year-to-date, we are on pace. We've got encouraging early proof points. I've spoken about those just now. And in the second half, you should expect the Americas business to return to growth by our continued focus on driving go-to-market execution and further improving some of the metrics I've spoken about. GBG Go and our transition to the platform. We launched the platform in April. We've had 18 new customer wins in the first half. And we've also integrated 200 digital identity schemes into the platform, which those 18 customers now have access to. In terms of what's ahead, we have a very strong sales pipeline, which we will execute in second half. From a capability standpoint, next on the road map is our no-code release and also really excitingly, our AI-driven insights module, unlocking synergies in the GBG operating model. In the first half, we have signposted a move to a global functional operating model. We have already combined our product and technology teams under single leadership, and we have created and funded the GBG innovation lab. In the second half, we'll continue the move to a functional model. The next phase is really focused on our go-to-market teams, and we'll continue to find efficiencies to reinvest in our key priorities. And lastly, how we'll optimize capital allocation. After a period of really hard work in getting our balance sheet into a much stronger place, GBG is now returning to optionality in how it deploys its free cash flow. In the first half of the year, we executed GBP 35 million in share buybacks, and we completed the first acquisition of this management team with the integration of DataTools in Australia, a business that we've worked closely with for a number of years and made huge sense strategically and financially. And as we look ahead to H2, this morning, we've announced a further GBP 10 million buyback as we continue to deploy our free cash flow to drive growth and shareholder returns. With that, I'm going to pass to David to take us through the financial results. David Ward: Thank you, Dev, and hello, and good morning, everyone. Thank you for joining us. I will now take you through a more detailed review of GBG's financial results for the 6-month period to the 30th of September 2025. We are pleased that the results we delivered in the first half of this financial year are in line with the plan that we built for this year and represent the operational progress that we are making towards an accelerating top line. We delivered revenue of GBP 135.5 million, which represents growth of 1.8% in constant currency terms. Setting aside two short-term impacts that were fully anticipated and which I will explain more shortly, constant currency growth on an underlying basis was 4.4%. This illustrates the improving momentum that we have already generated and which underpins our confidence in delivering a similar level of revenue growth in the second half of this year. Adjusted operating profit, also on a constant currency basis, increased 4.6% to GBP 29.5 million, reflecting our continuing cost control and profit margin control. Cash conversion remained strong at 85.8%, leading to a net debt-to-EBITDA ratio that remained below 1x at GBP 66.6 million. And demonstrating the Board's confidence in our plan, we have in FY '26, already before today committed a total of GBP 46 million in shareholder returns. And as Dev has already outlined, we have today announced a further GBP 10 million of share buyback. I can confirm that we are today reiterating our financial outlook for the full year, which is in line with consensus. So now let me provide an overview of the income statement here presented on an adjusted basis with the statutory format included as an appendix to this presentation. The headline is that we have maintained our strong control of margin, while at the same time, we have recycled cost savings from our ongoing transformation to a single global platform business into our growth-focused priorities, specifically for our largest segment of Identity. On a reported basis, revenue declined by 1% to GBP 135.5 million, but in constant currency terms increased by 1.8%. Our gross profit margin improved by 40 basis points over the prior year as we continue to focus on pricing as well as disciplined management of our data and cloud hosting costs. Adjusted operating expenses reduced by 1.5%. This too was impacted by FX translation. And on a constant currency basis, operating expenses increased by just 1.1%. That led to an adjusted operating profit of GBP 29.5 million, which represents an increase over the prior year of 4.6% in constant currency terms. As expected, our net finance costs decreased over the prior year as a result of the lower average level of net debt. And on tax, our effective adjusted tax rate for the period was 23%, which is a little lower than the 25% that we still expect for the full year due to accounting timing differences. As a result of the combination of the growth in adjusted operating profit, the reducing finance costs and tax charge, adjusted diluted earnings per share increased by 12.6% over the same period last year. As I said in my last presentation of our FY '25 full year results, we planned to continue with our business transformation initiatives and the costs associated with a few of the larger discrete items have been recognized as exceptional costs. These included the costs incurred in the period on our business systems unification and data insights projects as well as the costs of our move from AIM to the Main Market. The total cost recognized in the first half was GBP 3.6 million. Across the next two slides, I have more detail and analysis to explain the key dynamics behind our revenue performance. As I have already said, on a reported basis, revenue declined by 1% to GBP 135.5 million, but in constant currency terms, increased by 1.8%. That 1.8% was impacted by two short-term factors that we feel has somewhat masked the progress we have made in building greater momentum. The first of those two factors is the fully expected impact of high project-driven transaction volumes for Santander U.K. in the first half of FY '25. And the second is a decision we have taken to retire one of our legacy technology platforms as part of the Americas turnaround. As you can see from the bridge chart on this slide, without those impacts that both relate to our Identity segment, the underlying growth in the period was 4.4%. We feel it is important to share this sign that we have generated improved revenue momentum and also most importantly, because delivery of our plan for the full year assumes that we will continue to grow at approximately the same rate in H2, when there is no headwind from the Santander volumes and the headwind from the platform retirement is much smaller. My last comment on this slide is that we continue to enjoy a high proportion of repeatable revenue at 95% of our total. And we have a clear focus, as you have already heard from Dev, on increasing the 54% of that, which comprises subscription revenues. We now move to our rolling 12-month metrics and a reminder that these cover our two core segments of Identity and Location, covering 93% of the total group revenue. Global Fraud Solutions, our smallest segment, is excluded. It's pleasing to see the strong growth from new logo wins with this increasing to 4.1% for the last 12 months. This was assisted by a couple of larger wins with enterprise customers in the Location segment. We continue to see opportunity for us to maintain a growth rate of 3% to 4% from this factor, particularly as we make progress in closing the strong sales pipeline we have for GBG Go. Net revenue retention at the 30th of September was a little lower at 97.8%, but this was impacted by the short-term factors that I have already mentioned and which affected our identity growth rate. Excluding these, the trend for net revenue retention has been holding quite steady at around 100%. We continue to see improvement in net revenue retention as our largest opportunity for driving an overall growth rate improvement. And Dev has already outlined a number of initiatives that we are prioritizing to get net revenue retention back sustainably above 100%. Moving on to how each of our reporting segments performed. Identity, which represents 63% of total group revenue, grew 0.4% in constant currency terms and broadly maintained a consistent contribution margin. We generated strong growth in APAC and EMEA, although, of course, the EMEA growth was impacted by the unusually high Santander volumes in the prior year. While we had a small decline in revenue in Americas, we have been pleased with how the business is generally much more stabilized and gross retention has improved. The turnaround project has the highest level of focus and the momentum we carry into H2, together with the improved sales pipeline, we have confidence that this important component of our business will return to growth in the second half of the year. And Dev has already mentioned the encouraging early signs for GBG Go. Setting aside the two short-term factors that affected the first half and the comparative period from the last financial year, there is a trend for an improving growth rate in Identity. Location, which represents 30% of total group revenue, continues to be the main growth engine for the group with constant currency revenue growth of 4.8% in H1. That was despite some tariff-related softness in Q1. In terms of notable customer activity, we were pleased with our wins at Urban Outfitters and Alibaba and our scaled-up renewals at Shein and TalkTalk. Growth via our partner channel continues to be strong with customers like Oracle. And similarly, large enterprises like Microsoft are also recognizing the value of GBG's market-leading global addressing data for use in their own data quality processes. And finally, our smallest reporting segment of Global Fraud Solutions, which represents 7% of group. In this business, we are continuing to see very strong customer retention and subscription renewals, including the logos included on this slide. New business and the related implementation services has been a little bit weaker than a couple of years ago. And overall, we are reporting 1.4% growth. The contribution margin from the segment has expanded considerably as a result of the strategic review undertaken last year and which has led to some material cost reduction, which allowed investment to be redirected to our highest priorities of Americas go-to-market and the continued advancement of GBG Go. And then finally, and before I hand back to Dev for some closing remarks, a few comments on the balance sheet and capital allocation. As I said in our last year-end presentation back in June, with our debt leverage coming into this year comfortably below 1x EBITDA, we did feel that for the first time in a while, we had a greater degree of optionality on capital allocation. And so we have been proactive in utilizing that optionality to drive improved shareholder value. Firstly, of course, we paid the final dividend declared in respect of the previous financial year. And we have been continuing with our investments via exceptional items into our transformation initiatives and the costs of our move-up from AIM to the Main Market. We are confident that these initiatives will achieve strong returns for shareholders. We have also announced two share repurchase programs prior to today, the first ever in GBG's history. Those totaled GBP 35 million. Including the GBP 10 million that we have announced today, we have committed to share repurchases totaling GBP 45 million, with GBP 17 million of this completed in the first half of the year and a further GBP 28 million now committed to be completed by the end of the financial year. Given the share prices that we have been executing these programs at, we expect that in total, we will have repurchased approximately 7% of our issued share capital, and this should drive EPS accretion on a fully annualized basis of close to 4%. And finally, we were very pleased that we were able to add the DataTools business and team into the group. This was a financially attractive bolt-on opportunity to acquire a business that was known to us and which will add additional scale in a market where we are already seeing strong growth. Based on these capital allocation decisions that we have taken so far this year, we still currently expect to be able to exit this financial year with a net debt-to-EBITDA ratio of approximately 1x. With that, that concludes my section. Now back to you, Dev, for some closing remarks. Dev Dhiman: Thank you, David. So let's close out with a summary of some of the key messages you've heard today. 18 months ago, I said that GBG was a high-quality global business with scale, and that rings out even more truly today. I said we needed to focus on getting strong foundations in place for what was to come. And I think we've done a great job in getting that to a place where we can now turn our attention to driving acceleration of the top line. In the first half, we've shown exactly how we will deliver effective capital allocation through the buybacks and acquiring DataTools in Australia. And what you should really take away from this is that we have a very clear strategic direction, a direction that means that our focus on Americas, Go and our operating model will make the boat go faster. We have confidence in improving growth rates and those growth rates start to improve in the second half and beyond. Thank you all for your time, and we will now turn to questions. Operator: [Operator Instructions] Our first question comes from Andrew Ripper from Panmure Liberum. Andrew Ripper: I hope you can hear me okay. I got two questions, if that's okay. First question is for Dev. You counted through quite a few KPIs there, Dev, in relation to North American Identity. I wonder if you can tell us a little bit more about where you are winning, where the new leadership team is making a difference. And when you referenced that new bids have been 4x the level of the previous year, how significant is that in terms of being a delta on future revenue? Dev Dhiman: Thanks, Andrew. Sorry, we're waiting for your second one to come through at the same time. So I can take that. So I think as you said, we've seen some encouraging proof points as to where we're at with the Americas turnaround. And obviously, it is one of our three key focus areas, and we're putting a huge amount of effort and energy into making sure that we are on pace, which we feel like we are. I think in terms of some of those metrics, so 4x more new business, not only that, we're also activating that new business more quickly. You all know as a SaaS business, signing a deal is great, but then actually getting the customer live is as important, if not more. And we've seen encouraging progress on both of those. One of the reasons why we have won more new business kind of plays to your supporting question, which is we are focusing much more on where we win, and that's financial services, fintech and gaming. So almost all of that new business has come from those three verticals. And as a result, our win rate has ticked up. We've also seen in Americas where a customer has a more complex need and a larger order value, our win rate again increases. So we're getting much more analytical with Tom now at the helm and doing some of the things that he's done in former turnaround roles that he has performed. In terms of significance, it varies. A lot of those deals will be mid-market, but a couple of those, and we talked about price picks before, are more significant in terms of their revenue has until this year. Operator: Our next question comes from Nick Dempsey from Barclays. Nick Dempsey: I've got three, if that's possible. First of all, can you give us some more color on the initiatives that you have in place to get NRR back over 100%? And do you expect to be at least 100% in H2 2026? Second question, can you talk about the strength of your data relationships with the key credit bureau, Lexus, et cetera? Are you confident that you will have all of the existing data built into your offerings for many years to come? And is that starting to prove a real competitive advantage for retention and new logo wins? And then the third question, do you have any more legacy platforms, which could be in line for sunsetting, which could be a headwind at some point? Dev Dhiman: Thanks, Nick. I will maybe start with some of the color on the initiatives and then let David comment on the point around 100%. So I think we -- I think the good news is that, again, I'll just refer you to three key initiatives that drive NRR. The first is Americas, which has been a laggard in terms of revenue growth and therefore, NRR. And I think we've spoken already to Andrew's question and in the presentation around the work we're doing there. The second is Go, which we think obviously underpins our NRR because we moved to a licensed model versus consumption model. And obviously, we think the opportunity to drive cross-sell and upsell is significant. And the third is our operating model. You heard me talk in the presentation around how the majority of our revenue comes from, it's effectively an 80-20 rule, 80% of our revenue from 20% of our customers. And by focusing more on those 20%, I think that's where we see a big opportunity to upsell and cross-sell the whole breadth of GPG solution rather than treating them as a kind of divisional customer, if that makes sense. Maybe, David, you can talk about the kind of trajectory of NRR. David Ward: Nick, thanks for the question. I think a couple of points I'll just add to Dev's commentary there. I think the other point that I think came through in the presentation we just gave was also how we're now seeing the benefit of pricing coming through. That's been a really big focus for us for the last 18 months or so. And that's now much more embedded into everyday practice for our go-to-market team. So that's also having an impact for us. In terms of where do we expect it to get, we've talked that -- we've said previously that across the medium term, we do think that NRR should be able to get back to 105%, so that's our goal. That's probably a goal for a few years out. And we see sort of a relatively steady improvement towards that sort of number. For the second half, specifically, we will still have a bit of a headwind from the short-term factors I mentioned in the presentation. But I think the combination of what we're doing, plus particularly the improvement in gross retention in the Americas, which I talked about, I think should see us get back to 100% even before making any adjustment for Santander. Dev Dhiman: And then moving to your second question, Nick, around data relationships with bureaus or credit reporting agencies. I think the short answer is strong and strengthening. If, for example, for a couple of years now, we've been the only provider in the U.K. that has been able to have access to all three bureaus that operate here. Similarly, in ANZ, since Experian acquired Illion, we've now stepped in -- they have now stepped into our very close commercial relationship that we previously had with Illion and is now with Experian, and we've extended the length of that contract also in the first half. And in Americas, alongside everything you've heard me talk about, there's a lot going on, and therefore, we focused on the key things, but there's also work underway to drive data advantage and some early conversations with some of the people we've spoken about. So I think we feel like we're in a good place. Obviously, it's my background. For many years, we worked really closely with all three bureaus, large global bureaus as well as [Illion]. And it's an area where we continue to have a strong relationship and are talking about more what they could also take from us. And then the third question around legacy platform. So I think really important to remind everybody, we currently talk about having about 16. In the first half, we have taken the action to retire two. And those two are the ones that were most obvious to retire, the ones where revenue was going in the wrong direction and was not significant, but also cost was high and therefore, made them really easy decisions. The next 14 won't be as easy. And Nick, just to reassure you, what we're not saying is that as we retire those 14, we're going to see revenue go the wrong way. Our focus is on driving revenue growth, not shrinkage. And therefore, we're going to be really deliberate and mindful as to how we upgrade those customers to Go over the next 5 to 7 years. I think the good news in that is that there are operational efficiencies that, therefore, are not one-off, and we'll continue to see those over the midterm, and those will continue to help us drive reinvestment into our key priorities of Americas, Go and go-to-market. Operator: Our next question comes from Gautam Pillai from Peel Hunt. Gautam Pillai: I had a couple of questions on Go and to the comment you just mentioned, Dev. So when you migrate customers to Go, what is the typical level of recurring revenue uplift you're seeing per customer? And also beyond compliance and onboarding, what would you see are the differentiated capabilities of Go that kind of ensures pricing power and stickiness against competition? And one more follow-up on pricing generally, especially in the U.S., are you seeing customers push back on pricing at all? And how are the competition strategies kind of evolving from a discounting standpoint? Dev Dhiman: I can probably have a go at both of those and David, you can chip in. So I think on Go, Gautam, just important to remember that in the first half and probably for the rest of this year, our focus is on new business. We are not launching a migration of customers across. We have offered customers on the compliance platform the opportunity to move across, but -- so the answer to your question from a proof point standpoint is it's too early to say what the NRR uplift has been and will be. We think it's accretive to growth. But for right now, it's too early. The reason we think it's accretive to growth, though is your second question in that, which is the differentiated capability. So really Go moves us away from an onboarding solution into an insights platform. When we talked in the presentation about some of the things we're doing to get our data into better shape, it's also that we can deliver more insights to customers. So how are -- how is a gaming company performing in terms of its onboarding against its competitor set? What other things could we deploy into the workflow that will increase both the customer experience, making it better, but also increase the number of accepted customers and reduce fraud. So it's the analytics and the insights that we think will really differentiate us. We already have the underlying capability. So this really puts the icing on the cake is the way we think about it. And then on pricing, so I think a little bit linked back to the question around NRR. We're not waiting for Go to drive NRR. Some of the work we've done in the second quarter, in particular, in Americas to get 8 customers to renew with commitment has been driven partially through a pricing conversation. So a conversation that says, you've got the opportunity to defray price increases by signing up for commitment. The really good news is we have not had to give any of those 8 customers a haircut on price to get them to commit. It's the benefit of having someone that's done this for 20 years, Joe, who's joined our team to run our account management book, just driving best practice. We are also in Americas, launching pricing initiatives, especially around the long tail to see where we can see uplift. And those have not yet been launched, but the work that's underway, and we'll update you on those as we close out the year, I'm sure, in June. Operator: Our next question comes from Kai Korschelt from Canaccord. Kai Korschelt: I had a couple and just one is just to follow up on pricing, maybe more at an industry level. I mean it seems like there are a lot of players in the identity verification space. And I think previously, Dev mentioned that there's been sort of a downward trend on pricing. So I'm just wondering how do you plan to avoid commoditization, I guess, if that's the right word, and offset pricing pressure. It seems like Go is an important part of it, but just sort of more general, if you had any thoughts on a midterm basis, that would be helpful. And the second one was just around the capital allocation and specifically, how do you weigh, I guess, doing more share buybacks versus paying down debt as you also get accretion from lower interest cost as you've obviously shown in the half. Dev Dhiman: Thanks, Kai. So I'll take the pricing one and David maybe can chip in on the capital allocation. I think it's really important. It's another good example and an opportunity for me to remind everybody that the majority of our business, we have been really successful in maintaining and increasing price, be that the identity business in APAC, EMEA or the Location business worldwide. So really, where we've had -- where we've suffered on NRR has been Americas and part of that has been the commercial model, which has been pay-as-you-go. We think about pricing as a growth lever. We've demonstrated that, as I said, in most of our businesses, and we'll shortly be testing that in Americas. The ability for us to move customers to minimum commit underpins my confidence. And what else underpins my confidence is the fact that the majority of our industry is pricing in that way. So in Americas only, we are catching up. The point around commoditization, I think you kind of answered your own question, Kai, Go is what we think will differentiate us, in particular, the move to an insights-driven platform rather than a point in time tick in the box, which is never what we were, but I think that's kind of the underlying question that you have in the question that you've asked. And maybe, David, on capital allocation. David Ward: I'll pick up the question on capital allocation. I think we feel good that we've got much more optionality than we've had for a few years now. I think it's been great coming into this year with a level of debt below 1x. As I outlined in the presentation, the actions we've already taken and the decisions we've announced will probably mean that we exit this year at about 1x EBITDA to net debt leverage, which I think we feel very comfortable with. And obviously, at the moment, very aware of where the share price is at and particularly versus the level of interest costs that we've got on our debt, buying back shares is attractive for us at the moment. I mentioned in my presentation that based on what we've announced in terms of share buybacks, based on our forecasting assumptions, we expect about 4% accretion to EPS on a fully annualized basis. So that's pretty attractive. At the same time, it's been great that we've been able to execute our first acquisition in a while to be able to add a relatively small bolt-on business, but actually a business that gives us a bit more scale in a market that was already enjoying good growth. So we've added a business that was growing. It has got good profit margins, and we've added some very capable team members in a region that's important to us. I think it is also attractive. So it's great to have sort of that full range of options around how we deploy capital. But I guess the punchline is we are very focused on delivering improved returns for shareholders, and we will deploy capital in the best way to be able to do that. Operator: Our next question comes from Julian Yates from Investec. Julian Yates: I'd just like to dig a little bit more into the North America business versus EMEA to try and understand where we are in the upside. Do you have any color on sort of return on investment metrics? Like what is EMEA doing in terms of revenue per sales, head revenue per account, return on investment versus what North America is doing at the moment? And when -- and can North America move up to those sort of EMEA levels? Is there quite a lot of upside to go? And then on the flip, is it just massively underinvested in [indiscernible] the fact that there's going to be a cost taker for a couple of years before we see maybe sort of margins or [indiscernible] move up to that EMEA level? David Ward: Julian, it's David. So I'll have a go answering that one for you. And I think the first thing I would say is that the turnaround that we are executing in Americas actually looks very similar to the process that we went through for EMEA a couple of years ago. So there are great similarities, which, to be honest, is very helpful for us and obviously means that some of the expertise that we have in the EMEA team has been really helpful to the Americas team as well as the new capability and stronger team that we've deployed into that region. So I think there are some similarities. I think the way we think about the Americas business -- has been that we have had to strengthen the team that we have deployed there. We've talked about all of the actions that we've done to do that. We've also given them increased and better tools. So they've got better internal tools. They've got better support from the enabling functions. And at the same time, we are -- we've talked about unifying our back-office systems and CRM tools. So all of those things we have done, and we are almost through finishing. So that gives us a really solid foundation. Dev has talked about the fact that relative to our EMEA team, the Americas team is under resourced, but we've always felt that we needed to solidify those foundations first. And once we've done that, there is a really good opportunity for us to then enjoy the benefits of economies of scale as we employ and deploy more salespeople into the region. So I think that's how we think about it. I'm not sure I'd necessarily agree that it's going to be a cost taker. I think that was the phrase you used. I think we see that it's a business that should scale relatively well from here. We do want to deploy more cost into the region, but we expect pretty constant and relatively quick returns on that cost. So I think from here on in, we expect the opportunity for margin improvement for Americas. It will be relatively modest as we put the cost in there. And obviously, there's the benefits of Go to still add on top of that. So I think there's a number of things that we're pretty excited about. Operator: Our next question comes from Tintin Stormont from Deutsche Numis. Tintin Stormont: Just -- I think it's two questions, maybe three. The first one is the quality of the pipeline. Is there anything that sort of a sense that you could give us that obviously, there's the volume and the actual increase in the pipeline. But when you're trying to convey to us a sense of the improved quality of the pipeline, is there anything that you can share in that regard? And then, David, just picking up on your point on resourcing in the U.S., where are we in terms of the resourcing? And how easy is to find that additional resource in the market and for them to sort of kind of have the impact that you want them to have? And finally, from a competition standpoint, if you could just maybe describe sort of kind of in the environment if there are particular players that you're winning against with the GBG Go product? And sort of kind of -- I think, Dev, you talked about the features that are differentiating you, but would be really interested in that, the areas that you choose to play in, FS, gaming, fintech, et cetera, if there are particular competitors that seem to be relatively losing out to you now with this platform? Dev Dhiman: I think all 3 probably for me, Tintin. So in terms of quality of pipeline, so I think, again, we don't really disclose volume of pipeline. I think we talked about the number of Go opportunities specifically, but our pipeline is obviously much broader than that. I think what I can say is I think there are a handful of key opportunities that I'm very close to that feels a bit different maybe this time last year. So I won't say any more than that because I'm breaking my own cardinal rule to not talk about those. In terms of resourcing in Americas, I think, as I said in my presentation, we've hired 6 new leaders have all come from this space. It has not been difficult to find people that, number one, have deep industry experience, and it's not been difficult to find people who want to be part of the GBG story. I think what's been encouraging is how we've seen many of those 6 leaders bring in people from their network. That's interesting to me for two reasons. One, I think we've hired the right people if they know people. But secondly, the fact they're bringing people in that they trust and trust them means that their commitment to the cause and their ability to see the end of the turnaround and the start of acceleration is quite high. So open rates in the Americas, I think we measure them in days, not months. And then lastly, on competition, I'm going to answer this slightly differently. I think we're focused on ourselves and maybe that's also a bit different to a year ago. I think we're focused on how we stand out from our competitors. And I'd rather talk about what we're doing than what we're seeing in the market. Again, a good chance for me to remind everybody that for many years now, we've won against our competitors in location. We've won against our competitors in EMEA, and that's getting increasingly so, I would say. And in APAC, for a number of years, we continue to have a really strong market share in ANZ that should only get stronger with the integration of DataTools. So yes, hopefully, that answers your questions. Operator: We have no further questions. Dev Dhiman: Yes, I think that brings us to the end of questions. So thank you, everyone, for your time and for the questions. I will just close with a few short comments that really reiterate what I said at the end of the presentation as it was. I think a good chance for us to always take the opportunity to remind everybody what a great business this is that operates in a really fast-growing space that is only getting more interesting and the scale that we enjoyed. Good to be able to stop now talking, hopefully, in these presentations around the 4 focus areas that we set out on back in June of last year, although albeit our work is kind of never done on those. I think what you have heard today is really two things, a very effective and deliberate capital allocation that is all about driving increased shareholder returns and a very clear strategic direction that really means that you'll only really hear me talk about three things: Americas, GBG Go and our operating model, all of which gives David and myself and the Board confidence in improving growth rates, which, as I said in the presentation, start now. Thank you all for your time, and have a great rest of the day and week.
Operator: Ladies and gentlemen, welcome to today's VIG Conference Call and Live Webcast. I am Matilda, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Mr. Hartwig Loger. Please go ahead. Hartwig Loger: Yes. Very warm welcome from Ringturm in Vienna, and thanks for joining our call with information to the main topics we have prepared for you. So we already last week announced the outstanding performance of our group for Q1 to Q3. So today, we have the chance to deepen the information about this very successful first 3 quarters of this year and which was also announced that we already raised the outlook for our profit before taxes for this year 2025 to EUR 1.1 billion to EUR 1.15 billion. And Liane Hirner, our CFO, will then give more details to the topic of the results of the first 3 quarters. The second big topic, and we know that there is big expectation also from your side that we today are ready to give you first information about our interest in Nurnberger, and we also released the information that the public purchase offer, which ended on the 21st of November this year at an acceptance rate of 98.38%. So out of that, Gerhard Lahner, he is responsible Board member of VIG for this project. He also will give some information in detail about this topic. Myself, I will then follow with information about the new strategic program in the name of Evolve '28, which will be the new strategy for '26 to '28, and which will not only further strengthen our group, but mainly will focus also on the long-term profitable growth. Today, I will offer you the structure, the main topics. And I have to excuse that the targets to this strategic program will be approved by the Supervisory Board next week. So we will come to the detailed targets back to you as soon as possible after the approval of next week. We also are happy and glad that Peter Hofinger, Deputy CEO of Vienna Insurance Group is also attending this meeting and is also ready for questions from your side after our presentation. Saying this, I hand over now for the first topic about the performance to our CFRO, Liane Hirner. Please go onward. Liane Hirner: Thank you, Hartwig. Let's start on Slide 4 with the key figures over the first 3 quarters this year, which highlights the ongoing strong performance of VIG. Insurance service revenue of EUR 9.7 billion is up by 8.6%. Here, both P&C and Life & Health showed top line growth of more than 8% each, and I will go into more detail on that on Slide 6 in terms of the individual market development. Profit before taxes as preannounced last week and despite the goodwill impairment taken already at half year for Hungary increased by 31% to EUR 872.8 million. Main driver for this outstanding profit before taxes growth in the third quarter was an excellent technical result in P&C supported by low net combined ratio. The biggest contributor to this more than EUR 200 million additional pretax profit in absolute terms was Czech Republic, followed by Austria in the Special Markets segment. VIG's P&C net combined ratio improved to 92.1%, driven by favorable weather conditions. Our strong capitalization is reflected in a solvency ratio of 286% compared to the solvency ratio at half year of 278%, the SCR of roughly EUR 4.1 billion remained fairly stable, mainly due to the slightly higher capital requirements for non-life, life and health insurance, reflecting the increased business volume. The own funds of VIG of about EUR 11.7 billion increased by almost 4% or more than EUR 400 million in the third quarter. This is driven by operating earnings and the positive development also on the capital markets, resulting in higher market values of our investments. The solvency ratio, excluding transitional measures, stands at equally very strong 267% and increase also compared to the half year. It is clearly above our solvency target range of 150% to 200%, which does not consider transitional measures, and this also underpins the capital strength and the resilience of our group. Now on the next slide, we show the gross written premium development by segment. Premiums overall increased by 8.6% to EUR 12.5 billion. Double-digit growth rates were recorded in Poland, plus 13.5% and the Special Markets segment, plus 18.4%. The strongest contribution in absolute terms is coming from the Extended CEE segment, plus EUR 314 million, where especially Romania, Hungary, Slovakia and the Baltics made up for close to 3/4 of the additional premium. Special Markets, mainly driven by Turkiye as well as Austria, Poland and the Czech Republic, all increased their premium volumes by more than EUR 130 million each. In IFRS terms, this relates or translates into a very solid insurance service revenue development, which is shown on Slide 6. Here, in line with gross written premiums, the insurance service revenue also increased by 8.6% to EUR 9.7 billion. I would like to draw your attention to the Extended CEE segment. Insurance service revenues of overall EUR 2.87 billion already exceeds the level of Austria. Again, it's the market in the Extended CEE segment, for example, Baltics, Slovakia, Romania and Bulgaria, performing extremely well. In the Special Markets segment, it's a dynamic business in Turkiye despite hyperinflation, which accounts for the significant increase. This segment also includes Germany, Georgia and Liechtenstein with Germany and our Life and Non-Life companies InterRisk, they are contributing EUR 140 million in insurance service revenue. Last but not least, Austria, Czech Republic and Poland, all 3 with solid growth rates and a strong performance also in the first 3 quarters this year. The dynamic top line development of our group supported by weather-related claims translated in the third quarter into an exceptionally strong increase of our profit before taxes. On Slide 7, you will find a short summary of the results development and the figure for the net weather-related claims recorded in the first 3 quarters. Compared to about EUR 338 million in last year in the first 9 months last year, which were related to storm Boris, we recorded only EUR 160 million of weather-related claims so far this year, thanks really to the absence of the severe nat cat events. As already mentioned by Hartwig, the strong performance of our group so far this year provides us with the confidence to raise the target range for the group profit before taxes between EUR 1.1 billion to EUR 1.15 billion for the whole year 2025. Finally, I would also like to highlight the rating upgrade by Standard & Poor's, confirming VIG's excellent A+ rating and raising the outlook to positive. This was driven by our progress in broader diversification and followed the announcement of our intention to acquire a controlling stake in NURNBERGER, which was very positively received by Standard & Poor's. With this, I hand over to Gerhard, who will now share his insight to NURNBERGER with you. Gerhard, please go ahead. Gerhard Lahner: Thank you, Liane. Let me provide you with some background and also my personal take on the NURNBERGER transaction to explain you the strategic rationale and why we are highly confident that this is an excellent fit and will increase shareholders' value over the mid and long term. The following slides in this presentation will substantiate my top-down view and provide you with further details on German market and NURNBERGER. Let me draw your attention to the disclaimer on Page #8 and specify that we are still in the nondisclosure phase of the due diligence. And let me stress out that any figures published by NURNBERGER are seen in -- are to be seen as National GAAP German accounting principles, which are not comparable to IFRS 17/9. Well, earlier this year, VIG was approached by NURNBERGER management whether we would be interested to start talks about potential strategic partnership. Given the attractiveness of the German insurance market for VIG as a Special Market, with a high insurance density and penetration while being one of Europe's largest and most mature markets, well governed by BaFin, we entered into these discussions with a clear aim to increase our exposure in Germany in combination with our local company just recently mentioned by Liane, InterRisk Life and Non-life. So it should be clearly stated that this is not a market entry, but this is an expansion on an existing market that is with the VIG portfolio for 35 years plus. After first talks, both sides quickly realized that joining forces and simplifying the shareholder structure would be the most efficient way to return NURNBERGER back to a profitable and stable company. With a state-of-the-art IT landscape to best leverage on the strong brand and the sales footprint in across Germany. From our perspective, it became clear right away that NURNBERGER management has a clear strategic vision for the company to become a profitable player in the German market with a clear focus on prevention, occupational disability and a restructured Non-Life portfolio. Well, against this backdrop of the strong commitment of NURNBERGER's management, the cost efficiency program started by them Back to Black for the Non-Life part, but also the further diversification potential through the partially complementary life insurance portfolio and the experience in turnaround and IT transformation that VIG would bring to the table, we intensified our discussion. We strongly prepared for the nonbinding offer phase and we were finally granted exclusivity for a detailed due diligence. And in this due diligence, we clearly found ourselves confirmed in our basic assumption, which was further supported by the publication of NURNBERGER half year's result that the management is well on track to deliver. Right from the beginning, it became clear that the solid solvency position of NURNBERGER is, of course, combined with the attractive brand, the countrywide operating sales force and the strong determination of the local team to get back to the historic level of profitability, a very attractive asset. The unrestricted Tier 1 of EUR 1.9 billion will strengthen VIG's resilient foundation for further expansion in CEE, which clearly remains the strategic focus of our group. Through this transaction, right after closing the deal, all Tier 1, Tier 2 and 3 limits will increase as NURNBERGER has become part of VIG Group and therefore, provides the potential for further growth in CEE without diluting existing shareholders. At the same time, the risk profile of the SCR of NURNBERGER will provide a buffer when it comes to VIG's sensitivity of shifting interest rates downward out of the Austrian life back book. Most importantly, the investment can be financed from VIG's own liquid funds, providing us with the flexibility to optimize our funding structure in a more opportunistic way and taking benefit of deleveraging the last period. In addition to VIG's own funds, there is also a EUR 500 million revolving credit facility in place. So given the spirit of local entrepreneurship at NURNBERGER, the multichannel distribution system across Germany and a conservative reinsurance policy, we are very confident that the multi-brand approach with a strong NURNBERGER brand, combined with the additional scope for further diversification is going to support our operations in Germany in a profitable way, providing a resilient internal financing structure source when it comes to the future expansion in CEE region. As we are convinced that biometric risk in connection with occupational disability is a core competence that will be increasingly relevant to support our business in different Central and Eastern European countries, the addition with NURNBERGER team and their know-how in this field is just a perfect fit for VIG. In terms of cultural fit, with NURNBERGER being an independent insurance group for the last 140 years, the entrepreneurial management style as well as the historical proximity for Germany and Austria will provide a good foundation for NURNBERGER to become a strong member of VIG. In summary, we had a chance to look into the books of NURNBERGER and are confident that the company's turnaround will be successful. And through the acquisition from VIG truly supported by our involvement. So given, first, VIG's experience in turnaround non-life portfolios in challenging market environment; second, VIG's experience in IT transformation, especially in Austria, where the digital landscape is very similar to the ones at NURNBERGER and was successfully completed in 2023, a strong NURNBERGER management with a clear vision how to generate consistent cash streams for VIG's further growth in Central and Eastern Europe and VIG to leverage on the know-how of NURNBERGER in biometrics and occupational disability, VIG will benefit from the NURNBERGER's strong solvency position from day 1, enhancing its internal financing capacities over the midterm. Please note that after the announcement, intention to acquire NURNBERGER, Standard & Poor's, as mentioned by Liane, upgraded our rating A+ with a positive outlook with a particular focus on our financial strength and diversification potential for further growth in Central and Eastern Europe. If you allow me now, I would like to go -- to hand over to Hartwig Loger, CEO, for the presentation about the strategy. Hartwig Loger: Thank you, Gerhard. I will now give you the first insight about the structure of the new strategic program for '26 to '28. As you all know, we are still in the end spirt of the group-wide strategic program, VIG '25 ending this year. And I think with the expected performance, we raised, as we already said, to EUR 1.1 billion to EUR 1.15 billion, we see also the success of the activities of our running strategic program. With Evolve '28, as you can see also on the Slide #16, we used also a name which gives the first intention what we are looking for. It is not the big revolution, but a dynamic evolution, which is built up on the success of the last years and also the current performance we can show as VIG. The frame, which is shown here is in our understanding of the, I would say, USB model we are living as VIG. Our understanding is not being a big tanker in a centralized form, but being a dynamic fleet with responsible ships and this framing, which is shown here in these 4 parts will secure that this fleet has a common direction and the strategic performance also in the upcoming years. To start, maybe also in the description, you see on the bottom Values and Principles. I will go deeper afterwards, but we already were sure that it is the need maybe also to evaluate and also to a little bit, yes, renew the values and principles for the upcoming years and the challenges we are seeing in front. On the left side, with country portfolio and company strategies, this is more or less the backbone of this strategic part for the next years. What is meant, and I will also show afterwards, there are 50 individual company strategies. So over the last year, we developed under a common structure and on the basis of deep analysis of each market, a common strategic implication for each market of our group. And then the CEOs of the companies in the markets developed their company strategies for the next 3 years, and they were following a common structure of 5 strategic fields. This means that this framework for the next 3 years already has a detailed definition for each company of our group in targeting and action plans for their activities to improve the performance also for the next years. You see the group programs. We defined also 5 group-wide programs. These programs are not initiatives as we have defined it in VIG '25 because initiatives have been the offer to the companies in our group if they will also join these initiatives, the 5 group programs now we are focusing are really for group-wide activities seen, and they are coordinated by the holding or also competence centers out of our group. On the right side, you see also the fourth part, which is ongoing in CO3. Here, we define our activities in communication, collaboration, which is needed to really bring added value out of the best practice and the innovation and creative projects in between the group and cooperation, which is focusing also to find the synergies in between the companies working on one market. On the next slide, you get the overview. I will not now present in detail, but we clearly define the 5 values for our group. Plurality, which is the basis for our fleet. We have not only 50 companies in 30 countries, we also have a very high diversification in between also the different markets, the different brands, also the different sales channels. We are active all over our brands and companies. We have the basis of our 33 million customers already, which will be improved and increased also by incoming NURNBERGER customers in Germany soon. And this is the Plurality basis, which is also our understanding that this Plurality in the activity of the fleet is the added value of our model. Entrepreneurship following this Plurality idea means that especially the local entrepreneurship, the self-responsibility in between the management of the ships in our fleet and the companies, it is the strength and the motivation and identification of all our managers and leaders. Responsibility on one side, of course, to the society, but also as we know, out of the challenges of climate change, there is a broad basis in our understanding that we want to make sure that our economic value today is not in any form destroying the future of our society. Excellence, which is clear in the focus of our company activities on the customer basis to make sure that in all our services, products, processes, we are focusing also to deliver excellent services and products, and that's the base of our performance. And passion, it is needed also to create and find out the right form that we are clear for our 33 million customers, yes, I would say, best partner in all our solutions. The Principles on the next slide, we also evaluated to make sure that the description in the way how we work together in this group. And I'm open to say that the interest also in the partnership, which was developed now also in the purchase of NURNBERGER that NURNBERGER, as it was also said by Gerhard Lahner, it will be a perfect strategic fit also in the understanding of a group-wide common activity also in the future. Now a little bit deeper in the content on Slide #19. You see here the 5 strategic fields. This is the common structure of each individual strategy of each company of our group. The one field, the most important and the first one is the expand of the customer base and also the enrichment in the activities that there, we will focus in all the companies in also cross-selling and upselling potential out of this base we already have and this base, we also want to increase in the number of customers. The second topic in line is to enhance the distribution footprint. As you know, we have a very strong diversified sales channel activity. And including also bank and direct sales, it will be the basis to improve on a better way and also to use also the challenges and advantages which will come up in the development also on digital basis. And also, we will come further on to that in artificial intelligence solutions in services which are provided in this form. Next part is Products. We enlarge also the product offerings. It was mentioned that here, we use the collaboration in between the group really to improve also the broad Plurality of offerings we have. And also besides this, there will be added services also as basis to strengthen our customer experience. Next is Operation. This field, the strategic field in each of the strategies of the companies is focusing on the effectiveness and effectivity of processes in our operations and also with improving the automation in between these processes in best practice forms in between the group. And last but not least, the fifth and very important basis employees to foster the people who are already active and to find also the best experts in our companies, which are needed for the innovation transformation we see all over our base. On the next slide, here, you see the 5 already mentioned group programs. which were developed also on a broad discussion basis in between the CEOs of our group. Here, we build on the relevant trends. We also discussed on broad basis, the trends already existing and upcoming for the next years and the challenges. And out of that, we clearly defined the main programs on one side, sustainability, which is an ongoing program, which has already been started 3 years ago. But there will be, again, a strong focus in delivering also solutions on the basis of underwriting as our key activity, but also in the asset management and operations field and which is important also for VIG to not only focus on the ecological part, but also on the social part, which includes society, our customers and also our employees. Capital management. In the understanding of the group, it's very important also for the efficiency in between the capital management of our companies in the group. And Gerhard Lahner is leading this capital management program starting in a pilot last year, and we will work out for the next 3 years that we have a very professional also management of the upstream of dividends out of the performance of our companies. Banking cooperation, which is mainly driven by the backbone, which we have in the strategic partnership with Erste Group, but we will not only work on the improvement of this strategic partnership with Erste, where we are active already in 7 markets together. And we also see the opportunity all over the group in all the other markets to expand with additional partners beside the 7 markets of Erste. Artificial intelligence, I think it's clear for all of us that there has to be a focus in the activities, which already is on a broad basis. I sometimes already mentioned that in the activities of our VIG Accelerate program, more than 50% of the projects which are brought in by the companies in this kind of platform of project for digital solutions, we have more than 50% already on the basis of AI. But it is needed, and this is what we will focus in the next 3 years to optimize also the efficiency in the use of the use cases in between the group and all over the group. And the fifth program, focusing on health, which we see in all the markets in different forms as a high potential for developing not only on product, but especially on service basis, and there, we also will have a focus in analyzing and then also supporting our companies in a group-wide form on these solutions. The next slide, evolve28, CO3, I already mentioned, I will not go deeper. Just repeat, collaboration here shown in the symbol of Spider-Net. This is really supporting the added value created out of the broad innovation and creative basis of all our companies. This is really, I would say, a boost in the way of creating new solutions in all forms in between our business. Cooperation, yes, inside, we say ensures independence in the way that there is a clear focus in the optimization of the cooperation in between our companies in one market. For example, in the back office optimization between Wiener Stadtische and Donau in Austria, also other companies in Czech, Slovakia, Poland, and there is a big range where we can deepen also the optimization, partly also automization of common activities. Communication already mentioned, we have as information already provided more than 40 communities, which are active in between our experts and specialists in between the group. So there is also a very strong interlink between our fleet. Last but not least, on the Slide #22, I offer to you also knowing your expectation. And we already mentioned by myself and also Gerhard Lahner, there is still a little need of patience from your side. Why? We have now the performance of Q1 to Q3 for this year, and we also raised our outlook for the result of '25. Regarding now the program evolve28, which I shortly presented in its structure and content, there will be the next week, our Supervisory Board meeting where we will approve the targets for the next 3 years, including also the targets coming up from evolve28 strategic program. What we can offer is then next week after the Supervisory Board meeting, there, we will also then comment and declare the targets and the figures for the next 3 years to you. And Peter Hofinger and me, we will join also in a dance program, all bank conferences, which are offered in London, in Frankfurt, in Hamburg and also the others, where we then hope that we will have the chance also to present to you maybe also in personal talks then not only the program, but also the targets and some interesting discussions. The closing of NURNBERGER. And I know that there is a big expectation also regarding the detailed KPIs and targets from the inclusion from NURNBERGER, but we still have the need that the closing, which we expect until the second half -- beginning of second half of '26, there will be then the start of the financial integration, which cannot be done before. But immediately after this financial integration phase, we will also have the chance then to integrate the targets of NURNBERGER also in the strategic targets of this evolve28 program. And then we really can not only opens, but give a deep insight in also the calculations and also the valuation of all this influence of integration of NURNBERGER. So I know that there might be a bigger expectation, but there are also the legal frameworks we have to declare. And out of that, we are also open now to answer your question, and we are looking forward to the first questions you have. Operator: [Operator Instructions] Thank you very much. The first question comes from the line of August Marcan from UBS. August Marcan: I have too many, but let's start with 3. First one on the combined ratio. This year, the 9-month combined ratio benefited a lot from benign weather. And last year, we had worries. So in the last 2 years, we kind of had the opposite extremes. So I was wondering if you could tell us what you see as a normalized combined ratio level for the group going forward? Then the second question, a rather simple one, apologies for that on your new strategic plan. I'm not sure I fully understood the time line. You said that next week, you're going to have the approval from the Board. Are you then immediately going to have an event or publish this? Or what exactly is the time line? And if -- again, on the CMD, you said that the financial targets are going to be published there. Could you just tell us now if -- what the KPIs are, not the numbers, but what the metrics are that we're going to be looking at because I think your last strategic plan didn't have a lot of financial KPIs. So I'm not sure what this one will include. Peter Höfinger: Thank you for the question to the combined ratio. Yes, you are quite right that the comparison of last year to this year is quite difficult as having Boris, which was a gross claim of but you know and we have presented this that we do have a quite conservative reinsurance policy. We are still able also over the last years in the hardening of the reinsurance market, keeping low self-retention. So also last year, for the first 9 months, we had a combined ratio of 94.3%. This year, it is considerably better with 92.1%. But you also see that the difference, if you compare the amount of the events is not so significant as we have as a mitigation element, reinsurance, which we are willing to buy in quite in a bigger amount. What was beneficial this year to our results, and this is outstanding is the phenomenon of having less frequency of small- to medium-sized events. So this has had quite an impact on our improvement of our loss ratio. The mild climate and the absence of this frequency of small to medium events, we are not impacted in a year by the big events due to our reinsurance. So therefore, I think you see the limited volatility of our combined ratio from last year to this year, having a very big event and having this year an outstanding event. So I think between 92% and 94% is what is our combined ratio to be expected going forward. Hartwig Loger: Okay. Thank you, August, for your question. I will take question 2 and 3 from my side. First, yes, there will be also an information immediately next week when we have the approval from the Supervisory Board to the targets 26 to 28 next week. And what you can expect, there will be a very transparent basis also in the information about these targets. It will be a target about the growth a target about profits. It will also include combined ratio, which you asked before to Peter Hofinger. And there will be also a target clear on return on equity as an operative return on equity, and there will be also targeting the solvency ratio. So these are the targets which will be discussed in the Supervisory Board, and then we will clearly make it transparent to the capital market about the targets we have for the next 3 years out of our program. Operator: Next question comes from the line of Rok Stibric from ODDO BHF. Rok Stibric: Yes, I would have just one question and it's -- forgive me if I'm being a bit impatient. Usually, you disclose these things with half year and full year results, but I would still like to hear your view on future investment income expectations. So the question is, do you expect future investment income to be roughly at the same level as this year? Or do you expect this line of your P&L to improve in the future or maybe given the changing interest rate environment to even decrease? I was just wondering what your thought is on developments in the future. Liane Hirner: Liane, I'm happy to take your question regarding the investment income. What I can say is that we have a very positive development in the investment income in the first 3 quarters. So this year, so no impairments, no one-offs. Also, we have a positive development of the interest rates, especially in CEE also, for example, including Turkiye. And due to the increased business volume, also interest income or financial income is increasing. So I would expect a positive development also on this side in the upcoming quarters. I hope this answers your question. Operator: We now have a question from the line of Youdish Chicooree from Autonomous Research. Youdish Chicooree: I've got 2 questions. The first one is on the top line development. I was wondering whether you could provide a split between Life and the main lines in Non-life, like [indiscernible] other property, et cetera? And then secondly, on NURNBERGER, could you tell us, I mean, how long will the turnaround of this business take? And are you able to share what your view is of the sustainable earnings power of that company, please? Peter Höfinger: Okay. I'm happy to take the question about the development of the business lines. If you look on our non-life portfolio, so we are growing all over the group in health business. And what is very positive to see, we are growing by 12% in health. What is very positive to see that we have a quite very good dynamic in health business in Central Eastern Europe. We see a growing demand by our clients and by our markets getting health insurance, and we are having quite innovative concepts and also offering this market-to-market depending on result. On the framework of the social security laws there. We do have a growth in property and casualty of around 5.6% all over the group. Also here, you will see a stronger growth dynamic in Central Eastern Europe as this is also linked to the overall GDP growth and the economic dynamic. And as you know, there is a quite positive GDP growth in Central Eastern Europe, where we are benefiting with our property business. When we come to the motor business, we have to differentiate between motor TPL and motor own damage. In motor TPL, it is around 11%. And in motor own damage, it's more than 6%. The background here is over the last years, we have seen in Central Eastern Europe quite an overproportional salary inflation. Differently to maybe Western Europe, increased salaries more or less go immediately into consumption and not just on the savings book. Part of this consumption also goes in cars and buying new cars. This is the growth driver for motor own damage, but also in motor TPL. If you look on the Life business, I think you also asked, overall, the life business is growing by more than 8%. Here, it is the classical life business, which is growing, but also in unit-linked, we are closer to 6% of the performance. So also here, we have, I think, a quite attractive dynamic. The same true, what I said for the other business lines. The driver of this growth is Central Eastern Europe, where the demand for old age savings is growing, and we also see this as one of our further future potentials of growth in the years to come. I hope I have answered your question. Gerhard Lahner: Let me take the second one on NURNBERGER. I will -- in my first part of the answer, I will refer to publicly available information. NURNBERGER itself has announced that the turnaround for the non-life part will last until 2027. We have seen quite a strong development this year, supported, of course, also by favorable claims development as well as a positive market cycle on the German insurance market when it comes to non-life profitability. So we trust the management to be well on track with the turnaround of the non-life part. The IT part will take probably a little longer. Nevertheless, given the status as which -- in which we are as of today, I think that we will have the chance to have more deep dive with NURNBERGER management on that issue when the closing has been done. Nevertheless, we are aware of that this will, of course, also long term decrease the cost base. So I think that from our point of view, we are -- I think that the NURNBERGER management is well aware of that we are expecting them when you ask me to return to historical profitability levels. As you know, not only you are impatient, but we as well -- I guess this is also well known to the NURNBERGER management. Youdish Chicooree: And can I ask a follow-up question, please? Gerhard Lahner: Yes. Youdish Chicooree: So you're expecting the closing in the second half of next year. So do we have to wait till then to get, let's say, IFRS 17 numbers for NURNBERGER basically? Gerhard Lahner: I would like to give you a different answer, but the answer is clearly yes. Operator: [Operator Instructions] The next question comes from the line of Thomas Unger from Erste Group. Thomas Unger: I'll connect to the last question and answer on. NURNBERGER. What can VIG do here to advance and accelerate the transformation process for NURNBERGER? And you already said that the time line remains about the same as what NURNBERGER guided. But when do you expect the first dividends from NURNBERGER to VIG? That will be my first set of questions. And upon closing, do you expect any significant one-offs to be incurred or immediate major investments that you anticipate for the second half of 2026? And then also, I'd like to ask you now that you're in the process of this takeover, how does that affect your growth strategy in Central and Eastern Europe? Are you able to take advantage of any M&A opportunities or other growth opportunities that may arise in the next 1 to 2 years? I don't know you haven't said anything or any details given any details on the capital hit that you'll be taking as you attractive opportunities in Central and Eastern Europe in the next 1 or 2 years? And if you allow me to also ask you on the dividend, the upcoming dividend from 2025 earnings. Will the NURNBERGER acquisition in any way affect the management Board's decision process leading up to the dividend proposal from 2025 earnings? Gerhard Lahner: On what can VIG bring to the table? I think that in different markets and especially in challenging market circumstances, I guess that VIG has shown that we know what it means to turn around, especially non-life portfolios. But I think that what we see is that the NURNBERGER management is very well in place and know what they do on the restructuring and turning around the non-life portfolio. Nevertheless, I guess that we can bring some know-how. In addition, I think that I'm not sure if everybody is aware of, but VIG has taken advantage of IT transformation program executed by Wiener Stadtische and Donau [Insurance] the last years ended in 2023. And what VIG can bring to the table is that given the fact that the IT landscape is very, very comparable to -- between VIG in Austria and NURNBERGER IT landscape, we are very confident that we know what needs to be done, first point. Second point is when it comes to talent, we have the team that was successfully doing this transformation in the DACH region still on board. You just should probably know that we decommissioned a lot of all systems in Austria which finally gives you also going forward, quite some flexibility on the digital journey that, of course, you need sooner or later. Second of all, dividend expected. I think that, in general, our intention is that NURNBERGER will keep on paying dividends in general. Nevertheless, of course, we -- and this leads to, I guess, your third question, one-off investment, we will need to judge what is the best way to finance the long-term IT transformation program of NURNBERGER. Nevertheless, we don't expect this to be a big upfront amount, but probably be spent over several years. And then we would probably judge on what is the most efficient way to deploy capital in NURNBERGER or within the entire group. I guess the fourth question is twofold. One is the financial part of the flexibility for further -- taking further advantages of inorganic growth or M&A transactions in Central and Eastern Europe. And the second one is the managerial question. I would take the first part. So definitely, given the deleveraging that VIG has gone through the last periods and the financial flexibility that we have from our balance sheet, I do not see any immediate restriction out of either the transaction nor anything upcoming. The managerial part of the answer, I would ask probably Hartwig Loger to give you the answer. Hartwig Loger: Okay. Thank you, Gerhard. I will take also the question about our possibility also to invest and go on in the growth of Central Eastern Europe. This is clear the target, and we also including our investment in NURNBERGER, we are ready and also in part of the program of evolve28, we are still interested in possible profitable growth and also investment in the enlargement of our activities in Central Eastern Europe. And as we expect maybe coming up soon also with some targets, we have also already on our radar. I think the most important thanks also for that question, our investment in NURNBERGER will not have any impact to the dividend payment out of the outperformance of '25, which is expected. So we have the clear definition of our policy to dividends. So there is the floor, and we are clear that with the performance on the operative side, there will be also the definition and the increase on the dividend payment for this year. I hope this gives security to you. Operator: We have a follow-up question from the line of August Marcan from UBS. August Marcan: Two quick questions on NURNBERGER. One is with this acquisition, you're getting some businesses that maybe are not core for Vienna like the banking business. Have you considered what you want to do? Do you want to keep the business, keep NURNBERGER as a whole? Or are you looking to dispose of the non-insurance asset that NURNBERGER has? And then the second question, you're also bringing from NURNBERGER a sizable investment portfolio and their asset allocation is quite different from yours. They have much more equities and a bit more real estate than you do and much less bonds. Have you considered what the plan is here? Are you going to move them to your strategic asset allocation? Or are you going to leave it as is? Gerhard Lahner: Thank you very much for those questions. The first one is it's probably still too early. Definitely, the focus of the acquisition for us is the core business, which is the entire insurance business of NURNBERGER. So this is the focus. The rest we will see further down the road when we are able to judge immediately after closing. The second one is on the asset allocation. VIG will not move away from the conservative asset principles that we have in place. Of course, there is an interlink between the asset portfolio of NURNBERGER. So we will first very thoroughly analyze what are impacts. But definitely, we are supposing to continue VIG's conservative investment approach in the long run. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Nina, Head of Investor Relations, for any closing remarks. Higatzberger-Schwarz Nina: Thank you for your participation in today's call and your questions and interest. As mentioned by Hartwig Loger, our CEO, our evolve28 targets will be announced next week. Investor Relations is available to provide support and assistance with any further questions or requests for meetings. And I hope to be in touch soon. In the meantime, goodbye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to the Vantage Drilling International's Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to turn the conference over to your speaker today, Rafael Blattner. Please go ahead. Rafael Blattner: Thank you. Good morning, everyone, and welcome to the Vantage Drilling International Limited Third Quarter 2025 Earnings Conference Call. On the call with me today is Ihab Toma, our CEO. This morning, we released our earnings announcement for the quarter ended September 30, 2025. The earnings release is available on our website at vantagedrilling.com. Please note that any comments we make today about our expectations of future events and projections are forward-looking statements pursuant to the Private Securities Litigation Reform Act. We have based forward-looking statements on management's current expectations and assumptions and not on historical facts. Examples of these statements include, but are not limited to, our expectations regarding future results, including expectations regarding our liquidity position, future costs and expenses related to upgrades and out-of-service work as well as contract preparation costs and expenses. Forward-looking statements in today's call are subject to a number of risks and uncertainties, many of which are beyond our control and could cause actual results to differ materially from the projections made today. Vantage does not undertake to update any such statement or risk factor that could cause actual results to differ materially from our expectations. We refer you to our earnings release and financials available on our website. We have prerecorded our prepared remarks and are participating on the call remotely to manage the question-and-answer session segment of the call. In the event there are issues with sound quality or of a similar nature, please accept our apologies in advance, and thank you for your understanding. Now let me turn the call over to our CEO, Mr. Ihab Toma. Ihab Toma: Thank you, Rafael, and welcome, everyone. I am pleased to report a successful third quarter of 2025, driven by safe and efficient operations. As previously reported, we sold the Tungsten Explorer on August 11, 2025, for $265 million to the joint venture with TotalEnergies, in which TotalEnergies owns 75% interest and Vantage owns 25%. The consideration consisted of $198.75 million in cash and $66.25 million in equity. Vantage will continue to operate the Tungsten Explorer under a management agreement for 10 years with an option to extend for an additional 5 years. Subsequent to the sale, the Tungsten Explorer completed its scheduled maintenance, certification and upgrade work scope in Las Palmas and has since mobilized back to Congo and successfully commenced operations on November 5, 2025. As a result of the sale, Vantage redeemed its outstanding senior notes of approximately $65.1 million on September 10. In April, we announced a conditional letter of award for the Platinum Explorer for an approximately 260-day campaign, including mobilization and demobilization. Unfortunately, in October, Vantage was required to terminate the contract due to changes in the applicable economic sanctions that made performance of the contract unlawful. Prior to the sanctions being imposed, Vantage was both contractually entitled to and received a payment to cover the preparation costs incurred. Accordingly, we do not expect this termination to have a material financial impact on the company. I would now like to take you through our progress in relation to our three corporate goals of: One, maintaining our stellar safety and operational performance; two, the contracting of our entire fleet; and three, achieving excellent stakeholder returns. I will begin with our first corporate goal and our #1 differentiator, our stellar safety and operational performance. Our safety performance remained strong in the third quarter with 0 recordable and lost time incidents. Environmental performance remained strong this quarter with no reported incidents with our focus remaining on sustainable and efficient operations. The company's sustainability initiatives continue to progress, including enhanced GHG emissions tracking and ongoing waste reduction efforts, whilst all corporate certifications remain fully compliant. Now switching to operations. Revenue efficiency for the Tungsten Explorer during the third quarter of 2025 was 99.8%, while our managed fleet achieved 99.4%. I will now walk you through our fleet status, which is directly aligned with our second corporate objective, contracting the entire fleet. Starting with our own fleet, for Platinum Explorer, our priority remains to focus on opportunities and adding term backlog. The rig is participating in a number of active tenders and will participate to the highly anticipated ONGC tender for a 3-year plus 1-year option campaign. Turning to the Tungsten Explorer. The rig has successfully completed its major out-of-service work scope in Las Palmas and commenced drilling operations in the Republic of Congo for TotalEnergies under the management agreement. The firm duration for this contract is 160 days with additional options for a further 290 days. For the managed jack-ups, the Topaz Driller continues operations with CPOC in the joint development area between Malaysia and Thailand. There is currently over 11 months remaining of the firm term and a further three 3-month options available to be exercised with the first option strike date in the first quarter of 2026. The Soehanah concluded operations with Metco Energies in Indonesia in the third quarter and subsequently demobilized to Johor Bahru, where the rig is idle and is being actively marketed for a number of opportunities. At quarter end, our total backlog was $206.6 million. The majority relates to our managed fleet, primarily the Tungsten Explorer's 10-year management agreement. The remaining balance reflects the Platinum Explorer's backlog as of quarter end, which has now been fully earned and recognized upon contract termination. Turning to market dynamics. We continue to see positive long-term fundamentals in both the shallow water and deepwater segments, while we still expect some idle periods across all segments extending through 2026. This outlook is supported by the issuance of several deepwater longer-term tenders and jack-ups being recalled to operation on long-term contracts after periods of suspension in the Middle East. These signs of renewed contracting activity reinforce our view that utilization will continue to improve gradually, underpinning a resilient offshore market in the years ahead. Moving to our third corporate goal of achieving excellent stakeholder returns. In the third quarter of 2025, we ended with a total cash balance of $197.4 million. This includes $2.4 million of restricted cash and $39.7 million of prefunded cash by managed services clients. The increased liquidity was driven by the sale of the Tungsten Explorer, partially offset by the redemption of senior notes. The monetization of the Tungsten Explorer highlights Vantage's continued success in its managed services business, setting the company asset-light, debt-free and well positioned to return capital to shareholders. In closing, we remain focused on maintaining exceptional safety and operational performance and securing profitable long-term drilling contracts to deliver strong returns for our stakeholders. With that, I would like to turn the call back over to Rafael to take us through the numbers. Rafael Blattner: Thank you, Ihab, and welcome, everyone. I will now provide an overview of our financial performance for the quarter ending September 30, 2025. The company ended the third quarter with approximately $197.4 million in cash, up from $89.6 million at year-end 2024. Excluding cash prefunded by our managed services customers, VDI's cash balance was $157.7 million compared to $61.4 million at year-end. This meaningful improvement reflects the sale of the Tungsten Explorer to the joint venture and demonstrates the continued execution of our asset-light strategy, delivering accretive transactions and strengthening value for our stakeholders. The increase in cash during the quarter of $96.3 million, net of managed services prefunding, was driven primarily by $198.8 million of proceeds from the sale of the Tungsten Explorer and $4 million received from the purchase price adjustment on the Soehanah sale to ADES. These inflows were partially offset by $65.1 million used to redeem the senior notes, $12.5 million used in operations, $11.6 million invested in the joint venture for scheduled out-of-service maintenance and equipment certification, $9.6 million of capital expenditures, $5.2 million of cash interest and $2.5 million in repurchased shares and dividend equivalents. Working capital at September 30, 2025, increased to $154.5 million from $115.3 million at year-end. The increase was driven mainly by higher cash and a rise in accounts receivable, including $20 million from the now terminated Platinum Explorer contract, which we collected in the fourth quarter. These increases were partly offset by a $29.6 million reduction in inventory after the sale of the Tungsten Explorer and a $20 million increase in performance obligations for the Platinum Explorer, which are now fully recognized following the contract termination. Accounts payable also increased by $14.7 million, reflecting out-of-service and mobilization costs for the Platinum Explorer, out-of-service projects for the Tungsten Explorer and ongoing operations. For the third quarter and year-to-date of 2025, we reported revenues of $23.3 million and $89.7 million, respectively, compared to $49 million and $174.9 million in the same period last year. The decline in revenue reflects our strategic shift to an asset-light model, which resulted in fewer operating days for the Tungsten Explorer following its sale, the sale of the Topaz Driller and Soehanah and the completion of the Capella, Polaris and EDC management agreements. These impacts were partially offset by higher management fees. Revenue efficiency in the third quarter of 2025 was 99.8% and 99.4% for the Tungsten Explorer and the managed fleet, respectively. Year-to-date, revenue efficiency was 99.8% and 98.5%, respectively. Operating costs for the third quarter were $40.4 million compared to $38 million in the same quarter of 2024, an increase of $2.4 million. The increase was driven mainly by the $12.9 million write-off of deferred costs related to the sale of the Tungsten Explorer, the early contract termination warranty for the Soehanah of $2.4 million and higher reimbursable costs. These increases were partially offset by the completion of the Capella and EDC management agreements, the sale of the jackups and lower Platinum Explorer costs due to completion of the out-of-service work scope. Year-to-date operating costs for 2025 were $101.7 million compared to $130.3 million in the same period of 2024, a decrease of $28.6 million. The reduction reflects our strategic shift to an asset-light model, driven by the sale of our jackups and the Tungsten Explorer, the conclusion of the Polaris, Capella and EDC management agreements and lower Platinum Explorer costs due to reduced activity. The decreases were partially offset by the write-off of deferred costs related to the Tungsten Explorer sale, the early contract termination warranty expense for the Soehanah and increased reimbursable costs. General and administrative expenses for the third quarter and year-to-date were higher by $900,000 and $2.5 million, respectively. The increase was mainly due to accelerated vesting of share-based compensation of $2.5 million and $5.7 million, respectively, partially offset by lower professional fees related to the Tungsten Explorer transaction, the Bermuda domiciliation and the Oslo listing. Equity investment loss from unconsolidated affiliates totaled $1.8 million for the third quarter and $2.4 million year-to-date in 2025. These losses primarily reflect our share of joint venture expenses associated with the Tungsten Explorer's major maintenance, certification activities and upgrade work performed ahead of and during its out-of-service period. For the third quarter of 2025, gain on sale of assets was $102.1 million associated with the sale of Tungsten Explorer to the joint venture. The year-to-date gain on sale of assets was $102.4 million due to the sale of Tungsten Explorer and purchase price adjustment from the sale of the Soehanah to ADES of $300,000. Interest income was higher by $1.4 million for the third quarter and $1.3 million for year-to-date due to higher cash balance after the sale of the Tungsten Explorer. Interest expense decreased by $4.6 million in the third quarter and by $12.4 million year-to-date, reflecting the redemption of $184.9 million of senior notes in November 2024 and $65.1 million in September 2025. The net result attributed to shareholders for the third quarter and year-to-date was $67.2 million and $32.2 million, respectively. Please note, we will post our September 30, 2025, quarterly report to our website later today. And with that, I will now turn the call back over to the operator to begin the Q&A. Operator: [Operator Instructions] Our first question comes from Fredrik Stene with Clarksons Securities. Fredrik Stene: I wanted to group this a bit thematically touching first on the Platinum Explorer then a bit on the Tungsten and then talking kind of high level about shareholder returns in the end. So let's start with the Platinum Explorer. Just one classification -- sorry, clarification. Did you say, Rafael, that you had received $20 million in the fourth quarter or did I hear... Rafael Blattner: Yes. You're talking about the Platinum Explorer, correct? Fredrik Stene: The Platinum Explorer, yes. Rafael Blattner: Yes. We did receive $20 million during the fourth quarter. Your understanding is correct. Fredrik Stene: Yes. Okay. And those $20 million, if you kind of net that -- this was also my understanding from the prepared remarks, if you net that against the work that you have been doing on the rig in relation to that contract prep, you'll be effectively net 0 around that? And second, what should we think about kind of OpEx-wise for the Platinum Explorer until it gets new work? Rafael Blattner: All right. So your understanding is correct on both the revenue question and on Vantage being somewhat indifferent in terms of inflows, net of outflows. Regarding the Platinum [indiscernible] is a warm stacked or waiting on a contract. For modeling sake, I would use approximately $50,000 a day. It's a proxy for its idle cost. Fredrik Stene: All right. Great. And I guess you're still going to be targeting the ONGC tender as like the main potential long-term work for this rig. Beyond what you said in the prepared remarks, are you any other latest and greatest news around ONGC and the tender that we should be aware of? Ihab Toma: Fredrik, first of all, thank you for being the first on the line for questions. You were in the queue before we even started the meeting. So that's good. So yes, no, so ONGC is scheduled to issue -- to receive the bids on Thursday. As I'm sure you have followed, there has been -- every week, there has been a delay for 1 week, an extension for 1 week. So we hope that this time, we will be submitting on Thursday, but that's the only news at the moment. Fredrik Stene: All right. And then my last one. Regarding the Tungsten Explorer, obviously, there's going to be some nice asset-light cash flow going forward. But can you just elaborate a bit on the dynamic? What would happen with your management fee if the rig itself doesn't have a contract or doesn't get an extension? Is it going to average around $47,000, $48,000 per day over a 10-year period, but how would that dynamic be governed in the short term to gap on the rig? Ihab Toma: I'll take that question, Fredrik. The JV number one, there is a joint venture for the ownership of the asset and the ownership split is going to be -- or it is 75% TotalEnergies and 25% in Vantage. In the event that there is no work for the Platinum Explorer, the JV is kept whole, once it comes to the management fee side, if there is no work, there is a reduced fee to the manager. And then whenever the rig is ramping up to go back to work, the fee increases and then you would get back to the $47,500 on average once the rig is mobilizing, demobilizing or operational. That's how the deal was structured. So no exposure on the ownership side. And on the management side, there are reduced fees in the event that there are no wells to be drilled by TotalEnergies or third-party operators. As a reminder, this deal can operate for third-party operators, and that's worth noting. Fredrik Stene: All right. And actually, one last one. I'm sorry about hijacking all the questions here, but I think kind of in the end there, you said something about being well positioned to return cash to shareholders. And I apologize if that's not the exact quote. But I wondered now that you have received all this cash, has anything changed in the way you view that you think still that having a contract on the Platinum Explorer will be like a prerequisite to paying out a dividend? Or do you feel comfortable that you could potentially do that sooner rather than later? Ihab Toma: Fredrik, there is no decision that has been taken on that. We do have a Board meeting early December, and it's an agenda item, as you can imagine. But for now, there has been no decision taken. Operator: [Operator Instructions] And I'm not showing any further questions at this time. And as such, this does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Good day, everyone, and welcome to the Fourth Quarter 2025 HP Inc. Earnings Conference Call. My name is Regina, and I will be your conference moderator for today's call. At this time, all participants will be in listen-only mode. We will be facilitating a question and answer session toward the end of the conference. Should you need assistance during the call, please signal the conference specialist. As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Alok Juhyol, Head of Investor Relations. Please go ahead. Alok Juhyol: Good afternoon, everyone, and welcome to HP's Fourth Quarter 2025 Earnings Conference Call. With me today are Enrique Lores, HP's President and Chief Executive Officer, and Karen Parkhill, HP's Chief Financial Officer. Before handing the call over to Enrique, let me remind you that this call is a webcast and a replay will be available on our website shortly after the call for approximately one year. We posted the earnings release and accompanying slide presentation on our investor relations webpage at investor.hp.com. As always, elements of this presentation are forward-looking and are based on our best view of the world and our business as we see them today. For more detailed information, please see disclaimers in the earnings materials relating to forward-looking statements that involve risks, uncertainties, and assumptions. For a discussion of some of these risks, uncertainties, and assumptions, please refer to HP's SEC reports, including our most recent Form 10-K. HP assumes no obligation and does not intend to update any such forward-looking statements. We also note that the financial information discussed on this call reflects estimates based on information available now and could differ materially from the amounts ultimately reported in SEC filings. During this webcast, unless otherwise specifically noted, all comparisons are year-over-year comparisons with the corresponding year-ago period. In addition, unless otherwise noted, references to HP channel inventory refer to tier one channel inventory, and market share references are based on calendar quarter information. For financial information that has been expressed on a non-GAAP basis, we've included reconciliations to the comparable GAAP information. Please refer to the tables and slide presentation accompanying today's earnings release for those reconciliations. With that, I will now turn the call over to Enrique. Thank you, Alok, and a special welcome to your first earnings call. Enrique Lores: And thank you to everyone for joining today's call. Today, we will cover our Q4 performance and 2025 full-year results. We will also highlight the opportunities ahead of us, expectations for fiscal year 2026, and how we are continuing to advance our company strategy. I want to begin by saying how proud I am of the progress we have made across our priorities, especially as we have navigated a challenging external landscape. We have driven sequential profit improvement the last two quarters, demonstrating our ability to quickly respond to the challenging trade environment we began to face in Q2. We also invested in our supply chain, making it more resilient to mitigate future risks, which is core to the future-ready plan we laid out three years ago. Our performance, both for the quarter and the full year, underscores the strength of our strategy, the power of our portfolio, and the tenacity of our team. Let's start our Q4 results. I am pleased to report that HP delivered its sixth consecutive quarter of revenue growth, up 4% year over year, largely driven by personal systems gains in commercial and consumer. In print, the market remained soft, but we delivered revenue in line with our expectations. Collectively, key growth areas grew double-digit year over year and delivered gross margin above our core business. Non-GAAP EPS came above the midpoint of our guidance. We continue to execute our future of work strategy. We are accelerating innovation with AI-powered devices that harness AI at the edge and create better together experiences across our portfolio. We are also empowering CIOs with the tools they need to drive transformation, and we are leveraging the power of customer data to deliver meaningful insights. These priorities guide our innovation. For example, we introduced a new edge class device, the AI station powered by NVIDIA, which can run up to 200 billion parameter models. It brings highly performant AI compute to the data instead of moving this data to the cloud for processing. We also launched innovations that boost productivity, such as the industry's first 49-inch ultra-wide monitor that integrates AI noise reduction. And focusing on solutions, we are making printing smarter and more intuitive with new AI-driven printing and scanning features. These enhancements make printing easier by cleaning web and email layouts, reducing unnecessary pages. They also streamline everyday tasks, improving scan quality, and auto-generating file names. Our Workforce Experience Platform now uses telemetry from 48 million endpoints to manage 2.4 million connected devices and already remediate more than 12 million IT issues every month. With its new integration with Microsoft Security Covalent, we are bringing generative AI directly into IT management for faster, smarter responses to critical issues. Inside HP, we are adopting our AI-powered innovations first, leading as a customer zero. For example, by deploying AIPCs with curated applications, we are equipping teams to deliver better results with their productivity app 16%. Now, I will take a closer look at the performance of each business unit. In Personal Systems, revenue grew 8% year over year, above our expectations. We drove worldwide PC market share gains, particularly in high-value categories, including commercial and consumer premium and workstations. With 40% of the installed base still on Windows 10 at the end of Q4, the Windows 11 refresh will remain a tailwind for the PC market into 2026. And demand for AIPCs continues to accelerate, now representing more than 30% of our shipments this quarter. In our key growth areas for Personal Systems, strong performance in data science workstations contributed to double-digit revenue growth in Advanced Compute Solutions. In print, revenue declined 4%, reflecting market softness and delayed purchasing decisions across all regions. Print units declined year over year but improved sequentially. We maintained our number one share in print. Supply revenue performed as expected, and we gained share. Looking closer at print key growth areas, consumer subscriptions delivered double-digit revenue growth and is just under $1 billion in annual revenue. We continue to see strong adoption of our all-in plan offering, with subscribers up double digits sequentially. Momentum continued in Industrial Graphics, which exceeded $1.8 billion in annual revenue, driven by the ninth consecutive quarter of year-over-year growth. We also saw double-digit growth in 3D, driven by applications in drone and robotics manufacturing. In Workhorse Solutions, double-digit growth was accompanied by key wins in industries such as energy, technology, and services. We added 10 new customers from the world's 200 largest companies, a testament to the strength of our sales team. Turning to our full-year performance, revenue grew by 3%, returning to growth. Our key growth areas collectively grew double-digit year over year and represented over a third of our revenue for the year. Personal systems revenue grew 6%, driven by commercial strength. Print revenue declined 4% as market weakness persisted, and we prioritized placement of profitable units. Supplies revenue declined 2% in constant currency, and we gained share. Operating profits declined as trade-related costs during the year took a few quarters to be absorbed. Aligned to our commitments, we executed with discipline in a challenging environment, driving a double-digit operating profit increase from the first half to the second. This reflects our ability to act decisively and accelerate supply chain transformation. HP continues to evolve, highlighted by recent leadership transitions that underscore our focus on combining the best internal and external talent to drive our long-term strategy. I am excited to welcome Kate and Patel as head of personnel systems, Manoj Lilanivas as Head of HP Solutions, and Prakash Arun Kundrum as Chief Strategy and Transformation Officer to our leadership team. Each brings the right capabilities, experiences, and a proven track record of driving innovation and delivering results. I also want to thank Alex Cho and Dave Scholl for their many contributions to HP. Their leadership has been instrumental in strengthening our business. Now, let me address the trend of rising memory costs and its implication for our business. Memory costs are currently 15% to 18% of the cost of a typical PC. And while an increase was expected, its rate has accelerated in the last few weeks. Our portfolio is less sensitive to the commodities market than it was during the last memory cycle. Over a third of the peers' gross profit comes from services and peripherals. We expect to mitigate the impact of these cost headwinds in the first half of our fiscal year with our inventory on hand and a set of actions across our portfolio and basket of commodities. For the second half of the year, we expect Personal Systems margins to be impacted. Therefore, we are taking a prudent approach to our guide while implementing aggressive actions to mitigate this. They include qualifying lower-cost suppliers and redesigning the portfolio for reduced memory configurations, accelerating our AI-enabled transformation to drive further cost savings, and raising prices in close partnerships with our channel and direct customers. From a supply perspective, we are in a good position due to our strong relationships and long-term contracts with key suppliers. Moving to fiscal year 2026, our plan is built on four pillars. First, in personal systems, we expect the revenue market to be up low single-digit with Windows 11 refresh, AIPCs, and pricing as catalysts. We also expect to see a positive impact from the growth of premium devices, including workstations, and an increase of attach rate from services and preference. Our goal is to perform better than the market. Second, in print, we expect to grow slightly faster than industry projections of low single-digit market decline. We intend to take share by doubling down on big tanks. We are increasing our marketing investments, driving new product and solution introductions, and expanding globally our successful all-in subscription offering. We also intend to grow share in office with new products and solutions designed for SMB and enterprise customers, reinforcing HP's leadership, manageability, security, and AI. And we intend to strengthen our leadership in 3D printing and further build on the momentum from labels and packaging to maintain our lead in industrial printing. Third, in workforce solutions, we are focused on growing recovering revenue by expanding our software, security, and services businesses. We are also scaling our workforce experience platform in key verticals, building on the strong momentum generated in fiscal 2025. Fourth, driving an improved cost structure remains a top priority. We have demonstrated our ability to execute major transformations as part of our future-ready program, over-delivering on our initial expectations. And as we look ahead, we see a significant opportunity to embed AI into HP, to accelerate product innovation, improve customer satisfaction, and boost productivity. We have launched a company-wide program led by an executive reporting directly to me, and we have a line of sight to drive approximately $1 billion of gross run rate savings over three years across product development, customer service and support, and many of our operational processes. These will result in workforce reductions of 4,000 to 6,000 people over the next years. These are some of the most difficult decisions we need to make, and we are committed to treating our colleagues with care and respect. We are planning to hold our Investor Day on April 23, where we will share the full plan on how AI is transforming HP. We remain confident in our ability to lead the future of work through technology. With a clear strategy and disciplined execution, we are focused on driving long-term value while managing short-term headwinds. I will now turn it over to Karen. Karen Parkhill: Thank you, Enrique, and good afternoon, everyone. We are pleased with our results in Q4, delivering another quarter of solid performance to close out the fiscal year. Our teams executed well, driving better-than-expected top-line growth fueled by continued momentum in Personal Systems and in our key growth areas. We delivered operating margins within our expected ranges for both businesses and non-GAAP EPS slightly above the midpoint of our guidance range, underscoring our ability to meet or exceed our financial commitments. We are also proud of the results we delivered with our multi-year future-ready cost plan. We surpassed our original $1.4 billion savings target, ultimately delivering $2.2 billion in cumulative gross annualized savings. And on $1.2 billion of restructuring spend, we delivered a savings to charge ratio of almost 1.8 times, well above our initially projected ratio of 1.4 times. On the quarter, we delivered revenue growth of 4% year over year, both nominally and in constant currency. In constant currency, EMEA grew 6% and APJ was up 9% on strong personal systems performance. Americas revenue was flat in constant currency, reflecting demand softness in North America, particularly in commercial. Our gross margin at 20.2% was impacted by a higher mix from personal systems and increased trade-related costs, which we partly offset with pricing actions and cost reduction. Contributions from our future-ready cost program and continued strong expense management drove operating expenses down as a percent of revenue year over year. These efforts also enabled our investment in key strategic and go-to-market initiatives aligned with our future of work strategy. All in, our non-GAAP operating margin was 8%, down year over year, but improving almost one point sequentially, in line with our expectations. And our non-GAAP diluted net earnings per share was $0.93, representing a sequential increase of 24%. Now let's turn to segment performance. We delivered better-than-expected top-line growth in personal systems, with revenue up 8% on increased ASPs and 7% unit growth. We outperformed the market in both consumer and commercial and continued to shift mix toward premium categories while maintaining disciplined pricing to help mitigate cost increases. Key growth areas performed well, including in AIPCs, where we doubled revenue year over year. In commercial, we drove revenue and units up 7% on continued momentum from Win 11 refresh and AIPC adoption. We also delivered strong performance in consumer, growing revenue 10% on 8% unit growth. We drove higher ASPs and share gains in consumer premium, in line with our strategy to rebalance our portfolio to a more profitable mix. And with holiday seasonality in consumer, we delivered revenue and unit growth of 17% sequentially. As we had signaled, the actions we started earlier in the year to leverage supply chain flexibility, reduce costs, and maintain pricing discipline, gain traction in the 5.8% in Q4, in line with our guidance. In print, our results reflect a pricing environment that remains competitive despite higher industry costs and continued market softness globally, as customers delay printer hardware refresh decisions. Against this backdrop, we continue to focus on profitable long-term unit placement, increasing lifetime value per customer, and cost reduction actions. We also drove solid growth in key growth areas in the quarter. Looking at the details, print revenue declined 4% on lower supplies volume and market-driven hardware declines in both consumer and commercial. Consumer revenue was down 9% year over year and commercial revenue down 4%, as higher ASPs were offset by lower volumes. Supplies performed as expected, down 3% year over year in constant currency. We continue to drive market share gains with favorable pricing that partially offset installed base and usage headwinds. For the year, supplies revenue declined 2% in constant currency, in line with our long-term range. And we delivered operating margin of 18.9%, in line with our guidance and at the top end of our range. Now let me move to cash flow and capital allocation. We generated $1.6 billion in cash from operations and roughly $1.5 billion in free cash flow on the strength of the sequential growth in Personal Systems. Free cash flow for the fiscal year was $2.9 billion, consistent with our outlook. And we improved our cash conversion cycle quarter over quarter, driving days payable up through higher manufacturing activity. On capital allocation, we remain committed to returning approximately 100% of our free cash flow to shareholders, as long as our gross leverage remains below two times and there aren't better return opportunities. In Q4, we returned close to $800 million to shareholders through both dividends and share repurchase, and returned more than $1.9 billion for the fiscal year. While we finished the quarter slightly above our target leverage ratio, we increased our cash balances, reserving sufficient funds to pay down 2026 debt maturities, which enabled us to buy back shares in the quarter. And if needed, as we move through the year, we can operate with higher cash balances in fiscal 2026 to further reduce leverage with maturities in fiscal 2027. Our Q4 and FY 2025 results reflect strong execution against challenging trade dynamics, with continued sequential improvement as promised in the back half of the year. Looking ahead, our guidance reflects the increasing inflationary pressures predicted for memory costs, which we expect at this point to have an impact as we move into the back half of our fiscal year. That said, we have a proven track record of managing challenges, and this one will be no different. We are prudently including these pressures in our outlook, yet we remain confident in the strength of our organization and partnership we've built with our suppliers to deliver the best possible outcome for our shareholders. We are also continuing to invest in driving transformation within the company, and we see a significant opportunity ahead to embed AI almost all that we do, to improve productivity, accelerate innovation, and improve customer experiences. As Enrique said, we have already made excellent progress in identifying key focus areas that are expected to generate approximately $1 billion in gross run rate savings by the end of our fiscal year 2028. And we expect approximately $300 million of those savings to be achieved by 2026. We estimate associated restructuring charges of around $650 million over the three-year period, which include roughly $250 million in charges to be incurred in FY 2026. We continue to identify additional opportunities as part of this initiative, and we'll share those with you at our upcoming Investor Day. Now turning to our segment outlook for FY 2026. In Personal Systems, we are aligned with industry experts projecting the PC unit TAM to decline in units, but the revenue TAM to grow low single-digit. Against that backdrop, we expect to gain share in premium categories, including AIPCs, workstations, and new device categories, and increase our attach of higher-margin offerings, all leading to revenue share gains. And we anticipate revenue to be stronger in the second half of the year, driven by normal seasonality and pricing as needed against rising costs. On operating margin, we expect the PSOP rate to stay in the 5% to 6% range in the first half of the year. And as Enrique said, we are already taking decisive steps to manage commodity inflation. However, with higher memory cost increases impacting our back half, we estimate our OP rate for the full year could be at the low end of our long-term 5% to 7% range. In print, we anticipate a low single-digit decrease in the hardware market in 2026, with growth in big tank and industrial markets offset by declines in traditional hardware. We expect to outperform the market as we execute our plans to gain share in Big Tank and higher-value office categories through new products and solutions, and to expand our subscription business and deliver continued growth in industrial. We also anticipate supplies revenue to be down low single digits in constant currency, within our long-term guidance range, with favorable pricing and continued share gains. And we expect print revenue by quarter to be generally in line with historical seasonality. We expect print operating margins for the year to be in the upper half of our 16% to 19% range, while we continue to focus on profitable unit placement and disciplined cost management. Beyond the segments, we expect corporate other and OI and E to be roughly flat year over year. And as is typical, we expect corporate other expense to be more heavily weighted in Q1 due to the timing of our stock compensation expense. With all of this, and including an estimated 30¢ impact from projected memory cost increases net of mitigations, we expect FY 2026 non-GAAP diluted net earnings per share to be in the range of $2.9 to $3.2 and FY 2026 GAAP diluted net earnings per share to be in the range of $2.47 to $2.77. For Q1, expect non-GAAP diluted net earnings per share to be in the range of $0.73 to $0.81 and first quarter GAAP diluted net earnings per share to be in the range of $0.58 to $0.66. On FY '26 free cash flow, we expect to deliver between $2.8 billion to $3 billion. As typical, we expect the second half to be stronger than the first, consistent with our earnings, and recognizing that our first quarter is typically lower given the timing of our incentive comp payment. Before closing, over the past year since joining HP, I have had the opportunity to not only learn and understand our businesses more deeply, but also reflect on key drivers of growth and value ahead. Across both print and personal systems, we have a relatively small but growing base of services, subscriptions, software, and products as a service that are contractual in nature. And as we look to the future, we intend to drive greater growth in this important base of higher-margin, more stable recurring revenue. So expect us to highlight this even more for you as we continue to focus on strengthening our company and increasing the value we offer to our investors. Lastly, we are pleased to announce today that we are raising our quarterly dividend to $0.30 per share. This is the tenth consecutive annual increase since our separation in 2015 and reflects the confidence we and our board have in our long-term outlook ahead. With that, I would like to hand it back to the operator and open the call for your questions. Operator: Thank you. We will now begin the question and answer session. We'll take our first question from the line of Wamsi Mohan from BofA. Please go ahead. Wamsi Mohan: Yes. Thank you so much. Guess to start, your free cash flow guide for next year is flat year on year despite the margin pressures you alluded to from increased memory pricing. What are some of the elements offsetting these headwinds in cash flows? And does the $2.9 billion in free cash flow include any cash restructuring charges? And I have a follow-up. Karen Parkhill: Yes. Thanks, Wamsi, for your question. We obviously remain focused on driving value to our shareholders through strong free cash flow. And like we're doing with our earnings guide, we're taking a prudent approach to our expectations there, particularly the recently projected increase in memory cost. So at this point, we expect our free cash flow to be relatively flat, as you said, with slightly lower earnings, and that's offset by improvements in working capital, primarily due to the favorable cash conversion cycle we have with the expectation of our growing PS business. We also expect CapEx and restructuring costs to be down slightly year over year. And I would just say on free cash flow, as always, if we can do better, we will. Enrique Lores: And yes, it includes the restructuring funds for the restructuring activities. Karen Parkhill: Yes. And we expect for the year the restructuring cost to be roughly $250 million. Wamsi Mohan: Okay. Okay. Great. And then maybe Enrique, like, we've seen plenty of memory cycles in the past. This one, you know, is fairly unprecedented in rate and pace of change. I'm just wondering, as you think about the various strategies you're going to deploy to navigate this, how do you think about price elasticity in a somewhat weaker consumer market? How do you think about despeccing and any other sort of strategies that HP could deploy in terms of being able to raise price without sort of impacting the demand elasticity, if that's at all possible? Like what are some of the things that you're looking at executing to limit this impact to what you quantified about $0.30 or so? Thank you. Enrique Lores: Thank you. So as you said, this is not the first time we go through a situation like that. So the team has plenty of experience handling these situations. I think the first thing that helps us in this situation is our scale. And by using our scale, we have today a good supply position, thanks to the long-term agreements and the relationships we have with many suppliers. And we are using that also to qualify additional suppliers to mitigate this even further. We also can use the breadth of our portfolio to make sure that customers get the right configuration and to de-scale in those cases where it's possible to balance company profitability with experience from customers. Something unique that we have this time is something that I have been mentioning before, which is the workforce experience platform. This is a tool that we deploy to our commercial customers that allows CIOs to monitor the performance of individual users. And by using telemetry data that we have been capturing over time, we can make recommendations for what is the optimum configuration per customer. But this will help us significantly for those customers that when we deploy the tool, to make sure that they get the right solution and the right memory configuration. And then what we have seen in the past in these situations from a demand perspective, are usually the more low-end categories, those that are impacted. And by managing our portfolio and shifting demand to the areas where we think we will have more products available and better configurations, is an important way for us to manage that. And then finally, of course, pricing will be another tool to mitigate the impact, and we will use this as soon as we can, given the contracts and the different relationships that we have. Operator: Our next question will come from the line of David Voith with UBS. Please go ahead. Brian Luke: Hey guys, thanks for taking the question. This is Brian Luke on for David. Just on the topic of higher memory prices, you talked about a number of actions you could take. Staying on the topic of pricing, now would you consider price increases across the entire portfolio, or would you consider them more tactical in nature? And would you be able to quantify any price increases you'd be considering going forward? And then I have a follow-up. Thank you. Enrique Lores: Yeah. I would say we are gonna be looking at it case by case, country by country, category by category. But the impact on memory cost is significant. I would say it's gonna happen across the board, but more selectively or higher or lower depending on the specific situation. Brian Luke: Got it. That's helpful. And then in regards to the Windows 11 refresh, talked about us being roughly 60% of the way through, according to our checks, that's roughly in line, and you expect it to be a tailwind going forward in fiscal year 2026. Do you expect it to be a tailwind for longer than that time period? And would you expect, you know, tariff considerations to be having an impact going forward? Thank you. Enrique Lores: Yes. So usually, right, we estimate that about 60% of the installed base have moved to Windows 11. We have seen the conversion happening faster in the enterprise space and also in North America. The biggest opportunity now is going to be in SMB, and in Europe and in Asia. This is very consistent with previous processes. In terms of the tailwind, if you think about what has been the conversion during the last quarter, it has been about 10 points, but this can give you a prediction of for how long we think this is going to last. For sure, for the first half of the year, but probably beyond that. Karen Parkhill: We also have the catalyst of AIPCs being a continued uptick as we look ahead to we had about 30% or more than 30% of our shipments being AIPCs in the fourth quarter. We expect that to be higher next year, 40% to 50%. Operator: Our next question will come from the line of Amit Daryanani with Evercore ISI. Please go ahead. Irvin Liu: Hi. Thank you for the question. This is Irvin Liu dialing in for Amit. I wanted to understand the rationale behind the company cost savings initiative that was announced today. Since you recently completed the you already recently completed the Future Ready program. Was this new initiative more of a response to higher memory cost? Or should we view this as kind of a broader cost savings program in nature? Enrique Lores: Yes. We I actually started to talk about this in the last earnings call, so this was way before the memory cycle started. And this is really driven by the opportunity that we think AI is going to bring us to accelerate product development, improve customer satisfaction, and also boost productivity. Two years ago, we started to do some pilots on how AI could help us to drive these things. And during the last two quarters, we have been shifting from pilots to specific initiatives in areas where we can have significant impact. What we have learned is that we need to start from redesigning the process. And once the process once we know how the process could be redone, using AI, using agentic AI can really have a very significant impact. And this is why we think that really over the next few years, this can have a very significant impact across areas I mentioned before, faster product development, customer satisfaction, and also productivity. And we have quantified productivity around $1 billion over the next three years. And this is really what we have deployed now and what we are working with the teams to deliver on. Operator: Our next question will come from the line of Samik Chatterjee from JPMorgan. Please go ahead. Joseph Cardoso: Hey, good afternoon. Thanks for the question. This is Joe Cardoso on for Samik. Maybe just wanted to follow-up on kind of the PC PS momentum or PC momentum you're you're thinking about or seeing going into 2026. I was curious if you could just flush out the conviction here, particularly as we're cycling past the bulk of the Win 11 refresh. I know, Antonio, you talked about, you know, 60% or 50% plus of the installed base moved over, and so there's some, header there to continue. But interestingly enough, when you guys talked about the forecast for next year, it seemed like pricing was a bigger contributor for the next year relative to this year. Where I think units were bigger. So I'm just curious, like, where you guys are seeing that dynamic play out and what's kind of the conviction behind it? Then I have a follow-up. Thank you. Enrique Lores: Yes. So the conviction comes from the same drivers that we have seen driving demand during the last few quarters. We have an aged installed base of PCs that need to be refreshed. Of all the PCs that were bought four, five years ago, we have the opportunity driven by the change to Windows 11, and we have seen that tailwind helping us during the last quarters. As you said, the conversion has been done to 60% of the installed base. So we have still close to 40% of the installed base to be converted, especially in SMB and especially outside of North America, and this will be a tailwind now for several quarters. And we also see the opportunity to continue to improve the mix of AIPCs that has exceeded expectations that we had for the year. So all these will be positive drivers. On top of that, our strategy is going to continue to be focused on premium categories as it has been during the last few quarters where we have made very significant progress both in commercial customers, consumer customers, and workstations. We also have an opportunity to continue to drive attach of peripherals, attach of services, all these kind of will help us to drive revenue growth faster than unit growth in 2026. Joseph Cardoso: Got it. And then maybe follow-up for Karen. So just curious, if you could share any thoughts on how you're thinking about seasonality for next year. Seems like a lot of moving pieces with the company cycling past the tariffs of this year, maybe the bulk of the Windows 11 refresh this year. And then kind of entering a dynamic memory pricing environment just to kind of name a few of the things that are going on, obviously. Anything we should keep on top of mind relative to maybe first half second half dynamics relative to revenues? I know you talked about the margin implications as kind of cycle past some of the inventory that you built on the memory side, but any other moving pieces we should think about as we're thinking about our models for next year? Karen Parkhill: Thanks, Joe. Happy to talk about that. So I did mention that we anticipate our revenue to be stronger in the second half of the year. And that's really just driven by normal seasonality as well as pricing as needed against the tariffs and the rising costs. When I say when you when you look at our margins, we expect our print operating margins to be in line with seasonality where we see Q3 typically lower seasonally than the rest. And on PS, as we talked about, we expect our PS operating profit rate to stay in the 5% to 6% range in the first half of the year. But then with higher memory cost increases in our back half, we expect we said we expected our full year rate to be at the low end of our long-term 5% to 7% range. So given that, we could see Q3 and Q4 temporarily below that 5% range. But as you know, we're working to minimize that and ultimately mitigate the full impact. So if we can do better, we will. When you think about it from an EPS perspective, we typically have EPS, more stronger in the back half. But with the impact of memory in the back half of this year, you can think about EPS being more evenly weighted through the year. Hopefully, that helps. Enrique Lores: And maybe let me add a couple of comments on the memory side. As we said in our prepared remarks, we expect a major impact of the memory cost increases to impact the second half of the year. In fact, almost no impact in the first half given the inventories on hand that we have. I think it's important to have in mind that we are one of the first companies that are guiding for the full year. And the impact we really see on the second half, we don't see it in the first half. Operator: Our next question will come from the line of Michael Ng with Goldman Sachs. Please go ahead. Michael Ng: Hey, good afternoon. Thanks for the question. I was wondering, and Enrique, if you could just expand a little bit about the comment around the growing base of services, subscriptions, and software that are more contractual in nature. You know, was that a comment more about, you know, workforce solutions or print subscriptions? You know, appreciate the highlight. Just if you could expand on anything that you're thinking about in the future, that would be helpful and how you would work to grow that type of business. Thank you. Enrique Lores: Yes. It's coming across the board. So we have seen very solid growth, for example, in the consumer subscriptions side of instant ink and on in. We mentioned that business is approaching $1 billion, which is really a significant milestone for these types of businesses. We have also seen very solid growth in the workforce solutions space, in PCs. In PCs as a Service, that has driven very significant growth during 2025 and that we expect to continue to see in 2026. And also our software businesses are having very strong performance. And I will let Karen make a few comments. Karen Parkhill: Yeah. I would just add that we're excited to drive even greater growth and value in the future with revenue that is less cyclical and more stable and higher margins. It's really an important focus for us at the company, and it means that as we innovate products and develop new business models around them, we'll be focused on driving more recurring revenue. And when we think about doing our capital allocation too, this is gonna be a priority focus for us. But I would say it's not something that's gonna change, you know, rapidly overnight. We see this as an important gradual transition, and we'll just continue to highlight it for investors. Michael Ng: Great. Thank you. And if I could just follow-up around the headwind from memory of $0.3 on EPS net of mitigations. What do you think gross impact is? And what's your confidence level on the mitigations? Could it be better or worse? And then just as a quick follow-up, are you also seeing similar kind of tightness on PCV and kind of inflation related to that? Thank you. Enrique Lores: Sure. So let me start on the quantification. We have here enough numbers that you can calculate. We have shared that the cost of memory is between 15-18% of PCs, but from there, you can calculate the gross impact that you will see is significantly bigger than the $0.3 that we are quantifying. And we have fairly high confidence in the actions that we have put in place. In fact, we mentioned that we have been conservative in the guide for the full year. And that based on the actions I described before, if we can do better, we will be better. But given that we are guiding the full year, and we expect to see the majority of the impact in the second half, we thought it was important to be prudent at this point. In terms of other components, when we this is the area where we see the biggest impact, memories, and storage. The rest of the space, are confident, and we don't see any shortages at this point. And as I said before, even in the memory and storage space, we are in a good position from a supply perspective given the relationships and the contracts we have with our suppliers. Operator: Our next question will come from the line of Assia Merchant with Citigroup. Please go ahead. Mike Cadiz: Hi, good afternoon. This is Mike Cadiz on behalf of Assia Merchant at Citi. So my question is on AI PC penetration. So, despite you hitting the 25 to 30% penetration excuse me, penetration ahead of schedule, how do you think that tariffs and now the elevated commodity costs have affected the expected trajectory towards the 50% in the coming years that you that you telegraphed? Enrique Lores: So we continue to be very optimistic about the penetration of AI PCs. And as I mentioned before, as we will be prioritizing premium categories, into as we will actually, we will be working on the memory situation next year. The penetration of AIPCs as I said before, is above 30% today at the end of the quarter. Easily driven by the additional value this is being compared to the installed base and the fact that our customers want to be ready as soon as applications start taking advantage of other capabilities of these products. Last quarter, I mentioned the work that we are doing with software companies to leverage those, and this work has continued, and we have continued to make progress. With the announcements that Microsoft made last week on the consumer side, the ability to manage PCs with voice, think are going to be exciting very exciting for our consumers. They have improved the tools that they have for other companies to take advantage of GPUs and NPUs in the devices. We have made progress with other software companies like Adobe in leveraging those assets. With more local vendors like Rakuten or in Japan to take their models and the systems that they have in the cloud and bring them today, an announcement we made a few weeks ago. And we have also worked with smaller companies that drive very specific value example, in helping sales teams to be more efficient, or in helping product managers to present better. All these are really helping to drive adoption. And something very we think very relevant is as we have deployed these solutions internally in HP, with not only the PCs, but with a curated set of applications, we have seen up to 17% of productivity improvement. And this is a very important value proposition for us. But also for our customers. Mike Cadiz: Thank you for that. And then as my follow-up, for both PC and print, would you mind talking about the customer and market reception to the pricing actions that you've taken whether or not it's different between consumer and commercial and how you perhaps balance that with maintaining margins and share as well? Thank you. Enrique Lores: Sure. The majority of I mean, if I look at print, we have done price actions both in the consumer and commercial space. In the commercial space, probably because our most of our competitors are Japanese, and they continue to have a very significant help from yen. We didn't see these changes happening across the board. And this is why we lost Sam's share in Q4. It didn't happen in consumer. It didn't have any supplies where we grew our share, especially supplies where we grow our share. And in the PC space, our price increases have been smaller because the impact of tariffs so far has been smaller. And therefore, we haven't seen a strong reaction one way or another. Prices had grown year on year quarter on quarter but less than what we have seen in other spaces. Karen Parkhill: And even with this pricing environment, you're seeing us have strong revenue performance. Both last quarter and for the full year. We expect that to continue. Operator: Our next question will come from the line of Eric Woodring with Morgan Stanley. Please go ahead. Maya Newman: Hi, thank you. This is Maya Newman on for Eric Woodring. You know, maybe just to start to build on some of your comments regarding your mitigation tactics for the memory cycle and your supplier relationships. Could you quantify how many weeks of memory inventory you have on hand? And you know, are suppliers willing to sign long-term agreements? And kind of just overall, where do you believe HP is most differentiated within the supply chain or has the greatest competitive differentiation versus peers to weather this memory cycle? Thank you. And then I have a follow-up. Enrique Lores: Sure. I'm not gonna share the specifics of the weeks of inventory we had. But I said before that given the inventory we have today, we are fairly well in a fairly good situation for the first half of the year. So this helps you to understand that it's not gonna have a short-term impact. In terms of long-term agreements, have long-term agreements with our key suppliers. And the scale, the depth of our relationships are key assets when we go through situations like this. As you know also, after COVID, we made a lot of work to improve our operational processes within the supply chain. Both in terms of supply-demand matching in terms of forecasting, and they will be very useful now as we need to go through this situation. It's not only about getting the memory, it's also about getting other supplies that will work with memory like processors, and it's about aligning demand to that. We did a lot of work during the last quarters of COVID to improve that. And the team is very experienced now in how to manage this situation. Maya Newman: Got it. Thank you very much. And then last question for me. If we take a step back and think about your overarching strategy and print, how should we think about it going forward? I understand we'll probably get more details at the analyst day, but it's obviously a secularly declining business. But you're also seeing yeah, operating income decline in print as well on a dollar basis. I know a lot of actions around pricing, big ink, toner subscriptions, the graphics market, are meant to protect. Is this a business where we should expect operating income growth? And if so, how do we get there on a sustainable basis? Enrique Lores: Yeah. We said we will talk a little more about this in our Investor Day in a few months. But the strategy that we have been executing during the last years is not changing. Our goal continues to be to capture more value per customer and reduce the number of unprofitable customers, which we have been doing during the last year. Our shift or our doubling down on big ink is a consequence of that strategy as well. We see a big opportunity to grow profitable units in that space. While at the same time continue to accelerate and continue to drive the transition into subscriptions in this space. And we have been making very good progress both on the supply side and now also integrating printers in our all-in program. In the office space, we see an opportunity to grow our share in profitable units, and the new portfolio that we will be launching during 2026 and the work that we continue to do in cost will help us to achieve that goal. And then finally, on the industrial space, both especially in the graphic side, it's a business that has been growing during the last nine quarters, and we expect it to continue to grow during 2026. Operator: Our final question will come from the line of Mark Newman with Bernstein. Please go ahead. Mark, you might be on mute. Mark Newman: Apologies. Apologies. Thanks for taking my question. Yes, yes, just following up a bit on the memory price environment. Thanks very much for the clarity on the $0.30 impact. Just curious though, you mentioned that's mostly on the back half. So presumably, it's if you think if you just do the math, 30¢ on $3 or so annual earnings. So your impact is more than 10% on the back half. Considering, of course, you can pass through a lot of that with pricing, it seems like that it should be less given you have quite a few months to correct pricing. So just wondering if anything I'm thinking about wrong there. This seems like it may be conservative from you on the 30¢, but let me let me know if I'm thinking about that wrong. And I also wanted to ask does it have an impact on mix? Given how significant memory prices have moved? I mean, cut specs change average specs of what you what you sell change, could that also impact the AI PC dynamic considering the AI PCs typically have higher specs? Thanks very much. Karen Parkhill: Yes. Thanks for the question, Mark. And let me just talk about the $0.30 in the guide. You know, I would just say we remain focused on taking a prudent approach to our guidance. And particularly as we start a new year, we're setting our guidance at a level that we have a high confidence in meeting and hopefully exceeding. You know, I would say we're taking that same prudent approach this year with the rising cost of memory, but we've already been implementing actions to mitigate. And I would note that we have a proven track record of managing challenges like this, and we are confident in the strength of our organizations and the partnerships that we've built to deliver the best possible outcomes. So while we have included that 30¢ in the guide, if we can do better, we certainly will. And your math is roughly right. Enrique Lores: And then finally, in terms of configurations, as I said before, we are gonna be prioritizing those units where we see more margin for the company. And what we have seen in other cases is where volumes are more impacted as more in the entry space, whereas customers are usually more sensitive to price. And as Karen said before, we decided to take a conservative approach. We are guiding now the full year. We think the impact will be mostly on the second half. We are taking a lot of actions to mitigate that impact. But given how fast things have unfolded during the last few weeks, at this stage, again, we thought it was better to be prudent. Operator: And that will conclude our question and answer session. I'll turn the call back over to Enrique for any closing comments. Enrique Lores: Perfect. And thank you, everybody, for joining today's call. We remain confident in our ability to lead the future of work through technology, and I'm really proud of the progress we have made across our priorities. We finished 2025 strong, growing profit from the first half to the second. In 2026, we intend to grow faster than the market. We have a significant opportunity to embed AI in everything we do and transform the company. The memory headwinds that we have been talking about today, while material, are also temporary. And we're taking action, and we have managed, as we said also, such challenges before, and we have a lot of experience on how to handle that. So with a clear strategy and disciplined execution, we are focused on driving long-term value while managing these headwinds. Again, thank you for joining today. And for those of you in the U.S., we wish you a very happy Thanksgiving holiday. Thank you. Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Conversation: Justin Platt: Good morning, everybody. Thank you for joining us today. Welcome to the Marston's preliminary results for financial year '25. My name is Justin Platt, CEO. And with me, I have Stephen Hopson, our new Chief Financial Officer. We'll take you through our results today, and we'll do that with the following running order. I'll start with the headlines. Stephen will then share the financial results, and I'll then give some insight into the strategic progress we've been making through the year before wrapping up and taking any questions you might have. So the headlines, 2025 has been a very strong year for Marston's. It's been a year when we've been very focused on delivery, delivery of the strategy we outlined a year or so ago at the Capital Markets Day. And the results bear out that the strategy is working and driving real progress for us as a business, with profit before tax of GBP 72 million, that's year-on-year growth of 71%, and that's on top of the 65% growth we delivered a year ago. And that profit delivery has helped us drive cash flow. So cash flow at GBP 53 million. That's ahead of our GBP 50 million target, and it's also earlier than planned. Alongside that, it's really pleasing we've made great progress with our new pub formats, 31 launches this year. They're performing very strongly for us and driving big revenue uplifts. It's very clear now that these formats can be a significant growth engine for us in the future. And we've been doing all of that while giving our guests a great time. So record satisfaction scores with a reputation score at 816. So overall, a really good set of results, and it's a set of results that leave us feeling very positive in our outlook going forward. So that's the summary. I'll now hand over to Stephen, and he'll take you through the financials. Stephen Hopson: Thanks, Justin, and good morning, everyone. As Justin said, this is my first set of full year results at Marston's, and I joined the business at what is clearly an exciting time for Marston's. As these numbers show, we're making great progress and delivering against our goals with lots more to come. On my first slide, I'd like to begin by looking at some of the key group financial metrics. Total revenue was GBP 898 million, which showed growth of 1.6% on a like-for-like basis. EBITDA was up 7% to GBP 205 million, with the margin expanding by 140 basis points to 22.8%. That's been driven by good operational discipline, particularly on labor and controlling input costs alongside the revenue growth. As a result of the EBITDA growth and lower finance costs, PBT stepped on significantly. Underlying profit before tax was GBP 72 million, nearly 3x where we were just 2 years ago. And importantly, this has translated into stronger cash generation. Recurring free cash flow was GBP 53 million, which is up 22% year-on-year and ahead of our GBP 50 million recurring free cash flow target. Finally, we've made real progress on the balance sheet. Net debt has reduced from 5.2x, to 4.6x EBITDA as we continue to delever. So overall, excellent progress on both profit and cash. Turning now to look at our income statement in a bit more detail on the next slide. As I mentioned, FY '25 marked another year of substantial profit growth for Marston's with PBT up 71%. Reported revenue was flat, although this masks the impact of the FY 2024 disposal program, which I'll show on the next slide. I've already mentioned that EBITDA was up 6.5%, and that GBP 12.6 million of EBITDA improvement basically flowed through to operating profit, which was up 8.6% to GBP 159.9 million. Net finance costs were significantly lower year-on-year as a result of ongoing delevering and last year's CMBC disposal, leading to that very significant jump upwards in PBT. And whilst our effective tax rate increased, this simply reflects a return to the U.K.'s headline rate of corporation tax after a period of a lower rate. Together, this income statement shows a stronger and more profitable business with improved earnings quality and stronger margins. Turning to revenue performance. As I've already touched on, revenue for 2025 was GBP 898 million and was broadly flat year-on-year, but I would like to pick out 2 points on this chart. First, that the revenue includes a negative movement of about GBP 40 million in relation to the disposal of pubs over FY 2024 and 2025. To put the disposals into context, about GBP 50 million of assets were sold as part of the disposal program. So it's important to consider that impact when assessing year-on-year revenue progression. And the second point is that our like-for-like performance continues to be ahead of the market, which grew by 0.7% in the year, with positive contributions across all key categories of drink, food and machines. Turning now to look at margin. A key target for the group outlined at the CMD was to grow our underlying EBITDA margin by 200 to 300 basis points from FY '24 levels, giving a target range of 23.4% to 24.4%. And I'm pleased to say that this year, we've delivered 140 basis points of margin expansion, achieving total EBITDA margin of 22.8% in the year. Labor productivity gains were the single biggest contributor, supported by the rollout of improved scheduling tools, which Justin will cover in a bit more detail later on. The labor productivity benefits in the year were enough to fully offset the increases in the National Living Wage and National Insurance contributions, which came in from April 2025. We also saw benefits from improved food and drink margins, energy savings and other operational efficiencies. These gains were partially offset by inflationary pressures, including those employment cost increases that I mentioned and some investment in key areas, including more marketing. But overall, we've made real progress embedding cost discipline and delivering margin expansion across the business, and we feel that our EBITDA margins really do benchmark very well across the whole pub sector. We view ourselves as a high-margin local pub company, and we see further opportunity to increase the EBITDA margin in FY '26 as we move towards our CMD target. Turning now to look at capital expenditure. Total CapEx for the year was GBP 61.2 million, which is equivalent to 6.8% of revenue, and we're now approaching the 7% to 8% of revenue range that we talked about in the CMD. This is an increase from GBP 46.2 million last year, with the main driver being our pub format conversions, which I'll come back to shortly. Of this total, GBP 53.2 million was in maintenance and other CapEx deployed across our 1,300-strong pub estate. This includes works such as maintenance, estate management, investment in new IT platforms and other items. But I also want to pull out a bit more granular information on our pub format conversions, which are very important to our overall growth plans and which Justin will cover in more detail. In the year, we covered 31 conversions to our differentiated formats, which are delivering strong results. Average revenue uplifts were 23% year-on-year, and EBITDA returns are over 30% to date, in line with our CMD targets. At an average cost of GBP 260,000 a site, we believe these conversions represent excellent value for money. And of course, we've only completed a small number so far in comparison to our estate. So there's a lot more to go at in this space. Clearly, the driver of increasing our capital expenditure is to improve the quality of our estate. So let's turn to that now. On this slide, we show that we ended the year with 1,328 pubs following the continuation of our estate optimization strategy. This included a small number of disposals in the T&L estate as well as conversion of some pubs to the partner model. As a result, the managed and partnership estate consisted of 1,182 pubs and the T&L estate had 146 sites at the year-end. EBITDA per pub increased to GBP 154,000, which, as you can see, is a 28% improvement over the last 2 years. This uplift reflects both operational improvements and tighter estate management with gains in both, our managed and partnership estate and the remaining T&L pubs. The result is a higher-quality, better-performing pub estate that's delivering stronger returns at a site level. I think this is a really important slide as it shows how the improvements being made to the business model are feeding through at pub level. Turning now to our cash performance in the year, which was another highlight. The takeout from this slide is that we delivered and, in fact, exceeded our CMD target of GBP 50 million of recurring free cash flow ahead of schedule, with GBP 53.2 million delivered in the period. And how was that delivered? Well, cash from ops increased year-on-year by GBP 5.6 million, which included the improvements in EBITDA I described earlier. Within that number, we also had a GBP 6 million saving from lower contributions to our DB pension scheme. And offsetting that, we had a small working capital gain, but it wasn't as large as last year's gain. Finally, we started making cash tax payments again of GBP 5.3 million as our profits improved. And as a smaller side, investors and analysts should note that in FY '26, we expect to move into the very large company corporation tax regime, which will accelerate our cash tax payments this year. And then in the second line on the chart, we had a GBP 15 million saving on interest, offset by GBP 15 million more CapEx year-on-year, as I just described, together with lower banking fees. So recurring cash was strong and now over GBP 50 million, which we expect to be able to exceed again this year. I also wanted to draw out on this slide that this strong free cash flow is fully absorbed by scheduled debt repayments, GBP 43.8 million of securitized debt repayments and GBP 8.6 million of lease liabilities. Clearly, this does mean that the group is delevering, as I'll show on the next slide, but also that our cash generation is currently fully utilized. And then just to complete the chart, after other movements in borrowing and disposals, there was a cash outflow of GBP 9.6 million in the year. And I'm now going to return to that progress about delevering in the group. This slide shows the different elements of the group's financing structures and the overall movement in net debt year-on-year. So starting at the bottom, net debt, excluding lease liabilities, reduced by GBP 46.2 million, to GBP 837.5 million. This takes our net debt-to-EBITDA multiple, excluding leases, down to 4.6x from 5.2x last year. That continues the recent downward trend and reflects the group's stronger cash generation and disciplined approach to capital investment. And then to briefly cover what makes up our financing structures, the largest element shown at the top is the securitization, which provides long-term predictable financing for the group. It does also impose some restrictions, both in terms of the assets that are tied up in the securitization structure and in our ability to move assets and cash around the group. However, these restrictions are manageable at present. Swaps are in place to fix the interest that we pay on the securitized debt. Other lease-related borrowings are essentially loans that were raised against other properties in the group outside the securitization. They were legally structured as sale and leasebacks, but where we have the option to buy back the properties at the end of the period for a nominal fee. Therefore, we treat these properties as effective freehold. And as noted in the slide, we're currently paying interest only on those borrowings. And I've put a new slide in the appendices showing investors how those structures will work over coming years. Our GBP 200 million bank facility was renewed in the year and now extends to July 2027 with relatively low drawings at the year-end, and cash balances ended the year at GBP 35.9 million. So in summary, we're continuing to delever at pace while preserving the secure long-term funding arrangements in the group. If I then broaden this to look at the group's whole balance sheet rather than just the net debt elements, this slide shows the evolution of our balance sheet and our net asset value per share, which increased to GBP 1.25 this year. And actually, the movements year-on-year are pretty straightforward. Our balance sheet is underpinned by GBP 2.2 billion of property assets, of which 81% of the estate by number of pubs are effective freeholds. The net book value of those assets increased by over GBP 100 million in the year, reflecting our annual estate reval and also our ongoing investment into the business. Net debt, as I've just described, reduced GBP 837.5 million, excluding lease liabilities, and lease liabilities were GBP 5.5 million lower. So total net debt was GBP 51.7 million lower year-on-year. Other liabilities increased by GBP 28.4 million, almost entirely due to an increase of GBP 28.5 million in deferred tax liabilities relating to the upward property revaluation. So overall, the property reval with its associated tax movements as well as the net cash generation of the group, drove GBP 136 million increase in net assets, which was a 21% increase year-on-year, to GBP 791 million, which equates to GBP 1.25 per share. Given the progress made on the balance sheet, I want to finish by looking at our capital allocation framework. And if I start by saying that this is not a change to our capital allocation policy, which remains consistent with what we laid out at the CMD, we remain focused on delivering sustainable shareholder value through a disciplined balance of investment in the business, delevering and ultimately, shareholder returns. That said, there are a couple of updates we wanted to share this morning. On the right-hand side of the chart, you'll see our continued progress on leverage, which, as I mentioned, has reduced substantially. We are pleased with that progress, but would like to see leverage continue to decrease. And today, we're committing to reduce leverage to below 4x on a pre-IFRS 16 basis. When we get to that level, we anticipate the start of capital returns to shareholders through dividends, share buybacks or a combination of both. What that looks like will depend on circumstances at the time, including the share price and investor preferences. To be clear, we also expect to see the group continue to delever below 4x even after the recommencement of shareholder returns. We believe this disciplined approach continues to be the right strategy to create and sustain long-term value. So to conclude, we've delivered a strong financial performance this year with clear progress on margin, profit and cash flow, and we expect further progress this year. And before I hand back to Justin, I'll briefly touch on 5 forward-looking points. First, we remain confident in the trading outlook for FY '26 with like-for-like sales currently tracking in line with last year and Christmas bookings up 11%. Second, we expect further progress towards our margin target of 200 to 300 basis points of growth versus 2024 following the 140 basis point gain this year. Our format growth engine will be accelerated this year with at least a further 50 refurbishments and our CapEx is expected to be within the target range of 7% to 8% of total revenue. And after achieving our CMD target ahead of schedule this year, we expect to deliver another year of GBP 50 million in recurring free cash flow in FY '26. And lastly, we've significantly reduced our debt profile over the past couple of years and expect to continue to do so with leverage now at 4.6x and progressing well towards our sub-4x target. So overall, we're delivering against our targets, and we remain firmly on track to drive further financial and strategic progress in the year ahead. Thanks very much, and I'll now hand back to Justin. Justin Platt: Thank you, Stephen. So I'll now take you through the progress we've been making as we've implemented our strategy through the year. You will remember from the Capital Markets Day, we're very focused on being a high-margin, highly cash-generative local pub company. And we'll do that with a portfolio of brands that appeal across a range of consumer segments. 5 key value drivers that get us there: executing a market-leading operating model; using CapEx to deliver differentiated formats; unlocking value with digital transformation; expanding our excellent managed and partnership management models; and in time, supporting that with targeted acquisitions. So I'll now deep dive on each of those value drivers to give you a flavor of some of the work that we've been doing. The first one I will spend some time on is the operating model. Really, this is the bread and butter of running a great pub business. It's the balance of revenue growth, cost efficiency and guest satisfaction. So first of all, I'll talk to revenue. Really good momentum this year. We've continued to do well, especially in our peak trading periods. Across our peak trading periods, we're up almost 6% on the year. And that's enabled us to grow our like-for-likes ahead of the market at 1.6%. And a lot of what's behind that is our event plan. Our event plan has been a key thing for us this year. In 2025, Marston's Pubs have been home to a darts tournament led by Luke Humphries, the world #1. Paddington and his new movie joined us from Peru. We had a national Trivial Pursuit quiz event. And through the summer, when Oasis Mania was sweeping the U.K., we had a series of '90s throwback events with tribute bands and the like in our pub life. So all of these are designed to give people reasons to visit our pubs, a range of guest demographics. I think that's essential at any time of year, but especially so in the summer when, of course, this year, we had no big football tournament. So events are big success for us and an important driver in supporting our revenue growth. So secondly, on costs. As Stephen has shown you, we've made excellent progress during '25 on our journey to being a high-margin business in adding 140 basis points to our margin despite significant and well-known headwinds. And we've done this with a relentless drive for efficiency across all areas of our cost base. The biggest area of our cost base is labor, where we've saved almost GBP 10 million, a little bit more than 1 percentage point on our margin. And this has been about continually getting smarter with the way we use our technology to enhance and optimize our labor teams and our labor schedules, all about getting the right people in the right place at the right time. I think probably the best way to bring to life for you the work we've done on labor is to pick a case study of one of our pubs. The lady pictured on the right is Kati. She's one of our fantastic general managers. She runs the King Charles pub in Chesham, a lot of work with our labor planning this year. They've actually reduced their labor costs through the year by 8%. And despite doing that, they've grown their revenue by 19% and also grown their guest satisfaction well ahead of our company average. So a good example in the way labor is playing out for us in one of our pubs, but it also represents our approach across the company. So secondly, in terms of food and drink, our formats allow us to simplify the ranges we offer because we're a lot clearer about the demographic by format. And so that allows you to be clear which food offer and which drink offer you need by pub. So that's allowed us to simplify our range. That's helped us with efficiencies. But alongside that, we've also renegotiated our key food and drink contracts to drive efficiencies where we can. So that's labor and food and drink. Finally, energy and estates. Every pound counts on energy. We've been that way for a number of years now, whether it be the usage that we manage, but also the contracts, there's a relentless focus on attempting to drive efficiencies there. But as Stephen said, we take a very judicious approach to estates more broadly with our CapEx, looking at our maintenance cycles, spending strictly in maintenance cycles, and that helps us on efficiencies with our repairs budget. So overall, really good progress on the cost side of things. And then finally, on the operating model, guest satisfaction. I mean this is all about ensuring that when our guests come and see us, they have a great time. And it's very pleasing in the context of the efficiency gains I've just talked to that we're still delivering better and better experiences through our guests. So from a score of 766 in '23 to 800 last year, 816 this year is a very pleasing performance. And this really is a combination of many of the initiatives coming together, whether it be our events program, and the visual there is of our Oktoberfest event that we run during September, whether it be through digital ordering or some of the menu enhancements we've made. All of these things together add up to make a difference to the guest experience. It's worth saying, though, that the #1 factor that dominates, that really drives a great guest experience is, really strong guest service. That requires almost an obsession, a relentless obsession with getting that right day in, day out. And the work on that is never done. Our teams are very focused on delivering that experience all the way through the year. And as I say, it's pleasing that this year, we've been able to continually improve on that. So that's the operating model. When you take revenue, cost, satisfaction together, it's good that we've made strong progress across the piece. And this has been complemented with the work we've done on the digital transformation value driver. I think a key example of this would be the new order and pay app that we launched in March. Really well received. It's paying dividends with our guests in terms of both revenue and reputation, and it's complementing the personal service for those guests who want it. So we've got a 10% revenue uplift when using the app. And those pubs with a higher mix of order and pay usage do significantly better on reputation. What's also good about the app is it can work hand-in-hand with our events. So the Trivial Pursuit: Win a Wedge event drove a big uptake in the use of the app. So good progress overall on this area, digital, but a lot more opportunity here in the future as digital transformation can help us both on revenue and on cost. The third value driver I want to focus on is our new pub formats. So against 5 core consumer target segments across the market, we've designed 5 pub formats that are specifically designed to meet the needs of those target audiences. And through a series of test and learn launches in '25, we've been assessing the potential of these pubs to drive appeal and importantly, drive powerful CapEx returns. Now in May, I did a deep dive on the Two-Door format. So I thought this time around, we'd share some more information on the Grandstand brand. Grandstand is a local sports pub. So it targets adults who want an entertainment experience when they go to their local pub. I mean this is an absolute sports lover's dream. It's similar to a city center sports bar environment, but in the local community pub. Number of constituent parts to it. At its heart, state-of-the-art technology ensures that we've got 3-meter stadium screens, amazing sound systems. Alongside that, there's great match-day food suited to watching the big game. And these pubs will always be run by sports enthusiast general managers who know what their guests want and can work with them to give them a great experience. It's an absolute must visit for the big game, the atmosphere that we create. But more than that, because it's a local pub and it's a great environment, it's a place that you would want to go to on any night of the week, and we support that with a program of sports events through the week to give people reasons to come every night. So Grandstand has done really well this year. The guest reaction and the returns that we've had have been very, very impressive, and it's been a key part of our test and learn year. And test and learn overall this year has exceeded our expectations. We've done 31 launches through the year. So we did 21 Two Doors, 5 Grandstand and 5 Woodie's. Woodie's is our new family pub. All have done well. Guests love them. They've driven strong uplifts in revenue of 23% and all of that off relatively modest levels of CapEx. We've been driving ROIC of more than 30% on only GBP 260,000 per pub. So the test and learn phase really has proven the potential of this stream for us, real growth opportunity as we roll out across the estate. And all of our pubs have been mapped to the format opportunity they can play to over time. So over time, this really does give us an opportunity as a significant driver of growth. So great progress across our value drivers in '25, and this leaves us feeling very positive as we look towards 2026. Through this year, we'll have a big program of exciting events, all designed to encourage guests to come and visit us, not least with a big football tournament on the horizon that everybody will be very much focused on in the summer. And we'll complement that with our revenue management and order and pay disciplines to drive spend per guest. But alongside the demand drive, as I've just said, our new formats will play an increasingly important role in driving growth through the year. Given our success in '25, we're now accelerating the rollout plan. We'll have 50 or so launches focused on Two Door and Grandstand, and all of these will make a meaningful difference to both revenue and EBITDA performance through the year. So to summarize, another year of strong delivery in '25, significant growth in both profit and cash flow. We're very excited by the growth potential of our new formats, and we see a very promising outlook for the year ahead as we continue to deliver as a reliable growth company. And with that, we can now take some time for questions. Operator: [Operator Instructions]. The first question we have comes from Douglas Jack of Peel Hunt. Harold Jack: So I've got 2 questions, if that's okay. In terms of the new formats in 2026, is the choice of Grandstand and Two Door largely because they're the ones that have the greatest uplift potentially, adding to the number of reasons to visit, I think, obviously, they've got quite a lot of opportunity there. And then the second one was about margins. In 2026, what are the best margin opportunities do you see over this year? Justin Platt: Thanks for your questions. I'll take the first one on formats and then, Stephen, if you want to come to margins. In terms of choices, as you know, we were very clear to have the plank of a test and learn phase first to guide our implementation. So the primary choice is certainty of return in the sense that Two Door and Grandstand both launched earlier in the year last year than Woodie's, which allowed us to get more data on those through the year. Most of the Woodie's launches came sort of the summer onwards. So whilst all are performing well, we've just got longer data on the other 2. The other attraction, of course, with Grandstand is you absolutely want a bigger footprint of those pubs in the market in a year with the World Cup, which we've certainly got an eye on. But really, it's about certainty of returns, Doug. Stephen Hopson: And Doug, on your question on margins, I mean, yes, look, we've made really good progress in 2025. I think we do expect EBITDA margins to increase in 2026, but not to the same extent as 140 basis points we did in 2025. I mean I think the best opportunities for me, so there's a bit of flow-through stuff. So we made really good progress on labor. And Some of those things didn't come through until the second half last year. And so I think some of them will help H1 2026. And also, that is a continuing journey for us. So matching right people, right place, matching demand with supply of labor is something that we're going to be relentlessly focused on going forward. That may come through in terms of reduced cost. It may come through in terms of better customer service and therefore, improved sales, but I think there will be some upside from that. And then I think on gross margins, I mean, we've got pretty good visibility of both food and drink cost prices moving into next year. We're lock in quite a few contracts on that quite early. And I think, therefore, that gives us certainty on those lines. We'll continue the journey on things like revenue management and upselling and so on, and it should be an opportunity to move that further forward as well. Operator: The next question we have comes from Karan Puri of JPMorgan. Karan Puri: I've got 2 quick ones. One, on the 1.6% like-for-like momentum in '25. Just wondering if you could provide a split between pricing and volumes, number one. And number two, just coming back on the cash tax payment in '26. I know it's going to be higher than 2025, but in terms of magnitude, if you could share a bit more on that front would be helpful. Justin Platt: So I'll start with the like-for-likes. As we said in the release, food, drink and machines were all in growth, and that's a mix across them. As you'd expect in that, revenue management has played an important part for us and will continue to do so, particularly actually the premiumization as consumers are upgrading to more premium beers and also adding and upgrading on the menu. And then the second one, Stephen? Stephen Hopson: Yes, the cash tax. So yes, you're right. We flagged that it would increase. Last year, the cash tax payments were GBP 5.3 million. That will approximately double next year, to about GBP 10 million, Karan. So that's about the extent of it. We are still using some losses from previous trading period. So the cash tax is still relatively low, but it will be about GBP 10 million in FY '26. Karan Puri: Perfect. And then just a quick follow-up on that one. So do we -- can we expect it to be sort of normalized cash tax starting in 2027? Or will you still benefit from some loss in the previous period there as well? Stephen Hopson: Yes. 2027 will still be a little bit low. And then from 2028, it will go back to normalized levels. So it will be a step-up in 2027, but it won't be up to normalized levels, yes. And then from 2028, you should expect normalized levels of cash tax. Operator: [Operator Instructions]. The next question we have comes from Anna Barnfather of Panmure Liberum. Anna Barnfather: Just a couple of questions. Firstly, on the reformats, you've mentioned sort of acceleration sort of 50. Could you update us on your thinking of what proportion of the estate at this stage you think could benefit from a reallocation into 1 of the 5 formats? So how many of your sort of 1,300 pubs? And have you only done managed or have you done partnership ones as well? The second question, I was just thinking about the sort of peak trading. Obviously, you're doing really well in those big events, with peak trading periods up 5.8%. Are you tempted to sort of reduce opening hours on the sort of nonevent days? Or is there any sort of thinking on that as a way to cut down on overheads? And then just third question on the revenue mix. I think obviously, higher margins and gross margins, can you just give us a bit more color on perhaps some of the shifts in your sales mix? Justin Platt: Thanks, Anna. I'll take the first 2 and then Stephen, if you could take the third one. Let me start on peak trading, and then I'll come back to formats. We do look at our hours on a regular basis, but there's not a massive need to start big closure periods by any means. I mean one of the things that's most notable in pub trading today certainly versus 5 years ago is the growth of the early evening at the expense of the late evening. So if you look at booking patterns now, peak time for a table, the busiest time to get a table is 6:30 to 7:00. You go back 5 years, that was more like 8:00. So there's definitely an earlier day point to your business. And we do look at hours, but I don't think there's anything significant there in cost, particularly the local community environment where people are around the corner from their houses quite a lot. On the formats. So first of all, yes, we've actively launched formats across our managed and our partner estate, and they're performing equally well in each, neither is a differentiator actually in terms of performance, but they do work across both managed and partner. And then in terms of the numbers, as we showed earlier, 5 formats. The 2 that we didn't deep dive on were locals pubs and adult dining, signature pubs. Both of those, we have some of them in market already. I would say in terms of the opportunity, it's probably the locals pubs is the only bit that we wouldn't see as a sort of significant ROIC north of 30% opportunity, which probably takes you to 75% or so of our estate with the opportunity for those new formats. Stephen Hopson: And then, Anna, on the revenue mix, I mean, we're about 35% food in our business overall, but there is a big variation in that, as you'd expect between format and some of those local pubs versus, for example, our adult dining business, which is very, very different. And that has been growing. I mean, clearly, food across the market really has been growing quicker than drink over a period of time, but it's not huge. I mean that number has probably changed by 0.5% year-on-year. So it's not a huge mix. So hopefully, it gives you some idea about the sort of the food and drink pub. Operator: [Operator Instructions]. The next question we have comes from Fintan Ryan of Goodbody. Fintan Ryan: Two questions from me, please. Firstly, can you give us a sense of what your sort of base case expectations are for the budget tomorrow in terms of, I guess, labor costs, anything that you might be expecting or hoping for business rates. Just to sort of get a sense of what the base case is for the outlook currently and maybe what can change within the next 24-odd hours. And then secondly, could you give some color on like like-for-like trading in Q4 and over the last 8 weeks, obviously, you reported flat like-for-likes. How much -- what's been sort of the volume versus pricing split in that? Can you give some color on the visibility for the Christmas trading? Obviously, you've got bookings up 11% year-on-year, but like typically how much of bookings are -- of your Christmas trading are bookings? And what you'd be at this point, assuming for incremental pricing for FY -- for the calendar '26, would be great. Stephen Hopson: Thanks, Fintan. If I start on, I guess, the hot topic of the day and tomorrow, which is the budget and expectations for that. I mean, our base expectations and sort of what's embedded into the guidance that we've given to the market is that we expect National Living Wage to increase, obviously. Our expectations are about a 4% increase in the headline rate of National Living Wage, and we're expecting the differential for under 21-year-olds to close slightly compared to where it is at the moment. We're not expecting any further changes to things like National Insurance. And then really, I know there have been lots of stories in the press, but at the moment, we're not making any expectations on changes for things like machine, gaming duty or business rates either. I mean the Chancellor has flagged that there'll be a review of the way business rates is levied. So that will be interesting to see. But we're not making any assumption on that because simply, we just don't have the information available to us at this point. Justin Platt: And before I answer the like-for-like, Fintan, if you've got any assumptions on the budget tomorrow, please share them with the group. In terms of the like-for-likes, look, as you know, quarter 1 is all about Christmas. October and November are relatively small months in the grand scheme of things. December performance is really what matters. And within that, it's the key 2 weeks from kind of 19th of December until 2nd of January, quite time, tight time. And bookings pace, as we've said, is very good at 11%, and that's off the back of last year. I think we grew Christmas at about 11% last year in like-for-like terms. So it's pleasing the stage we're at. But to your point, walk-ins are also important at Christmas. So we've still got a lot of work to do in order to land that. And that's both in encouraging people to spend their Christmas with us but also then in managing spend per guest, so we drive the revenue return as well. Fintan Ryan: Great. And just in terms of the pricing and current expectations? Justin Platt: Well, again, we -- as you know, we don't -- we kind of manage price through the year in a broader revenue basis. So in terms of our revenue management initiatives around booking density, around premiumization. And yes, lead price is part of that mix, but we don't have like a hard and fast target. It's overall spend per that we look at. Operator: Ladies and gentlemen, at this stage, there are no further questions. I would now like to hand back to the management team for closing comments. Justin Platt: Well, just to say, thanks, everybody, for joining us. Really good engagement. Obviously, we'll all see what comes tomorrow. And I'll wish you an early best wishes for the festive season. Thank you. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines. Justin Platt: Good morning, everybody. Thank you for joining us today. Welcome to the Marston's preliminary results for financial year '25. My name is Justin Platt, CEO. And with me, I have Stephen Hopson, our new Chief Financial Officer. We'll take you through our results today, and we'll do that with the following running order. I'll start with the headlines. Stephen will then share the financial results, and I'll then give some insight into the strategic progress we've been making through the year before wrapping up and taking any questions you might have. So the headlines. 2025 has been a very strong year for Marston's. It's been a year when we've been very focused on delivery, delivery of the strategy we outlined a year or so ago at the Capital Markets Day. And the results bear out that the strategy is working and driving real progress for us as a business, with profit before tax of GBP 72 million, that's year-on-year growth of 71%, and that's on top of the 65% growth we delivered a year ago. And that profit delivery has helped us drive cash flow. So cash flow at GBP 53 million. That's ahead of our GBP 50 million target, and it's also earlier than planned. Alongside that, it's really pleasing we've made great progress with our new pub formats, 31 launches this year. They're performing very strongly for us and driving big revenue uplifts. It's very clear now that these formats can be a significant growth engine for us in the future. And we've been doing all of that while giving our guests a great time. So record satisfaction scores with a reputation score at 816. So overall, a really good set of results, and it's a set of results that leave us feeling very positive in our outlook going forward. So that's the summary. I'll now hand over to Stephen, and he'll take you through the financials. Stephen Hopson: Thanks, Justin, and good morning, everyone. As Justin said, this is my first set of full year results at Marston's, and I joined the business at what is clearly an exciting time for Marston's. As these numbers show, we're making great progress and delivering against our goals with lots more to come. On my first slide, I'd like to begin by looking at some of the key group financial metrics. Total revenue was GBP 898 million, which showed growth of 1.6% on a like-for-like basis. EBITDA was up 7% to GBP 205 million, with the margin expanding by 140 basis points to 22.8%. That's been driven by good operational discipline, particularly on labor and controlling input costs alongside the revenue growth. As a result of the EBITDA growth and lower finance costs, PBT stepped on significantly. Underlying profit before tax was GBP 72 million, nearly 3x where we were just 2 years ago. And importantly, this has translated into stronger cash generation. Recurring free cash flow was GBP 53 million, which is up 22% year-on-year and ahead of our GBP 50 million recurring free cash flow target. Finally, we've made real progress on the balance sheet. Net debt has reduced from 5.2x to 4.6x EBITDA as we continue to delever. So overall, excellent progress on both profit and cash. Turning now to look at our income statement in a bit more detail on the next slide. As I mentioned, FY '25 marked another year of substantial profit growth for Marston's with PBT up 71%. Reported revenue was flat, although this masks the impact of the FY 2024 disposal program, which I'll show on the next slide. I've already mentioned that EBITDA was up 6.5%, and that GBP 12.6 million of EBITDA improvement basically flowed through to operating profit, which was up 8.6% to GBP 159.9 million. Net finance costs were significantly lower year-on-year as a result of ongoing delevering and last year's CMBC disposal, leading to that very significant jump upwards in PBT. And whilst our effective tax rate increased, this simply reflects a return to the U.K.'s headline rate of corporation tax after a period of a lower rate. Together, this income statement shows a stronger and more profitable business with improved earnings quality and stronger margins. Turning to revenue performance. As I've already touched on, revenue for 2025 was GBP 898 million and was broadly flat year-on-year, but I would like to pick out 2 points on this chart. First, that the revenue includes a negative movement of about GBP 40 million in relation to the disposal of pubs over FY 2024 and 2025. To put the disposals into context, about GBP 50 million of assets were sold as part of the disposal program. So it's important to consider that impact when assessing year-on-year revenue progression. And the second point is that our like-for-like performance continues to be ahead of the market, which grew by 0.7% in the year, with positive contributions across all key categories of drink, food and machines. Turning now to look at margin. A key target for the group outlined at the CMD was to grow our underlying EBITDA margin by 200 to 300 basis points from FY '24 levels, giving a target range of 23.4% to 24.4%. And I'm pleased to say that this year, we've delivered 140 basis points of margin expansion, achieving total EBITDA margin of 22.8% in the year. Labor productivity gains were the single biggest contributor, supported by the rollout of improved scheduling tools, which Justin will cover in a bit more detail later on. The labor productivity benefits in the year were enough to fully offset the increases in the National Living Wage and National Insurance contributions, which came in from April 2025. We also saw benefits from improved food and drink margins, energy savings and other operational efficiencies. These gains were partially offset by inflationary pressures, including those employment cost increases that I mentioned and some investment in key areas, including more marketing. But overall, we've made real progress embedding cost discipline and delivering margin expansion across the business, and we feel that our EBITDA margins really do benchmark very well across the whole pub sector. We view ourselves as a high-margin local pub company, and we see further opportunity to increase the EBITDA margin in FY '26 as we move towards our CMD target. Turning now to look at capital expenditure. Total CapEx for the year was GBP 61.2 million, which is equivalent to 6.8% of revenue, and we're now approaching the 7% to 8% of revenue range that we talked about in the CMD. This is an increase from GBP 46.2 million last year, with the main driver being our pub format conversions, which I'll come back to shortly. Of this total, GBP 53.2 million was in maintenance and other CapEx deployed across our 1,300 strong pub estate. This includes works such as maintenance, estate management, investment in new IT platforms and other items. But I also want to pull out a bit more granular information on our pub format conversions, which are very important to our overall growth plans and which Justin will cover in more detail. In the year, we covered 31 conversions to our differentiated formats, which are delivering strong results. Average revenue uplifts were 23% year-on-year and EBITDA returns are over 30% to date, in line with our CMD targets. At an average cost of GBP 260,000 a site, we believe these conversions represent excellent value for money. And of course, we've only completed a small number so far in comparison to our estate. So there's a lot more to go at in this space. Clearly, the driver of increasing our capital expenditure is to improve the quality of our estate. So let's turn to that now. On this slide, we show that we ended the year with 1,328 pubs following the continuation of our estate optimization strategy. This included a small number of disposals in the T&L estate as well as conversion of some pubs to the partner model. As a result, the managed and partnership estate consisted of 1,182 pubs and the T&L estate had 146 sites at the year-end. EBITDA per pub increased to GBP 154,000, which, as you can see, is a 28% improvement over the last 2 years. This uplift reflects both operational improvements and tighter estate management with gains in both, our managed and partnership estate and the remaining T&L pubs. The result is a higher-quality, better-performing pub estate that's delivering stronger returns at a site level. I think this is a really important slide as it shows how the improvements being made to the business model are feeding through at pub level. Turning now to our cash performance in the year, which was another highlight. The takeout from this slide is that we delivered and, in fact, exceeded our CMD target of GBP 50 million of recurring free cash flow ahead of schedule, with GBP 53.2 million delivered in the period. And how was that delivered? Well, cash from ops increased year-on-year by GBP 5.6 million, which included the improvements in EBITDA I described earlier. Within that number, we also had a GBP 6 million saving from lower contributions to our DB pension scheme. And offsetting that, we had a small working capital gain, but it wasn't as large as last year's gain. Finally, we started making cash tax payments again of GBP 5.3 million as our profits improved. And as a smaller side, investors and analysts should note that in FY '26, we expect to move into the very large company corporation tax regime, which will accelerate our cash tax payments this year. And then in the second line on the chart, we had a GBP 15 million saving on interest, offset by GBP 15 million more CapEx year-on-year, as I just described, together with lower banking fees. So recurring cash was strong and now over GBP 50 million, which we expect to be able to exceed again this year. I also wanted to draw out on this slide that this strong free cash flow is fully absorbed by scheduled debt repayments, GBP 43.8 million of securitized debt repayments and GBP 8.6 million of lease liabilities. Clearly, this does mean that the group is delevering, as I'll show on the next slide, but also that our cash generation is currently fully utilized. And then just to complete the chart, after other movements in borrowing and disposals, there was a cash outflow of GBP 9.6 million in the year. And I'm now going to return to that progress about delevering in the group. This slide shows the different elements of the group's financing structures and the overall movement in net debt year-on-year. So starting at the bottom, net debt, excluding lease liabilities, reduced by GBP 46.2 million, to GBP 837.5 million. This takes our net debt-to-EBITDA multiple, excluding leases, down to 4.6x from 5.2x last year. That continues the recent downward trend and reflects the group's stronger cash generation and disciplined approach to capital investment. And then to briefly cover what makes up our financing structures, the largest element shown at the top is the securitization, which provides long-term predictable financing for the group. It does also impose some restrictions, both in terms of the assets that are tied up in the securitization structure and in our ability to move assets and cash around the group. However, these restrictions are manageable at present. Swaps are in place to fix the interest that we pay on the securitized debt. Other lease-related borrowings are essentially loans that were raised against other properties in the group outside the securitization. They were legally structured as sale and leasebacks, but where we have the option to buy back the properties at the end of the period for a nominal fee. Therefore, we treat these properties as effective freehold. And as noted in the slide, we're currently paying interest only on those borrowings. And I've put a new slide in the appendices showing investors how those structures will work over coming years. Our GBP 200 million bank facility was renewed in the year and now extends to July 2027 with relatively low drawings at the year-end, and cash balances ended the year at GBP 35.9 million. So in summary, we're continuing to delever at pace while preserving the secure long-term funding arrangements in the group. If I then broaden this to look at the group's whole balance sheet rather than just the net debt elements, this slide shows the evolution of our balance sheet and our net asset value per share, which increased to GBP 1.25 this year. And actually, the movements year-on-year are pretty straightforward. Our balance sheet is underpinned by GBP 2.2 billion of property assets, of which 81% of the estate by number of pubs are effective freeholds. The net book value of those assets increased by over GBP 100 million in the year, reflecting our annual estate reval and also our ongoing investment into the business. Net debt, as I've just described, reduced GBP 837.5 million, excluding lease liabilities, and lease liabilities were GBP 5.5 million lower. So total net debt was GBP 51.7 million lower year-on-year. Other liabilities increased by GBP 28.4 million, almost entirely due to an increase of GBP 28.5 million in deferred tax liabilities relating to the upward property revaluation. So overall, the property reval with its associated tax movements as well as the net cash generation of the group drove GBP 136 million increase in net assets, which was a 21% increase year-on-year, to GBP 791 million, which equates to GBP 1.25 per share. Given the progress made on the balance sheet, I want to finish by looking at our capital allocation framework. And if I start by saying that this is not a change to our capital allocation policy, which remains consistent with what we laid out at the CMD, we remain focused on delivering sustainable shareholder value through a disciplined balance of investment in the business, delevering and ultimately, shareholder returns. That said, there are a couple of updates we wanted to share this morning. On the right-hand side of the chart, you'll see our continued progress on leverage, which, as I mentioned, has reduced substantially. We are pleased with that progress, but would like to see leverage continue to decrease. And today, we're committing to reduce leverage to below 4x on a pre-IFRS 16 basis. When we get to that level, we anticipate the start of capital returns to shareholders through dividends, share buybacks or a combination of both. What that looks like will depend on circumstances at the time, including the share price and investor preferences. To be clear, we also expect to see the group continue to delever below 4x even after the recommencement of shareholder returns. We believe this disciplined approach continues to be the right strategy to create and sustain long-term value. So to conclude, we've delivered a strong financial performance this year with clear progress on margin, profit and cash flow, and we expect further progress this year. And before I hand back to Justin, I'll briefly touch on 5 forward-looking points. First, we remain confident in the trading outlook for FY '26 with like-for-like sales currently tracking in line with last year and Christmas bookings up 11%. Second, we expect further progress towards our margin target of 200 to 300 basis points of growth versus 2024 following the 140 basis point gain this year. Our format growth engine will be accelerated this year with at least a further 50 refurbishments and our CapEx is expected to be within the target range of 7% to 8% of total revenue. And after achieving our CMD target ahead of schedule this year, we expect to deliver another year of GBP 50 million in recurring free cash flow in FY '26. And lastly, we've significantly reduced our debt profile over the past couple of years and expect to continue to do so with leverage now at 4.6x and progressing well towards our sub-4x target. So overall, we're delivering against our targets, and we remain firmly on track to drive further financial and strategic progress in the year ahead. Thanks very much, and I'll now hand back to Justin. Justin Platt: Thank you, Stephen. So I'll now take you through the progress we've been making as we've implemented our strategy through the year. You will remember from the Capital Markets Day, we're very focused on being a high-margin highly cash-generative local pub company. And we'll do that with a portfolio of brands that appeal across a range of consumer segments. 5 key value drivers that get us there: executing a market-leading operating model; using CapEx to deliver differentiated formats; unlocking value with digital transformation; expanding our excellent managed and partnership management models; and in time, supporting that with targeted acquisitions. So I'll now deep dive on each of those value drivers to give you a flavor of some of the work that we've been doing. The first one I will spend some time on is the operating model. Really, this is the bread and butter of running a great pub business. It's the balance of revenue growth, cost efficiency and guest satisfaction. So first of all, I'll talk to revenue. Really good momentum this year. We've continued to do well, especially in our peak trading periods. Across our peak trading periods, we're up almost 6% on the year. And that's enabled us to grow our like-for-likes ahead of the market at 1.6%. And a lot of what's behind that is our event plan. Our event plan has been a key thing for us this year. In 2025, Marston's Pubs have been home to a darts tournament led by Luke Humphries, the world #1. Paddington and his new movie joined us from Peru. We had a national Trivial Pursuit quiz event. And through the summer, when Oasis Mania was sweeping the U.K., we had a series of '90s throwback events with tribute [ bans/bands ] and the like in our pub life. So all of these are designed to give people reasons to visit our pubs, a range of guest demographics. I think that's essential at any time of year, but especially so in the summer when, of course, this year, we had no big football tournament. So events are big success for us and an important driver in supporting our revenue growth. So secondly, on costs. As Stephen has shown you, we've made excellent progress during '25 on our journey to being a high-margin business in adding 140 basis points to our margin despite significant and well-known headwinds. And we've done this with a relentless drive for efficiency across all areas of our cost base. The biggest area of our cost base is labor, where we've saved almost GBP 10 million, a little bit more than 1 percentage point on our margin. And this has been about continually getting smarter with the way we use our technology to enhance and optimize our labor teams and our labor schedules, all about getting the right people in the right place at the right time. I think probably the best way to bring to life for you the work we've done on labor is to pick a case study of one of our pubs. The lady pictured on the right is Kati. She's one of our fantastic general managers. She runs the King Charles pub in Chesham, a lot of work with our labor planning this year. They've actually reduced their labor costs through the year by 8%. And despite doing that, they've grown their revenue by 19% and also grown their guest satisfaction well ahead of our company average. So a good example in the way labor is playing out for us in one of our pubs, but it also represents our approach across the company. So secondly, in terms of food and drink, our formats allow us to simplify the ranges we offer because we're a lot clearer about the demographic by format. And so that allows you to be clear which food offer and which drink offer you need by pub. So that's allowed us to simplify our range. That's helped us with efficiencies. But alongside that, we've also renegotiated our key food and drink contracts to drive efficiencies where we can. So that's labor and food and drink. Finally, energy and states. Every pound counts on energy. We've been that way for a number of years now, whether it be the usage that we manage, but also the contracts, there's a relentless focus on attempting to drive efficiencies there. But as Stephen said, we take a very judicious approach to estates more broadly with our CapEx, looking at our maintenance cycles, spending strictly in maintenance cycles, and that helps us on efficiencies with our repairs budget. So overall, really good progress on the cost side of things. And then finally, on the operating model, guest satisfaction. I mean this is all about ensuring that when our guests come and see us, they have a great time. And it's very pleasing in the context of the efficiency gains I've just talked to that we're still delivering better and better experiences through our guests. So from a score of 766 in '23 to 800 last year, 816 this year is a very pleasing performance. And this really is a combination of many of the initiatives coming together, whether it be our events program, and the visual there is of our October Fest event that we run during September, whether it be through digital ordering or some of the menu enhancements we've made. All of these things together add up to make a difference to the guest experience. It's worth saying, though, that the #1 factor that dominates, that really drives a great guest experience is, really strong guest service. That requires almost an obsession, a relentless obsession with getting that right day in, day out. And the work on that is never done. Our teams are very focused on delivering that experience all the way through the year. And as I say, it's pleasing that this year, we've been able to continually improve on that. So that's the operating model. When you take revenue, cost, satisfaction together, it's good that we've made strong progress across the piece. And this has been complemented with the work we've done on the digital transformation value driver. I think a key example of this would be the new order and pay app that we launched in March. Really well received. It's paying dividends with our guests in terms of both revenue and reputation, and it's complementing the personal service for those guests who want it. So we've got a 10% revenue uplift when using the app. And those pubs with a higher mix of order and pay usage do significantly better on reputation. What's also good about the app is it can work hand-in-hand with our events. So the Trivial Pursuit: Win a Wedge event drove a big uptake in the use of the app. So good progress overall on this area, digital, but a lot more opportunity here in the future as digital transformation can help us both on revenue and on cost. The third value driver I want to focus on is our new pub formats. So against 5 core consumer target segments across the market, we've designed 5 pub formats that are specifically designed to meet the needs of those target audiences. And through a series of test and learn launches in '25, we've been assessing the potential of these pubs to drive appeal and importantly, drive powerful CapEx returns. Now in May, I did a deep dive on the Two-Door format. So I thought this time around, we'd share some more information on the Grandstand brand. Grandstand is a local sports pub. So it targets adults who want an entertainment experience when they go to their local pub. I mean this is an absolute sports lover's dream. It's similar to a city center sports bar environment, but in the local community pub. Number of constituent parts to it. At its heart, state-of-the-art technology ensures that we've got 3-meter stadium screens, amazing sound systems. Alongside that, there's great match-day food suited to watching the big game. And these pubs will always be run by sports enthusiast general managers who know what their guests want and can work with them to give them a great experience. It's an absolute must visit for the big game, the atmosphere that we create. But more than that, because it's a local pub and it's a great environment, it's a place that you would want to go to on any night of the week, and we support that with a program of sports events through the week to give people reasons to come every night. So Grandstand has done really well this year. The guest reaction and the returns that we've had have been very, very impressive, and it's been a key part of our test and learn year. And test and learn overall this year has exceeded our expectations. We've done 31 launches through the year. So we did 21 Two Doors, 5 Grandstand and 5 Woodie's. Woodie's is our new family pub. All have done well. Guests love them. They've driven strong uplifts in revenue of 23% and all of that off relatively modest levels of CapEx. We've been driving ROIC of more than 30% of only GBP 260,000 per pub. So the test and learn phase really has proven the potential of this stream for us, real growth opportunity as we roll out across the estate. And all of our pubs have been mapped to the format opportunity they can play to over time. So over time, this really does give us an opportunity as a significant driver of growth. So great progress across our value drivers in '25, and this leaves us feeling very positive as we look towards 2026. Through this year, we'll have a big program of exciting events, all designed to encourage guests to come and visit us, not least with a big football tournament on the horizon that everybody will be very much focused on in the summer. And we'll complement that with our revenue management and order and pay disciplines to drive spend per guest. But alongside the demand drive, as I've just said, our new formats will play an increasingly important role in driving growth through the year. Given our success in '25, we're now accelerating the rollout plan. We'll have 50 or so launches focused on Two Door and Grandstand, and all of these will make a meaningful difference to both revenue and EBITDA performance through the year. So to summarize, another year of strong delivery in '25, significant growth in both profit and cash flow. We're very excited by the growth potential of our new formats, and we see a very promising outlook for the year ahead as we continue to deliver as a reliable growth company. And with that, we can now take some time for questions. Operator: [Operator Instructions]. The first question we have comes from Douglas Jack of Peel Hunt. Harold Jack: So I've got 2 questions, if that's okay. In terms of the new formats in 2026, is the choice of Grandstand and Two Door largely because they're the ones that have the greatest uplift potentially, adding to the number of reasons to visit, I think, obviously, they've got quite a lot of opportunity there. And then the second one was about margins. In 2026, what are the best margin opportunities do you see over this year? Justin Platt: Thanks for your questions. I'll take the first one on formats and then, Stephen, if you want to come to margins. In terms of choices, as you know, we were very clear to have the plank of a test and learn phase first to guide our implementation. So the primary choice is certainty of return in the sense that Two Door and Grandstand both launched earlier in the year last year than Woodie's, which allowed us to get more data on those through the year. Most of the Woodie's launches came sort of the summer onwards. So whilst all are performing well, we've just got longer data on the other 2. The other attraction, of course, with Grandstand is you absolutely want a bigger footprint of those pubs in the market in a year with the World Cup, which we've certainly got an eye on. But really, it's about certainty of returns, Doug. Stephen Hopson: And Doug, on your question on margins, I mean, yes, look, we've made really good progress in 2025. I think we do expect EBITDA margins to increase in 2026, but not to the same extent as 140 basis points we did in 2025. I mean I think the best opportunities for me, so there's a bit of flow-through stuff. So we made really good progress on labor. And Some of those things didn't come through until the second half last year. And so I think some of them will help H1 2026. And also, that is a continuing journey for us. So matching right people, right place, matching demand with supply of labor is something that we're going to be relentlessly focused on going forward. That may come through in terms of reduced cost. It may come through in terms of better customer service and therefore, improved sales, but I think there will be some upside from that. And then I think on gross margins, I mean, we've got pretty good visibility of both food and drink cost prices moving into next year. We're lock in quite a few contracts on that quite early. And I think, therefore, that gives us certainty on those lines. We'll continue the journey on things like revenue management and upselling and so on, and it should be an opportunity to move that further forward as well. Operator: The next question we have comes from Karan Puri of JPMorgan. Karan Puri: I've got 2 quick ones. One, on the 1.6% like-for-like momentum in '25. Just wondering if you could provide a split between pricing and volumes, number one. And number two, just coming back on the cash tax payment in '26. I know it's going to be higher than 2025, but in terms of magnitude, if you could share a bit more on that front would be helpful. Justin Platt: So I'll start with the like-for-likes. As we said in the release, food, drink and machines were all in growth, and that's a mix across them. As you'd expect in that, revenue management has played an important part for us and will continue to do so, particularly actually the premiumization as consumers are upgrading to more premium beers and also adding and upgrading on the menu. And then the second one, Stephen? Stephen Hopson: Yes, the cash tax. So yes, you're right. We flagged that it would increase. Last year, the cash tax payments were GBP 5.3 million. That will approximately double next year, to about GBP 10 million, Karan. So that's about the extent of it. We are still using some losses from previous trading period. So the cash tax is still relatively low, but it will be about GBP 10 million in FY '26. Karan Puri: Perfect. And then just a quick follow-up on that one. So do we -- can we expect it to be sort of normalized cash tax starting in 2027? Or will you still benefit from some loss in the previous period there as well? Stephen Hopson: Yes. 2027 will still be a little bit low. And then from 2028, it will go back to normalized levels. So it will be a step-up in 2027, but it won't be up to normalized levels, yes. And then from 2028, you should expect normalized levels of cash tax. Operator: [Operator Instructions]. The next question we have comes from Anna Barnfather of Panmure Librium. Anna Barnfather: Just a couple of questions. Firstly, on the reformats, you've mentioned sort of acceleration sort of 50. Could you update us on your thinking of what proportion of the estate at this stage you think could benefit from a reallocation into 1 of the 5 formats? So how many of your sort of 1,300 pubs? And have you only done managed or have you done partnership ones as well? The second question, I was just thinking about the sort of peak trading. Obviously, you're doing really well in those big events, with peak trading periods up 5.8%. Are you tempted to sort of reduce opening hours on the sort of nonevent days? Or is there any sort of thinking on that as a way to cut down on overheads? And then just third question on the revenue mix. I think obviously, higher margins and gross margins, can you just give us a bit more color on perhaps some of the shifts in your sales mix? Justin Platt: Thanks, Anna. I'll take the first 2 and then Stephen, if you could take the third one. Let me start on peak trading, and then I'll come back to formats. We do look at our hours on a regular basis, but there's not a massive need to start big closure periods by any means. I mean one of the things that's most notable in pub trading today certainly versus 5 years ago is the growth of the early evening at the expense of the late evening. So if you look at booking patterns now, peak time for a table, the busiest time to get a table is 6:30 to 7:00. You go back 5 years, that was more like 8:00. So there's definitely an earlier day point to your business. And we do look at hours, but I don't think there's anything significant there in cost, particularly the local community environment where people are around the corner from their houses quite a lot. On the formats. So first of all, yes, we've actively launched formats across our managed and our partner estate, and they're performing equally well in each, neither is a differentiator actually in terms of performance, but they do work across both managed and partner. And then in terms of the numbers, as we showed earlier, 5 formats. The 2 that we didn't deep dive on were locals pubs and adult dining, signature pubs. Both of those, we have some of them in market already. I would say in terms of the opportunity, it's probably the locals pubs is the only bit that we wouldn't see as a sort of significant ROIC north of 30% opportunity, which probably takes you to 75% or so of our estate with the opportunity for those new formats. Stephen Hopson: And then, Anna, on the revenue mix, I mean, we're about 35% food in our business overall, but there is a big variation in that, as you'd expect between format and some of those local pubs versus, for example, our adult dining business, which is very, very different. And that has been growing. I mean, clearly, food across the market really has been growing quicker than drink over a period of time, but it's not huge. I mean that number has probably changed by 0.5% year-on-year. So it's not a huge mix. So hopefully, it gives you some idea about the sort of the food and drink [ pub/part ]. Operator: [Operator Instructions]. The next question we have comes from Fintan Ryan of Goodbody. Fintan Ryan: Two questions from me, please. Firstly, can you give us a sense of what your sort of base case expectations are for the budget tomorrow in terms of, I guess, labor costs, anything that you might be expecting or hoping for business rates. Just to sort of get a sense of what the base case is for the outlook currently and maybe what can change within the next 24-odd hours. And then secondly, could you give some color on like like-for-like trading in Q4 and over the last 8 weeks, obviously, you reported flat like-for-likes. How much -- what's been sort of the volume versus pricing split in that? Can you give some color on the visibility for the Christmas trading? Obviously, you've got bookings up 11% year-on-year, but like typically how much of bookings are -- of your Christmas trading are bookings? And what you'd be at this point, assuming for incremental pricing for FY -- for the calendar '26, would be great. Stephen Hopson: Thanks, Fintan. If I start on, I guess, the hot topic of the day and tomorrow, which is the budget and expectations for that. I mean, our base expectations and sort of what's embedded into the guidance that we've given to the market is that we expect National Living Wage to increase, obviously. Our expectations are about a 4% increase in the headline rate of National Living Wage, and we're expecting the differential for under 21-year-olds to close slightly compared to where it is at the moment. We're not expecting any further changes to things like National Insurance. And then really, I know there have been lots of stories in the press, but at the moment, we're not making any expectations on changes for things like machine, gaming duty or business rates either. I mean the Chancellor has flagged that there'll be a review of the way business rates is levied. So that will be interesting to see. But we're not making any assumption on that because simply, we just don't have the information available to us at this point. Justin Platt: And before I answer the like-for-like, Fintan, if you've got any assumptions on the budget tomorrow, please share them with the group. In terms of the like-for-likes, look, as you know, quarter 1 is all about Christmas. October and November are relatively small months in the grand scheme of things. December performance is really what matters. And within that, it's the key 2 weeks from kind of 19th of December until 2nd of January, quite time, tight time. And bookings pace, as we've said, is very good at 11%, and that's off the back of last year. I think we grew Christmas at about 11% last year in like-for-like terms. So it's pleasing the stage we're at. But to your point, walk-ins are also important at Christmas. So we've still got a lot of work to do in order to land that. And that's both in encouraging people to spend their Christmas with us but also then in managing spend per guest, so we drive the revenue return as well. Fintan Ryan: Great. And just in terms of the pricing and current expectations? Justin Platt: Well, again, we -- as you know, we don't -- we kind of manage price through the year in a broader revenue basis. So in terms of our revenue management initiatives around booking density, around premiumization. And yes, lead price is part of that mix, but we don't have like a hard and fast target. It's overall spend [ per ] that we look at. Operator: Ladies and gentlemen, at this stage, there are no further questions. I would now like to hand back to the management team for closing comments. Justin Platt: Well, just to say, thanks, everybody, for joining us. Really good engagement. Obviously, we'll all see what comes tomorrow. And I'll wish you an early best wishes for the festive season. Thank you. Operator: Thank you. Ladies and gentlemen, that then concludes today's conference. Thank you for joining us. You may now disconnect your lines.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome you to the CleanSpark Fiscal Full Year 2025 Earnings Results. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. Star one again. Thank you. Terry, you may begin your conference. Harry Sudock: Thanks, Colby. And thank you for joining us today to review the fourth quarter and full fiscal year 2025 financial results for CleanSpark. We encourage you to review our earnings results press release, which was issued today and is available on our website. Our 10-Ks will be filed shortly. A webcast replay and transcript of today's call will be added to our website once available. On the call today, I am joined by Matt Shultz, our Chief Executive Officer, and Gary Vecchiarelli, our President and Chief Financial Officer. Some of the statements we make today will be forward-looking based on our best view of the world and our business as we see them today. The statements and information provided remain subject to the risk factors disclosed in our 10-Ks. We will also discuss certain non-GAAP financial measures concerning our performance during today's call. You can find the reconciliation of non-GAAP financial measures in our press release which is available on our website. And with that, my pleasure to introduce Matt Schulz. Matt Shultz: Thanks, Harry. Good afternoon, everyone, and thank you for joining us. I'm so excited to have stepped back into the role of CEO of CleanSpark this past August after serving as executive chairman for the past five years. In my first one hundred days, the team has been relentlessly cementing our current leadership position in Bitcoin mining while simultaneously positioning us to evolve our portfolio. We've also set a strategic direction for CleanSpark going forward as a digital infrastructure platform serving a wide range of compute opportunities. These opportunities include, but are not limited to, generative AI, workloads, grid balancing through Bitcoin mining, and high-performance computing broadly. I've also had the opportunity to meet with many of you listening to today's call. Your enthusiasm for the future of CleanSpark's business means the world to us and we're excited to execute our strategic plan and extend our track record of operational excellence into AI factories. As the company has matured, I'm inspired by our world-class team and operating business. Our strong balance sheet and most excitingly, our growing power and land portfolio across the U.S. and the optionality it represents. Together, all of these elements are evolving into a diversified compute platform to serve the needs of the next digital age. I've taken stock of what we built, I want to share with you just how well prepared the company is for this moment in time. While Bitcoin mining remains foundational to our business, we recognize that our expertise in securing power, developing infrastructure, and deploying at scale uniquely positions us to support the fast-growing demand for AI compute. A blended approach to growing and monetizing our portfolio serves to diversify revenue, enhance margin, and build long-term shareholder value. 2025 was the year CleanSpark achieved escape velocity. Reaching 50 exahash per second in operational hash rate with 100% U.S.-based infrastructure and run by our operations and technology teams. We delivered record revenues and demonstrated capital stewardship by not issuing a single share through an equity offering throughout this calendar year. All without slowing down our growth. I'm proud to share a few financial highlights from our 2025 fiscal year. We achieved record revenues of $766 million. Our gross margin was 55%. Now that's a 1% decrease year over year. This small decrease is actually impressive due to this being the first full year post-halving when the Bitcoin block rewards were reduced by 50%. Our Bitcoin treasury grew by nearly 62% to over 13,000, generated entirely from our wholly owned and operated hash rate. This puts us in a fundamentally different position relative to treasury companies purchasing spot Bitcoin since we mine it at greater than a 55% gross margin and we're actively monetizing our holdings. We now have a sustainable self-funded mining business thanks to our industry-leading mining team. And they're backed by an innovative digital asset management operation that's generating meaningful premiums and leveraging our treasury balance as a truly productive asset. We're in the process of deploying the 19,000 S21X XP immersion units that have an industry-leading 13.5 joules per terahash. It's beginning this quarter, and we expect that process to be complete in calendar '26. Now while this timeline is a bit longer than we had initially contemplated, our priority was a comprehensive portfolio review to ensure that we would not consume any AI applicable megawatts with this deployment. We have always had an infrastructure-first thesis. We avoided the asset-light strategies of past site and we prioritized control of power and infrastructure given the fundamental scarcity we're now seeing borne out in the market. Scaling our mining business required securing and developing a world-class power and land portfolio, and growing significant supply chain, engineering, construction, and operational capabilities. All highly relevant as we evolve into AI data center development. Today, we have more than a gigawatt of power under contract live in our data centers and infrastructure. Additionally, we have nearly 300 megawatts in Texas, fully contracted and scheduled to begin energization in early 2027. Coupled with a multi-gigawatt pipeline of additional near-term opportunities. Importantly, many of these locations are excellent candidates for AI campuses while others are best positioned for Bitcoin mining, load balancing, and securing the grid. Our objective is clear: to deliver each megawatt to its optimal use case. Have always had an internal philosophy of people first. As we look to expand our business, That was true in the earliest days of microgrid development. It was true as we grew into a Bitcoin mining company. It was clearly a winning strategy when we hired Taylor Monig to lead us to the forefront of immersion cooling. And most recently, it remains true as we added Jeff Thomas to lead our AI data center initiatives following his successful tenure as president at Humane. We've accomplished three key initial steps in our business evolution thus far with Jeff on board. The first thing is we reviewed our diverse to identify the most productive use of every single megawatt. Second, we secured a 285 megawatt site in Texas with the explicit intent of building an AI factory for a high-quality tenant. And three, we're aligning and expanding our internal team in conjunction with market-leading partners to deliver projects on time, and on budget that meet the exacting needs of offtake customers. When we took a close look at our facilities, it became clear that our 250 megawatt site in Sandersville, Georgia provides an immediate opportunity to host a large-scale tenant. Other sites surrounding the Atlanta Hartsfield Airport totaling over 100 megawatts with ready access to fiber are already in extremely high demand. In Texas, the site we recently acquired just outside of Houston, will be the location of our first exclusive exclusively purpose-built AI factory. We hold 271 contiguous acres of land located on a regional fiber backbone and have executed 285 megawatts in long-term power supply agreements that have already been fully approved by ERCOT. Better still, the site is located near several high-capacity natural gas pipelines which are being evaluated for industrial-scale behind-the-meter generation opportunities. This purchase positions us to deliver scalable resilient and energy-efficient capacity to meet demand from AI, cloud, and enterprise workload and represents a key step in our long-term strategy to leverage our vertically integrated infrastructure-first model. While this may be our first purpose-built facility, it certainly won't be our last. The entire team is focused on first securing tenants for Sandersville and Houston, which will then drive efforts to take the projects from commercialization to commissioning. Long-term tenants represent a superior risk-adjusted profile return profile, pardon me, for these assets rather than direct GPU exposure initially. Similar to past industrial revolutions, AI represents a new ecosystem. Power companies, chip companies, hyperscalers, infrastructure technology providers, and others are all collaborating And we're in direct discussions at every level to deliver maximum value for our customers and our shareholders. Jeff has been building the full life cycle playbook for AI campus development and operations that best serve this ecosystem. Together, his growing team is already vetting potential tenants, building high-quality site commercialization plans for our pipeline, and defining our project delivery roadmap. As part of those efforts, we entered into a memorandum of understanding with Submer a global pioneer in liquid-cooled and prefabricated data center solutions. Its end-to-end capabilities spanning from liquid cooling systems and mechanical, electrical, and plumbing modules to full facility builds set new benchmarks in energy efficiency, density, and sustainability, making them an ideal partner for CleanSpark's growth strategy. This relationship is our first step in taking elements of the construction process away from the data center and putting them into the factory. With approved reference architecture designs to support a broad range of tenant requirements. Together, we're working on an infrastructure that integrates power generation, data center development, and AI service delivery. Under this framework, CleanSpark focuses on selecting, developing, building, and operating AI-focused campuses while Submer will offer its technology and expertise as a strategic vendor in delivering sustainable modular data center systems. Meanwhile, we completed our largest financing ever. With a $1.15 billion upsized 0% convertible note. Gary, our President and CFO, will discuss the finer details and numbers momentarily. But before I pass it over to him, there are some elements I'd like to highlight. The terms are even better than our prior raise in December 2024. With the same 0% interest rate, a higher 27.5% conversion premium, and a six-point two five-year term. This financing provides the resources to expand our power and land portfolio, seed our first AI deployments, and continue investing in strategic growth opportunities. And as part of this transaction, we bought back $460 million worth of our own stock more than a 10% reduction in outstanding shares. We've once again bet on ourselves and we will succeed the CleanSpark Way. With that, I'll hand it over to Gary to take you through the financial results both for the quarter and the full year. Over to you, Gary. Gary Vecchiarelli: Thank you, Matt. I'd like to start by reviewing the numbers for the entire twelve-month fiscal period which was a landmark year for CleanSpark. Our revenue grew more than 100% year over year to $763.663 million with almost 8,000 Bitcoin produced. The major driver of this increase was due to a combination of growth in Exahash and Bitcoin price. Our full-year gross margin was 55%, which we're particularly proud of given that this was the first full year post-halving. These margins remained relatively in line with the prior year, which is attributed to the significant increases in efficiency our fleet had over the last twelve months. Also contributing to our gross margin consistency is our average marginal cost per bitcoin, which was slightly below $0.043 for the fiscal year. Our average revenue per Bitcoin was approximately $98,000. Our margins and cost per bitcoin represent the strength of our infrastructure quality, our world-class teams, and commitment to managing our business to profitability and margin rather than any single operating metric. Our high margins translated to an adjusted EBITDA of over $800 million which I must point out does not adjust for certain noncash items such as the mark to market on fair value of Bitcoin. When normalized, by excluding our gain on the fair value of Bitcoin the adjusted EBITDA from operations would be approximately $305 million which represents a net margin of approximately 40%. Additionally, the combination of increases in margins and fair value of the 13,000 plus Bitcoin we have on the balance sheet contributed to a significant positive net income of about $365 million. Looking at the most recent quarter over quarter performance, we also saw significant gains between the third and fourth quarters. Our revenue increased by approximately $25 million or 13% in Q4 versus Q3, and our margins increased two points to 56.5%. It's important to note that we achieved 50 exahash in June And while that remained our operational high for the fourth quarter, we still experienced increases in revenues and margins because of favorable mining economics during the quarter. Our high uptime also allowed us to capture periods of significant appreciation in Bitcoin price. In the fourth quarter, we recognized a slight net loss compared to the third quarter. This was due to a much larger gain on fair value of Bitcoin during the third quarter, and noncash tax adjustments recorded at our fiscal year end. Our adjusted EBITDA margins also saw similar changes which is inclusive of the noncash mark to market adjustment on fair value of Bitcoin. However, when adjusting any noncash mark to market effect, our normalized adjusted EBITDA was $97 million for the fourth quarter, a 25% increase over the $78 million normalized in the third quarter. This translates to margins of 43% and 39% respectively. Going forward, we do expect that our professional fees as we execute on our AI strategy, payroll, and G and A line items will increase. Additionally, I will point out that the AI data center business comes with stable cash flows and high margins. Both of which will help CleanSpark through the peaks and valleys of Bitcoin mining economics. Our escape velocity translates to operating leverage. We have developed scaled data center infrastructure that is delivering revenue and margin necessary to self-sustain and further support incremental investment in AI data center capabilities as we evolve into a power, land, and compute platform. Turning our attention to the balance sheet. I want to point out that we are one of the first if not the only company, which has a scaled cash-flowing business that is also using Bitcoin as a productive capital asset. Utilization of our Bitcoin stack resides in a team we refer to as digital asset management, or DAM. The fourth quarter was the first full quarter of DAM activity, we are extremely excited to share in more detail the steps we have taken in our crawl phase. Two initial strategies rolled out by DAM are our Spot Plus and yield strategies. Both utilize covered calls. But Spot Plus is designed to optimize for the cash needs of the business while Yield is designed to generate go-forward risk-adjusted output from our treasury holdings. Given that we are monetizing a significant portion of our monthly Bitcoin production, the Spot Plus strategy delivers a tactical uplift to cash generated on a weekly, monthly, and quarterly basis. This program functions smoothly because of the consistent output from our world-class operations and strong uptime. We are able to utilize this approach because of the investment we have made in making DAM an institutional-grade platform. It began with a comprehensive RFP for a range of products that you have heard us discuss on prior calls. And executing these option overlays requires a disciplined approach to risk management. Rather than selling Bitcoin through the spot market, we utilize apps near the money covered calls to generate both option premium and realized proceeds. If and when we ultimately get called away on these contracts. Our yield strategy utilizes covered calls as well. But instead of high delta short duration, we shift delta and extend or latter term to reduce the likelihood of exercise. Under our yield program, we saw an annualized yield of approximately 12% on a blended basis. Addition, as we scale our strategy and increase the volume, we believe there's room to incrementally increase the annualized yield and cash generated. Potentially significantly. While the fourth quarter represents a period when we're still in the crawl phase of the strategy, we were nonetheless able to generate a total of $9.3 million in premiums. To illustrate what that represents, our average spot Bitcoin sales price for the quarter was $111,721. However, when considering the additional premiums generated per Bitcoin, of $4,184 the all-in effective cash generated per Bitcoin was almost $116,000 a material uplift. One of the early wins for the DAM team was the successful monetization of costless Bitcoin repurchase options received as part of a Bitmain minor procurement contract from the third quarter. This was an excellent example of how our investment in the digital asset management function can help us to complete the arc of opportunities driven by our world-class mining operations. While our mining operations drove leverage in preferential terms to obtain mining rigs. DAM was able to monetize that option which would have otherwise had expired worthless. Driving $7 million of additional cash to the balance sheet. Due to the performance of DAM to date, we have increased the volume of transactions subsequent to our fiscal year end. In October alone, we traded more contracts than the total number of contracts traded during the entire fourth quarter. Additionally, we generated over $5 million in cash premiums for the month of October alone. The last leg of our current strategy involves writing puts. The put transactions we enter into are cash secured primarily using the premiums previously generated under the SPOT plus and yield programs. While this cash corpus is still growing, we saw analyzed returns of 8% on the put strategy. These three strategies do two things. First, they integrate in our operating business with the enhanced sale of production and second, create a capital flywheel as they relate to our balance sheet. Would also like to add that the results we are seeing in DAM do not necessarily translate directly to telling the story via US GAAP accounting. While all pieces are reflected across the income statement and balance sheet, there are certain punitive treatments of noncash mark to market valuations at contract expiry. What we think is important about these tables that, once again, CleanSpark is at the cutting edge of real nonhyperbolic strategies. Paired with full market-leading transparency. These tables can be found in the management's discussion analysis section of our Form 10-Ks. I want to note that US GAAP rules separate the accounting for covered call exercises into two different line items, for what is in substance a single transaction. Two line items on the income statement are loss and derivative contracts, and gain on fair value of Bitcoin. This is important because there are two sides of the same transaction. For example, the difference between the spot price expiry and the strike price is shown as a loss on derivative contracts. While the corresponding markup in Bitcoin value to the spot price recorded separately as a gain on fair value of Bitcoin. Offsetting that noncash loss with a noncash gain. Taken together, they reflect the economic outcome of our covered call program, continues to generate attractive risk-adjusted returns. I also want to point out that the Bitmain option was effectively costless to us. However, GAAP required us to bifurcate a portion of the ASIC contract to the option value. Even though the contract didn't explicitly state a value. That value of $6.8 million was recorded at contract inception in the third quarter. As the option ultimately expired out of the money, had we not taken steps to monetize the option, would have had a noncash write-off of that $6.8 million. However, instead, we generated almost $7 million of cash on that option. Which under GAAP considered it to be a net gain of approximately $200,000 even though we ended up with $7 million more cash in the bank at the end of the day. The overall takeaway is that the digital asset management strategy has met and, in fact, exceeded our expectations thus far and become a second source of cash generation to the business. Are looking to increase the size of our team to allow for greater volume and more complex derivative trades. Which we believe will not only grow the total cash generated from premiums, but also maintain attractive yields. On a final note, I'd like to take some time to discussing our capital strategy. Our focus is on building a capital stack which minimizes dilution. This starts with the sale of monthly Bitcoin production to cover our monthly OpEx. We also have Bitcoin-backed lines of credit with a total capacity of $400 million. We will continue to use the lines of credit opportunistically in the marketplace for accretive acquisitions. And as we previously mentioned, we issued a $1.15 billion convertible note. With a coupon of 0% and a conversion premium of 27.5%. Proceeds from this transaction were used for several purposes. First, we bought back $460 million of our stock. Which represents a reduction in our outstanding shares of 10.9%. The stock buyback not only helped facilitate the convert, we saw this as a bet on ourselves as we see our valuation increasing given the opportunities in front of us. Second, we used over $200 million from that raise to pay off our lines of credit. It's important to note that we have access to the full $400 million line available to drawdown at any time. On terms we continue to believe are market leading. The remaining net proceeds from the transaction will be used to do what we have a proven track record of doing. And that is hunting for power and land. The acquisitions of power and land, such as the most recently announced transaction in Sealy, Texas, are expected to be primarily used for our AI data center strategy. While we are in the early innings of our AI data center journey, the market is moving quickly and so is CleanSpark. Our conversations with off takers are ongoing. And it is not a matter of if but when we will have our first customer. Details regarding financing of our data centers will be coming in future periods. However, I will tell you this. There's an abundant amount of capital at a much lower cost of capital than previously available to our mining business. Our venture in AI data centers will open new pools of capital allowing us to benefit from the significant levered rates of return the market is providing. To close out another strong defining quarter for CleanSpark, and to discuss how these results position us for what's next, let's return to our Chairman and CEO, Matt Schulz. Matt Shultz: Thanks, Gary. Wow. As I listened to those results I can't help but think back to the earliest days of this company and the journey we've all been on together. Our fundamental thesis on being infrastructure-focused and people-first has served us incredibly well. They are two of the reasons we have such a meaningful opportunity in front of us today to grow into an infrastructure and compute platform that maximizes the value of every megawatt. The task in front of us is clear. We're working to secure tenants at our two initial flagship AI-ready locations while simultaneously expanding our land and power footprint to meet the market's insatiable demand. These efforts are made possible by our strength as a scaled Bitcoin miner, our capital markets rigor and, critically, our company's cultural focus on operational excellence. This past summer, our operations team coined the motto be the standard. I had the pleasure of having them present to me what that phrase meant to all of them. And I commit to you that in each of our endeavors, you can count on CleanSpark to continue to be the standard. I want to take a moment to thank our entire team for their tireless work I'm beyond grateful to our shareholders for their trust, and I truly appreciate all of you for joining us today. With that, I'll hand it back to Harry to lead us into Q and A. Harry Sudock: Matt. We will now open up the floor to questions from the analyst community. Operator, please provide instructions and manage the queue for the Q and A session. Operator: Thank you. We will now begin the question and answer session. Your first question comes from the line of Brian Dobson with Clear Street. Your line is open. Brian Dobson: Hey, good evening gentlemen. Just a quick question. There's been a considerable amount of volatility in the stocks as of late. Perhaps you could take this opportunity to give us a little bit of color on the types of conversations you're having with potential clients and your outlook for demand in the HPC AI space over the course of the next two years? Matt Shultz: Yes, absolutely. Brian, thanks for calling in, thank you for the question. I can tell you that we've had extensive conversations. Now I posted on my social media. Our whole team was invited to Northern California to spend some time with the team at NVIDIA. From that meeting, we've had subsequent follow-ups, and I can tell you that there is don't wanna say a bidding war, but strong multiple layer inquiries about Sandersville specifically, and we're starting to gain additional traction on the Sealy, Texas site. So we feel like the demand is there. Obviously, there have been some delivery challenges in credit risk on some of some of the other peers that maybe haven't been able to perform to the expectations. But we're based on the fact that we're running a company with nearly an $800 million annual run rate at 55% gross margins, we have the cash necessary to get us to that next level. So we actually feel very optimistic about it. Brian Dobson: Yeah. Outstanding. And as you're thinking about various campuses, what do you think about pairing Bitcoin mining with HPC campuses to provide, call it, power usage versatility? Or do you think that they'll be separate to start? Matt Shultz: You know, that's a really thoughtful question. We were invited by Jack Dorsey and his team to go to Dalton, Georgia. And spend some time as they launch their new domestic manufacturing ASIC, the proto rig that's built by Block. And it was a fascinating event. But leaving the event, the CEO of the utility there in Georgia grabbed Gary, Harry, and myself and asked us to go to lunch. And he shared that there's about a hundred and twenty hours a year that really causes problems for the utility. And he said, historically, they love Bitcoin miners because of the interruptible load. Now we've experienced providing that service in load balancing in many of our jurisdictions. I mean, you've heard the stories about, you know, redirecting power in Georgia to a hospital when the hurricane hit or whatever the case may be. But the takeaway from the utility was their interest and the fear that came from them was because Core Scientific is a big consumer power there in Dalton, and it's historically been a flexible load. And the concern is that extra hundred and twenty hours a year when they need somebody to be able to give back. So what they specifically the request from us was to consider blending AI, HPC, and Bitcoin mining so a component of those loads remain interruptible. So we see it as a dual-pronged strategy. And I think you'll see a lot of our sites will serve both loads. Brian Dobson: Excellent. Thank you very much for the thoughtful answer. Operator: Your next question from the line of Mike Colonnese with H. C. Wainwright. Your line is open. Mike Colonnese: Good afternoon, guys, and congrats on the strong fiscal year here. First one for me on the HPC side. Curious, what are some of the key development milestones that investors should be on a lookout for in 2026 as it relates to the HPC strategy? It sounds like the near-term focus will be on deployments. I know Texas and San Jose sites. So it'd be great to get some more color there. Matt Shultz: Yeah. You nailed it, Mike. I can tell you I had a conversation not with a Neo Cloud or anybody like that, but actually with the senior director of site development for a global hyperscaler. Last night, on my way leaving here, And what he shared with us is their 2026 forecasts are so constrained that they're looking at alternative types of builds just to facilitate the needs for 26. Takeaway from the conversation was Sandersville and Sealy because both of them can be energized. Sandersville is live and active right now. Powering 11 exahash of Bitcoin miners. But it could switch to a 200 megawatt critical IT load and be online, you know, in a reasonable period of time. And I think of a cool thing that maybe has gone unnoticed, and that is this MOU a submer. We don't historically I mean, if you look at CleanSpark's past, we don't announce MOU or LOI or anything that isn't definitive or concrete. It was really important to ink that with Submer because of the way that they approach the business. Submer has approved reference architecture for AMD, for NVIDIA, and they build the entire MEP solution, so mechanical, electrical, and plumbing, with all the fiber runs. They take that out of the field, put it into the factory, So a company like CleanSpark builds the powered gray shell We contract with Submer to roll in the MEP solution for specifically to the reference of the end user requirements. So speed to market is really, really critical right now. And having that modular approach, I think, is gonna be a massive differentiator for us. Mike Colonnese: That's helpful color, Matt. Appreciate that. And then the second one is on the Bitcoin mining side. I know you mentioned some of these near-term deployments you guys are looking to install in the first quarter. Just remind us of what your near-term expansion plans will look like for the Bitcoin mining business and existing site expansions versus any sort of new development opportunities on the greenfield side or mergers and acquisitions at this stage? Matt Shultz: Yeah. So I think what you're going to see is a migration of our Bitcoin mining away from areas that are closer to major metropolitan areas that are maybe more sensitive to utility rates? And into more remote locations. There are a number of utilities that have either recently passed or are discussing blockchain-specific tariffs. To my point on the last question, that interruptible component of the load is in such demand that they give us favorable rates, whether it's or Wyoming or any of a number of different jurisdictions, to have the offtake that allows us to flex and to assist the utility. So I think what you'll see is locations like Sandersville, locations like, the Metro Atlanta stuff sites in Norcross and College Park, etcetera. Those will probably be prioritized for HPC AI because of the quick access to fiber, the low latency loads that they can serve. Etcetera. And then the Bitcoin mining from those facilities will likely migrate out to some of the other locations. So to answer your question directly about scale, we're at 50 exahash per second right now. We have six exahash of the S21X immersion miners. We had slotted out a deployment strategy. Now we use modular immersion cool data centers for the vast majority of those. When we secured the 100 megawatts in Wyoming, we actually beat out a hyperscaler because of the fact Wyoming wanted to energize those megawatts today and not in three years. So we have the infrastructure purchased, delivered on hand, ready to roll to deploy these in very short order. So I think what you'll see is between now and towards the '26, calendar Q1, you'll see that additional six extra hash come online. Above that, what you'll see is as we do fleet upgrades, not in the $250 million capacity that we've historically done, but in a more disciplined, more thoughtful manner to ensure that we're protecting our share of the hash rate. And supporting what we believe to be a national security issue, and that is ensuring that there's Bitcoin mining hash rate domestically. So we're gonna take a real balanced approach at that, but you'll see us continue to grow And really, the differentiator is just in the fact that we have right now one of the most efficient fleets in the world. And with the deployment of this six extra hash of 13.5 jewel machines, we'll have hands down the most efficiently around. Mike Colonnese: Great. Thank you for taking my questions, Matt. Matt Shultz: Thanks, Mike. Operator: Your next question comes from the line of Paul Golding with Macquarie Capital. Your line is open. Paul Golding: Thanks so much and congrats on a strong finish to the year. I wanted to ask with the 13,000 Bitcoin on the balance sheet around $1.2 billion at fiscal year end. And with the recent financings that you've done, how should we think about the total aspiration to build this powered land bank as you think about the opportunity to bring tenants in for HPC or to simultaneously grow your Bitcoin mining fleet as you were just discussing? And then I have a follow-up. Thank you. Gary Vecchiarelli: Thanks for the question, Paul. Our tune around the Bitcoin stack really hasn't changed. Right? To give you context, we consciously have stacked Bitcoin quite rapidly over an eighteen-month period, and that brought us about 13,000 Bitcoin on the balance sheet. And we believe that we're one of the only companies using it in the strategic ways that it should be used as a capital asset. So I think going forward, what you can count on from us is if few things. One, we'll continue to monetize Bitcoin stack through yield strategies to generate some cash. Two, we'll continue to borrow against it to be opportunistic to draw down on cash make sure that we're nimble in the marketplace and take advantage of accretive acquisitions. And, you know, we've always said that we're not ideological about the Bitcoin balance. We're very strategic. And so if there comes a point in time where we needed to or we felt that the right thing to do is to part with that Bitcoin, balance through sales, we most certainly would do that, and we were open to do that. Because, again, we've built this entire company and even the financial wherewithal on optionality. But I'll tell you that you know, with those sales comes, punitive tax treatment because we have mined those at such a low basis. We'll have to pay, will be a cash-paying taxpayer on those items. So we take those into account, when we're looking at the stack. But overall, we'll continue to use this as a form of non-dilutive capital. Paul Golding: Got it. Thanks, Gary. And then turning to the MOU with Submer and, Matt, the explanation you were just giving on how you might break out the, shell development versus the MEP componentry. How should we think about the potential economic impact of that, if you can give any color? Just thinking about how pricing on some colocation deals involves yield on cost and, of course, build to suit can involve more capital, but with a partner just looking for any additional color you could provide. Thank you. Matt Shultz: Yeah. Great question, Paul. Thank you for joining. So the summer relationship really was born out of a prior relationship between Humane and Summer. Jeff had a working relationship with Patrick, the CEO at Submer. And we've also got Summer infrastructure deployed in our Bitcoin mining side. So we're very comfortable with them. And I can tell you that the quality of the product that they deliver it's much simpler in the Bitcoin mining side than some of the other modular immersion cool type companies. But because we haven't done a deployment domestic and they're just spinning up a manufacturing facility in Houston, I don't want to comment too much on what the cost per megawatt is, but I can tell you in general terms that the cost to build out a megawatt of mining infrastructure is about a million bucks. To do the same for AI and HPC, according to the reference architecture required by the menu the major chip manufacturers. Closer to $10 million. We also know that the mechanical, electrical, and plumbing, the MEP solution, is a pretty extensive, pretty robust build-out because you've got all those trades working inside a facility at the same time. Building these in a factory increases the speed to market by an order of magnitude and the initial representations are that it saves us anywhere from 10% to 15% over a built-in-the-field deployment. So we believe there's cost savings in speed to market that give us a very unique competitive advantage. Paul Golding: Fantastic. Thanks so much and congrats again. Matt Shultz: Thanks, Paul. Operator: Your next question comes from the line of Greg Lewis with BTIG. Your line is open. Gregory Lewis: Yes, hi. Thank you and good afternoon everybody and thanks for taking my questions. I guess Gary or Matt, I was hoping you could talk a little bit more about the Texas facility and just kind of you mentioned that it starts to energize in 2027. Is that energization is there steps along the way? And then longer term, as we think about that site, is there the ability to expand at that site or potentially grow with the customer? Harry Sudock: Hey, Greg, it's Harry. Want to give you the rundown on Texas because I think it's a really exciting project for us And it's the beginning of what you've seen from us across the Georgia, Tennessee, and Wyoming markets, which we take a fundamental land and expand approach, which is we get a foothold and then we know that once we have that toehold in the market, the opportunity to significantly extend our footprint is available to us. The energization schedule there, is that the first 200 and change megawatts are scheduled to come online 2027. And then there's two forty megawatt tranches in 'twenty eight and 'twenty nine. But what's critical is that the counterparty that we purchased, the land, the contracted power from is also among the largest substation developers in the state. And so what we were able to step into are the long lead time items and the placeholders that they had on those components giving us a high degree of build certainty to land the power on the site. The second piece is that that site is fully ERCOT approved. And so when we look at the energization schedule, we've already passed all of the regulatory hurdles that would typically be associated with a project in the state. The final piece of what you asked that I wanna touch on is about expansion. And you know, the ERCOT approval status wouldn't come with the expansion on grid that we're looking to accomplish there. But one of the parts that was most attractive, only to the power contract at that particular location and the service point from the utility that's going to be delivering to us, but it's also the parcel that's there. We have significant land capabilities to be able to digest more power in the same type of AI data center footprint going to be represented by the two eighty five. And so excited about the scalability. Matt touched on in his comments the behind-the-meter gas generation opportunity, but this is where we find ourselves at our true core competency. Which is being an opportunistic acquirer of land and power not only because we're able to locate high-quality assets for our portfolio today, but also for what those assets can represent to our business going into the future. Gregory Lewis: Okay. 100%. That was super helpful, guys. Hey, have a great Thanksgiving, and talk to you soon. Matt Shultz: You too. Thanks. Thanks, Greg. Operator: Your next question comes from the line of John Tadaro with Needham and Company. Your line is open. John Todaro: Great. Thanks for taking my question. Congrats guys on the progress here. As the first question here, as it relates to the AI readiness at Sandersville, just remind us if that site has forced curtailment. And then if so, really kind of how much should we earmark for HPC versus mining if you intend to kind of have both at that site? Harry Sudock: Yeah. Thanks, John. So, you know, what's important to understand about, the Georgia and the MEAG power specifically is that it is not subject to forced curtailment. At that location. It's part of why we didn't just we didn't just trip all on land with an AI thesis around the Sandersville assets. Those were also inbound because of the highly attractive nature of the Georgia power markets more broadly. And so we feel great about the applicability, of that location to the ultimate AI campus use case. And how we balance that versus the Bitcoin mining is gonna be the way we do everything, which is a fundamental return on investment profile We take a measured approach. We're data-driven. And the early indication is that every one of those megawatts is highly applicable for AI as its highest and best use. We're gonna remain data-driven across the analysis period for that asset. John Todaro: Great. Thanks. That's helpful. And then just as it relates to credit becoming a little bit of a concern out there, especially as it relates to Neo Cloud customers, Just walk us through how you are thinking about the customer profile, if there's a maybe bigger focus on hyperscalers now than maybe a couple of months ago when you guys were initially thinking about it. And then also, you know, hyperscaler backstops that starting to become a necessity? Would love to get some color on that. Gary Vecchiarelli: Hey, John. Thanks for the question. I'll tell you this about the financing. And I mentioned it in my prepared remarks is that new pools of capital that are going to be available to us. At much lower cost of capital. So we feel really good about that. We know we're going to introduce, at some point secured debt into the capital stack. So we're closely monitoring the deals that are going on and the debt markets. But I'll tell you the focus really first is to get that, you know, high credit quality tenant in there, to make sure that we can get the best deal possible because, as you know, levered IRR is significantly higher the more the higher the loan to value is. But I'll also tell you that you know, while we might expect to get dead at about 80, 85% LTV over time, we have no problem also bringing a little bit more equity to the table, maybe at 60% to 70% LTV for the first project or two. Yes, that will decrease our levered IRR just a bit, but also produce cash flows in the arm, which would also be helpful. But ultimately, to us, it's really going to come down to execution for which we still think that the industry hasn't proven. But we're going to see that over the next twelve to eighteen months, particularly as we bring our land and power to market. So I don't have specific answers for you right now, but I'd say that we are content. There's a number of options for us to get financing at attractive prices and get the levered IRR that this market is offering. John Todaro: Terrific. That's helpful. Thanks, guys, and congrats again. Operator: Thank you. Your next question comes from the line of Reggie Smith with JPMorgan. Your line is open. Reggie Smith: Congrats on the quarter. And on the pivot. Guess I had a question on the Sandersville site as well. I'm not sure if you guys talked about what type of CapEx would be required to upgrade that to HPC or if it's ready, like kind of move-in ready now? And then I'm curious, I know it's early, you thought about, you know, the use cases, whether it would be used for training or entrance, and whether that at all plays any role in the price that you may be to get throughout to kind of lease that space out? Like does the influence pay more or generate more revenue per megawatt than training? Any insights you can provide at least around how you're thinking about you know, kind of self-appraisal of the site and what it could be worth? Matt Shultz: Hey, Reggie. Thanks for joining. And thanks for the call. You've been to that Sandersville site, I believe. On some of our show and tell journeys. And I think what's important to note is the facility, you saw it would not be a conversion to HPC AI. We have a phenomenal relationship with the economic development director in the county. And so we secured an additional plot of land, hundreds of acres of land that's immediately adjacent. So what would what you would see would be construction that is parallel with Bitcoin mining continuing. And when we're ready to energize, we literally flip the switch, de-energize the Bitcoin mining and migrate that out and go to compute. Now specific types of compute. Jeff has built a model. Obviously, you have the Giga campus, which is large-scale training. Those are generally close to a gigawatt and above. Then you have the mega campus, which is that kinda sweet spot two to 800 megawatts. And that's generally perceived to be kind of a combo site where it's inference and training or primarily inference depending on the offtake client. The last mile or the low latency real mission-critical sites like what you've seen in and around Metro Atlanta would be kind of the exception to that rule, and those would obviously be low latency inference type operations. So this is gonna be I think Sandersville gonna be an interesting case study because quite frankly, the demand that we're seeing is for multiple one ninety to 200 megawatt critical IT loads and the off takers are asking for twenty twenty-six delivery. So there are some real challenges in getting that tipped up in time But as we saw, even with companies like Meta, for example, they're putting tents up and using behind-the-meter gas at 12¢ a kilowatt hour. Because the demand is such that there's no sensitivity to those utility rates. So we really feel like we're uniquely positioned in this, Reggie, and, you know, you and I when you first launched coverage on CleanSpark, we talked about the fact that when CleanSpark entered the space, there were a handful of household names that were the standard from Bitcoin mining. We mined our first Bitcoin in December 2020. And as of today, we have more hash rate in The United States Of America than anybody else Our uptime is second to none. And I think you can see you can count on seeing that same type of operational excellence and efficiency rolled into our next strategy. And Jeff is just the perfect guy to lead those initiatives. Reggie Smith: And if I can get one more in, because I'm not trying to nail you down to a timeline, I'm kinda reading between the lines. Like, I think about Cypher and, yeah, they purchased a property in Texas a year ago, and kind of just now announced a deal. And I understand it takes a while to sort these types of things out. But I'm curious, like, are you thinking about it if it took you a year to sign a deal, would that be your satisfactory or kind of disappointing based on what you're seeing from a demand perspective now? We think of something you know, much sooner than that? Like, any color you can help. On how you're thinking about that internally? Personally, that would be great. Thank you. Matt Shultz: Yeah. So that's a phenomenal question. I can tell you that you know, you called me, I was at my kids' basketball game. You called me when CoreSci Core we've announced their deal. And we talked about what the demand portfolio or the demand profile looked like back then. And at that point, it was we're going to convert these megawatts and we're going to identify a customer. I think there's been a complete paradigm shift in the space. And now you have customers knocking at the door because they have loads that need to be served very rapidly. So what I can tell you with a I would say, a strong amount of certainty is you'll see a lease executed much quicker than what you've seen in the space. And the flexibility that's now come, you know, I mean, we look at some of our peers that have extended their energization schedules because they're falling behind on construction, etcetera. The hyperscalers and the end users that work we're having conversations with, you know, we've made it abundantly clear. We're constrained like anyone else for the MEP side, but we have a distinct advantage. So I think what's likely to happen and, you know, Reggie, quite frankly, they're two different off takers. That wanna sign con sign the lease agreements by year-end. Is that going to happen? It's hard to say. But the demand is there. It's real. And I'm as I mentioned in earlier comments, we were working on this script in the slide deck that we showed today, and I left here at 08:00 last night. And the global director of site select for a hyperscaler was calling me wanting to confirm that they were still in the running. So I don't think there's any question that you're gonna see a lease much quicker than a year. Reggie Smith: Great. Perfect. Congratulations. Matt Shultz: Thanks, Reggie. Happy Thanksgiving. Operator: Your next question comes from Brett Knoblauch with Cantor Fitzgerald. Your line is open. Brett Knoblauch: Hi guys. Thanks for taking my question. Maybe Matt just on the land and tower side of the equation, Could you comment on what you had to pay for the new site in Texas that you guys just announced? And, you know, think you guys are the one out there that are looking to go out and find additional land that is, you know, energized soon, you know, think all of your peers, even hyperscalers, probably they're looking at to do it themselves. But I guess, how hard is it? How expensive is it? And how much is there out there that you think you can go out and buy that is kind of turnkey ready? Similar to the site that you guys announced in Texas? Matt Shultz: So yes, I could say what we paid for it, but I'm not going to. And I'll tell you why. There are some very fertile hunting grounds in the ERCOT region, and we don't want to price ourselves out of the market. What I can tell you is that the acquisition cost was a combination of equity and cash. We obviously filed the proper the appropriate filings for the share issuance. But the purchase price of that land and power came in line with what seeing in the market towards the low end of that range. Our advantage, I think, in securing land and power and speed to market is really because we've continued to state that Bitcoin mining is going to be a part of what we do going forward. And eighteen months ago, when we were invited to sit down at Mar A Lago, with Donald Trump during his candidacy. He brought in senator Hagerty from Tennessee And because the question that came was, can Bitcoin miners actually plow the road, so to speak? Can Bitcoin miners go in and monetize megawatts for utility that needs to generate revenues now? while they're waiting for an interconnect agreement. Or for an energy developer that needs to monetize their power And and so mister Trump asked Bill Hagerty, can Bitcoin miners do that? And what he said is unequivocally, they not only can they, but they do in TVA, and CleanSpark is one of them. And so when we talk about Cheyenne, you know, we're driver nine iron across the street there from Effie Warren Air Force Base, and there's another trillion-dollar company, trillion-dollar market cap company that's in our same neighborhood. They were bidding for those megawatts. And we won. We didn't win because the utility thought that our balance sheet was pretty or we were a better credit risk. We won because we said if you sell us those megawatts, we'll start buying them in six months, not a year and a half or two years. So I think long answer to your question, I think being a Bitcoin miner with a diverse mining portfolio and the flexibility of the modular deployments that we've done on some of the sites that you've actually seen it gives us an advantage to jump in, monetize those megawatts on a small portion of the campus while we're tilting up the powered shell in the background. So you know, I think our speed to market is complemented not only by the modular approach with summer partnership, but also by using Bitcoin to go in and buy the power today. Brett Knoblauch: Awesome. Really appreciate it, Happy Thanksgiving. Matt Shultz: Thanks. Brett. Happy Thanksgiving too. Operator: Your next question comes from Jim McIlree with Chardan Capital. Your line is open. James Patrick McIlree: Thank you. Good afternoon. Is Sandersville the only existing mining site you've identified for critical IT applications? Or the first one, and there's going to be others? Matt Shultz: Hey, Jim. Thanks for the question. The answer to your question is b. It's the first one. The inbound inquiries we've had for the 100 megawatts surrounding the Atlanta Airport are second in urgency only to Sandersville. And Sandersville is because it's two fifty megawatts energized operating today. The demand for College Park and Norcross is because it's low latency in the most dense compute environment in North America outside of Northern Virginia. So there's a tremendous amount of demand there as well as some of our sites in Tennessee. So it's really just a sorting process. And as we mentioned in our prepared remarks, we've done a portfolio analysis to kind of determine. We don't wanna move Bitcoin mining infrastructure into a facility that's going to be rapidly pivoted to an AI HPC deployment. So I think the answer is Sandersville is the low-hanging fruit that everybody wants. The Metro Atlanta stuff is second, and then we've got a whole bunch of third-place sites. James Patrick McIlree: And the way you described it, it sounds like that flipping of the switch from mining to AI can take place before the CLI facility is energized. Am I understanding that correctly? Matt Shultz: Yeah. So think about it this way, Jim. Our facility in Sandersville is purpose-built Bitcoin mining. We have a couple of hundred acres adjacent. We're gonna build on that land while we're still mining. Now the speed to market really the summer is a big differentiator. As I mentioned before, you know, there are hyperscalers that are popping up tents because they need access so quickly. So I think it's a relative question. The Sealy project is very appealing. Because we've done all the analysis, all the engineering is done. We we've gone to the levels of completing the survey and finding where there are easements for the gas lines on-site, etcetera, So we can configure the footprint based on the needs of an end-use customer. So we spent a great deal of time in NVIDIA with some of their teams, and they have a giga site. They have all the reference architecture for a g v 300 deployment for a gigawatt of power. And everything is detailed down to the inch of fiber runs. So that type of build is obviously much more detailed and gonna take a longer period of time than tilting up a powered shell and slotting in a modular solution like you'd see from a submer, like you'd see from a company like Integra out of Houston. There are a number of these companies that provide that full MEP turnkey solution. So I think what is likely to happen is we'll probably execute on both simultaneously. The delay on Sealy and it's not really a delay. It's just the energization schedule on ERCOT is fixed. The cool thing about that is the large load studies are done. There's no if. It's just when. And the first two zero seven megawatts energizes the first half of 'twenty seven. You know, their commitment is April, but they have flexibility for the first half. So I think the conversations we've had with off takers for Sandersville they're looking to get something in the books fast, with Sealy. It's also high demand and with the understanding that by Q2 twenty-seven, it's energized, and you can build in the meantime. James Patrick McIlree: Understood. Thank you. And just one more, if I might. You talked about increased expenses And given that as well as the recent prices of you need to sell the entirety of your Bitcoin production in order to cover your expenses? Matt Shultz: Not at all. We're, you know, we're generating $607,100 bitcoin a month and we're doing sort of 54, 55% gross margin. So the expenses we talked about and, you know, as we're building, I think it really depends on the lease we put together. And the ability to leverage that lease for financing. But what we're seeing is that you know, depending on the credit quality of the end-use tenant, the LTVs are anywhere from 15% to 30%. Having just put up or the inverse of that, I'm sorry, 70 to 85%. Having just put up that $1.15 billion 0% bond, we're sitting on a pretty healthy stack of cash. Then as Gary mentioned in his prepared comments, we have $400 million in low single-digit interest unused capacity on Bitcoin-backed credit facilities. So I think you'll see us take more of a hybrid approach rather than sell the stack And then the last thing, you know, with regard to the compressed margins in the environment, having the highest uptime and the most efficient fleet in the nation means that as energy prices press up, margin compression happens to everybody. We just happen to make more money out of the same megawatts because of fleet efficiency and uptime. So, you know, I tell the story. It's like when you know, my grandfather told me when, you know, two guys are camping in a tent and a bear walks into the campsite, and the one guy puts on his shoes, and the guy says, what do you you putting on your shoes? You can't outrun a bear. And he said, I don't have to outrun the bear. I just have to outrun you. And that's really what we see as our Bitcoin mining advantage. You know, they're still industrial-scale miners operating fleets greater than 20 joules per terahash with not significantly better power pricing than we do. So we have a ton of flexibility and I really like the position that we're in to continue using Bitcoin mining. Operator: Next question comes from the line of John Hickton with Ladenburg. Your line is open. Jon Robert Hickman: Hi. As you might imagine, most of my questions have been answered. But I was just wondering if you could maybe opine about there are others in the space that are trying to do the same thing that you're doing, taking Bitcoin sites and moving them over to HPC and AI. And they've been, you know, telling us they're gonna do this, and it's been a year's gone by and there's no like, lease. Why would could you opine as to why it would be taking so long when there's so much demand? Matt Shultz: I'll tell you from my perspective, and then certainly invite either of my colleagues to chime in on it. What we learned when we spent some time with NVIDIA and AMD There's there are very specific reference architecture that is required for specific clusters. And I think that the challenge that we're seeing, and I'm certainly not casting aspersions on anyone's strategy, But I think if there's so much demand for a hyperscaler, but they want a specific cluster, be that the new Google chips or AMD or NVIDIA. The site needs to be specifically designed for those clusters. And I think building a site and then suggesting that it's flexible for somebody else to reconfigure or modify it you know, it could be useful. I think, is a little bit of a challenge. So to have it purpose-built to the specific architecture of the off taker I believe, is a real advantage. And having all these sites that are already energized, that we're currently using those megawatts to mine Bitcoin give us that flexibility. I'm not in a rush. I don't have to do anything quite frankly, until we have a lease I don't even have to start construction because I wanna make sure that it's built to suit for the offtake customer. So I guess my perspective, John, and, again, I invite Harry or Gary to comment, I think that build it and they will come mentality doesn't apply if it's not to the specific architecture requirements of the end user. Harry Sudock: I would just add one quick thing, John. Which is just that the market today is different than the market a year ago. The demand profile was accelerated. The crunch for power is tighter than it was And so we're seeing some of the hesitation that some of these off takers might have had twelve or eighteen months ago the sense of urgency is just more significant. And you know, that's gonna represent a difference in execution timelines today than they would have looked like back then. Jon Robert Hickman: Okay. And then I just have one question. On Sandersville, you get the AI part built and you want and sign it flip the switch, what happens to the Bitcoin mining site? So fantastic question. Would they have no power You shut it you the shutter, would you? Matt Shultz: Yeah. No. A couple of opportunities there. First and foremost, the ASICs would be migrated to a facility that needs them right and there's always plenty of demand for that. The facilities that we built and, John, I don't remember if you visited Sandersville on our Analyst Day. The facility is at Sanders Okay. So they're identical to what we built in Jackson, Tennessee as an example. So the cool thing is we build all the foundational stuff and then what goes vertical is basically bolt together. So we have the ability to repurpose those buildings based on any number of different factors. But, no, it wouldn't be a write-off in mothball. It would be repurposing those assets for deployment elsewhere. Jon Robert Hickman: But you'd need more power. Matt Shultz: Yeah. For sure. That's why we would move it somewhere else. Like, for example, you know, Wyoming or Tennessee or even other sites in Georgia, we would for sure. Now Sandersville is a bit of an anomaly because there are some for power expansion there. And that's something that's still out for discussion. Okay. But the demand is significant. Jon Robert Hickman: Okay. Well, thanks. Appreciate your time. Matt Shultz: Thanks, John. You bet. Happy Thanksgiving. Jon Robert Hickman: You too. Operator: And with your last question, it comes from Nick Giles from B. Riley Securities. Line is open. Nicholas Giles: Great. Thanks for squeezing me in guys. You spoke to a multi-gigawatt pipeline, and I was hoping you could break that down a bit. I mean, how many of these opportunities would you describe as late stage? Or how soon can we see those drop down? And then which of your existing power markets do you see most of these opportunities? Thanks a lot. Harry Sudock: Yes, Nick. Great question. And I wanna give you a historical example to kinda illustrate, you know, why we don't always give direct pipeline granularity as our business. So look back to the prior quarter's call, we talked about pipeline. And it was contemplated in that environment. Wasn't contemplated in either of those numbers was the two eighty-five megawatts that we purchased in Texas. And that's because the relationships that we have across the utility and infrastructure space are diverse, they're all very warm and deep. And so there are opportunities that come out of the woodwork along the way. That leapfrog to the front of lists that we thought were very set. And so it's part of our capital strategy. Have dynamic flexibility and execution with speed And it's also part of the pipeline and relationship management that we do work on across the infrastructure and utility partners that we have And so that type of dynamic flexibility is why we've been successful acquiring Power and Land and developing it with the quality that we have And so when we look at that multi-gigawatt pipeline, a lot of those regions where we see expansion opportunities are places where we have relationships, the Georgias, Tennessees, Wyomans, and now Texases of the world. But some of the utilities that serve those regions I'll use TBA as an example because I'm a homer, Tennessee Valley Authority serves seven different states. And so while it's the same utility partner, it bleeds outside the lines of the great state of Tennessee. And so those are the types of dynamics that we see replicated across those relationships, and part of why we feel so good about the pipeline growth opportunities and why we capitalize the business to hunt, power, and land, just like Gary said. Nicholas Giles: Understood. Well, guys, appreciate the update and have a great holiday. Matt Shultz: You too, Nick. Happy Thanksgiving. Operator: And with no further questions in queue, I'd like to turn the call back over to Harry for any closing remarks. Harry Sudock: Everyone, thank you again for joining today's earnings call. We look forward to staying in touch and sharing future results with you in the coming quarters. Stay tuned for more progress and exciting achievements ahead of us at CleanSpark's. America's Bitcoin Miner. Operator: This concludes today's conference call. You may now disconnect.
Dominic Blakemore: Good morning, and welcome to our full year results. 2025 was another great year for Compass. We delivered strong organic growth and margin progress with profit up nearly 12%. Cash conversion was also very good as we generated $2 billion of free cash flow for the first time. Net new business, the cornerstone of our growth was 4.5%, underpinned by strong new business wins and client retention of over 96%. This was the fourth consecutive year we've delivered net new growth within our 4% to 5% target range. This performance, together with a significant market opportunity, reinforces confidence in the sustainability of our growth algorithm and our ability to deliver long-term compounding shareholder returns. I'll talk more about this later. But before I do, first over to Petros to give you more details on the financials. Petros Parras: Thanks, Dominic. Good morning, everyone. We've made good progress across all our key metrics as we delivered profit growth ahead of revenue growth. Importantly, free cash flow was also strong, growing faster than profit. Let's start by looking at revenue growth. Net new business continues to be in the middle of our 4% to 5% target range with pricing and volume growth consistent with the first half of the year. With our disposal program now complete, acquisitions are contributing to growth. Operating profit increased nearly 12% to over $3.3 billion. Interest was $315 million, reflecting higher debt due to acquisitions. For fiscal year '26, we expect an interest charge of around $350 million, reflecting the purchase of Vermaat, subject to regulatory approval. As anticipated, our effective tax rate was 25.5%, and this is expected to be the rate in 2026. Importantly, earnings per share were up by just over 11% in constant currency. And turning to cash, CapEx was 3.3% of revenue. Consistent with our guidance, we expect CapEx to be around 3.5% of revenue this year. Working capital improved in the second half, in line with our normal seasonal profile and was broadly neutral for the year. We expect a similar profile in 2026. As a result of our strong cash management, free cash flow conversion improved to 88%. Turning to the regions. In North America, organic revenue increased by over 9%. Operating profit was up nearly 11%, reflecting margin progress. In International, organic revenue growth was nearly 8%. Operating margin was up 20 basis points to 6.1% as the region benefited from overhead leverage, resulting in strong profit growth of nearly 13%. Group organic revenue growth was nearly 9%, with the fourth quarter particularly strong as we benefited from increased catering and hospitality events across certain sectors. Excluding these one-off factors, our underlying Q4 growth was around 8%. We expect this to moderate further in 2026, reflecting a lower inflation. Group margin increased to 7.3% in the second half of 2025 with our unit margin now fully recovered. Looking forward, we are confident of further margin progress whilst balancing growth and investment. We see opportunities to improve margin in both regions and to leverage group overhead. We expect to continue to make incremental gains in North America as we continue to improve productivity across our MAP framework and better utilizing tech and data. In International, as you are aware, we've invested in sales and retention to drive higher net new business growth. We expect faster margin progress in this region as we leverage these investments and benefit from M&A synergies. Dominic will talk about this later. Turning to the balance sheet. Net debt-to-EBITDA was 1.4x. As you are aware, last year, we acquired high-quality businesses, including Dupont and 4Service to capitalize on attractive growth opportunities through further subsectorization. This year, we expect to complete Vermaat along with other bolt-on deals. As a result, leverage is likely to be above our target range in 2026, peaking at the half year. However, our capital allocation model remains unchanged, and we expect to deleverage in 2027 as the business grows and we deliver the M&A synergies. With our disposal program now complete, M&A is contributing to profit. Including Vermaat, we expect acquisitions to add around 2% to profit growth in 2026. Now turning to fiscal year '26 guidance. We expect operating profit growth of around 10% on a constant currency basis, driven by organic revenue growth around 7%, around 2% profit growth from M&A and ongoing margin improvement. Now back to Dominic. Dominic Blakemore: Thanks, Petros. As you've seen, the business continues to perform well and is in great shape. We're often asked, what's the secret to our success and continued market outperformance. There are 2 key factors. First, we have a unique sectorized business model, which is decentralized with many of our brands still led by the original founder owner entrepreneurs. This model, which was strengthened through M&A over many decades, is incredibly difficult to replicate. And second, we combine the advantages of this localized approach with the benefits of scale, particularly in food procurement and technology. In short, we combine the best of both worlds. We operate in a hugely attractive market with a significant runway for growth, which is continuing to expand. We're investing organically and in M&A to provide us with additional capabilities to accelerate sub-sectorization. For food services alone, our addressable market is worth around $360 billion, of which we have less than 15% market share. And in addition, we see further growth opportunities in targeted high-value support services, where we estimate the market could be worth at least $800 billion. It's worth remembering we're already one of the world's leading support services businesses, generating more than $6 billion of revenue. The business and industry segment of the food services market is worth around $130 billion on its own. You may think as the most outsourced sector, it would have one of the lowest growth rates. In fact, the opposite is true. This year, B&I is our best-performing sector with organic revenue up 11% and the highest net new business growth. We continue to invest in this hugely innovative and dynamic sector, increasing our addressable market by entering new subsectors or through flexible offers such as vending. Our experience in B&I bodes really well for the rest of the group. Our volumes are benefiting from increased participation in our restaurants as we deliver an even more attractive food proposition. The advantages of our business model mean we can provide a high-quality offer at a superior value compared to the high street. As a reminder, we typically don't pay many of the expenses that retailers do as we operate on client premises. We also leverage our procurement scale and have more menu flexibility, allowing us to change ingredients more easily to help mitigate inflation. Our clients also recognize the importance of food and often subsidize our offer. They are hosting more events on site and increasingly use food as a cultural glue and a key enabler for networking and team collaboration. Acquisitions enhance our capabilities and accelerate subsectorization. Targets are usually sourced locally and have been known to us for several years. We look for exceptional businesses with entrepreneurial teams and attractive returns. And the businesses we acquire benefit from continued autonomy under our decentralized model. We provide them with access to Foodbuy as well as global best practice sharing. Having completed many acquisitions over the years, we've established a proven track record of successful M&A. In vending and micro markets, we've been operating a rollout strategy of many small bolt-on deals in North America. Together with strong organic growth, Canteen has now grown revenues to over $4 billion. These acquisitions are hugely value accretive to Compass with returns typically above our cost of capital from year 1. We're also investing in GPOs and recently acquired Regency Purchasing in the U.K. As well as scale, we've benefited from their technology and systems, helping build out sectorization. Regency volumes have doubled since we bought the business with double-digit ROCE in year 2. And most recently, we acquired 4Service in the Nordics, accelerating access to the multi-tenant building subsector in particular. Integration is ahead of schedule, delivering high single-digit growth with financials ahead of our investment case. We've also recently agreed to acquire Vermaat, subject to regulatory approval, a truly exceptional premium food services provider with a market-leading presence in the Netherlands. Vermaat will further improve our ability to deliver tailored on-site concepts and innovative retail solutions as well as providing us with outstanding talent. Once approved, we expect Vermaat to be margin and EPS accretive to Compass in our first full year of ownership. As Petros said earlier, over recent years, we've invested in technology and data to support our sales processes, procurement functions and to drive operational efficiencies. We think of it as benefiting both growth and margin as well as automating some daily tasks for our colleagues. For example, we're optimizing every stage of the sales funnel by using improved processes and data. We now have more visibility of future gross new wins by more accurately tracking the size of the pipeline, our probability and win rates. We've increased the use of automation tools for bid writing to improve their quality and to reduce preparation time. Tech and data are also transforming the client and consumer experience. We have a strong competitive advantage in this space, having invested in digital for many years with around 1,600 people now working in this area alone. With hubs in the U.S., U.K., France and India, we share innovations and best practice across our businesses, leveraging our breadth and our scale. We're using AI to improve our customer proposition using proprietary analytical tools to optimize our product mix and pricing. This helps us to better match our offer to changing customer demand as well as benchmarking pricing in our sites with the local high street. And finally, when it comes to our frontline colleagues, we're increasingly using AI to automate day-to-day tasks such as recruitment. In the U.S., we streamlined our hiring process and reduced the number of recruiters. In Japan, we've implemented an AI chatbot for our frontline colleagues, which answers any queries they may have in seconds, delivering impressive productivity gains. In summary, 2025 has been another strong year for Compass as we continue to deliver on our growth algorithm. We expect to sustain this performance in the long term, delivering high single-digit profit growth with the building blocks being mid- to high single-digit organic revenue growth, ongoing margin progress and contributions from bolt-on M&A now that our disposal program is complete. For 2026, profit growth is expected to be even higher at around 10% as we benefit from the Vermaat acquisition. Now over to Q&A. The operator will share instructions on how to ask questions. [Operator Instructions] Operator, over to you. Operator: [Operator Instructions] Our first question comes from Jamie Rollo from Morgan Stanley. Jamie Rollo: Three questions, please. First of all, could you talk a bit about what drove that very strong fourth quarter for organic sales, about 9%. I think you said 1% was from sort of one-offs. Maybe talk a bit about what those were. I think we saw a similar thing a year ago and even the year before that, the sort of one-off benefits to keep happening. But also the 7% guidance looks quite conservative even in the context of an underlying sort of plus 8% exit rate. So how should we think about the sort of cadence of organic sales through the year? Secondly, again, it's a question on the guidance, but on the margin side, so 1% profit growth from underlying margins, about 7 basis points, again, looks a little bit conservative. I think for that alone adds about 5 basis points to the group because it's double-digit margin. So could you talk about the upside to margins? And also, how should we think about that 200 basis points gap between North America and International sort of closing, if at all? And then finally, you've given us sort of lots of the AI benefits to the business and your clients on Slide 24. Could you talk a bit about how you might mitigate against sort of the impact of job losses driven by AI on sort of office meal demand in general, please? Dominic Blakemore: Jamie, thanks for your questions. Let me hand over to Petros for the first 2 questions on run rate and margin guidance, then I'll pick up on the AI point. Petros Parras: We feel our Q4 underlying rate is about 8%, as you said. We had particularly strong volumes in B&I, Education and Sports & Leisure that we're pleased with. Some of this, we believe it's a onetime in nature. And practically, we have taken this in our guidance for '26. If you think about what has changed as we move to '26 versus '25, it's to do with inflation. We're seeing inflation slowing down a fraction faster than what we thought last year, end of the last year. Spot rate and inflation about 4% blended. We believe it's going to be close to 3%. And we mitigate part of this for our clients. So when you consider our guidance for next year, it assumes a lower rate of inflation within the 7%. It assumes a 4% to 5% corridor in a fifth consecutive year of delivering our strategy and a net positive contribution for volume. When it goes to margin, I think you give us too much credit of being able to forecast 7 basis points or 10 basis points on a going-forward basis. I think our approach there is profit has to grow faster than revenue, call it the 10 basis points on average. What is interesting is our unit profit margin has exceeded what used to be pre-COVID, which gives us sound financials within the units in operations. We benefited from overhead leverage, and we expect to make consistent margin progression going forward. We do not see a ceiling to it. You will continue to see international business to grow faster with some group overhead leverage and some marginal gains in North America. I'll take a pause, and I'll pass to Dominic. Dominic Blakemore: Very good. Thank you, Petros. Jamie, when it comes to AI, I think in summary, we see it as a net positive for the business. As you rightly say, we shared some examples today of where we're deploying data and AI within the business, most specifically around our growth processes where we think we can get better outcomes on the pipeline build, the preparation for meetings and the conversion into growth. So we're very, very excited about what we're seeing there. We're also very targeted around purchasing and the value we can derive from our purchasing processes and the efficiencies we can introduce for our frontline teams to enable them to dedicate more of their time to their consumer and their clients. When it comes more specifically to the question you raised around net employment numbers, I mean, first of all, just a reminder, B&I is our fastest-growing sector as a group and also both within North America and international. Over 50% of that growth is coming from first-time outsourcing, which is very exciting. And as you've heard Petros say, we had strong volumes in quarter 4 within B&I. So we think our B&I sector is in rude health right now. When it comes to AI, look, we're seeing new clients emerge, particularly on the West Coast, where we've got a number of smaller start-ups, which we are serving through our commissaries and SME type offer. We're seeing some of those scale into significant clients, and we're excited by that. When we talk to our clients in the technology sector, they're very focused on talent retention and attraction, particularly as they seek to get the right capabilities to be best placed with AI. And I think we have a very important role to play there in them helping address that. And then lastly, we're seeing new subsectors emerge like data centers. So with regard to data centers, there's an opportunity for remote feeding through the construction phase. And then once in operation, there's an opportunity for us to provide on-site services, either in the form of restaurants and cafeterias or micro markets. And of course, there's a whole range of different FM services that we're well placed to provide to them in an environment where those services are very highly valued. So right now, we are seeing it as an opportunity, both in terms of what it's bringing to our business and the opportunity it's providing within our client estate. Operator: We now take our next question from Kate Xiao from Bank of America. Kate Xiao: My first question is also on AI. I guess thanks for explaining all of the benefits. I guess, any way you could help us quantify the positive impact on the business, either on the revenue enhancement side or cost savings? Any kind of examples or quantification you could give there would be really helpful. And then my second question is on your secured new business, $3.8 billion. That's up 11% year-on-year, which is very, very encouraging. I guess, could you elaborate a little bit on this number? I think the definition is the new business wins over the past 12 months. So would some of the business already be in the FY '25 revenue number already? Or is it mostly the pipeline for FY '26 growth? Dominic Blakemore: Thank you, Kate, and welcome. I think this is your first call with us. When it comes to quantifying AI, look, we don't think we're in a place to do that right now. I think like many things we see, we see puts and takes that drive volumes and new business opportunity. At the moment, on the sort of volumes and new business side, as you heard me say, we think it's a net positive. And then with regard to the savings that we're generating within the business, I think what we're seeing most of all is an opportunity for greater effectiveness and the ability to redeploy our people's time on more value-creating opportunities. We're certainly seeing that within sales. And what would I say, maybe we're generating 15% to 20% time efficiency, which can be redirected into more value-creating preparation for meetings and bid preparation, for example. So that's really how we're thinking about it. It's how do we redeploy effort and time into the bigger opportunities. And then specifically on the new business ARO, yes, $3.8 billion. We're super pleased. We need to continue to grow that relentlessly year in, year out. Our pipelines look very attractive. More importantly, almost than the gross new business wins, our pipelines are growing at the rate we need to see them grow. You've seen us speak today to the increase in the market that has come by way of some of the acquisitions we've made, which opens the total addressable market up for us. So we've now got a market which is over $360 billion. That's what's really exciting. The more we can target sectors and subsectors of opportunity where our operating model is best placed to win, then the more sustainable we believe the growth is. As you heard Petros say, we're super excited that this is 4 years now reported within 4% to 5%. We're well placed to see another year of growth within the 4% to 5%. And our objective is to continue to build our TAM and our processes deploying AI such that we can sustain those growth rates and those retention rates over the long term and deliver within the growth algorithm that we've shared with you. As you rightly say, some of that business will have deployed in financial '25 and will be rolling into '26 on an annualized basis. Some of it will be yet to deploy in '26. And the odd contract would have been one which will deploy in future years as we've also witnessed in the past where we've got some business that comes online. So the correlation between new business won and the in the year benefit within that 4% to 5% range is rolling. But we're really pleased that we've delivered that 11% increase year-on-year, which gives us every confidence that we can sustain the 4% to 5% as the business scales and the absolute numbers get bigger. Operator: And our next question comes from Simon LeChipre from Jefferies. Simon LeChipre: Three as well, if I may. First of all, on the $3.8 billion new business wins, I'm not sure you mentioned the mix of FTO within this number. I think it was 48% by Q3. So keen to get an update on this. Secondly, on net new, just wondering if net new was also within the 4% to 5% range for the international region. And lastly, I mean, in the U.S., you mentioned some opportunities in data centers. But more broadly, do you believe you could benefit from different investment plan going on like the Infrastructure investments, CHIPS Act and so on. Just wondering if it's something relevant for you. Dominic Blakemore: Thank you, Simon. Yes, let me pick up on your third question, and then I'll hand the first 2 to Petros. Absolutely, we're super excited by investment in new -- all new forms of technology, and we see those as opportunities for us. So I obviously referenced data centers, but yes, semiconductor manufacturer where it's been onshore in particular, is presenting opportunities for us. We're seeing data centers all around the world as an area of opportunity for us. And particularly where we see the build of new energy technology, those present opportunities for us. So there are -- as we've always witnessed, there are new sectors and subsectors of business and industry that emerge at pace and scale. And we believe that we've got a range of offers that can play into those, which means we've always got what the client is looking for. What's really important is that we're spotting these trends. We're moving quickly, and we are building an offer that is compelling for the client in their needs. Petros? Petros Parras: On the $3.8 billion Dom referenced, it's growing 11%. FTO around 45%, which is very pleasing to see. If you go back to pre-COVID, it was about 1/3 of our source of new business wins, continues to be elevated, which plays back to the complexities of the clients and our ability to serve and solve some of the challenges. I would say it's broad-based and represents a fair share of our sectors. And as Dom referenced, particularly with B&I continue to have great momentum within this $3.8 billion. When it goes to net new international, let's take a step back here. And if you look at from 2019 all the way back, international was nearly flat. We have 4 years of consistent good growth. We have 4 years of elevated net new for this part of the business. And the most pleasing thing for us is retention. You look at retention, we used to be in the low 90s. We are mid-90s sustainably. We would like to do better as we move forward in international business. We have opportunities. If you look in North American business, retention, some of our international business, the more sectorized we become, the more GPOs we deploy the Compass full toolkit, we should be in a position to drive marginal gains in international business. But we recognized consistent and good growth, and we're working towards sustaining this good growth in international part of the business. Dominic Blakemore: Yes. I mean I would probably just add to that. If there's anything that pleases me most about the business, it's the performance of the international region. We've seen an acceleration in our net new and improvement in our retention. As Jamie pointed out earlier, there's still a couple of points difference between the margins of North America and International. We see an opportunity to close that gap over time. We think the North America margin will continue to nudge forward. We see an opportunity for the international margin to grow faster as we make margin-accretive acquisitions, as we move toward GPOs in each of the individual international geographies, we see a good opportunity on margin there. There's still a delta in retention between North America and international. We think we can close that gap too as we deploy our processes, and we're seeing consistent improvement. What's most important, though, is the sustainability and consistency of that. And we're starting to build a bit of a track record, as Petros said, over the last few years, and we need to sustain that going forward, and we're confident we can. Having said all of that, I'd also just like to remind us that the North America performance was extremely strong last year, and we're incredibly proud of that. We think that we have every reason to believe that, that's sustainable, too. Operator: And our next question will come from Jaafar Mestari from BNP Paribas. Jaafar Mestari: I have 3 questions, if that's okay. Firstly, because you've provided this all-in guidance, which includes M&A and Vermaat, just a couple of questions on this. One, what timing of the Vermaat consolidation have you assumed in the guidance? And two, how should we look at the $350 million net finance cost guidance in this context? Is it $300 million run rate until the Vermaat consolidation and then it's $350 million as you pay for it? Or does the financing that you have in place mean that it's $350 million regardless of the exact timing of the deal closing? And then more fundamentally, one of your competitors has announced they would be investing in sales force -- in their sales headcount in at least one large U.S. vertical because they signed so little. Another one of your competitors paid their sales team $25 million extra bonus because they signed so much this year. How do you keep and motivate your hunters? You've talked about the founders involvement. Could you give us some more color on the sales teams themselves who bring in $3.8 billion? How many are they? What sort of background? What sort of support do they have, how they run and how they paid? Dominic Blakemore: I'll speak to the question on our sales resource, and then I'll hand over to Petros for the first 2 questions around Vermaat. Look, I think the first thing to say is the consistency of our track record. You've seen us deliver the new business growth now globally across North America and international, as I said, over 4 years. We've got great line of sight of the fifth year. More importantly, we've been doing that in North America for certainly the 13 years I've been with the group and probably over 20 years. So there is a consistency to our process and execution that I think is critical to the strength of our performance. We've got longevity and tenure in many of the people who work with us. Our organization, as we talk about often, is designed around sectors and subsectors. So we have dedicated sellers for each of the offers that we provide to our clients. We have dedicated sellers who are focused on the first-time outsourcing opportunity. Often that's a longer sell. And so we are incentivizing them over multiyear rather than individual year's performances. I won't speak to the independent -- the individual reward structures, but we have processes that have worked for us repeatedly. Our pipeline looks out 1 and 3 years, and we're excited by that. When you speak about the different competitive pressures, again, having been around this business for a while now, I've seen the competitive pressures ebb and flow. I see no real difference today to that which we've experienced previously. I think it's really important that we keep doing what we're doing. And that starts with expanding the TAM so that we've got ever more opportunity, being relentlessly focused on what the pipelines look like 1, 2, 3 years out, being relentlessly focused on our retention and how we secure and preempt to minimize the retention risk. We've seen a consistent improvement in retention. We put that down to our SAG processes, our non-SAG processes, which we're getting more dedicated to all of the time. And actually, the use of data around consumer NPS and our client feedback on an anonymized basis is allowing us to make even better decisions around that. So we just remain relentlessly focused on doing what we're doing on sharing our best practices and scaling our teams. We're always adding sellers into the business to ensure we can continue to grow at scale. But what I come back to is how important it is to continue to expand the TAM to give us the marketplace to grow into. And again, elevating the conversation, we have a 15% global market share in an industry that's still 50% self-op. There's huge runway for all of us to grow into. Petros Parras: On Vermaat, just to remind everyone, it's still subject to regulatory clearance. We have taken an assumption on contribution as of the first quarter of '26. We have line of sight we are in the final stint of this being closed, and we remain very excited to welcome the Vermaat team within the Compass Group family. When it goes to the interest expense for next year, about $350 million. This assumes Vermaat including the numbers and a bit of [ in-field ] M&A that we'll continue to invest in the business as we move forward. Jaafar Mestari: So just to be clear, it's going to be $350 million regardless of that timing? Petros Parras: Yes. Jaafar Mestari: Can I have a short follow-up on this, please? What's your assessment of the EPS accretion of the deal? You said positive for this year because you're presumably closing it late in the year, but you immediately have that higher finance costs. It doesn't look like we can justify even a decimal upside to consensus EPS. But if we annualize this on the full year, what sort of accretion do you think this deal if everything happened at the same time, interest costs and consolidation, please? Petros Parras: I think in Dominic's script, I think we say it's going to be accretive on EPS and a full year of ownership. You have to appreciate depending on when this deal is going to close, there is a different contribution of profit vis-a-vis the interest cost, will be accretive to growth as it closes. And importantly, with the synergy cases as we go in delivering good growth and some synergies on the cost lines, we should be able to drive further EPS accretion on a year 2 and year 3 basis. Operator: Our next question will come from Leo Carrington from Citigroup. Leo Carrington: If I could ask 3 as well, please. Firstly, on the North America H2 margins, which were flat despite the organic growth. Is there anything to call out as weighing on the margins this year, possibly the $440 million of M&A spend -- anything there would be useful. Secondly, I do appreciate the focus of yours is on B&I today. But in health care, your U.S. peer on a big multisite contract. Is this part of an acceleration in outsourcing in North America healthcare segment that you can also see or something of a one-off? And then lastly, I was interested in the Slide 29 showing the guidance evolution pre post pandemic. What exactly do you attribute the improvement, the increase in like-for-like volume growth to that you expect to see? Dominic Blakemore: Okay. Thank you, Leo. Why don't I take your second and third question and then Petros can speak to North American margins. Look, first of all, yes, I mean, the health care sector remains incredibly exciting for us. It's one of the sectors with the most significant first-time outsourcing opportunity, both in North America and international. We are seeing contracts come out on a multisite, multiservice basis, which are first-time outsourcing opportunities. So whether we would call that an acceleration or it's the normal trend, I think we'll determine as we go. But there are some very exciting opportunities in the sector, and that's been the case both in North America and international. And I could say the same for higher ed as well. So look, our sectors remain vibrant. We see lots of opportunities, not just in B&I, but across all of the sectors and really informs our sort of confidence today in sustaining our net new growth algorithm and the ever-expanding TAM. And then when it comes to like-for-like volume growth, look, I think there's quite a few puts and takes that we could pull apart, whether it's sort of return to office over time and so forth. But I think the biggest single trend to me is the one that we sort of called out in the slides today. And that is, I think, the greater appreciation of the value that we offer relative to the high street. I'm very confident that the quality of what we offer is on a par. I think we've got some exceptional consumer offers now within our estate, but we're providing that to our consumers at a very, very significant discount to the high street. And through this period of elevated pricing, that delta has become ever more. We talked about why that is. Obviously, it's the fact that we typically aren't paying utilities on site. But I think our scale of purchasing is just so much greater than the high street competitor set. That provides advantage and our menu flexibility is so much greater. And I think therein lies a huge opportunity to create value for our consumer. That combined with the opportunity or the case where many of our clients are partially or fully subsidizing the offer. I think that's meant that we are capturing more people on our estate and they're having more daypart occasions with us. And I really do believe that, that is what is behind our successful volume growth. And I think you can see that in a number of our sectors. And then when you think more about where you've got the type of consumer that would be within the sort of Sports & Leisure, the event sector, I think we've got even better at retailing, understanding per capita spend, consumer trends. We've got data analytics businesses that are helping us drive an understanding of those. And we're working very closely with our clients because the clients see it such an important part of their hospitality performance to be able to drive that. And hence, we benefit from that, too. I think you see that in the Q4 volumes, where we have a positive calendar of events, we're also performing positively on volumes. Petros Parras: On North America, we're really pleased on what the business has achieved. If you really step back and you look at North America operating margin is fully recovered to pre-COVID. Within '25, there was noticeable margin progress as this business grows. I want to remind you, business is 65% bigger to pre-COVID and enjoying this elevated growth and still delivering margin progress is quite remarkable for our teams, I think. On a going-forward basis, we will expect still to do some marginal gains as we grow, more of an overhead leverage. And we remain positive on the trajectory of this business. If you're referring to the half 2 versus half 1, we made progress versus both halves of last year. And as we came to a fully normalized world on recovering the margin, there is some seasonality in there. North America has always been stronger margin in the first half to second half. Dominic Blakemore: Yes. I would add on margins as a group, I probably feel as confident as I've ever been that we will see steady, consistent incremental margin progress in North America and International. Why is that? Just remind ourselves of the portfolio work we did where we exited a number of the more volatile markets. I think we've got much more consistent business now. We've got a much more sustainable foundation and base, and I think we can grow from that consistently from here. So that's what's informing our confidence both in North America and International that we should see consistent, steady margin progression. Operator: Our next question will come from Estelle Weingrod from JPMorgan. Estelle Weingrod: I've got a first question on North America. You talked about the very good performance of B&I. Can you give us an update on other segments, in particular, higher education? Any indication on the full terms enrollment numbers? And the second question on Europe. Can you provide a bit more granularity on the underlying momentum? You mentioned B&I and Sports & Leisure. Can you be more specific perhaps on a country basis or at least any country you call out underpinning this solid momentum? And have you noticed or have you witnessed any signs of a softer macro in some countries in Europe, like in France impacting volumes? Dominic Blakemore: Petros, do you want to take the North American higher-ed question, and I'll speak to Europe. Petros Parras: So North America, as Dominic referenced, very strong B&I, low double-digit growth, broad-based across all subsectors. If you look in the rest of the sectors, we're in the high single-digit growth territory, which is quite pleasing. It's what we call broad-based growth. And actually, if you look at our sector footprint, we expect to be this way as we are fully sectorized and we're winning good businesses within every sector. When it comes to education, I think enrollments came in good, in line with our expectations, continues to have some good momentum in the education business as we move to the fiscal year '26 year. Dominic Blakemore: And with regard to Europe, yes, I mean, actually, Estelle, you spoke to it. We are 2/3 of B&I business in Europe. So for us to grow, we need to be seeing positive growth in B&I, which is the case. We've got a very exciting pipeline. We've won some really nice opportunities in the Nordic region, in France, in Germany, we continue to perform extremely well in Spain and in Turkey. So we've got a strong portfolio of countries that are all growing together. Importantly, and going back to the earlier conversation, what's really stepped up has been our retention performance in Europe. Again, if we compare it to the years that Petros described when we were sort of flatlining for growth, the real difference there is that 3 percentage point improvement in our retention rates, which we believe are sustainable. We've got very rigorous retention processes that we've trained out and we're managing through the region, and that gives us good confidence in momentum. We've got a very exciting pipeline for Europe. And I think the other feature is, for example, we've launched our Levy Sports & Leisure brand into Europe, and we're managing that across all of our international markets now actually. And we're seeing good momentum as we start to win our first accounts. Obviously, we talked about not in Europe, but the Australian Tennis Open, which was won last year. But also we're seeing our first ones in the sports areas in Europe, which is exciting. And then lastly, obviously, the acquisitions we've made 4Service in the Nordics and others are starting to give us access to new subsectors within B&I, which gives us even increased confidence on sustaining those growth rates in Europe. So look, we think that it's an ever-improving performance that we can expect in Europe, and we'll continue to nudge up within our net new growth range of 4% to 5%. On the macro point, sorry, at this point, we aren't seeing any degradation on our volumes from the macro, but we remain watchful. And look, I know there's some concern out there about are we likely to enter any recessionary conditions across the piece. I think a reminder, first of all, we're not seeing it. And then secondly, we do believe that the resiliency of this business can demonstrate itself in those times. First of all, our clients look for value and cost savings. And whenever there's been a tighter macro, we've seen an acceleration in first-time outsourcing and also in rebidding of contracts for more value. And I think we're very, very well placed there. And then secondly, if the consumer is looking for value in tougher times, then I think everything I said about what's driving the volume performance will stand us in incredibly good stead. So look, I think we feel well placed whatever may be ahead of us. Operator: The next question will come from Ivar Billfalk-Kellyfrom UBS. Ivar Billfalk-Kelly: You've mentioned FM a couple of times in passing on the calls, where it usually feels like we go several quarters without it being mentioned at all. Can this be an indication that it's a bigger focus going forward? And can you talk about the relative margin contribution of FM services compared to the traditional food service and the outlook for growth? Secondly, you're investing in M&A and GPOs in the U.K. You still don't have much in the way of GPOs in the rest of Europe. What would realistic time lines be for rollout of GPOs in your Continental European operations? And what's actually needed for them to be successful? And thirdly, on the health care in North America, as I understand, a lot of the U.S. health groups already have their own GPOs. And since GPOs are a key element of your offering, what is your relative positioning compared to your peers, given I understand the GPOs in health care actually like you to use them rather than your own procurement. Any comments there would be helpful. Dominic Blakemore: Thank you for those questions. Actually, really interesting and thoughtful. First of all, FM, yes, look, we're predominantly a food services group, 85% of our business is food. But look, that 15% that we deliver support services across a spectrum of different services in FM is $6 billion. That makes us the fifth or sixth biggest support services company globally. We also operate support services with great capability in many markets. We've quietly got on with that. It's been growth neutral. So it's been growing at par with our food service business and actually is also margin neutral, so on a par with our food services business. So it's a good business for us. Where we sell it alongside our food as a multiservice offer or an integrated offer, it can be very sticky with clients. Typically, we've seen it in the defense sector, the remote sector, the health care sector and increasingly within the education sector. Within B&I, it's often sold separately rather than as an integrated offer. But look, we think it's an attractive market that in a number of countries, we are well placed for. We quantified the market today within our slides $800 billion. It's very fragmented. So there's a long runway for opportunity for growth. We're clearly not prioritizing that over our food service business, but we will consistently execute. And we really just wanted to remind everyone today of the scale of that business and the capabilities that we offer. And that I think if you're very selective in the services you provide and where you work with clients, then it can be an attractive adjacency to food. On the M&A for GPOs, you're absolutely right. We've been building out our U.K. Foodbuy business very successfully over time. We gave some great examples today, particularly Regency. Our U.S. Foodbuy business continues to be incredibly accretive for us and an important part of our portfolio. We have a Foodbuy business in Canada, Australia and the U.K. We already operate GPOs today in some of our European markets. So we operate them in the Scandinavian area within Belgium. We haven't yet built those out in some of the other bigger individual countries. It is an area of focus for us. You asked what is the sort of recipe for success. Actually, when we take a step back, what enabled both the U.S. and the U.K. to build credible and scale Foodbuy offer was first acquiring the capabilities of a GPO and then bringing the Compass volumes into that GPO to get aggregate scale and then to franchise the capabilities and the services alongside the scale into the third-party market so that we can grow disproportionately with our own estate, our acquisitions and the third-party growth. And we think that really is the sort of the recipe for success in other markets, and it's one that you should expect to see us pursue over time. And then finally, with regard to the North American health care GPOs. Yes, we partner with many health care GPOs that operate for themselves across their own health care estate. Remember, they're typically buying pharmaceuticals, equipment, linen and other nonfood categories where they've got significant scale, actually bringing their food volumes into our significant food buying volumes can yield even more value for them. So we think there's a really interesting and exciting way to partner with the North American health care GPOs to give them more value and bring more volume into our model. Operator: We have time for one final question today. Neil Tyler from Rothschild. Neil Tyler: Just a couple of quick follow-ups actually to previous questions. Firstly, just touching on the last question around FM support services. In your prepared remarks, I may have misheard, but I think you mentioned that you would consider adding to those services through M&A. I just wanted to make sure I understood that correctly in isolated instances, obviously, but if you could clarify there. And then secondly, Dominic, going back to the point or the focus you put on the expanded addressable market, the additional sort of $40 billion or so. Can you just talk a little bit more about where that's come from? You mentioned it's come through the acquired expertise over the last 12 months or so. And are there opportunities to continue to replicate what's happened over the last 12 months through further M&A? Dominic Blakemore: Yes. Thank you, Neil. Look, on the first point, I think we'll consider tuck-in bolt-ons wherever appropriate within our portfolio to ensure that we've got the right offer for our clients and that we can continue to either defend our estate or to grow the TAM. And that would apply within bolt-ons within FM and Support Services as necessary. Separately, your question on the TAM, yes, I think it's been a really positive feature and one of the driving reasons for the M&A that we've done over recent years. If you think about 4Service, it's given us access to the multi-tenant market where previously we would seek to win business through our clients, we now partner with the real estate owners as they construct new facilities, which are multi-tenanted and multiservice. It's an exciting segment that we weren't previously as exposed to and didn't necessarily have the capabilities for. It's a trend in the Northern European countries, and it gives us the capabilities that we can build into other European markets. I think that's a great example. We've done a number of micro market acquisitions in the U.K. to build a canteen type micro market offer in the U.K. That comes first with technology and then by building a regional presence such that we can offer our clients national coverage with a technology-enabled solution. That's opened up the micro market and vending subsector in the U.K. to us where we previously didn't have the capability or range of services to deliver that, that's something that we feel we can replicate in other international countries, given the learnings that we've had in the U.S. and Canada, in particular. The HOFMANN acquisition gave us access through a high-quality frozen offer into SMEs where we can deliver in at a lesser scale, a consistently high-quality offer that can be frozen and used over time. That's an exciting part of the market that we previously didn't necessarily access. And with Vermaat, although not yet closed, they have an exciting joint program, which is a sort of technology-enabled delivered in solution, which, again, we can leverage and learn from. So I think all of the M&A, we talk about giving ourselves access to capability, both in terms of the business model and offer, but also the people running the businesses. And I think those are great examples of that and where we'll focus as we go forward. Operator: With this, I'd like to hand the call back over to Dominic Blakemore for closing remarks. Over to you, sir. Dominic Blakemore: I mean just quick to say thank you all for joining us today, and we look forward to hosting you with the first quarter results in February next year. In the meantime, wishing those of you a happy Thanksgiving or happy Christmas holidays. Operator: 6 Thank you. This concludes today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.
Kylie Yeung: Good evening, and good morning, everyone. Welcome to Tongcheng Travel's 2025 First Quarter Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Executive Director and CEO, Mr. Hope Ma; our CFO, Mr. Julian Fan; and our Chief Capital Officer, Ms. Joyce Li. For today's call, our management team will provide a review of the company's performance in the first quarter. Hope will brief us on the company's strategies, Joyce will discuss our business and operational highlights, and then Julian will address the details of our financial performance accordingly. We will take your questions during the Q&A session that follows. As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, which may cause the company's actual results, performance or achievements to differ from those in the forward-looking statements. This presentation also contains some unaudited non-IFRS financial measures. They should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website. Now let me introduce our CEO, Hope. Hope will be presenting in Mandarin, and our colleague will provide the English translation afterwards. Hope, please go ahead. Heping Ma: [Interpreted] Thank you, and good evening, everyone. Welcome to our 2025 third quarter earnings call. In the third quarter of 2025, China's travel market continued to unleash its growth potential, driven by profound changes in tourism consumption patterns and behaviors. Notably, we have observed a growing trend toward more diversified and personalized consumer demand. Experience-oriented consumption, including emerging segments such as event-driven economy and concert economy has gained significant traction. The ongoing emergence of innovative service scenarios and business models has introduced new momentum into the industry, fostering sustainable growth. Riding on this tailwind, we swiftly identified changing market demand and proactively grow product innovation to meet these evolving needs. Benefiting from these initiatives, our ending paying users in the third quarter reached a historic high and surpassed 250 million, which demonstrates our organizational agility to capture new opportunities and our continuously expanding brand influence. Horizontally, we're expanding our business by proactively enriching our product and service offerings to cater to diverse demand while maintaining steady growth in our core domestic OTA business. Vertically, we're deepening our value chain integration through exploring potential growth opportunities to build a solid foundation for our long-term development. Driven by our effective expansion strategy and outstanding execution capabilities, we delivered robust results in the third quarter, marking a milestone in our overall development. In the National Day holiday, the travel industry exhibited a healthy growth momentum supported by sustained travel enthusiasm, validating the resilience and growth potential of China's travel industry. As a leading travel platform in China, we will consistently embrace technological innovation to drive product and service upgrades with a steadfast focus on delivering high-quality, convenient and diversified travel experiences for our users. Concurrently, we remain committed to executing our core strategy. While maintaining focus on mass market to consolidate our domestic leadership, we will continue to expand our outbound business and explore opportunities across the travel industry to seek new growth drivers. On October 16, 2025, we successfully completed the acquisition of Wanda Hotel Management, which we believe will accelerate the growth trajectory of our hotel management business, contributing to further expansion and strengthening of our company. Going forward, we will further promote the integration of AI technologies and our supply chain resources to persistently enhance operational efficiency and user experience. We have strong conviction that our clear strategic road map and excellent operational capabilities will enable us to achieve long-term sustainable growth and generate more value for all stakeholders. Next, I will hand over the call to Joyce, who will share with you our business and operational highlights of the third quarter of 2025. Joyce, please go ahead. Joyce Li: Thank you. Since the start of this year, China's travel market has been demonstrating an upward trajectory, characterized by rising demand for immersive natural and cultural experience. Against the backdrop of the evolving consumer preference, we continue to achieve solid growth across all segments, underpinned by the precise execution of our strategies. In the third quarter, our accommodation business sustained its growth momentum, reaching record highs in both daily room nights sold and quarterly revenue. During this period, we focused on addressing users' evolving demand for higher-quality hotels, resulting in a meaningful increase in the proportion of high-quality accommodation on our platform, with more than 20% growth in its room nights sold. In the meantime, we will reinforce our value for money proposition to further solidify our presence in the mass market. Our upgraded membership program has been instrumental in enhancing user engagement, enabling users to freely redeem their points on our platform. This, combined with the fast response to user inquiries has greatly increased user purchase frequency and strengthen user loyalty. In our international accommodation business, we remain focused on strengthening cooperation with third-party partners and expanding our product service offerings. These efforts were designed to better meet the diverse needs of our users and drive further growth in the segment. As for our transportation business, it demonstrated solid growth during the third quarter, supported by enhanced monetization capabilities. Throughout the quarter, we prioritized improving user experience and deepening connections with targeted users. Leveraging our acquisition capabilities and further integrating live transportation options, we provided users with more seamless, feasible and convenient travel solutions. Through engaging and entertaining marketing campaigns, we aim to strengthen mind share among younger demographics and enhance our brand positioning as an experience-driven platform rather than merely a ticketing service provider. In the past quarter, we launched an AI-driven interactive game that allow users to discover travel destinations tailored to their disposition. Such entertaining initiatives has successfully enhanced our brand appeal among younger users over the past years. In terms of our international air ticketing business, we're focusing on strengthening user loyalty and fortifying our market position by implementing a disciplined incentive policy and improving operational efficiency. We maintain a balanced approach to growth in both volume and value. These efforts contributed to healthy volume growth and further improvement in the monetization capability of this segment, aligned with our long-term growth strategy. We see significant growth potential in China's hotel industry and have been actively investing in the hotel management business since 2021, which we believe will serve as a key growth driver for the company. Over the third quarter, our efforts were focusing on expanding our geographic network, while prioritizing quality growth, to optimize operations, we streamed our brand portfolio and concentrated resources on several major brands so as to precisely target segmented markets. At the end of September, the total number of hotels in operation has risen to nearly 3,000 with 1,500 in the pipeline. In mid-October, we completed acquisition of Wanda Hotel Management. The companies are processing multiple upscale hotel brands with a strong presence and influence in the Tier 2 and below cities along with the network of 239 hotels, both domestically and internationally at the end of September. We believe Wanda Hotel's valuable brand equity combined with profound industry expertise, while diversifying our brand portfolio and accelerate the growth and expansion of our hotel management segment, further strengthening our competitive positioning in this industry. Besides the addition of Wanda Hotel will also have positive financial impact on the company. By implementing innovative and effective user engagement initiatives, we have built an extensive and steadily expanding user base across China. For the past 3 months, our 12-month annual paying sustained its growth trajectory and recorded another historical high of 253 million, representing a year-over-year growth of 8.8%. In the meantime, the cumulative number of passengers served on our platform over the past 12 months exceeded 2 billion, indicating stable annual pay purchase frequency of 8x per year -- per user. Furthermore, our MPUs for the quarter also reached a record high of 47.7 million, suggesting a year-over-year growth of 2.8%. Besides our annual ARPU by the end of September increased by 6% year-over-year to more than RMB [ 17.4 ]. The Weixin ecosystem remained a crucial traffic channel during the period, where we focus on enhancing operational efficiency as well as maximizing user value. At the same time, our standalone app, a key driver for acquiring new users maintained strong growth momentum during the last quarter with its DAU hitting an all-time high of nearly 5 million before the National Day holiday. By introducing innovative products, and launching engaging marketing activities, our standalone app has attracted a significant number of younger users. Additionally, social media platforms have become an increasingly important channel for user engagement, particularly among the younger experience-oriented travelers. So collaboration with influencers and the distribution of creative content, we strengthened user mind share and has broadened user reach within this high potential demographics. To further amplify the brand visibility and a deeper engagement with top users, we have made consistent investments in brand equity. This summer, we collaborated with Tencent Music and exclusively sponsored 3-day music festival in Macau, effectively capturing the attention of younger audience and significantly boosting brand exposure among them. Additionally, we appointed a popular stand-up comedian as our brand ambassador to reinforce our valuable money proposition and strengthen our positioning as a dynamic and entertaining platform. These efforts have not only elevated our brand presence, but also positioned us as a preferred choice for value-conscious, experience-driven travelers, driving user loyalty. As a technology-driven travel platform, we proactively embrace cutting-edge technologies and seek to upgrade our business capabilities and deliver enhanced value to our users. In March, we launched our AI-driven travel planner DeepTrip, which generates viable and personalized travel itineraries for users by leveraging the reasoning capabilities of DeepSeek and the supply chain advantage of our platform. Since its debut, it has more than 5 million users in total with a steadily increasing number of orders placed directly through the portal. In the foreseeable future, we will remain focused on iterating DeepTrip's functionalities and expand its application across our business processes, in an effort to cultivate user mind share and strengthen user trust. In the area of customer service, we have made meaningful progress in integrating AI technology to enhance operational efficiency and improve user experience. By embedding AI tools into every stage of the customer service process, we have eased the workload of our customer service staff and shortened handling time. These AI-powered capabilities allow our staff to better understand user inquiries and provide timely, accurate response to address user concerns, ultimately enhancing user satisfaction. We will continue our investments in AI capabilities to deliver seamless and efficient service while fostering long-term user loyalty. We remain deeply committed to advancing our ESG performance to align with the highest global standards and best practices. Through years of dedicated efforts, we have achieved exceptional results in ESG performance, earning significant international recognition. Notably, our MSCI ESG rating has achieved the highest level of AAA, placing us among the top 5% of companies globally in our industry. In addition, our CSA score has improved consistently over the past 3 years and was awarded industry mover by S&P Global. These achievements underscore our commitment to ESG principles and demonstrating our ability to continuously enhance our ESG performance, establishing us as an ESG leader among global peers. I will stop here to hand over the call to our CFO, Julian. He will walk with you through our financial highlights for the third quarter. Julian, over to you. Lei Fan: Thank you, Joyce. Good evening, everyone. In the past quarter, China's travel industry maintained robust growth with travel demand demonstrating strong momentum. During the summer peak season, we observed steady increases in diversified travel scenarios, including family trips, graduation trips and educational tours, leveraging our precise understanding of user needs and agile operational capabilities, we successfully captured emerging opportunities across various travel scenarios, driving impressive growth in our Core OTA business. In the third quarter of 2025, we achieved outstanding results for both top line and bottom line. We reported a net revenue of RMB 5.5 billion, marking a 10.4% year-over-year increase from the same period of 2024, thanks to our effective marketing investment and enhanced operational efficiency of our OTA business. We achieved a remarkable adjusted net profit of RMB 1,060 million reflecting a 16.5% year-over-year growth, with adjusted net margin expanding to 19.2% compared to 18.2% in the same period of last year. Our Core OTA business revenue registered an excellent growth of 14.9% year-over-year and recorded RMB 4.6 billion, supported by growth across our accommodation reservation, transportation, ticketing and other business segments. Our accommodation reservation business achieved RMB 1.6 billion in revenue for the third quarter of 2025, representing a 14.7% increase from the same period in 2024. The revenue growth was mainly attributable to the increase in hotel room nights sold as well as the slight increase in ADR. For the domestic accommodation business, we rapidly responded to emerging user demands and actively explored new consumption scenarios to capitalize on new growth opportunities. For the international accommodation business, we continue to deepen cooperation with global suppliers and strengthen our footprint in outbound designations favored by Chinese travelers, in order to solidify user mind share, driven by changes of consumer preferences on our platform and our proactive adjustments to user subsidy strategies, our ADR sustained a year-over-year increase and once again outperformed the industry. Additionally, during the third quarter, our blended take rate maintained at a relatively high level which was similar to that of the same period last year, mainly fueled by our precise and disciplined marketing strategies. Our transportation ticketing revenue for the third quarter reached RMB 2.2 billion, marking a 9.0% year-over-year increase compared with the same period of 2024. During the past quarter, we continued to optimize our VAF offerings and enhance user experience to improve the monetization capabilities of the segment. The revenue growth is a testament to our profound user insights and operational refinement. Furthermore, supported by enhanced user mind share along with our disciplined operational approach, our international air ticketing business maintained stellar growth momentum and accounted for around 6% of our total transportation ticketing revenue, up about 2 percentage points year-over-year. Other business segments continued to expand rapidly with revenue reaching RMB 821 million in the third quarter, marking a growth of 34.9% year-over-year. This growth was primarily fueled by the outstanding performance of our hotel management business. Our tourism business achieved a revenue of RMB 900 million, representing an 8% decrease from the same period in 2024. This decline was mainly caused by travelers persistent safety concerns regarding travel to Southeast Asia since the beginning of this year and our strategic scaling back of prepurchased business to reduce operational risks. In terms of profitability, our gross profit increased by 14.4% year-over-year to RMB 3.6 billion with gross margin rising to 65.7% for the third quarter of 2025. Our operating profit for the Core OTA business achieved RMB 1.4 billion, with margin increasing to 31.2% in the third quarter of 2025. The margin improvement was primarily attributable to our efforts to enhance the ROI of sales marketing investments and improve operational efficiency. The operating profit for the tourism business reached RMB 12.4 million with 1.4% margin. Our adjusted EBITDA increased by 14.5% and reached RMB 1.45 billion, with a 27.4% margin compared to 26.4% margin in the same period last year. Adjusted net profit grew by 16.5% to RMB 1,060 million with a 19.2% margin, up from 18.2% in the third quarter of 2024, demonstrating consistent year-over-year margin improvement. Service development and administrative expenses in the third quarter of 2025 decreased by 3.2% from the same period of 2024. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 13.8% of revenue in the third quarter compared with 14.7% of revenue in the same period of 2024. Selling and marketing expenses in the third quarter of 2025 increased by 16.9% from the same period of 2024, excluding share-based compensation charges, selling and marketing expenses accounted for 31.0% of revenue in the third quarter compared with 29.2% of revenue in the same period of 2024. As of September 30, 2025, the balance of cash, cash equivalents, restricted cash and short-term investment was RMB 13.6 billion. In the first 3 quarters of 2025, the Chinese travel market continues its upward trajectory with travel enthusiasm flourishing. During the National Day holiday, a nationwide increase in travel activity was observed, further demonstrating the resilience of travel market. According to official government data, both the summer and National Day holidays recorded solid year-over-year growth in a number of domestic tourists indicating that travel is one of the key contributors to high-quality economic development. Heading into the fourth quarter, we remain committed to capitalizing on market opportunities, navigating challenges with agility and efficiency, and managing risks with discipline and prudence. We are dedicated to balancing market expansion and profitability, aiming for robust growth in both top line and bottom line. Looking ahead, we will unwaveringly focus on our Core OTA business. In this context, we will enhance user value and operational efficiency in our domestic business while actively expanding outbound business and strengthening our global market presence. Concurrently, we will continue expanding our presence across the travel industry, strategically advancing the development of our hotel management business to unlock more growth potential. Through this strategic initiative, we are posted to further solidify our industry-leading position, while maintaining sustainable growth and decent profitability, which we believe will deliver greater value to all stakeholders. With that, operator, we are ready to take questions now. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Qiuting Wang from CICC. Qiuting Wang: Congratulations on the solid performance. I have 2 questions regarding for your future growth engines. The first one is about international business, what is your expected growth rate in the following years? And what are the key growth drivers? And how will the company balance monetization rate and volume growth? And what is the better margin for next year? And the second one is about hotel management business, how many hotels are expected to be opened in the next 2 or 3 years? And what measures will be taken to effectively manage these hotels? And after the acquisition with Wanda Hotel Management, what will -- how will the company achieve synergy with your Core OTA business? Joyce Li: Thank you, Qiuting, for the questions. I will take these 2 questions. And the first is concerning our international business, mainly the outbound business, we would say that outbound business has been our growth driver for our Core OTA business right now. For our outbound accommodation business, we have continued to deepen the partnerships with global suppliers and strengthen our presence in regions levered by Chinese travelers. Destinations like Hong Kong, Macau and Asian regions continued to attract high demand and performed exceptionally well on our platform. Our outbound air ticketing business maintained a steady growth momentum. This has been supported by our competitive pricing strategy focused on expanding user mind share combined with a disciplined marketing approach aimed at maximizing efficiency and return on investment. These efforts positioning us well to capture the increasing demand and deepen our market presence in the outbound travel segment. In third quarter, our international air ticketing business accounted for around 6% of our total transportation ticketing revenue, representing nearly 2-percentage-point increase year-over-year. And in 2025, we introduced a margin improvement program for outbound business, as we mentioned, concentrating on marketing and promotional efficiency. As a result, our outbound business turned profitable in the third quarter. Looking ahead, we will continue to enhance our outbound travel offerings through strategic partnerships with the leading global OTAs, wholesalers, airlines and overseas TSPs. We plan to increase investments in research and development to improve service capabilities and ensure a seamless booking experience, but also exploring cross-selling opportunities from outbound air tickets to accommodation to drive further revenue and profit growth. In the next 2 to 3 years, expanded business volume and user base growth remains our key prioritized with a strong focus on profitability. We anticipate rapid growth in outbound segment, targeting a revenue contribution of 10% to 15%, making it a major growth driver with higher margins than our domestic business. Overall, we are on track for breakeven this year with international business poised to positive impact margins and become a significant revenue contributor in the future. And in terms of the hotel management business, as a comprehensive travel platform, we are dedicated to expanding our influence throughout industry trend to ensure sustainable growth. Hotels play a vital role in China's travel ecosystem and deepen our involvement in hotel management will further solidify our positioning in this travel industry. We have seen significant potential for our hotel management business to become our second growth driver, playing a vital role in our long-term strategy. Our objective is to become a key player in China's hotel industry by offering a diverse range of brands that create exceptional value for hotel owners and travelers like. In 2024, already ranked 8 in China's hotel group scale ranking, measured by the number of rooms in our hotel portfolio. In the last month, we have successfully completed the acquisition of Wanda Hotel Management company, and now we are progressing with the integration and transition. Wanda Hotel Management has a comprehensive portfolio in 9 major upscale hotel brands with strong marketing trends, as we mentioned. So together with eLong Hotel management platform, we are currently operating over 3,000 hotels. Given its stable and mature development as well as strong brand influence in the market, the Wanda brand will be retained. This will allow the brand to complement our existing hotel portfolio and strengthen our overall offerings. The core management team and the key staff of that company largely remain in place, continuing to oversee and execute strategic development and operations. From a financial perspective, as I mentioned, the hotel business we acquired has decent profitability. Although the acquisition impact only around 3 months this year, it is expected to contribute positively to our revenue and profit. We believe the acquisition will accelerate growth of our hotel management business, supporting further expansion and strengthening of the company. We are confident that our clear strategy road map and clear operational capabilities will drive long-term sustainable growth and create great value for all stakeholders. Operator: Our next question comes from the line of Yang Liu from Morgan Stanley. Yang Liu: Congratulations on the solid results. I have 2 questions here. The first is -- question is about the management's view on the future hotel ADR trend and also Tongcheng's take rates for hotels given that the recent high-frequency data suggest some improvement from the value chain, do you think this will translate to even better ADR trends for Tongcheng? And the second question is regarding the competition in domestic market, we noticed that certain peers announced a pretty good GMV data since the fourth quarter this year. Does there -- any bring -- any incremental competitive pressure to Tongcheng and that company need to fight back or need to do anything to retain its market position? Lei Fan: Liu, thank you for the question. For the hotel industry, actually, we mentioned a lot of times that the domestic ADR has largely stabilized year-on-year in quarter 3 and our domestic ADR already turned positive since quarter 2 and the trend continued in quarter 3. This great improvement is driven by 2 factors. The one is the recovery of the ADR across the industry. And the second is the shift in user behavior in our platform, as users increasingly prefer high-quality products, which has resulted in shift from 2-star hotel to 3-star or above hotel bookings in our platform. In quarter 3, the proportion of higher quality accommodation bookings on our platform increased meaningfully with more than 20% -- more than 20% growth in the room night sales. Given this trend, we expect that the growth in ADR will be a positive factor contributing to accommodation segment's revenue growth this year and also for the next few quarters. At the same time, we have adopted a more disciplined and targeted approach for user subsidies. This approach has also helped us to maintain our net take rate at a very decent level, ensuring a balanced focus on both expansion and the profitability. Our outstanding performance in accommodation business in the past few quarters demonstrated that the pricing pressures of the industry had a rather limited impact on our revenue as ADR on our platform remains relatively resilient, thanks to our extensive exposure in the mass market and our ability to swiftly seize market opportunities. So in the future, we think the trend of ADR improvement are still ongoing because there's a lot of space will be released for the high-quality hotel booking along with the user value and user maturity improved in our platform. In terms of the competition landscape, I think you will have, Joyce. Joyce Li: Thank you, Julian. In terms of competition landscape, as we mentioned a lot of times before, we believe established OTAs with deeper supply chains, user understanding and service capabilities maintain strong defensive moat. First, for the new entries in the OTA market, supply chain will be one of the major challenges for them. As a leading OTA with over 20 years of industry experience, we have an extensive hotel supply chain and deeply established relationships with TSPs. Efficiently managing hotels supplies requires complex systems and close communication with hotels, especially when handling the price fluctuation and room availability constraints. This strong supply chain advantages are difficult for new entries to replicate quickly. Secondly, purchase of travel product services tend to be relatively low frequency and involve longer, more complicated decision-making process. Therefore, converting users into paying customers in OTA space is particularly challenging, as it requires thorough understanding of users' preference and behaviors. And thirdly, our focus on OTAs on delivering superior service and user experience, heavily investing in innovative value-added products tailored to market demand, coupled with a dedicated customer service team, addressing user needs rapidly. These competitive ages are not easily matched by newcomers. Besides, we have upgraded our membership program to enhance user engagement by providing faster response to inquiries and allowing users to redeem their points as cash on our platform. These enhancements aim to boost purchase frequency and deepen user loyalty. The OTA market is complex and requires significant time, resources and experience to build sustainable competitive advantages. We expect near-term competition to remain relatively stable, and our current strategy continues to focus on improving operational efficiency with the profit expectations unchanged. So we remain vigilant to make adjustments as market dynamics evolve. Thank you. Operator: Our next question comes from the line of Brian Gong from Citi. Brian Gong: Congratulations on the solid results. Two questions. First, management just talked about ADR and wondering how should we think about room night growth in the first quarter and any initial color for next year? And the second question is our take rate on transportation has been persistently improving this year. But I heard that airline ticketing pricing has been under pressure. And it seems airline companies also lowered commission fees to some extent. Not sure if this will impact our transportation revenue growth ahead. Lei Fan: Thank you for the question, Brian. I would like to give you some color for the Q4 performance first and then provide more color on the transportation side from the airline companies. As mentioned throughout this year, the company remains focused on striking the balance between top line and bottom line as well as enhancing user value and ARPU. In quarter 4, actually, the margin improvement will remain our key priority, while we simultaneously pursue maximum growth and market share gains, both for accommodation and transportation. For accommodation business, we believe that the growth will be driven by both volume expansion and also the ADR improvement like what I imagined. Our volume is expected to continue outpacing the market growth. While our ADR will be benefited from the ongoing upgrade in hotel store mix driven by the shift in user preference like I mentioned in previous question. For transportation, actually, the ATV has already turned positive in quarter 3 because we monitor that there's more demand released in the long haul in the summer vacation and also the October holidays because the October holidays, we have 8 days holidays this year. So actually, for the industry, the ATV has already turned positive. And also the ATV has also turned positive in our platform as well. We don't have any pressure for the commission decrease from the airline companies. We don't have any information from that. For the fourth quarter, the transportation business volume growth will be still in line with the market. The market is only single digits. While the take rate still have some space to improve, driven by cross-sell and VS will continue to contribute the revenue growth. In the long run for the transportation business, actually, we will continue to emphasize innovation in our products and services to meet the diverse needs in our users during their travel journeys, thereby increasing the monetization of our transportation business. As our platform progresses towards becoming a fully integrated one-stop travel solution, we are starting to explore opportunities for cross-selling from long-haul transportation to a broader area of short-haul options with our Huixing and AI capabilities. Our goal is to develop comprehensive travel combo solutions that extend beyond selling individual tickets, which will help enhance the monetization capability and drive revenue growth in the future for our transportation segment. And in terms of the color for next year, actually, it's still too early to say because of the booking window is shortened lately. So we may give you more information on that, I think, in next call, February, March next year. I think that will be more accurate than now. So thank you for the questions. Operator: Our next question comes from the line of Wei Xiong from UBS. Wei Xiong: Congrats on the solid quarter. First, I want to ask about the margin trend. So after our encouraging effort to improve cost efficiency this year, how should we think about the room for margin expansion next year as well as the drivers behind? And second, just regarding AI because given the technology advancement, we do see investor discussion on the potential AI disruption to vertical platforms like OTA. So I want to get your latest thoughts on the topic as well as our strategy to navigate such potential risk. Lei Fan: Thank you for the question, Xiong. In terms of the margin expansion, actually, as we discussed, as always, our strategy for 2025 and beyond is to balance the revenue growth with profitability improvement. Margin improvement remains a key priority while we continue to pursue maximum growth and market share gains. In the second half of 2025, the quarter 3 and quarter 4, the net margins for both the company and our Core OTA business will improve year-over-year, mainly driven by gross margin expansion and operational leverage. The broad applications of AI have significantly improved automation and efficiency across customer service and tech development processes such as coding, further supporting our margin performance. Looking ahead, we still see a lot of room for our service development and G&A expenses ratio to trend down in second half of 2025 and 2026, as overall operating efficiency continues to improve. This efficiency gain will remain an important long-term driver of margin expansion, while on selling and marketing expenses in the second half of 2025, specifically, we expect the ratio to stay broadly stable compared with last year, since we have already realized savings in G&A and delivered solid margin improvement. We will maintain an appropriate level of marketing investment to support growth and strengthen our marketing position and to seek more market share and opportunities. That said, we will continue to strengthen our ROI and efficiency of sales and marketing spending over the long term to ensure sustainable margin improvement for our business in the next 2 to 3 years. So that is my comments on margin expansion. In terms of the AI, Joyce, please. Joyce Li: Sure. First of all I would say that the development of AI technology will largely benefit OTA like us. As we mentioned lot times before, we have remained dedicated to developing our technology, which has been instrumental in improving our operational efficiency and enhancing the user experience. I think DeepTrip is a vivid example of how we embrace this advancement of AI technology. And I would say that we have keep investing in the implement of DeepTrip's functionality and it has already overcome the limitation of traditional travel recommendations and delivers reliable and actionable insights to users. It offers ample access to a wide range of options on our platform and support seamless closed bookings. Moving forward, DeepTrip will continue to evolve through the generative updates to meet users' needs more effectively. And I think DeepTrip's benefits from our extensive resources, including a comprehensive portfolio of online travel products and services. While general purpose large models can generate travel guides, they offer less ability to match recommendations with actual real-time travel resources availability. DeepTrip provides a more practical and actionable solution by directly integrating Tongcheng products into the planning and booking process. Our strong connections and close relationships with supply end enable us to secure competitive pricing and high-quality products to satisfy diverse travel needs. And secondly, I think AI technology has helped improve our operational efficiency and reduce manual work. Julian also have touched on that. Currently, generative AI has reduced our coding workload by 20%. Generative AI also handles over 60% of our accommodation related to online consultations and more than 70% of Internet phone inquiries. It delivers improved accuracy and efficiency. We have made significant progress in integrating AI into our customer service operations, embedding AI robots across entire service process to lighten staff workload and shorten the response times. This enables our team to better understand user inquiries and provide timely, accurate answers, resulting in a 10% reduction in handling time. So we will continue investing in AI to deliver seamless, efficient service and foster long-term use loyalty. In parallel, AI will also help us identify new application scenarios, product innovations or traffic opportunities, supporting both revenue expansion and efficiency-driven profitability improvement in the future. Thank you. Operator: Our next question comes from the line of Thomas Chong from Jefferies. Thomas Chong: My question is about the impact coming from a recent Japan incident. And how is the latest market situation right now? And how does that affect the business performance, if any? Joyce Li: Thank you, Thomas. Currently, we expect that there will be slight impact on our business. But we strongly believe that people's devise for outbound travel remains very strong. So they will be willing to explore other destinations. And we believe for OTA users, it is quite easy for them to change the travel plan and destinations but the impact on the group tools of our tourism business may be a little more obvious, and we will closely monitor further policy developments and adjust our product mix and marketing strategies accordingly to mitigate the impact. Overall, we do not expect a material impact on our full year performance at this stage. Thank you. Operator: Thank you. There are no further questions at this time. So I'll hand the call back to Kylie for closing remarks. Kylie Yeung: Thank you. We are closing the call now. If you wish to check out our presentation and other financial information, please visit the section of our company website. Thank you, and see you next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Benjamin Wilkinson: Good morning, everybody. Thanks for joining us for Molten Ventures interim results. This is the results for the 6 months to the end of September, and we'll take you through key movements in the portfolio. We've moved with the trading statement at the end of October and then now giving you the final numbers here. Today, you will be spoken to by myself, CEO, Ben Wilkinson; and also our CFO, Andrew Zimmermann, who will take you through the financial highlights. I'll just give a quick introduction, a reminder to Molten, and then we'll get into the numbers. So Molten Ventures is actually, next year, celebrating our 20th anniversary as a firm and has been listed since 2016. The benefit of that is obviously that we can get to show the model working over time. And I think here in these results, you'll see the breadth of the portfolio and the demonstration of that vintage creation that's been happening over these many years, 80-plus portfolio companies in the portfolio. And when we look at the PLC numbers here today, that's what we'll be talking to, but also we manage EIS and VCT funds alongside. So the capital pool is an important function and driver of our model and how we address the market. On the right-hand side, you can see the important factors. We've targeted 20% annual growth in the portfolio fair value, and that's -- we call that through the cycle because obviously, these things tend to be up and down somewhat, but actually delivered 26% when you take into account the 6 months growth. And then in realizations, the important factor is turning that value into cash, and we've delivered 14% versus our 10% target. And again, I think that's a differentiated point from us versus some other firms and something that we've been able to demonstrate through many years. So we'll touch on those returns. In aggregate, GBP 1.1 billion of capital deployed in those years as a public company and returning over GBP 700 million coming back, which is a really strong proof point of our model. A year ago, when I took over as CEO, we refocused our strategic priorities on these key areas, really focusing on our core investment strategy of Series A and Series B investing. Particularly at Series B, this is a part in the market in Europe where there's a gap to capital, somewhere where we have strong experience and it's where you see the commercial traction in those businesses coming through most strongly, but also requiring the venture capital skills that we can bring to bear to help grow those companies and manage their scaling journey. And so it's capital, but also active management that we bring to bear with these companies. Scaling our own portfolio and developing the co-investment pools of capital further continues to be a key priority for us. We'll touch on the progress in some of those areas, but having the public balance sheet, having the EIS and the VCT funds and then growing out our third-party capital on the private side is a key strategic priority for how we scale and grow within the market. And as part of that, thinking about our fund-to-fund program, which is the investment into funds at the earlier stage from when we invest directly, we've been going through that program and looking at a narrower cohort for the next iteration of investment. So the existing program is largely funded in good shape. It gives us quarterly reporting on 3,000 underlying companies, which is great for our deal funnel. But just thinking about the uses of our capital when capital is ultimately constrained, we want to put more of that into direct investing and thinking about the shape of our portfolio, how that evolves over time. Balance sheet strength, we're going to be able to touch on that today. It's clearly getting back to growth is an important factor within that, but also driving the liquidity from realizations and then thinking around the use of that capital as it comes back. And we always talk to this NAV accretive use of capital. And importantly, that can be buybacks of our shares when we're trading at big discounts, and we've demonstrated with GBP 50 million committed to buybacks, that's something we're willing to do, and we recognize the strength of doing that in terms of buying our portfolio at a discounted value, but also NAV accretive in terms of driving investment. A lot of the companies that we're going to talk about today, we invested in those businesses almost 8 years ago. And the growth that's come through over that time and management of those companies that's come through over that time, and that will drive the growth in the future by the investments we make now. Another part of our strategy is to invest in secondaries where we can acquire mature assets at discounts to their holding value by providing liquidity to an illiquid part of the market and giving ourselves and our shareholders access to those growth companies and that are known winners, if you like, in other people's portfolios is a very sensible way for us to use our capital. So when we talk about NAV accretive use of capital, we're thinking about it in a holistic way about what is the best use of that capital depending on the opportunity set. And clearly, driving a narrowing of our share price discount to NAV continues to be a focus. Some progress has been made on that, but a lot more to go. You'll see today that the NAV is growing, and therefore, the shares have to trade up even further as we drive value in the portfolio. And I will, therefore, hand over to Andy to take you through our financial highlights and demonstrate some of that. Andrew Zimmermann: That's great. Thank you very much, Ben. So I'm Andrew Zimmermann. I'm the CFO at Molten Ventures. About a year ago, I was interim CFO, presenting my first set of interim results. So it's nice to be here 1 year later as actual CFO. And we've got a really positive set of financial results to present. So without any further ado, we will get on to that. So very pleased to have -- talk about a 6% GPV uplift to NAV, GBP 135 million of uplifts offset by GBP 49 million of reductions. FX has added another GBP 11 million to that with the GBP euro being a tailwind, but GBP USD being a slight headwind. Market comps have helped sectors like AI and deep tech and hardware have obviously been stronger [Technical Difficulty] that's been offset a bit by consumer and SaaS. Core names like Revolut, people have read the news about yesterday and ISI have shown very strong commercial traction. Sorry, GPV and NAV are both up at GBP 1.4 billion GPV and NAV GBP 1.3 billion. Realizations have been slightly ahead of investments with some of that cash going to buybacks, again, as Ben referenced, recognizing the NAV accretive additive potential of those. Realizations were pleasing at GBP 62 million to the half year. There was also an additional GBP 23 million from another tranche of [Technical Difficulty] Revolut in October. So GBP 87 million so far year-to-date that we've done with some other little bits and pieces. Freetrade, Lyst and Revolut, the 2 partial Revolut-led secondaries are the drivers of that. So been at GBP 87 million already year-to-date after a very strong FY '25 of GBP 135 million. It's really pleasing to see that momentum continuing. From that cash, [Technical Difficulty] we've put GBP 33 million into the balance sheet, GBP 33 million. We'll come on to that in a bit more detail in terms of [Technical Difficulty] some of the things that we've done. Again, there's been more invested post period end with about GBP 25 million that's either been invested already or is about to be and will be announced. We've also done GBP 19 million of share buybacks. Again, that is NAV accretive to our NAV per share, that's added about 14p to our NAV per share. And we've just announced another GBP 10 million extension to that, which will take us up to GBP 50 million committed so far. OpEx, we've managed to reduce. We've been really disciplined. We've looked at technology and how we can drive some efficiencies from that. We've been able to, therefore, reduce our general admin costs from GBP 13.1 million to GBP 12.1 million year-on-year or half year-on-year, which is an 8% reduction, some reductions in headcount there are mainly on the operational side so that we can rebalance our investment and really drive that investment quality. So we're at 0.1% operating costs net of fee income, which is well below the 1% target of NAV. So that means we end the half year at NAV per share of 724p, which is 8% up on the year-end position, which is obviously a really strong, great position to be on, and then we'll be looking to build on that in the coming period. And our balance sheet at the 30th September had cash of GBP 77 million. We also have cash plus GBP 23 million from that Revolut tranche that came in, in October. And we also have funds available in EIS and VCT of about GBP 23 million available for investment. So we're in a really strong balance sheet position where we've managed to balance the investment with buybacks and cash available going forward. So this is a chart that you're used to seeing where we talk about our performance through the cycle. We have a target of 20%. Our average return through the cycle is now 26%. You can see from this chart, we -- obviously, there was strong growth with a real peak in FY '22. We were quick to take valuations down in FY '23. FY '24, things started to stabilize a bit. And then in FY '25, there's a smaller return to growth in FY '26. That first half, 6% for the half year is obviously a good start and obviously, not quite a hockey stick yet, but starting to turn up there in terms of the growth. So we'll be looking to see that continue in H2. I think with sensible marks for our portfolio and tailwinds behind a number of the core companies, there's good signs that, that will continue. Everybody has been reading a bit about a bit more activity in IPO markets and M&A. So with our diversified portfolio and our experience managing through the cycle, we're optimistic about this continuing. So the story on realizations is really similar -- similar shape. Our target is 10% through the cycle, and we've delivered 14% so far average return. Again, you can see that builds up towards FY '22, where it really peaked. Then obviously, it was a difficult market in FY '23 and FY '24, really slowed momentum for realizations. There's a positive return in FY '25, where we did work really hard to engineer different realizations for a number of the companies. And that's obviously pleasing to see that continue into FY '26, with a GBP 62 million to the half year 30 September and an additional GBP 25 million since then. We're obviously still working on other things. So we would hope to be able to generate more realizations before the end of the year. And obviously, our evergreen model then enables us to recycle that back into future investments, which are going to drive the future NAV growth as well as other NAV accretive opportunities like secondaries and buybacks when the discount is wider to the share price. So this is just a slide a little bit about our investment deployment. We've deployed GBP 33 million in the first half of the year. We've done more since then. So the cadence will pick up a bit in the second half of the year. I'll just call out a few deals. Ben will talk a bit more about the portfolio later in the presentation. But in new deals -- yes, GBP 6 million in new deals. One example in that is General Index, which is a data-driven energy pricing provider for the commodities market. In the follow-ons, we've done GBP 5 million, which is helping to scale and build our portfolio. For example, the one I'll call out is Manna, which those of you who know me know I like to talk about just like drones delivery food. But again, it's a good example of us investing in the ones that are going to be the future drivers of growth in the portfolio. In the secondaries, we did the secondary with Speedinvest for GBP 16 million in the continuation fund. These give us access to a portfolio of companies that we understand as venture managers that are later in life, so they've got a shorter exit window, and we can get them at a very attractive price. So it's another good option for us in terms of driving NAV. And then finally, we've put GBP 6 million into our fund of funds program. Obviously, we're trying to manage a tighter cohort going forward, but this helps us to scout the future winners that are going to feed through into the emerging and then the core in due course. We've also recently signed a GBP 12 million Series B with someone in the portfolio company, which we can't announce just yet, but we'll be working on that. So watch this space, you should see an announcement of that soon. But that's just a really good reaffirmation example of us backing our portfolio and backing the winners in our portfolio and getting back to more of this focus on Series A and Series B core investments. And then just on the chart here on the right, again, just to call out the shape of it, you can see FY '23, just before things started to go south, we deployed a more normal level of capital. FY '24 and '25, obviously, a bit more capital constrained, but we're now getting back more to a normal investment cadence with targeting somewhere around about GBP 100 million by the end of the year. So this slide just walks us through the fair value movement for the period in the portfolio. So you can see investments and realizations we've talked about, so slightly more realizations than investments, which are a net down in terms of the GPV. FX has worked in our favor. As a pan-European investor, we're obviously going to be exposed to movements in euro and dollar, but that's been a small net benefit for us this period. The real talking point, I think, is the movement in the core, GBP 92 million uplift, and we'll come on to talk about the specific drivers of that with the portfolio fund in due course. But that's like an 11% uplift, which is much more where we want to be and where we feel we should be. And so that's really pleasing to see. The fund performance contributed about GBP 7 million. That was offset by about GBP 30 million, a small write-down in the emerging portfolio, which I will actually now just come on to talk about. But overall, a really strong net 6% fair value increase for the first half of the year. So we've had a lot of feedback from people in terms of the emerging. We talk a lot about the core. That's obviously the biggest part of the portfolio by value, but the emerging are what's going to drive the future. So we're trying to talk about this a bit more and shed a bit more insight into it. Ben will talk about some of the specific companies, which I know people find really interesting and exciting. So that will add a bit more color. There's 68 companies in this emerging portfolio, so it doesn't lend itself to a big list, but this table gives you a sense of the diversity and range of across that cohort. So the average age of investment in this is about 5 years. And the average cost of investment is about GBP 4 billion. So you can see the average is obviously smaller. These are the earlier Stage 1s. There's obviously a broad range within that. And you can see from this doughnut here, about 3/4 of them are the smaller sub-$5 million positions. So these are the ones that are still proving themselves out. As they start to scale and grow, and we can spot the emerging winners and we have some conviction, then we can put more capital into them. And so the remaining 2 sections of the donut are as these companies start to grow and we can follow on and help them grow, we'll put a bit more money into them. And then eventually, these companies should grow, keep growing and some of them will get into the core as the future winners in the portfolio. In terms of the fair value movement in this segment, you can see that actually the majority or nearly the majority had an uplift in terms of the number of companies, a number flat and then about 1/3, there was a small reduction. Overall, although there were more uplifts in the portfolio, there was a small net reduction. There were 2 or 3 sort of larger write-downs just in specific companies in that emerging sector that meant it was a small net write-down of GBP 13 million. But overall, still positive momentum in that cohort of the portfolio. So this is the fan, which obviously you're familiar with seeing. Again, I would just call out the point that the scales are different, which is why it looks a little odd, but Revolut because it's so large by fair value had skewed the scale. So we've split the two halves slightly. The right-hand side are the smaller ones that are growing. The left-hand side are the more mature ones in the core. So just to call out some specific ones where there's been the more significant movements. So SimScale, which is cloud-native simulation. It's doing really well in terms of starting to add logos, starting to really grow revenue. It's got good ARR retention. So that one is starting to move up the fan. And obviously, we have a strong belief in that one going further. ISAR Aerospace is one that you may have seen like the rocket launch. It's a German space rocket company, hopefully, a European SpaceX. They got their first rocket away off the platform earlier in the year. It didn't -- it blew up, obviously, partway through, but that is expected as part of the development process. So they got all the data that they needed, didn't destroy the launch pad, so they were really happy. And they're already working towards launch 2. But that first successful launch in terms of the data collection unlocks a capital for EUR 1 billion valuation. So that one has shown good growth in the half year. Thought Machine, although it's not moved that much, I just thought I would call this one out because people are interested in that one. That's obviously core native banking software. You'll maybe remember a year ago, we'd actually taken that one down quite significantly as it sort of stalled in terms of the speed of its revenue growth. In the second half of last year, we started to write it back up, and we've done a little bit again in this first half of the year. The story hasn't really changed. It's a really good business. They're signing Tier 1 banks. They've got a good pipeline of logos. It's just the cycle for that particular line of business. It takes a while to turn it to permanent ARR and longer than they originally perhaps forecast. So as they get these books of business live, the ARR will grow again quite lumpy and that speed of revenue growth should start to accelerate again, justifying more of a premium valuation. So we should see that start to pick back up and walk back up as they hit those commercial proof points. ICEYE is another one that's had a really strong period. You may have read about it in the press, dual-use technology, it synthetic aperture radar satellites, which are just a very cool technology, can see through cloud, can see at night. They've just released their latest version of them, which are even more high definition. You can see things about the size of a laptop from space. Obviously, the shift in defense, particularly for European governments, financing themselves mean they've signed a lot of contracts with different European governments. So they've got really good traction, both in terms of hardware, the actual satellites themselves, but then the software in terms of delivering the images to people. And obviously, the comps in that sector have really benefited from that as well. So it's really strong growth in that one. CoachHub is the only one in the core really that we've had to take down much. That one, CoachHub is obviously coaching software for enterprises and it matches coaches with executives. That's had a slightly tougher year. Firms are probably being a bit more mindful of what they spend their money on and things like that can be the first to be paused. It's actually profitable, but the growth has just stalled. So in terms of the valuation, you need revenue to really be growing at a stronger level to justify a higher premium. So as they get back to that growth, we would expect to be able to walk that valuation back up again. But until they hit those commercial traction proof points, we've pulled that one back slightly. Aircall is business communications software, AI cloud-based, more than 20,000 customers, really good solid business. It's profitable. It's doing more than 20% revenue growth year-on-year, consistently performing a really good example of a mature company in the portfolio that should be heading towards some kind of exit scenario, whether it's an IPO or a trade sale as it really matures. Ledger, again, benefiting from really strong tailwinds, crypto and NFTs, it's a hardware wallet and software that goes with it. Really strong revenue growth, really strong performance. Comps are doing well because of the U.S. market being very favorable towards that kind of asset class. So it's been a strong beneficiary of that. And then finally, Revolut, you'll all have seen the news yesterday about their GBP 75 billion round. That obviously came a bit late for us in terms of this performance. So we've held it based on commercial traction and commercial milestones. It's obviously still performing really well, more than 60 million customers. They did GBP 4 billion of revenue last year, should do something like GBP 6 billion this year based on the growth rates they talk about. So we've been able to take that up quite considerably, but we obviously have a bit of scope to grow further if it's going to grow into that GBP 75 billion valuation. So overall, really positive, I think, for the core portfolio. So I think I would just say just before I hand back to Ben, it's a really positive set of numbers. It's pleasing to be up there talking about fair value growth coming back, really driving NAV per share. We've obviously continued to generate that momentum in realizations, which allows us to allocate capital to the new future winners of the investment and also to allocate some to buybacks, recognizing the NAV accretive benefit of being able to do that. So a nice set of numbers to talk about. And with that, I'll go to Ben, who can tell you a bit more about the portfolio. Benjamin Wilkinson: Thank you, Andy. So as Andy described, we wanted to give you a bit more of the breadth of the portfolio, at least 10 in the call there that's showing those uplifts. We're also trying to show a little more of a -- shed a light on the emerging so that you can see the core is driving the growth. There's GBP 888 million of value there, but the emerging, there's almost GBP 500 million of value sat within that. So what we'll do here is take you through some of the drivers of the growth in the core, but also give you a little bit more of an overlay of how the portfolio comes together. You can see here that gross portfolio value that we talk about GBP 1.4 billion, core being GBP 888 million of that. And then think about the emerging, that GBP 256 million in the light blue bar. We'll talk to some of the details of that. And Andy touched on the fact that there are 68 companies sat within there. And then there's GBP 293 million sat within fund investments. If you look to the right-hand side of this chart, you'll see how that splits down. That's splitting down between some secondaries that we've been doing over the last few years, also SPVs, special purpose vehicles that we've invested in through the years, but also the fund of funds. There's GBP 120 million in that seed fund of fund program where we're an LP into funds across Europe, and there's about 80 funds across Europe that we're invested into. So small checks going into those funds, but that supports the ecosystem, gives us the data on those companies as they come through to the Series A and Series B stages of investment where we can look to invest in those companies directly. And then finally, with Earlybird, about GBP 80 million sat there as value, which is value that's not sat within the core. There are a few assets like Aiven and ICEYE, which are sat in the core, which are look-through into Earlybird investments. So if we touch on the larger part of the portfolio first, the core companies, their growth is driven by their revenue growth, that commercial traction that then feeds through into fair value growth. And we can see that the margins are very strong in that part of the portfolio as they are through the rest. That really gives an indication of really strong technology businesses with 68% gross margins, 6 of those companies being profitable, also some of those moving to profitability in coming years. So we have about 40%, 45% of that core being profitable now as well. Companies are well funded and growing strongly. You can see here that growth has continued and just touched on some of the assets, in particular, that Andy has just taken us through, but it's that commercial traction in the underlying businesses that we really look to. So where we're taking valuations up or we're taking valuations down, it's really underpinned by the growth in the underlying companies. One thing in terms of the age of the portfolio, the average age of those companies is 11 years, and our average age of the holding that we've had is 6 years. So it gives you a sense of where we're investing in those businesses on their own journey. And it's really where we start to see those commercial proof points, commercial traction selling to customers, increasing that revenue, demonstrating that you can sell to a breadth of different customers, but also increase your value within each of those logos. So upselling to those customers as well. Those are the points of reference that we're looking to when we're first putting our investment tickets into these companies. So the emerging portfolio, trying to provide a bit more color on how that comes together. On the left-hand side, we've got the capital deployed. Obviously, now we've been deploying for 9 years, over GBP 1 billion deployed. A lot of that's gone into the core, and that's driving strong returns. But then a lot of that has also gone into the emerging. And you can see here that that's been invested over a period from 2017 right through to now with the majority invested up to 2021. So you can see on the left-hand side that there's a real balance of that vintage creation within the emerging. It's not just focused on any one vintage. And I think that portfolio construction point comes across strongly when you look at that left-hand side of the chart. Average holding is about 9% equity, which is in line with our 9% to 11% probably average across the portfolio, which is also really where we start to think around 10% to 15% of initial equity. Sometimes that gets diluted down. So that's all in line with our original investment thesis. And talking to scale, you can see on the right-hand side here, how much of that is split by revenue. So the blue, the 44%, that's GBP 10 million plus of revenue. So it demonstrates a degree of maturity of those underlying companies. Some of them are pre-revenue, particularly where they're in the deep tech parts of the market where revenue might come later than the traction in the technology. But also you can see that some of those are earlier-stage businesses, GBP 1 million to GBP 5 million of revenue or GBP 5 million to GBP 10 million as they start to scale through that journey. Our job is to portfolio manage. Some of those will not scale and grow, and we'll reduce them down in our holding value or sell them on. Some of them will scale and grow into the core. And we talk in a couple of weeks about one of the investments that we've made in one of our existing companies, a Series B investment where we've led the round in that company preemptively, that's where we start to see that commercial traction coming through, and we want to put more of our shareholder capital to work in that business and then those companies can become the core companies that drive the growth going forward. So I wanted to talk for the next few slides about some of the specifics. We're touching on four of the core portfolio companies, and we'll also touch on a little bit of the emerging as well to give you a flavor of those underlying businesses. Revolut, we've talked a little bit about here, and it's obviously very strongly in the press. I think the only comment I'd like to add in addition to what Andy said here is this is a business that was founded 10 years ago, now has over 65 million customers, was a company that was scaled in the U.K. and then grown into other markets, and it is now getting licenses in South America, Mexico, and Colombia as an example. And it's just driving growth globally. So this is a really good example of a success case in Europe that we need to celebrate, and we need to make sure that the capital that goes into these companies to enable that success is there for these businesses that have the ambition to have global scale. And we're talking about productivity earlier today in some of my conversations. We need to drive more productivity growth, and these are the types of businesses that really allow that to happen. If you look back and think about when you had to go into your bank at least once a week to process checks or to go and deal with anything that required an over-the-counter service or when you traveled and maybe you had to have travelers checks, for example, at a certain stage of that journey. Think about how seamless your banking is now relative to how it was perhaps even just 10, 15 years ago. And this is the productivity that's been driven through all of the companies in our portfolio and it's been driven by this part of the ecosystem that drives job creation and innovation. In a similar theme, ICEYE, we invested in that business in 2018 into 2019. So they have now 50 satellites up in low earth orbit. And those satellites, as Andy touched on, can take images of the earth giving a range of 400 kilometers from single pictures down to the laptop scale of granularity. And that allows security to be a factor and a use case, but it also allows use cases and climate change. So thinking around forest fires, thinking about flooding and the impacts of that on the insurance part of the business, that drives a massive efficiency looking at areas that are affected or impacted by that. And our use of space is going to drive a lot more productivity in our daily lives. It already drives productivity with things like GPS. But clearly, that's becoming an important driver of growth going forward. And this company is performing very strongly. And another business that's quietly under the radar for several years while we've invested into those companies. And then they start to emerge as growth companies and drivers in our portfolio. And then in the last year as security and defense becomes more of a theme and sovereignty around assets becomes more of a theme, you can see that these companies are getting much more focus in the press. A similar business that Andy touched on is ISAR Aerospace. It's definitely worth watching the launch, 30 seconds into the air was important. There's over 100,000 components coming together in a single rocket. That's the first test of that rocket. And so demonstrating that it can get off the launch pad, demonstrating that they can safely bring that rocket down as per the plans, but also taking all the data into that next launch. This is a business that's exciting to watch. And hopefully, in the next few months, we'll be able to give you a bit more of an overview of that next launch happening, and we can all watch that one. And then Ledger, Andy touched on Ledger, cryptocurrency, hardware, security layers, security in anything, clearly very important. Even more important, as we've seen all of the cryptocurrency marketplaces have their own ups and downs over the years. A lot of people are recognizing you have to have it stored on a Ledger device. That's the most prominent device, hardware wallet for crypto and blockchain applications. And there's about 20% of the cryptocurrency market stored on Ledger devices. So it gives you a sense of their scale and what they've been building. Very strong tailwinds now for crypto and blockchain, particularly out of the U.S. And as this institutionalizes as an ecosystem and Ledger at the forefront of that with their hardware devices and the software that they can drive to allow trading. And then some of our emerging companies, equally exciting, the ones that we'll be talking about in a lot more detail in the coming years. BeZero is a carbon market. It's verifying offset projects and creating a pricing market for carbon. This is a business we invested in 2022 in the financial year and is growing strongly and undertook its Series C funding round, total funding of over GBP 100 million. And again, this is a business that's driving a new part of the ecosystem, a new part of the market that doesn't currently exist and hopefully becomes ubiquitous and something that we just take for granted in the next few years. If I look at that productivity theme, Deciphex, which is focusing on workflows and AI-driven support for pathology, that's a part of the ecosystem where we're investing a lot of capital into the NHS and investing a lot of capital into health. But a lot of that capital needs to go into the productivity tools that drive efficiencies. Public sector efficiency has reduced over the last few years, not increased. And these are the tools that allow that to happen. In a similar way to the space theme, we have Satellite View, another company in the portfolio, which is looking at thermal imaging of buildings. And so low earth orbit satellites go up, images of those buildings, looking at the heat signatures, looking at the efficiency of buildings, looking at security aspects that go alongside that. And this is a company that has a really strong order book behind it already. And then finally, Andy's favorite company, Manna, delivering -- it's interesting when you think around if you stand in London and you talk to people about drone delivery, it's a pipeline dream. In Dublin, that's already happening. There's hundreds of thousands of deliveries that have been occurring already over 200,000. And Manna, as it expands, we will go into 11 sites across Dublin, but we'll also be expanding into Finland, into the Middle East. It's a company that's born in Europe, that's scaled in Europe that is already ahead of many of the big players that we would assume would be at the advanced stages of this. So Manna is a very exciting company that we'll be hearing more about this year. Give you a sense across the board of the excitement that comes through our portfolio. But one important factor within our portfolio is how we think about driving growth. Direct investing is clearly the heartbeat of what we do and fund-to-fund investing, as we've touched on, helps to drive the ecosystem. But another important part of our platform is driving growth through secondaries. I just wanted to touch on that for a moment because sometimes when we invest in secondaries, people are trying to understand, well, why are you investing in other people's portfolios. But if you think about the journey of scaling technology businesses, they often scale in years 10 to 15 of their life. You can see in our core, the average age of 11 years. And then if you reflect on the average time horizon for a private structure is a 10-year fund. And so those technology businesses that are the winning companies in those funds are scaling and maturing at the very latest years of those funds where the managers of those assets need to show realizations and drive returns. So we provide a liquidity solution to those managers that allows them to give money back to their investors that allows those investors in turn to put new capital commitments into the managers' new funds. So you're unlocking a part of the ecosystem, which is clogged up. For us, the benefit is clearly investing in scaled mature assets. And we've demonstrated with our track record here that we can drive returns averaging 2.4x multiple. A lot of that has been realized in a short period of time. And it's really a way for us to create additional value for our shareholders by being active in the market and using our network and using our relationships and using our ability to value technology businesses and being very fundamental about the value of those companies and drives additional value to the direct investing that we have in the portfolio. So delivering returns in excess of GBP 200 million on our secondary strategy. It's not something we do every year. It's something that we do where we feel there's pockets of value and discounts that we can take advantage of. So then finally, how does that drive to returns across our entire portfolio, over GBP 700 million of realizations over the 9 years and thinking about venture capital as an asset class, the returns are skewed to the winners. You have to run your winners. And in turn, the management skill of a venture capitalist is managing an entire portfolio and ensuring that you can drive returns from the rest of the portfolio as well. And you can see here that we've had over 5x plus returns, which have driven the majority of the value. That's the pure power law playbook of venture capital. And those are the companies that we'll naturally talk about a lot, but also driving returns coming from more modest multiples in the 1 to 3x ranges, that's an important part of what we do. And I think that's been very differentiated at Molten in terms of how we think about the portfolio and consistently driving those returns coming back through -- and even in the scenarios where we might not be making positive returns, we get less than 1x our capital back. We are in the risk business. We should be taking risks. We should be investing in companies that have great potential, but clearly, not all of those companies will make it to be the key returners. And therefore, trying to drive some returns of capital back is an important part of that portfolio management as well. So finally, as we look to wrap up, I'll just give a sense of the current market environment that we're investing into. Left-hand side, you can see Europe has been scaling as an ecosystem up until '21, a lot of capital put to work in that period, but has really settled to a level of around GBP 60 billion to GBP 70 billion a year being deployed. If you compare that with the right-hand side, though, we're seeing a lower number of companies being funded. And that deal count coming down has shown that the capital has been going into companies where there are perceived winners, particularly around AI. And therefore, there are companies that can raise substantial pools of capital, substantial amounts of capital, but that's not growing across the whole of the ecosystem. The area where we invest will be in the GBP 5 million up to GBP 20 million sort of range. So if you think about that in the context of these charts, that's the dark blue lines on the left-hand side going into the lighter pink lines. That's had a reasonable amount of consistency in terms of the capital that's been deployed there, but there's still a gap to capital. And one of the things we'd like to do is drive more capital coming from pension funds coming from our own institutions to support this part of the ecosystem where the opportunity set is fantastic. The innovation that's occurring in Europe is very strong. The opportunity to invest in generational shifts in technology is here right now. And these are technologies that are going to be profoundly changing our societies and how we work and the productivity that occurs over the next 20 years. This is the time to put capital to work, and we're the vehicle to do that through, and we've demonstrated that over many years. So finishing up before we move to questions, just to reiterate the priorities that we started out with the outset of this presentation, how are we performing against those, so core investing in Series A and Series B. We've demonstrated that. We've invested GBP 33 million in this first half of the year. We've also continued with our secondary strategy. And then post the period end, another GBP 20 million has been invested. The company that we've been indicating as a Series B investment exactly in line with our strategy of supporting our best companies, helping them scale and grow, and we'll be announcing that in the next couple of weeks. Co-investment capital touched on as an important feature, bringing more capital into the ecosystem. We have Molten East, which is focused on Eastern Europe and the technologies and the entrepreneurs and the engineering ecosystem that exists there. That is a fund that we'll look to close in the next calendar year, some good progress being made there, and that will demonstrate additional capital coming into the ecosystem that we will manage. Narrower fund of fund commitment, focusing that capital back to our direct investing and secondaries. We've been speaking to all of the managers in that ecosystem, supporting the ones that we're already an LP into, but also being clear that we'll put the capital into a narrower cohort of managers going forward. And then balance sheet strength, Andy has touched on this in some detail, continued realizations and continuing to redeploy that capital into those NAV accretive areas. And finally, narrowing that gap to our discount in the share price. So NAV 724p a share, shares clearly trading at a discount to that. So the buybacks have been an important feature of the model over the last year. And I think that flexibility we demonstrated of allocating capital that comes back into new investments, into secondaries and into buybacks has been a core pillar of the last year or 18 months that has been a way of us driving value. So looking ahead, extremely positive, strong portfolio, very good growth coming through the portfolio, strong balance sheet, capital pools expanding and then the performance coming through in the NAV accretion as well. So very happy to be up here and to demonstrate all of those pillars of our strategy and our platform and seeing those coming through the numbers. So I think with that, we will say thank you and go to questions. William Larwood: Will Larwood from Berenberg. Firstly, I was just wondering if you could give us a flavor of how valuations are changing across from Series A, Series D and then sort of more towards some of the later-stage businesses. And then secondly, if we think about future capital deployment, how should we think about sort of secondaries, primaries, buybacks? I noticed that you've got GBP 39 million committed or potentially going to be invested in your forecast for this rest of this financial year. So just a bit of a sense around that for this year, but also into the next couple of years as well. Benjamin Wilkinson: Thank you, Will. So taking them in order, valuations at this stage we're focusing on is A and B. At that stage, you will see -- let's take Series A, you'll see commercial tractions, maybe a couple of million of revenue. And then what you're focusing on at that stage is how much money the companies are raising, trying to make sure that's balanced between what they need to raise versus what they'd like to raise. And what I mean by that is if they're raising [ GBP 10 million ] because that unlocks the next level of proof points for them, that's usually a better thing for them to do versus raising [ GBP 30 million ] and having excess cash. And so the valuation is a function of how much they raise versus the dilution. So getting that balance of the size of the raise is important, but also being able to demonstrate to new investments that we're an investment house that can follow on in our capital. If you keep proving your growth, if you keep proving your commercial traction, we'll put more money to work. And that's when you start thinking about Series B investing. The tickets are going to be deeper. So you're thinking GBP 20 million type tickets as an average. And then again, it's a function of dilution. But by that stage, you should be seeing GBP 5 million, GBP 10-plus million of revenue. So it starts to become a function of multiples alongside. As you get to later stages, the commercial proof points come through, and therefore, you're really valuing those businesses more on financials and pure financials and there's more capital available at those stages. So you'll often see higher, larger raises, but also more availability of capital. So when I talk about gaps to capital and why we play in a part of the ecosystem, which is very important, it's because you need people with deep pockets that can write consistently GBP 20 million investment checks plus, but also have the venture skills to balance risk and growth and help those companies with active management. So that's why I think the part of the market that we invest into is quite important, but also something that we do, which is a unique point of reference. In terms of how we deploy capital going forward, we think about GBP 100 million is where we'll end up this year, GBP 95 million to GBP 100 million is what we're budgeting. We clearly want to put more capital into those Series B deals we've been talking about supporting those later A deals as well. And then secondaries are still an important feature. I think that's a great way of us balancing the portfolio. We've got this core, which is maturing. We think that those will turn to realizations in the next, call it, 2 to 4 years, you'll see a lot of that value coming back through to our portfolio. And our job then is to be NAV accretive allocators of that capital. So we want to put it into direct investing. We want to put it at the Series B stage, which is where we feel is that right balance of commercial traction, risk and upside. But also we want to be putting that into buybacks if we're trading at these discounts. So that's the way we'll think about it. Getting back to a level of GBP 100 million, GBP 150 million of deployment might be where we'll end up. But what we will be doing is balancing our capital deployment with other pools. So if we have third-party capital coming alongside the public balance sheet, that means that we can more consistently write those bigger tickets at Series B, and that's the way we're thinking about the strategy going forward. William Larwood: I just follow on with the Series A -- sorry, just the Series A and Series B valuations, how have they changed versus sort of 12 months ago or 18 months ago? Benjamin Wilkinson: It really depends on the type of business, honestly. If it's got an AI wrapper around it, clearly, those companies have been getting elevated valuations. And if it's a more normal, let's say, business that we like to invest in, clearly, companies that are driving productivity, innovation, they are infrastructure layers into certain themes, then I think they've been fairly stable, actually. You've seen a real degree of consistency. And when I showed you the European market and the movements we've seen in the market in terms of capital, a lot of the capital that's going to a fewer number of companies has been going into the AI ecosystem. Clearly, early stages in terms of the large language model levels, that's really intensive capital area. That's not somewhere that we've been looking to play. We're more interested in those application layers thinking around how do enterprises use the underlying technology, how does it drive productivity? How do you get more customers wanting to buy it? That's where we think about technology. Patrick O'Donnell: Patrick O'Donnell here, Goodbody. A couple of questions. So just on the secondaries, in terms of sort of what you alluded to in terms of near-term realization, anything you could give us whether it's relating to Connect and some of the key assets there or anything -- any developments strategically or commercially in some of the kind of secondary funds? Benjamin Wilkinson: Yes. When we invest in secondaries, we're pinpointing key assets that are a maturity profile that we can then map that out and look to get our target returns. In terms of the Connect Ventures deal, that gave us exposure to Typeform and Soldo, 2 very good businesses, also already levels of maturity that suggest within a 3-year time frame, which is roughly the average we've seen in secondaries, you might see those turn into liquidity. So that's the way we think about it. Not necessarily right, we've invested now go and sell the asset. It's more about -- it's within their maturity window, sell it at the right time to create the right value. And those companies are on that journey, but they're also scaling their own businesses. They're at a stage where scaling that and continuing to grow might be the best option, and we're going to get the benefit of that fair value growth that goes with it. So I don't want to paint it as a picture of we're invested now. This is your time, you're on a clock. It's just about value creation and value creation from growth is just as good as value creation from realizations. In the most recent SpeedInvest deal, again, we've got companies that we haven't been able to be specific about them, but there's at least 5 assets there, one key asset in particular that we're excited about that hopefully we'll be able to talk to you about a bit more next year. Patrick O'Donnell: Very good. And just on the sort of valuation, anything you could point to sort of since you bought, say, the Connect Venture assets, anything moving in the right direction or whether it's some of the key assets? Benjamin Wilkinson: There are some uplifts in the secondaries. When we bought them, we've acquired them at discounts, more often than not because you're providing liquidity to a part of the market where the LPs who are the investors in those funds can choose to stay in and ride the upside, but they might be in for a time period when they've already been in those companies for 10 years in those funds rather for 10 years that they would feel actually taking some cash off the table now is more appropriate. So we can usually acquire at discounts. And then with the commercial traction of those businesses, they continue to grow, then we can write those up. And you've seen, I think, on the last slide that I showed you that the multiples of capital on those most recent investments are in the positive territory. Patrick O'Donnell: Clear. And just maybe one last one. In terms of sort of the operating costs that you've flagged the sort of reduction over the last 6 months in general admin expenses. Would you expect a similar pattern of cost between H1 and H2 on that? And like is the H1 number broadly sort of a 50-50 split? Andrew Zimmermann: It should be, yes. We're continuing to work on efficiencies and managing our operating cost base, both in terms of third-party costs, administrative fees, technology and leveraging the maximum from those and also with our headcount. So we've obviously reduced our operational headcount slightly by being a bit more efficient, but maintaining that investment in the investment team so that we have that quality, high part quality with the investment team to keep growing that NAV in the portfolio. But we'll be very on top of the costs going forward because we're obviously mindful of that and how that benefits shareholders. Patrick O'Donnell: Understood. And very last one, just on the sort of core portfolio. You obviously have very mature assets now. You pointed a 2- to 4-year exit time frame on revenue. I'm actually a bit surprised at the length of it. Anything you can kind of give us on that? Are any nearer term sort of which ones you'd point to as sort of from an exit point of view that have the shortest timeframe within the core? Benjamin Wilkinson: Yes. We're always quite careful to talk about our targets through the cycle because things tend to be lumpy naturally. When we talk about exits, we want to talk them within a timeframe because it's ultimately what's right for the business. If you're going down an IPO path, as you know, that's a minimum 18 months project. And then if you're going through an M&A process, that can happen at any time on your journey, and it's then about working out what's right for the company and for the returns profile. So we always talk about them in broader terms because we're not in control of exactly when these things happen. If I look at the shape of the core, though, you have companies like Revolut that have a stated IPO target. I think in the press, most recently, they were talking about that within 2 years or at least 2 years. So that might be the horizon. For us, if the business continues to grow at 70%, 50%, let's say, uplifts, then the reality is we're going to create value by holding on to our position and just managing that as a portfolio position as we see pockets of liquidity, taking some off the table. We think that that's the right balance. Companies like ICEYE clearly scaling to a maturity, supporting parts of the ecosystem where naturally you think that might be a public company, certainly has a profile of a company that would perform well. And then things like Thought Machine have talked about potentially going public at some stage on their journey also. What is true, though, is that 85% of our returns have come through trade sales. So this is often an arbitrage of larger businesses acquiring great technology companies and then putting that technology into their existing customer channel. That's the arbitrage that often exists, and we'll see many instances of that as well. So I think the maturity of the core companies, the breadth of the technologies that they're addressing and the markets they're addressing really lends itself to us seeing a lot more coming through in the next -- in the coming years. James Lockyer: It's James Lockyer from Peel Hunt. Maybe just a follow-up to the last question about exits, not specifically timing, but given that you were able to exit some of the Revoluts, which allowed you to sort of demonstrate liquidity for your trophies. Are there others out there that you have the ability to do that? Because obviously, as they grow and those core are the ones that are going to grow most presumably, that risk in terms of proportion of your business gets larger. Is there any thoughts around going, well, as it gets to a certain size, we'll think about trimming if we can because then it reduces our lingering overexposure sort of threat perception, let's say? And then secondly, you seem to allude that your particular AI exposure isn't so much the bubble or perception around there. You said your valuation has been relatively steady. Is it fair to say that if there was an AI bubble burst, the assets you've got are less exposed to that? And how are you valuing the AI adjacent companies such as General Index, Polymodels and Deciphex in that context? Benjamin Wilkinson: You're going to ask me another one then. I was going to forget them. James Lockyer: I can, but... Benjamin Wilkinson: Yes. You always have a list. Thanks, James. Let's start with the Revolut position and thinking about the shape of the portfolio more generally. We look to take value off the table, thinking around returning costs, thinking around opportunities for balancing each of the investments. So I think we demonstrated that clearly with Revolut where it becomes a more significant asset. It's still growing strongly. Commercially as a business, very, very positive. But for us, it becomes a moment of thinking around what's the shape of the portfolio, what's the time horizon over the next few years. And we would take a bit of liquidity on the journey has been our strategy. And we'll do that with other companies as well. Quite often with funding rounds, there's an opportunity to take some liquidity, and we'll take some of that off the table. But what we'll also want to do is balance that with the commercial traction and the upside. So we'll always think around this point about NAV accretive use of capital. If we're going to recycle capital, we want to put it to work into assets that are growing faster than the company we're already in. And some of it is balancing because you don't want the luxury problem of risk, if you like, in the way you've described it. I think it's certainly a luxury problem. But you don't want too much of your eggs in one basket, and therefore, the balance of the portfolio is the way we will think about that. I think we've demonstrated that we've been sensible about taking liquidity at the right times, balancing with riding the upside and also balancing with reinvesting into new opportunities. In terms of the AI assets, the companies that we're investing in fundamentally are driving business by being efficient, if you like, for the customers that they're selling to. So think about a General Index, that's driving an efficiency in a market by using technology that makes it quicker and cheaper to get the data that people like Bloomberg and ICE ultimately need for their commodity prices. That doesn't go away if there's an AI bubble burst. It's about ultimately fundamentally, what's that technology used for. That's what we care about. And then the pricing of those deals, I would say, has very much been in line with the market. I don't feel like there's been a sense where we've had to massively overpay. And you say, okay, well, why would that be? It's because we build relationships with those teams. We build a trust that we understand their companies and we understand their markets, and we can help them grow and scale. Their chance of success in those businesses is higher with our capital and our support than if they didn't have that. That's ultimately the way that we will try and create value. James Lockyer: If I may ask a third question. Just on the 6% on that basis specifically on that 6% fair value growth, how much of that was financial upgrades versus multiple reratings, I'd say as a sort of split? Benjamin Wilkinson: Andy, if you want to... Andrew Zimmermann: It's a mix, actually, because comps have helped in certain sectors. So obviously, things like ICEYE, that's obviously been beneficial. They've probably not helped in some sectors like SaaS and cloud. But -- and CoachHub is a good example, I guess, where that revenue proof point has fallen away a bit. So we've had to reduce the premium for that value. But other ones have had very strong commercial traction as well as the benefit of the tailwinds, Ledger being a good example as well as Revolut. Benjamin Wilkinson: I think that brings us to the end of the questions, and we're about time. So thank you, everybody. It was a slightly longer presentation, but we really wanted to get into a bit more of the depth of the portfolio. So hopefully, those slides are very useful. There is also appendices to the presentation, which we won't take you through now, but there's some more interesting information to look at in there as well. So just leads me to say thank you to everybody. We're very pleased to have a positive set of results, and thank you for your attention.
Ahmed Moataz: Hello, everyone. This is Ahmed Moataz from EFG Hermes and welcome to IDH's Third Quarter of '25 Results Conference Call. I'm pleased to be joined with Dr. Hend El Sherbini, Chief Executive Officer; Sherif El Zeiny, Vice President and Group CFO; and Tarek Yehia, Director of Investor Relations. The company, as usual, will start with a brief presentation and then we'll open the floor for Q&A. IDH management, please go ahead. Tarek Yehia: Thank you, Ahmed. Good afternoon, ladies and gentlemen and thank you for joining us for our third quarter analyst call. My name is Tarek Yehia, I'm Head of Investor Relations. Joining me today, Dr. Hend El Sherbini, our CEO; Mr. Sherif El Zeiny, our CFO and VP. Dr. Hend will begin the call with a summary of latest period main highlights. After that, I will discuss in more details the main macroeconomics and geopolitical trends seen across our markets. Then after my presentation, Mr. Sherif will offer a deeper analysis of our financial performance. Then we will open for Q&A. Dr. Hend will start now. Thank you. Hend El Sherbini: Thank you, Tarek and good afternoon, everyone. I'm Dr. Hend El Sherbini, CEO of IDH. As we approach the end of what has been another very strong year for the group, I'm pleased to report a robust set of results for the first 9 months of 2025. The performance we are presenting today reflects not only healthy market dynamics but also the tangible results of the strategic initiatives we have been implementing over the past 2 years, particularly around network and geographic expansion, operational optimization, digitization and service diversification. Throughout the year, we have continued to strengthen our core business in Egypt and Jordan, while making pronounced progress in newer markets, namely Nigeria and Saudi Arabia. We are also very encouraged by the sustained improvements in our profitability metrics, which confirm the scalability of our model and our ability to translate revenue growth into margin enhancement. We are particularly pleased to see the continued strength and stability of operating conditions in our home market of Egypt, where macroeconomic sentiment has improved and demand for high-quality diagnostic services remain strong. Turning to our performance in more detail. During the first 9 months of the year, we continued to build on the strong momentum established earlier, delivering 41% revenue growth year-on-year, supported by growth across both volume and value metrics. Test volumes increased by 10% with all operation geographies contributing to this expansion, supported by stronger patient engagement, deeper penetration in walk-in and corporate channels and improved referral flows. At the same time, our average revenue per test rose 28%, reflecting a richer test mix, broader uptake of high-value radiology and specialized diagnostics and favorable price adjustments introduced earlier in the year. These trends also helped us further strengthen our average test per patient, which reached 4.6 tests per encounter, demonstrating the continued depth of patient relationships and our success in expanding cross-service utilization across our platform. In Egypt, momentum strengthened further through Q3, supported by solid growth in both volumes and value alongside strong brand equity and stable market conditions. Test volumes in Egypt continued to grow steadily, while average revenue per test saw a significant uplift, owing to favorable mix dynamics and strong -- with strong traction in radiology, specialized diagnostics and corporate channels. Egypt remains the core engine of group performance, contributing 84% of total revenues in the 9 months of 2025 and continued to demonstrate high scalability, resilience and operating efficiency. The ongoing expansion of our physical network in Egypt continues to be a key growth driver. Over the past 12 months, we have added 103 new branches in Egypt, bringing the total up to 670 locations nationally as of September. These new sites have helped deepen our presence, not only in Greater Cairo but also in fast-growing regional cities, allowing us to better serve both corporate and walk-in patients. Our household service remains a strategic differentiator, sustaining its strong contribution of around 20% of Egypt's revenue, continues to demonstrate the effectiveness of our post-pandemic strategy and reinforces our position as an early mover in home-based diagnostics in the region. Al Borg Scan continues to demonstrate strong momentum as a key component of our long-term strategy to build a fully integrated diagnostics platform. Year-to-date scan volumes and patient traffic recovered well following the Q1 of Ramadan slowdown with Q3 recording clear sequential volume growth. The integration of Cairo Ray for radiotherapy, which was consolidated this quarter, is progressing well. This acquisition provides us with direct access to radiotherapy service and strengthens our positioning in oncology diagnostics, a fast-growing and strategically important segment. We expect radiology to play an increasingly prominent role in our growth mix over the coming quarters, supported by continued network expansion, enhanced service capability and rising demand for specialized imaging. Over the past 2 years, a key strategic priority for IDH has been the successful launch and scale up of our Saudi operations. I'm pleased to share that our presence in the Kingdom continues to develop very encouragingly with strong momentum supported by growing demand, deep market visibility and sustained improvement in both volume and value metrics. Year-to-date, we have seen revenues more than quadruple compared to the same period last year, reflecting rising test volumes, improving mix and early network scale benefits. This growth continues to highlight the effectiveness of our ramp-up strategy in the market, which aims to accelerate revenue growth and establish Biolab KSA as a key player in the large but high fragmented Saudi diagnostics market. As part of this plan, we inaugurate our third branch in Riyadh during the third quarter and we remain on track to open 3 additional locations over the coming months. These new branches will help extend our footprint across high potential catchment areas. At the same time, we continue to advance our growth approach, which includes targeted marketing campaigns to build brand recognition, selective promotional initiatives to drive patient acquisition and ongoing discussions with the insurers and corporate health care providers to broaden our referral and partnership networks. While still in the early stages of development, Biolab KSA is demonstrating strong operation traction and reaffirming our belief in the long-term potential of Saudi Arabia as a key pillar in the group's regional growth strategy. As always, profitability remains a core focus for us and we are very pleased to see sustained improvements across all levels of the income statement. We continue to benefit from strong operational leverage, tighter cost controls and better resource allocation across our subsidiaries, including Nigeria, where Echo-Lab remained positive EBITDA throughout the 9-month period, marking a key milestone in its turnaround and confirming the potential of its high -- of this high-growth market. Overall, both COGS and SG&A and share of revenue continued to decline, supported by disciplined cost management and our growing digitization efforts. COGS to revenue fell to 57%, while SG&A declined to 15% from 17% last year, underscoring the success of our optimization initiatives. Consequently, our EBITDA margin expanded to 35% from 30% last year, while gross profit margin rose to 43% compared with 38% in the 9 months of 2024. These efforts, combined with strong top line growth and improved pricing dynamics have translated into meaningful margin expansion and greater earnings quality with adjusted net profit more than doubling year-on-year while excluding FX effects. Before handing the call over to Tarek, I would like to briefly reiterate our full year guidance in light of our year-to-date performance and the momentum we are seeing across all markets. Given the strong results delivered over the first 9 months, coupled with relatively stable operating conditions, continue to expect full year revenue growth to come in at more than 35% in the full year of 2025. On the profitability front, we remain confident in delivering an EBITDA margin more than 30%, supported by sustained cost discipline, stronger operating leverage and the continued improvement in our Nigerian operations. With that, I will hand the call back over to Tarek and Sherif, who will take you through key trends across our markets and a more detailed breakdown of our financial performance of the period. Thank you very much. Tarek Yehia: Thank you, Dr. Hend. This year, we have continued to operation in relatively stable conditions with supportive macro trends and constructive across all our key markets as we approach the end of 2025. In Egypt, we are continuing to see slower inflation compared to prior years with the latest trading of September coming at a multi-month low of 11.7%. [ Decreasing ] increasing inflation pressure have been supported by relative strengthening of EGP versus dollar as well as increased ForEx inflows into Egypt as investor confidence recovers and remittance continue to rise. In fact, in recent weeks, we have seen EGP continuing to appreciate, reaching a low of 47.3 to dollar in October and as low as 46.92 last week. Successful rate cuts throughout the year continued to reach 6.25 points have now brought the overnight deposits to 21%. This will undoubtedly help prop up local investments activity and drive further recovery in consumer spending. Similar to Egypt, Nigeria also has seen relative stability in 2025. Inflation has come down from last year highs and expected to support gradual recovery in consumer spending. Over in Jordan and Saudi, the economic situation remained largely stable despite increased regional uncertainty. While Saudi Arabia economic could be tested by the ongoing global trade tensions, we remain confident that the excellent work done by the Saudi government to build resilience in the economy will help safeguard the country. Turning quickly to our latest results. Egypt continued to deliver strong growth with revenue rising 44% year-on-year, supported by both volume expansion and significant increase in average revenue per test, particularly driven by radiology and high-volume diagnostics. Meanwhile, Jordan continued its solid performance, reporting revenue growth in both AP and local currency terms. Test volume increased by 21% year-on-year, supported by Biolab ongoing promotion campaign and digital outreach initiatives. In a market where volume-driven growth is critical for long-term sustainability, we are pleased to see Biolab's strategy continue to deliver strong volume momentum and patient retention through community engagement and service quality. In Nigeria, Echo-Lab has maintained its positive EBITDA momentum supported by successful implementation of our turnaround strategy launched last year. We are increasingly confident in long-term potential for our Nigerian subsidiary to expand its radiology and specialized testing capability and capture the significant upside of a growing market. In Saudi, the ramp-up progressed ahead of expectations with revenue more than quadrupling year-on-year and [ subscription ] growth supported by increasing brand visibility and network expansion. Finally, in Sudan, operation remains significantly constrained by the ongoing conflict with only one branch partially operating and no material updates to report at this stage. I will now handle the call to Mr. Sherif, who will provide a more detailed overview of our cost and profitability for the first 9 months. Sherif Mohamed El Zeiny: Good morning -- good afternoon, ladies and gentlemen and thank you for your time today. As Tarek mentioned, during my presentation, I will focus on costs, margins, profitability and our working capital position before opening up the floor to your questions. In line with our guidance, profitability for the first 9 months of the year has continued to improve, supported by our group-wide efforts to boost operational efficiency and keep spending at bay. A major focus area over the last 18 months has been digitalization, where we have continued integrating advanced data tools and analytics into our internal platforms, procurement systems and financial planning to enhance decision-making and improve cost discipline. These efforts, combined with a stronger operation leverage and better resource allocation helped drive meaningful improvements in efficiency with both COGS and SG&A as a share of revenue declining versus last year. In parallel, we also -- we are also keenly focused on keeping costs down. Our efforts here have translated in a 9 percentage point drop in our total cost to revenue ratio for that period compared to last year. More specifically, our COGS to revenue ratio improved to 57% in 9 months '25, down from 62% in the same period of last year, supported by disciplined inventory management and stronger purchasing processes. The most notable improvements came within raw materials, which decreased to 19.6% of revenue, down from 21.9% last year, reflecting our scale advantages and smarter procurement practices. At the same time, total wage and salaries as a share of revenue remained broadly stable, underscoring our balance between supporting our staff with appropriate salary adjustment while continuing to optimize headcount. As you can see in the bottom right chart, these efficiency gains translated directly into a stronger profitability with gross profit margin expanding to 43% from 38% last year and EBITDA margins rising to 35% from 30% in 9 months 2024. On the SG&A front, spending remains well contained with SG&A as a share of revenue declined to 15%. The main increase within SG&A was in advertising and marketing expenses, which continued to support the ramp-up in Saudi Arabia and targeted promotional initiatives in Egypt and Jordan. Moving to our bottom line. We reported a net profit of EGP 964 million in 9 months 2025, up 33% year-on-year. As highlighted earlier, last year's reported net profit, including substantial ForEx gains, which distort direct comparisons. When controlling for those ForEx gain, adjusted net profit increased more than 119% year-on-year with an associated adjusted net profit margin of 17% versus 11% last year. As always, we maintained a disciplined approach to working capital management as we supported rising demand while preserving strong liquidity. Similarly, we saw our cash conversion cycle improved further to reach 127 days in September 2025 versus 155 days at the end of '24. It is also important to mention that as expected, we saw a decline in days inventory outstanding, stronger sales momentum and more efficiency inventory turnover during the second and third quarters of the year following the seasonal Ramadan slowdown in March. Finally, as 30th of September 2025, our total cash reserves stood at EGP 1.8 billion with a net cash balance of EGP 271 million. Thank you for your attention. We now welcome any questions you may have. Thank you. Ahmed Moataz: [Operator Instructions] There is one question in the chat on whether you're at a position right now to disclose the planned price increases in Egypt that would start from January of 2026. Tarek Yehia: We're still in the process of preparing the budget, and it's too early to comment on this but of course, will be a price increase for next year. Ahmed Moataz: Understood. The second is on whether you can disclose a time line for the breakeven for Nigeria -- sorry, Saudi operations. And if you have a targeted revenue contribution over, let's say, 3, 5 or even longer than that as a percentage of total revenue. Tarek Yehia: For the EBITDA, we are expecting a breakeven by end of 2026. Ahmed Moataz: Understood. And is there something on the revenue contribution as well? Tarek Yehia: Revenue continued to grow year-over-year and contribution to the top line still less than 1% but by time, gradually will increase. Still Egypt represents 82% and Jordan represents 14%, 84% for Egypt and 14% for Jordan. Ahmed Moataz: All right. Two questions from [ Johannes ]. Can you talk us through the change of ownership of the Actis stake and what you expect from Elliott? That's one. The second is, what is your dividend policy at the moment? Hend El Sherbini: So I mean the Actis stake has been bought by Elliott as a part of a bigger deal. We don't really have any visibility on this right now. And regarding the dividends, as usual, any money that we have, which are not used for investments and for the work, we give it back as -- we give it back to investors as dividends, as long as it's -- we are able to do that. Ahmed Moataz: [Operator Instructions] We'll take questions from the line of [ Darren ]. Unknown Analyst: Dr. Hend, you just -- you commented that the Actis sale is part of a bigger deal. What does that mean exactly? Do you have any other color there you can share? Hend El Sherbini: I know that Actis have [ exited ] private equity and they sold their shares in IDH and other companies to Elliott. But I don't know exactly -- I don't have the exact details of this deal. Unknown Analyst: Okay. Understood. So you're saying there's other businesses that have been sold to Elliott. And you haven't had -- the management team hasn't had any correspondence with Elliott at all? They haven't reached out to you or you guys haven't reached out to them to get a sense of what their plans are? Hend El Sherbini: I've seen them when I was in London. I've met with them. And -- but this was like an introductory meeting, nothing -- no specifics. Unknown Analyst: And do you have a sense, is it their intention just to be passive shareholders? Is it a purely financial investment? Or is there something more strategic? My understanding is they have, I think, interest in another Egyptian diagnostics business, if that's correct? Hend El Sherbini: No, this I don't know. Which other diagnostic business? Unknown Analyst: I think it's a much smaller one but they were part of a transaction in last year, I believe. But I can't remember the name of the firm but anyways. Hend El Sherbini: I haven't heard -- and they didn't mention it, no. Ahmed Moataz: We received 2 questions in the chat. I'll take them one by one. First one is how much CapEx have you got planned for Saudi operations and expansions? Tarek Yehia: For Saudi, we have a plan for the next 5 years with a CapEx of $20 million. Ahmed Moataz: All right. This is 2025 included? Or when you say 5 years, this is 2026 and beyond? Tarek Yehia: This starts from 2026. Ahmed Moataz: Starts from 2026. Okay. Two more questions in the chat. The first one, [indiscernible]. Please, can you share your expectations on growth beyond this year in terms of volume and value? And can you also comment on market-specific growth expectations? Tarek Yehia: We're still in the process of preparing the budget but we are aiming to targeting growth across all the geographies we are working at -- operating in. Ahmed Moataz: Understood. [ Ali Masood ] is asking, how many Actis Board representatives are on IDH's Board? And any expectations on if and when those members will step down? Hend El Sherbini: So there's only one Board member from Actis and he's also representing -- I mean, he's not stepping down because he's -- I think he's going to be also Elliott's representative. Ahmed Moataz: Understood. Can you comment on your expectations for branch additions in Egypt in 2026? Will it be at a similar level to 2025, higher or low? Tarek Yehia: It is -- we're still also the same for the budget. We're still in the process but we will see growth in the number of branches as -- and our growing brand -- ongoing process of growth each year. Ahmed Moataz: Sure. [indiscernible] is asking, how will the growing contribution from Saudi impact group returns and margins when Saudi is in steady state? Tarek Yehia: After 5 years for the 5-year plan for Saudi to represent 7% from the group revenue. Ahmed Moataz: Okay. And the question was more on how do you expect this when it has a 7% revenue contribution to impact your overall returns and margins. I think the question is trying to assess whether Saudi operations by itself is margin accretive or not relative to what you're generating right now and at the same time, return accretive or not? Do you want me to repeat the question? Hend El Sherbini: We're expecting it in the 5 years to be in the vicinity of the 30%, if this is -- if this answers the question. Ahmed Moataz: [Operator Instructions] All right. We haven't received any -- no, we actually did one, sorry, 2 questions. What does the $20 million Saudi CapEx imply for the number of branches in Saudi 2030 Vision. Sorry, one second, I'll re-read the question. Actually, we'll skip this one and I'll go back to it. Are margins at 38% sustainable? Or do you think it's a function of the strong EGP FX taking place this year? Hend El Sherbini: I mean, as long as we have a stable currency, I think this is sustainable. We're getting back to our 40% margins. And the strong FX has nothing to do with our improvement in margin. However, the stabilization of the currency is, of course, is helping in maintaining our margins. Ahmed Moataz: All right. Back to [ Farooq's ] question. How does the $20 million Saudi CapEx imply for the number of branches by 2030? So by the end of the year plan, how many -- or by the end of the 5 years, how many total branches you have in Saudi? That's one. And the second is, is the Saudi strategy branch-focused more? I think he means corporate or wholesale contract focus because [ Farooq ], can you send a clarification on the second part of the question until they answer the branches part? Hend El Sherbini: So we're expecting 45 branches by the end of the 5 years. And this is where the CapEx is going together with, of course, the instruments and everything else. This in terms of CapEx. In terms of revenue, we're expecting a breakdown of 50% corporate and 50% walk-in. Ahmed Moataz: Understood. Could you also please talk us through the outlook on margins for Jordan? Tarek Yehia: Jordan margin for the current year, in the range of 30%. Ahmed Moataz: All right. [ Ali Naser ] is asking, can you please provide details on the Cairo Ray acquisition? What was the investment size? And what is the annualized P&L impact on the consolidated level? And lastly, how much did it impact third quarter results? Tarek Yehia: The total investment cost was around $400 million. sorry, EGP 400 million. Ahmed Moataz: And the rest of the question, please, what is the annualized P&L impact? And how much did it impact third quarter results? Tarek Yehia: For the quarter, it is minimal because we already consolidated for a small portion in Q3. The same will apply for Q4 and more contribution will be done in the full year next year. Ahmed Moataz: Understood. [indiscernible] is asking, what is a stable long-term level for COGS and SG&A as a percentage of revenue? How much more cutting or savings do you expect and the potential uplift to EBITDA margins? Tarek Yehia: For the COGS to revenue ratio, which already improved to 57% in the 9 months, coming down from 62%, we're expecting we can go down 1% or 2 more percent going forward. And also for the SG&A, it already went down from 21.9% to 19.6%. And going forward, we can see 1% or 2% more advantage from recruitment and a lot of cost optimization that we are in process improvement year-over-year. Ahmed Moataz: Understood. [ Marina ] is asking, how do you see the contract and walk-in dynamic play out in Egypt over time, let's say, for the next -- sorry, 3 to 5 years? Do you expect contract volumes to continue growing faster than walk-ins? And what does that mean for longer-term margins? Hend El Sherbini: So yes, we expect the contract contribution to grow. However, we're also seeing increase in the walk-in volumes. So both are increasing. And this -- I mean, this is not -- this is affecting -- this is not really affecting our margins directly because in the corporates, we are seeing increased volumes. So the test per patient in the corporate side is much higher than in the walk-in side. And as this is an economy of scale, we always want both things, the increase in volume as well as the increase in pricing. So this is -- I think this dynamic we have been seeing for a few years now and it hasn't affected our margins. Ahmed Moataz: Understood. [indiscernible] is asking, volume growth in Egypt was solid at 9%. Is this primarily driven by the 103 new branches opened over the last year? Or are you seeing same-store sales growth in the more mature branches? Hend El Sherbini: We are seeing volume growth in both the new and the existing branches on both sides, corporate and walk-ins. Ahmed Moataz: [indiscernible] has a question. Unknown Analyst: Just a follow-up on the question I asked about Cairo Ray. I don't think you answered that. Please again but I know you bought it for EGP 400 million but I wanted to ask about what is the revenue of this company? What's the EBITDA of this company? What's the net income of this company on a trailing 12-month basis or maybe '26 basis? Sherif Mohamed El Zeiny: Our full year estimates on the top line is around EGP 52 million and on the EBITDA level, around EGP 16 million. This translates to around 30% EBITDA margin. Ahmed Moataz: All right. I'll pass it back to you, Dr. Hend, Sherif or Tarek for any concluding remarks. Tarek Yehia: Thank you, everyone. If you have any more questions, you have our contact. We're happy to have a follow-up call, any -- respond to any e-mails. Thank you, everyone, for attending today and thank you, Ahmed, for hosting the call. Hend El Sherbini: Thank you. Thank you, everyone. Ahmed Moataz: Thank you, everyone, and to IDH's management as well. Have a good rest of the day, everyone. This concludes today's earnings call. Tarek Yehia: Thank you.
Kylie Yeung: Good evening, and good morning, everyone. Welcome to Tongcheng Travel's 2025 First Quarter Results Conference Call. I'm Kylie Yeung, Investor Relations Director of the company. Joining us today on the conference call are our Executive Director and CEO, Mr. Hope Ma; our CFO, Mr. Julian Fan; and our Chief Capital Officer, Ms. Joyce Li. For today's call, our management team will provide a review of the company's performance in the first quarter. Hope will brief us on the company's strategies, Joyce will discuss our business and operational highlights, and then Julian will address the details of our financial performance accordingly. We will take your questions during the Q&A session that follows. As always, our presentation contains forward-looking statements. Such statements are based on management's current expectations and current market operating conditions and relate to events that involve known or unknown risks, uncertainties and other factors, which may cause the company's actual results, performance or achievements to differ from those in the forward-looking statements. This presentation also contains some unaudited non-IFRS financial measures. They should be considered in addition to, but not as a substitute for measures of the company's financial performance prepared in accordance with IFRS. For a detailed discussion of non-IFRS measures, please refer to our disclosure documents in the IR section of our website. Now let me introduce our CEO, Hope. Hope will be presenting in Mandarin, and our colleague will provide the English translation afterwards. Hope, please go ahead. Heping Ma: [Interpreted] Thank you, and good evening, everyone. Welcome to our 2025 third quarter earnings call. In the third quarter of 2025, China's travel market continued to unleash its growth potential, driven by profound changes in tourism consumption patterns and behaviors. Notably, we have observed a growing trend toward more diversified and personalized consumer demand. Experience-oriented consumption, including emerging segments such as event-driven economy and concert economy has gained significant traction. The ongoing emergence of innovative service scenarios and business models has introduced new momentum into the industry, fostering sustainable growth. Riding on this tailwind, we swiftly identified changing market demand and proactively grow product innovation to meet these evolving needs. Benefiting from these initiatives, our ending paying users in the third quarter reached a historic high and surpassed 250 million, which demonstrates our organizational agility to capture new opportunities and our continuously expanding brand influence. Horizontally, we're expanding our business by proactively enriching our product and service offerings to cater to diverse demand while maintaining steady growth in our core domestic OTA business. Vertically, we're deepening our value chain integration through exploring potential growth opportunities to build a solid foundation for our long-term development. Driven by our effective expansion strategy and outstanding execution capabilities, we delivered robust results in the third quarter, marking a milestone in our overall development. In the National Day holiday, the travel industry exhibited a healthy growth momentum supported by sustained travel enthusiasm, validating the resilience and growth potential of China's travel industry. As a leading travel platform in China, we will consistently embrace technological innovation to drive product and service upgrades with a steadfast focus on delivering high-quality, convenient and diversified travel experiences for our users. Concurrently, we remain committed to executing our core strategy. While maintaining focus on mass market to consolidate our domestic leadership, we will continue to expand our outbound business and explore opportunities across the travel industry to seek new growth drivers. On October 16, 2025, we successfully completed the acquisition of Wanda Hotel Management, which we believe will accelerate the growth trajectory of our hotel management business, contributing to further expansion and strengthening of our company. Going forward, we will further promote the integration of AI technologies and our supply chain resources to persistently enhance operational efficiency and user experience. We have strong conviction that our clear strategic road map and excellent operational capabilities will enable us to achieve long-term sustainable growth and generate more value for all stakeholders. Next, I will hand over the call to Joyce, who will share with you our business and operational highlights of the third quarter of 2025. Joyce, please go ahead. Joyce Li: Thank you. Since the start of this year, China's travel market has been demonstrating an upward trajectory, characterized by rising demand for immersive natural and cultural experience. Against the backdrop of the evolving consumer preference, we continue to achieve solid growth across all segments, underpinned by the precise execution of our strategies. In the third quarter, our accommodation business sustained its growth momentum, reaching record highs in both daily room nights sold and quarterly revenue. During this period, we focused on addressing users' evolving demand for higher-quality hotels, resulting in a meaningful increase in the proportion of high-quality accommodation on our platform, with more than 20% growth in its room nights sold. In the meantime, we will reinforce our value for money proposition to further solidify our presence in the mass market. Our upgraded membership program has been instrumental in enhancing user engagement, enabling users to freely redeem their points on our platform. This, combined with the fast response to user inquiries has greatly increased user purchase frequency and strengthen user loyalty. In our international accommodation business, we remain focused on strengthening cooperation with third-party partners and expanding our product service offerings. These efforts were designed to better meet the diverse needs of our users and drive further growth in the segment. As for our transportation business, it demonstrated solid growth during the third quarter, supported by enhanced monetization capabilities. Throughout the quarter, we prioritized improving user experience and deepening connections with targeted users. Leveraging our acquisition capabilities and further integrating live transportation options, we provided users with more seamless, feasible and convenient travel solutions. Through engaging and entertaining marketing campaigns, we aim to strengthen mind share among younger demographics and enhance our brand positioning as an experience-driven platform rather than merely a ticketing service provider. In the past quarter, we launched an AI-driven interactive game that allow users to discover travel destinations tailored to their disposition. Such entertaining initiatives has successfully enhanced our brand appeal among younger users over the past years. In terms of our international air ticketing business, we're focusing on strengthening user loyalty and fortifying our market position by implementing a disciplined incentive policy and improving operational efficiency. We maintain a balanced approach to growth in both volume and value. These efforts contributed to healthy volume growth and further improvement in the monetization capability of this segment, aligned with our long-term growth strategy. We see significant growth potential in China's hotel industry and have been actively investing in the hotel management business since 2021, which we believe will serve as a key growth driver for the company. Over the third quarter, our efforts were focusing on expanding our geographic network, while prioritizing quality growth, to optimize operations, we streamed our brand portfolio and concentrated resources on several major brands so as to precisely target segmented markets. At the end of September, the total number of hotels in operation has risen to nearly 3,000 with 1,500 in the pipeline. In mid-October, we completed acquisition of Wanda Hotel Management. The companies are processing multiple upscale hotel brands with a strong presence and influence in the Tier 2 and below cities along with the network of 239 hotels, both domestically and internationally at the end of September. We believe Wanda Hotel's valuable brand equity combined with profound industry expertise, while diversifying our brand portfolio and accelerate the growth and expansion of our hotel management segment, further strengthening our competitive positioning in this industry. Besides the addition of Wanda Hotel will also have positive financial impact on the company. By implementing innovative and effective user engagement initiatives, we have built an extensive and steadily expanding user base across China. For the past 3 months, our 12-month annual paying sustained its growth trajectory and recorded another historical high of 253 million, representing a year-over-year growth of 8.8%. In the meantime, the cumulative number of passengers served on our platform over the past 12 months exceeded 2 billion, indicating stable annual pay purchase frequency of 8x per year -- per user. Furthermore, our MPUs for the quarter also reached a record high of 47.7 million, suggesting a year-over-year growth of 2.8%. Besides our annual ARPU by the end of September increased by 6% year-over-year to more than RMB [ 17.4 ]. The Weixin ecosystem remained a crucial traffic channel during the period, where we focus on enhancing operational efficiency as well as maximizing user value. At the same time, our standalone app, a key driver for acquiring new users maintained strong growth momentum during the last quarter with its DAU hitting an all-time high of nearly 5 million before the National Day holiday. By introducing innovative products, and launching engaging marketing activities, our standalone app has attracted a significant number of younger users. Additionally, social media platforms have become an increasingly important channel for user engagement, particularly among the younger experience-oriented travelers. So collaboration with influencers and the distribution of creative content, we strengthened user mind share and has broadened user reach within this high potential demographics. To further amplify the brand visibility and a deeper engagement with top users, we have made consistent investments in brand equity. This summer, we collaborated with Tencent Music and exclusively sponsored 3-day music festival in Macau, effectively capturing the attention of younger audience and significantly boosting brand exposure among them. Additionally, we appointed a popular stand-up comedian as our brand ambassador to reinforce our valuable money proposition and strengthen our positioning as a dynamic and entertaining platform. These efforts have not only elevated our brand presence, but also positioned us as a preferred choice for value-conscious, experience-driven travelers, driving user loyalty. As a technology-driven travel platform, we proactively embrace cutting-edge technologies and seek to upgrade our business capabilities and deliver enhanced value to our users. In March, we launched our AI-driven travel planner DeepTrip, which generates viable and personalized travel itineraries for users by leveraging the reasoning capabilities of DeepSeek and the supply chain advantage of our platform. Since its debut, it has more than 5 million users in total with a steadily increasing number of orders placed directly through the portal. In the foreseeable future, we will remain focused on iterating DeepTrip's functionalities and expand its application across our business processes, in an effort to cultivate user mind share and strengthen user trust. In the area of customer service, we have made meaningful progress in integrating AI technology to enhance operational efficiency and improve user experience. By embedding AI tools into every stage of the customer service process, we have eased the workload of our customer service staff and shortened handling time. These AI-powered capabilities allow our staff to better understand user inquiries and provide timely, accurate response to address user concerns, ultimately enhancing user satisfaction. We will continue our investments in AI capabilities to deliver seamless and efficient service while fostering long-term user loyalty. We remain deeply committed to advancing our ESG performance to align with the highest global standards and best practices. Through years of dedicated efforts, we have achieved exceptional results in ESG performance, earning significant international recognition. Notably, our MSCI ESG rating has achieved the highest level of AAA, placing us among the top 5% of companies globally in our industry. In addition, our CSA score has improved consistently over the past 3 years and was awarded industry mover by S&P Global. These achievements underscore our commitment to ESG principles and demonstrating our ability to continuously enhance our ESG performance, establishing us as an ESG leader among global peers. I will stop here to hand over the call to our CFO, Julian. He will walk with you through our financial highlights for the third quarter. Julian, over to you. Lei Fan: Thank you, Joyce. Good evening, everyone. In the past quarter, China's travel industry maintained robust growth with travel demand demonstrating strong momentum. During the summer peak season, we observed steady increases in diversified travel scenarios, including family trips, graduation trips and educational tours, leveraging our precise understanding of user needs and agile operational capabilities, we successfully captured emerging opportunities across various travel scenarios, driving impressive growth in our Core OTA business. In the third quarter of 2025, we achieved outstanding results for both top line and bottom line. We reported a net revenue of RMB 5.5 billion, marking a 10.4% year-over-year increase from the same period of 2024, thanks to our effective marketing investment and enhanced operational efficiency of our OTA business. We achieved a remarkable adjusted net profit of RMB 1,060 million reflecting a 16.5% year-over-year growth, with adjusted net margin expanding to 19.2% compared to 18.2% in the same period of last year. Our Core OTA business revenue registered an excellent growth of 14.9% year-over-year and recorded RMB 4.6 billion, supported by growth across our accommodation reservation, transportation, ticketing and other business segments. Our accommodation reservation business achieved RMB 1.6 billion in revenue for the third quarter of 2025, representing a 14.7% increase from the same period in 2024. The revenue growth was mainly attributable to the increase in hotel room nights sold as well as the slight increase in ADR. For the domestic accommodation business, we rapidly responded to emerging user demands and actively explored new consumption scenarios to capitalize on new growth opportunities. For the international accommodation business, we continue to deepen cooperation with global suppliers and strengthen our footprint in outbound designations favored by Chinese travelers, in order to solidify user mind share, driven by changes of consumer preferences on our platform and our proactive adjustments to user subsidy strategies, our ADR sustained a year-over-year increase and once again outperformed the industry. Additionally, during the third quarter, our blended take rate maintained at a relatively high level which was similar to that of the same period last year, mainly fueled by our precise and disciplined marketing strategies. Our transportation ticketing revenue for the third quarter reached RMB 2.2 billion, marking a 9.0% year-over-year increase compared with the same period of 2024. During the past quarter, we continued to optimize our VAF offerings and enhance user experience to improve the monetization capabilities of the segment. The revenue growth is a testament to our profound user insights and operational refinement. Furthermore, supported by enhanced user mind share along with our disciplined operational approach, our international air ticketing business maintained stellar growth momentum and accounted for around 6% of our total transportation ticketing revenue, up about 2 percentage points year-over-year. Other business segments continued to expand rapidly with revenue reaching RMB 821 million in the third quarter, marking a growth of 34.9% year-over-year. This growth was primarily fueled by the outstanding performance of our hotel management business. Our tourism business achieved a revenue of RMB 900 million, representing an 8% decrease from the same period in 2024. This decline was mainly caused by travelers persistent safety concerns regarding travel to Southeast Asia since the beginning of this year and our strategic scaling back of prepurchased business to reduce operational risks. In terms of profitability, our gross profit increased by 14.4% year-over-year to RMB 3.6 billion with gross margin rising to 65.7% for the third quarter of 2025. Our operating profit for the Core OTA business achieved RMB 1.4 billion, with margin increasing to 31.2% in the third quarter of 2025. The margin improvement was primarily attributable to our efforts to enhance the ROI of sales marketing investments and improve operational efficiency. The operating profit for the tourism business reached RMB 12.4 million with 1.4% margin. Our adjusted EBITDA increased by 14.5% and reached RMB 1.45 billion, with a 27.4% margin compared to 26.4% margin in the same period last year. Adjusted net profit grew by 16.5% to RMB 1,060 million with a 19.2% margin, up from 18.2% in the third quarter of 2024, demonstrating consistent year-over-year margin improvement. Service development and administrative expenses in the third quarter of 2025 decreased by 3.2% from the same period of 2024. Excluding share-based compensation charges, service development and administrative expenses in total accounted for 13.8% of revenue in the third quarter compared with 14.7% of revenue in the same period of 2024. Selling and marketing expenses in the third quarter of 2025 increased by 16.9% from the same period of 2024, excluding share-based compensation charges, selling and marketing expenses accounted for 31.0% of revenue in the third quarter compared with 29.2% of revenue in the same period of 2024. As of September 30, 2025, the balance of cash, cash equivalents, restricted cash and short-term investment was RMB 13.6 billion. In the first 3 quarters of 2025, the Chinese travel market continues its upward trajectory with travel enthusiasm flourishing. During the National Day holiday, a nationwide increase in travel activity was observed, further demonstrating the resilience of travel market. According to official government data, both the summer and National Day holidays recorded solid year-over-year growth in a number of domestic tourists indicating that travel is one of the key contributors to high-quality economic development. Heading into the fourth quarter, we remain committed to capitalizing on market opportunities, navigating challenges with agility and efficiency, and managing risks with discipline and prudence. We are dedicated to balancing market expansion and profitability, aiming for robust growth in both top line and bottom line. Looking ahead, we will unwaveringly focus on our Core OTA business. In this context, we will enhance user value and operational efficiency in our domestic business while actively expanding outbound business and strengthening our global market presence. Concurrently, we will continue expanding our presence across the travel industry, strategically advancing the development of our hotel management business to unlock more growth potential. Through this strategic initiative, we are posted to further solidify our industry-leading position, while maintaining sustainable growth and decent profitability, which we believe will deliver greater value to all stakeholders. With that, operator, we are ready to take questions now. Thank you. Operator: [Operator Instructions] Our first question comes from the line of Qiuting Wang from CICC. Qiuting Wang: Congratulations on the solid performance. I have 2 questions regarding for your future growth engines. The first one is about international business, what is your expected growth rate in the following years? And what are the key growth drivers? And how will the company balance monetization rate and volume growth? And what is the better margin for next year? And the second one is about hotel management business, how many hotels are expected to be opened in the next 2 or 3 years? And what measures will be taken to effectively manage these hotels? And after the acquisition with Wanda Hotel Management, what will -- how will the company achieve synergy with your Core OTA business? Joyce Li: Thank you, Qiuting, for the questions. I will take these 2 questions. And the first is concerning our international business, mainly the outbound business, we would say that outbound business has been our growth driver for our Core OTA business right now. For our outbound accommodation business, we have continued to deepen the partnerships with global suppliers and strengthen our presence in regions levered by Chinese travelers. Destinations like Hong Kong, Macau and Asian regions continued to attract high demand and performed exceptionally well on our platform. Our outbound air ticketing business maintained a steady growth momentum. This has been supported by our competitive pricing strategy focused on expanding user mind share combined with a disciplined marketing approach aimed at maximizing efficiency and return on investment. These efforts positioning us well to capture the increasing demand and deepen our market presence in the outbound travel segment. In third quarter, our international air ticketing business accounted for around 6% of our total transportation ticketing revenue, representing nearly 2-percentage-point increase year-over-year. And in 2025, we introduced a margin improvement program for outbound business, as we mentioned, concentrating on marketing and promotional efficiency. As a result, our outbound business turned profitable in the third quarter. Looking ahead, we will continue to enhance our outbound travel offerings through strategic partnerships with the leading global OTAs, wholesalers, airlines and overseas TSPs. We plan to increase investments in research and development to improve service capabilities and ensure a seamless booking experience, but also exploring cross-selling opportunities from outbound air tickets to accommodation to drive further revenue and profit growth. In the next 2 to 3 years, expanded business volume and user base growth remains our key prioritized with a strong focus on profitability. We anticipate rapid growth in outbound segment, targeting a revenue contribution of 10% to 15%, making it a major growth driver with higher margins than our domestic business. Overall, we are on track for breakeven this year with international business poised to positive impact margins and become a significant revenue contributor in the future. And in terms of the hotel management business, as a comprehensive travel platform, we are dedicated to expanding our influence throughout industry trend to ensure sustainable growth. Hotels play a vital role in China's travel ecosystem and deepen our involvement in hotel management will further solidify our positioning in this travel industry. We have seen significant potential for our hotel management business to become our second growth driver, playing a vital role in our long-term strategy. Our objective is to become a key player in China's hotel industry by offering a diverse range of brands that create exceptional value for hotel owners and travelers like. In 2024, already ranked 8 in China's hotel group scale ranking, measured by the number of rooms in our hotel portfolio. In the last month, we have successfully completed the acquisition of Wanda Hotel Management company, and now we are progressing with the integration and transition. Wanda Hotel Management has a comprehensive portfolio in 9 major upscale hotel brands with strong marketing trends, as we mentioned. So together with eLong Hotel management platform, we are currently operating over 3,000 hotels. Given its stable and mature development as well as strong brand influence in the market, the Wanda brand will be retained. This will allow the brand to complement our existing hotel portfolio and strengthen our overall offerings. The core management team and the key staff of that company largely remain in place, continuing to oversee and execute strategic development and operations. From a financial perspective, as I mentioned, the hotel business we acquired has decent profitability. Although the acquisition impact only around 3 months this year, it is expected to contribute positively to our revenue and profit. We believe the acquisition will accelerate growth of our hotel management business, supporting further expansion and strengthening of the company. We are confident that our clear strategy road map and clear operational capabilities will drive long-term sustainable growth and create great value for all stakeholders. Operator: Our next question comes from the line of Yang Liu from Morgan Stanley. Yang Liu: Congratulations on the solid results. I have 2 questions here. The first is -- question is about the management's view on the future hotel ADR trend and also Tongcheng's take rates for hotels given that the recent high-frequency data suggest some improvement from the value chain, do you think this will translate to even better ADR trends for Tongcheng? And the second question is regarding the competition in domestic market, we noticed that certain peers announced a pretty good GMV data since the fourth quarter this year. Does there -- any bring -- any incremental competitive pressure to Tongcheng and that company need to fight back or need to do anything to retain its market position? Lei Fan: Liu, thank you for the question. For the hotel industry, actually, we mentioned a lot of times that the domestic ADR has largely stabilized year-on-year in quarter 3 and our domestic ADR already turned positive since quarter 2 and the trend continued in quarter 3. This great improvement is driven by 2 factors. The one is the recovery of the ADR across the industry. And the second is the shift in user behavior in our platform, as users increasingly prefer high-quality products, which has resulted in shift from 2-star hotel to 3-star or above hotel bookings in our platform. In quarter 3, the proportion of higher quality accommodation bookings on our platform increased meaningfully with more than 20% -- more than 20% growth in the room night sales. Given this trend, we expect that the growth in ADR will be a positive factor contributing to accommodation segment's revenue growth this year and also for the next few quarters. At the same time, we have adopted a more disciplined and targeted approach for user subsidies. This approach has also helped us to maintain our net take rate at a very decent level, ensuring a balanced focus on both expansion and the profitability. Our outstanding performance in accommodation business in the past few quarters demonstrated that the pricing pressures of the industry had a rather limited impact on our revenue as ADR on our platform remains relatively resilient, thanks to our extensive exposure in the mass market and our ability to swiftly seize market opportunities. So in the future, we think the trend of ADR improvement are still ongoing because there's a lot of space will be released for the high-quality hotel booking along with the user value and user maturity improved in our platform. In terms of the competition landscape, I think you will have, Joyce. Joyce Li: Thank you, Julian. In terms of competition landscape, as we mentioned a lot of times before, we believe established OTAs with deeper supply chains, user understanding and service capabilities maintain strong defensive moat. First, for the new entries in the OTA market, supply chain will be one of the major challenges for them. As a leading OTA with over 20 years of industry experience, we have an extensive hotel supply chain and deeply established relationships with TSPs. Efficiently managing hotels supplies requires complex systems and close communication with hotels, especially when handling the price fluctuation and room availability constraints. This strong supply chain advantages are difficult for new entries to replicate quickly. Secondly, purchase of travel product services tend to be relatively low frequency and involve longer, more complicated decision-making process. Therefore, converting users into paying customers in OTA space is particularly challenging, as it requires thorough understanding of users' preference and behaviors. And thirdly, our focus on OTAs on delivering superior service and user experience, heavily investing in innovative value-added products tailored to market demand, coupled with a dedicated customer service team, addressing user needs rapidly. These competitive ages are not easily matched by newcomers. Besides, we have upgraded our membership program to enhance user engagement by providing faster response to inquiries and allowing users to redeem their points as cash on our platform. These enhancements aim to boost purchase frequency and deepen user loyalty. The OTA market is complex and requires significant time, resources and experience to build sustainable competitive advantages. We expect near-term competition to remain relatively stable, and our current strategy continues to focus on improving operational efficiency with the profit expectations unchanged. So we remain vigilant to make adjustments as market dynamics evolve. Thank you. Operator: Our next question comes from the line of Brian Gong from Citi. Brian Gong: Congratulations on the solid results. Two questions. First, management just talked about ADR and wondering how should we think about room night growth in the first quarter and any initial color for next year? And the second question is our take rate on transportation has been persistently improving this year. But I heard that airline ticketing pricing has been under pressure. And it seems airline companies also lowered commission fees to some extent. Not sure if this will impact our transportation revenue growth ahead. Lei Fan: Thank you for the question, Brian. I would like to give you some color for the Q4 performance first and then provide more color on the transportation side from the airline companies. As mentioned throughout this year, the company remains focused on striking the balance between top line and bottom line as well as enhancing user value and ARPU. In quarter 4, actually, the margin improvement will remain our key priority, while we simultaneously pursue maximum growth and market share gains, both for accommodation and transportation. For accommodation business, we believe that the growth will be driven by both volume expansion and also the ADR improvement like what I imagined. Our volume is expected to continue outpacing the market growth. While our ADR will be benefited from the ongoing upgrade in hotel store mix driven by the shift in user preference like I mentioned in previous question. For transportation, actually, the ATV has already turned positive in quarter 3 because we monitor that there's more demand released in the long haul in the summer vacation and also the October holidays because the October holidays, we have 8 days holidays this year. So actually, for the industry, the ATV has already turned positive. And also the ATV has also turned positive in our platform as well. We don't have any pressure for the commission decrease from the airline companies. We don't have any information from that. For the fourth quarter, the transportation business volume growth will be still in line with the market. The market is only single digits. While the take rate still have some space to improve, driven by cross-sell and VS will continue to contribute the revenue growth. In the long run for the transportation business, actually, we will continue to emphasize innovation in our products and services to meet the diverse needs in our users during their travel journeys, thereby increasing the monetization of our transportation business. As our platform progresses towards becoming a fully integrated one-stop travel solution, we are starting to explore opportunities for cross-selling from long-haul transportation to a broader area of short-haul options with our Huixing and AI capabilities. Our goal is to develop comprehensive travel combo solutions that extend beyond selling individual tickets, which will help enhance the monetization capability and drive revenue growth in the future for our transportation segment. And in terms of the color for next year, actually, it's still too early to say because of the booking window is shortened lately. So we may give you more information on that, I think, in next call, February, March next year. I think that will be more accurate than now. So thank you for the questions. Operator: Our next question comes from the line of Wei Xiong from UBS. Wei Xiong: Congrats on the solid quarter. First, I want to ask about the margin trend. So after our encouraging effort to improve cost efficiency this year, how should we think about the room for margin expansion next year as well as the drivers behind? And second, just regarding AI because given the technology advancement, we do see investor discussion on the potential AI disruption to vertical platforms like OTA. So I want to get your latest thoughts on the topic as well as our strategy to navigate such potential risk. Lei Fan: Thank you for the question, Xiong. In terms of the margin expansion, actually, as we discussed, as always, our strategy for 2025 and beyond is to balance the revenue growth with profitability improvement. Margin improvement remains a key priority while we continue to pursue maximum growth and market share gains. In the second half of 2025, the quarter 3 and quarter 4, the net margins for both the company and our Core OTA business will improve year-over-year, mainly driven by gross margin expansion and operational leverage. The broad applications of AI have significantly improved automation and efficiency across customer service and tech development processes such as coding, further supporting our margin performance. Looking ahead, we still see a lot of room for our service development and G&A expenses ratio to trend down in second half of 2025 and 2026, as overall operating efficiency continues to improve. This efficiency gain will remain an important long-term driver of margin expansion, while on selling and marketing expenses in the second half of 2025, specifically, we expect the ratio to stay broadly stable compared with last year, since we have already realized savings in G&A and delivered solid margin improvement. We will maintain an appropriate level of marketing investment to support growth and strengthen our marketing position and to seek more market share and opportunities. That said, we will continue to strengthen our ROI and efficiency of sales and marketing spending over the long term to ensure sustainable margin improvement for our business in the next 2 to 3 years. So that is my comments on margin expansion. In terms of the AI, Joyce, please. Joyce Li: Sure. First of all I would say that the development of AI technology will largely benefit OTA like us. As we mentioned lot times before, we have remained dedicated to developing our technology, which has been instrumental in improving our operational efficiency and enhancing the user experience. I think DeepTrip is a vivid example of how we embrace this advancement of AI technology. And I would say that we have keep investing in the implement of DeepTrip's functionality and it has already overcome the limitation of traditional travel recommendations and delivers reliable and actionable insights to users. It offers ample access to a wide range of options on our platform and support seamless closed bookings. Moving forward, DeepTrip will continue to evolve through the generative updates to meet users' needs more effectively. And I think DeepTrip's benefits from our extensive resources, including a comprehensive portfolio of online travel products and services. While general purpose large models can generate travel guides, they offer less ability to match recommendations with actual real-time travel resources availability. DeepTrip provides a more practical and actionable solution by directly integrating Tongcheng products into the planning and booking process. Our strong connections and close relationships with supply end enable us to secure competitive pricing and high-quality products to satisfy diverse travel needs. And secondly, I think AI technology has helped improve our operational efficiency and reduce manual work. Julian also have touched on that. Currently, generative AI has reduced our coding workload by 20%. Generative AI also handles over 60% of our accommodation related to online consultations and more than 70% of Internet phone inquiries. It delivers improved accuracy and efficiency. We have made significant progress in integrating AI into our customer service operations, embedding AI robots across entire service process to lighten staff workload and shorten the response times. This enables our team to better understand user inquiries and provide timely, accurate answers, resulting in a 10% reduction in handling time. So we will continue investing in AI to deliver seamless, efficient service and foster long-term use loyalty. In parallel, AI will also help us identify new application scenarios, product innovations or traffic opportunities, supporting both revenue expansion and efficiency-driven profitability improvement in the future. Thank you. Operator: Our next question comes from the line of Thomas Chong from Jefferies. Thomas Chong: My question is about the impact coming from a recent Japan incident. And how is the latest market situation right now? And how does that affect the business performance, if any? Joyce Li: Thank you, Thomas. Currently, we expect that there will be slight impact on our business. But we strongly believe that people's devise for outbound travel remains very strong. So they will be willing to explore other destinations. And we believe for OTA users, it is quite easy for them to change the travel plan and destinations but the impact on the group tools of our tourism business may be a little more obvious, and we will closely monitor further policy developments and adjust our product mix and marketing strategies accordingly to mitigate the impact. Overall, we do not expect a material impact on our full year performance at this stage. Thank you. Operator: Thank you. There are no further questions at this time. So I'll hand the call back to Kylie for closing remarks. Kylie Yeung: Thank you. We are closing the call now. If you wish to check out our presentation and other financial information, please visit the section of our company website. Thank you, and see you next quarter. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Involve known and unknown risks and uncertainties that may cause our actual results, performance, or achievements to be materially different from those expressed or implied by the forward-looking statements. These forward-looking statements include our growth prospects, future revenue, operating margins, net income, cash balance, and total addressable market among others. They represent our management's belief and assumptions only as of the date such statements are made, and we undertake no obligation to update these. During today's call, we will discuss non-GAAP financial measures which are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures is available in the earnings release, which can be found on our Investor Relations website. Further information on these and other factors that could cause the company's financial results to differ materially are included in filings we make with the Securities and Exchange Commission, including our most recently filed Form 10-K as well as our subsequent filings made with the SEC. With that, I will turn the call over to Jennifer. Jennifer Tejada: Thank you, Christine. Good afternoon, and thanks for joining us today. In the third quarter, PagerDuty, Inc. delivered revenue of $125 million, up 5% year over year. Non-GAAP operating margin of 29% exceeded guidance by 750 basis points over last year. We also achieved GAAP profitability for the second consecutive quarter, evidence of disciplined execution and a durable profitable growth model. Annual recurring revenue of $497 million represents 3% year-on-year growth. New and expansion bookings were consistent with the first half, offset primarily by customers rightsizing seat licenses amidst budget caution. We accelerated our product innovation and operational efficiency in the market, which extends our leadership in the increasingly important and complex digital and emerging AI operation space. In order to build long-term and near-term shareholder value in a budgetary environment, we are focused on three objectives. One, expanding operating and free cash flow margins as we further increase operational efficiency. Two, extending our product advantage in surface area in AI operations and incident management, and three, scaling the initial successes in our go-to-market transformation to drive faster adoption of the full PagerDuty operations cloud and effectively monetizing the value we create for customers. This will be our sixth consecutive year of expanding operating margins as part of our commitment to profitable growth. Structural efficiency initiatives are accelerating product and business execution while lowering our cost base. With the added benefit of modern software and AI, we expect to continue expanding operating margin towards our long-term target of 30%. Demand for our platform remains strong with double-digit year-over-year growth in new customer acquisition and in total paid and free customers. Customer retention and growth remain our top priority. While the number of customers expanding with us each quarter has remained consistent throughout the year, we are focused on increasing our average transaction size by more effectively attaching new usage-based products like AI ops and PagerDuty Vans and by driving adoption through new professional services and customer success playbooks. Targeted customer retention efforts, including a more efficient proactive coverage model, delivering high-demand features, and flexible pricing have stabilized customer low retention. That said, seat license compression continues to be our most significant challenge, large enterprises where budget caution and right-sizing have had the most impact on our incident management business. During the quarter, we mitigated longer-term risk by leveraging multiyear agreements, expanding to a broader product footprint, and including professional services to ensure fast time to value. We are scaling this motion with a refined adoption and value realization program through the customer success team while at the same time enabling the field to focus on our agentic offering, both of which will support improved retention and growth over time. We have also sharpened renewal forecasting to identify, measure, and address risk earlier in what is now a multi-quarter cycle. On a strong foundation of financial and operational discipline, we extended our product advantage in end-to-end incident management and AI and agentic operations. In the past, AI ops referred to modern event management techniques that support root cause analysis and incident triage. Now in an environment where trillions are being deployed on AI investments, yet enterprise resilience is more important than ever, the need for a new operating model has emerged. Agentic orchestration is one of many new operational aspects that enterprises must manage. The new ecosystem required to support AI includes energy, storage, compute, data management, large language models, applications, agents, and the systems to test, control, and run AI solutions safely and responsibly. Connected intelligent orchestration, and operations of the entire AI stack and the functional automation application across a business create new surface area that PagerDuty is uniquely positioned to support. The operations cloud connects seamlessly via our integration ecosystem and our model context protocol, or MCP. It intelligently detects potential disruptions and risks, and orchestrates human-led agent-based and model-centric events to prevent and resolve issues. This is the new era of AI operations, real-time orchestration and action across AI agents, applications, and infrastructure. We continue to invest in our roadmap to ensure our position as a central nervous system for both digital and AI operations going forward. PagerDuty pioneered and defined the incident management space starting in DevOps and expanding to enterprise IT, security, and business operations in service of supporting the largest and most innovative companies in building resilience at scale. In October, we released over 150 platform enhancements and the industry's agentic end-to-end incident management offering. Customers can now leverage PagerDuty agents to address high-value, time-critical work at every point in the value chain. PagerDuty agents have the unique advantage of being built on our open and neutral ecosystem of more than 700 integrations leveraging the broadest context on causes and resolution of incidents in order to take the most effective actions. Early traction and positive customer feedback on PagerDuty's agents demonstrate the need for AgenTex solutions to scale operations effectively. This is especially critical as a higher volume of code is being shipped with AI. We deepened our AI ecosystem leadership in the quarter, with an initial partner as an initial partner in the Glean MCP directory. This enables teams to adopt and accelerate value realization of the operations cloud. PagerDuty is also the first incident management and operations platform integrated into Spotify's developer portal for Backstage. Which positions us at the forefront of modern development. Spotify noted that this fundamentally helps organizations shift from reactive to proactive issue prevention. Developers can now initiate, triage, escalate, and resolve incidents without leaving their workflow. Our roadmap prioritizes standards-based enterprise-grade interfaces for discovery and control deep workflow integration in developer, agentic and operations tooling, and an automation fabric that seamlessly weaves human responders and autonomous agents together. Compared to point solutions, PagerDuty capabilities, and use cases span functions such as supply chain, IoT, storage, and security. Recent global infrastructure outages also highlight the differentiated resilience that we provide every day. Go-to-market excellence is critical to our success. We are transforming the way we go to market, especially in enterprise. Where we have seen ongoing customer budget caution and organizational rightsizing and change. Over the midterm, we are establishing PagerDuty as the enterprise operations platform for AI. In the near term, we are transitioning from a traditional single-year seat-based license model to a multiyear platform usage model. On a year-over-year basis, our go-to-market execution has improved. In Q3, we advanced customer acquisition. Adding 284 net new customers year to date. Nearly four times the total in FY25 validating demand for our products and services. Leading AI native companies like Perplexity and AnyScale continue to choose PagerDuty as their primary operations platform. We have also continued to grow our high-value customer base those spending over $100,000 per year with us, by 5% year over year to 867 customers. During the quarter, we welcomed Todd McNabb to PagerDuty as our chief revenue officer. He and the team are focused on accelerating this transformation to improve our land, realize, and expand motion, activating new partners to support this effort. In his first thirty days, we have seen nearly 40 customers together and expect to see over 100 by the end of the year. It is clear from those conversations that our customers want to do more with us and need both our expertise and support to realize the full value of our platform. Initial progress in our shift from seat-based to usage-based pricing is encouraging. Flexible operations cloud packaging enables customers to seamlessly scale between human responders, agents, and automated solutions without needing to precisely predetermine users and product mix. This better aligns our customer investments to business outcomes rather than headcount and licenses. In the quarter, customers across industries made multiyear commitments to PagerDuty. A leading AI native company's multiyear renewal and expansion this quarter demonstrates the need for best-in-class and AI operations. Digital and AI operations. In a high-growth segment where proven scale, resilience, and strategic partnership are required. PagerDuty safeguards enterprise resilience at a global scale that competitors cannot match as the company's engineering footprint is expanded rapidly from research-focused to a global production platform supporting hundreds of millions of users they required a strategic partner to support their unprecedented operational scale. As AI has accelerated, they have joined our million-dollar ARR cohort. A Fortune 25 global automotive leader, selected PagerDuty for a multiyear agreement as it modernizes enterprise operations optimizes manufacturing operation operations, and advances electric and autonomous vehicle initiatives. PagerDuty won via executive alignment and enterprise-grade capabilities to support operations beyond software teams to manufacturing and the dealer network. Critical to our selection was fast time to value integration with their native ITSM system, Slack first workflow automation, and our strong track record of scale deployments in manufacturing. One of Australia's largest banks and a PagerDuty customer since July 2024 expanded for the second time this year during Q3 to support their ambitious growth goals. The bank added several thousand enterprise incident management licenses in a multiyear partnership, increasing their investment by nearly $1 million in ARR. The deployment is transforming operations for reactive and manual preventative with scaled service ownership across the entire organization. PagerDuty is the bank's enterprise platform for AI. In the competitive gaming industry, a leading digital entertainment with millions of daily active users selected PagerDuty's operations cloud with flexible pricing to enhance operational resilience. Moving beyond seat-based licensing constraints, the customer chose PagerDuty's usage-based offering to reduce expansion friction and to better align their investment with business value, automating more work as they target 99.99% availability, and reduce operational toil by 20%. Developers can now focus on innovation rather than operational issues. Our focus and sustained investment creation. continue to yield returns in talent, critical drivers of long-term value PagerDuty's recognition among Fortune's best workplace's top 50 included this quarter's placement in the small and medium company list in technology and validates our ability to attract and retain the high-caliber employees essential to deepening our competitive moat in digital operations and expanding our offerings in AI operations. Building on the digital operations category we pioneered, AI operations is a natural growth platform to support our long-term strategy and profitable growth goals. Progress in our go-to-market transformation along with flexible enterprise and usage-based pricing support both midterm growth and ongoing margin expansion. While these efforts will take time to be fully realized, we are executing from a position of strength, including product leadership, expanding operating margins, and a strong balance sheet. Our unique platform offering and improvements in underlying execution underpin our confidence in accelerating profitable growth. I would like to share one additional leadership update. Howard Wilson, CFO, has decided to retire during the financial year. Howard has been at PagerDuty for nine years and has been instrumental in growing the business to nearly $500 million in ARR. His impact has been deep and broad as he has led PagerDuty through our successful 2019 IPO and in achieving critical milestone positive cash flow, significant operating margin expansion, profitability, and then recent quarters GAAP profitability. During his tenure, Howard has built and led incredibly capable teams in finance, corporate strategy, operations, and customer success. He has opened international markets, helped to shift PagerDuty from product to platform, and led us in acquiring several companies. We have started the search for a new CFO, and Howard is committed to supporting a smooth succession during the 2027 financial year. With that, I will turn it over to Howard, and we look forward to your questions. Howard Wilson: Thank you, Jen, and good day to everyone joining us on this afternoon's call. Before reviewing our third-quarter financial results, I want to highlight our strong operational discipline reflected in our second quarter of GAAP operating margin profitability. We expect to be GAAP profitable for the full year next fiscal year. And now unless otherwise stated, all references to our expenses and operating results on this call are on a non-GAAP basis and are reconciled to our GAAP results in the earnings release that was posted on our Investor Relations website before the call. Moving to results. Revenue for the quarter was $125 million, up 5% year over year. Q3 GAAP net income was $160 million. This includes a one-time income tax benefit of $154 million from the release of a valuation allowance. International revenue increased 7% year over year contributing 29% of total revenue. Annual recurring revenue exiting Q3 grew 3% year over year to $497 million. Although we expected incremental ARR to be higher, there was more pressure on seat licenses and smaller expansion deal sizes this quarter. We delivered a 100% dollar-based net retention compared to 102% in Q2, DBNR was negatively impacted by lower gross retention. We expect this pressure on DBNR to continue in Q4. Customers spending over $100,000 in annual recurring revenue increased 5% year over year, resulting in 867 by quarter end. Total paid customers grew to 15,308 in Q3, growing 2% year over year. Paid and free customers on our platform grew to over 34,000, an increase of approximately 13% compared to Q3 of last year. Q3 gross margin was 87%, above the high end of our 84 to 86% target range. The overachievement demonstrates PagerDuty's ability to drive its own operational efficiency while ensuring that the platform improves that of our customers. We expect gross margin in the long term to return to within our target range as we invest further in customer success management. Operating income was $36 million or 29% of revenue compared to $25 million or 21% of revenue in the same quarter last year. The outperformance reflected our focus on increased productivity and operation execution with lower payroll and other personnel costs. In terms of cash flow for the quarter, cash from operations was $25 million, 20% of revenue, and free cash flow was $21 million or 17% of revenue. Turning to the balance sheet, we ended the quarter with $548 million in cash, cash equivalents, and investments. In Q3, we repurchased 2.4 million shares under our $200 million repurchase plan. And at the end of the quarter, $162 million of the total amount authorized to be repurchased remained available. Consistent cash generation and a strong cash position provide a solid foundation for us to advance our enterprise transformation while returning capital to shareholders. Trailing twelve-month billings were $496 million, an increase of 4% compared to a year ago. With respect to Q4, we anticipate trailing twelve months billings year-over-year growth to be flat. At the end of Q3, total RPO was $450 million, increasing 2% year over year. Of this amount, approximately $287 million or 69% is expected to be recognized over the next twelve months. $101 million or 24% over months thirteen to twenty-four, and the remainder thereafter. Now turning to guidance. When we provided guidance at the end of Q2, we underestimated the current headwinds. Operator: Retention. Howard Wilson: Although the number of customers churning and downgrading is trending downwards, the dollar value of the contraction driven by seat-based reductions and customer budget caution has been larger than we forecast. As a result, we are lowering our top-line guidance. To improve visibility, we have made changes to our renewal process and implemented operational changes to drive earlier customer engagement. In addition, in line with our ongoing focus on efficiency, we are increasing our full-year net income and operating margin guidance. So for the fourth quarter fiscal 2026, expect revenue in the range of $122 to $124 million representing a growth of zero to 2%. And net income per diluted share attributable to PagerDuty, Inc. in the range of 24 to 25 cents. This implies an operating margin of 21%. For the full fiscal year 2026, we now expect revenue in the range of $494 to $497 million, representing a growth rate of 5%. This compares to the range previously provided of $493 to $497 million and net income per diluted share attributable to PagerDuty, Inc. in the range of $1.11 to $1.12. This implies an operating margin of 24%. This compares to our prior guide of $1 to $1.04 and 21 to 22% respectively. This quarter, we expanded margins beyond targets delivered our second consecutive quarter of GAAP profitability, and generated strong cash flow, capital we have been returning to shareholders. At the same time, we are making the strategic investment position the business to reaccelerate our ARR growth while maintaining our disciplined financial profile. In summary, we are expanding margins generating cash and progressing the pricing and go-to-market transitions that support durable growth. We are executing from a position of strength with product leadership disciplined capital allocation, and a strong balance sheet. While staying tightly aligned to customer outcomes. On a personal note, as Jen mentioned, I intend to retire next year. My journey at PagerDuty has been one of incredible growth, and I am proud of what we have accomplished. I appreciate our customers, partners, investors, and our employees for their support, and I am committed to supporting Jen and the team in a smooth succession. With that, I will open up the call for Q&A. Operator: Thank you, team. We have a number of hands raised already. Analysts, first, we will hear from Jeff Van Rhee. Jeff, can I have you open up your line? Joining us from Craig Hallum. Go ahead, Jeff. Jeff Van Rhee: Yeah. There we go. Great. Thanks, guys. So I appreciate you taking the questions. And, Howard, congrats. Nine years. Great run. Wish you all the best. Hope you are doing what you enjoy. Come on out of here. So, Jen, just talk to me about, you know, the DBNR, the trend of deceleration there declines. And as Howard addressed, some gross churn issues that sound like you are trying to figure out. How do you, you know, from a leadership standpoint, evaluate what is going on there and compare it maybe to past periods where you have seen buyers be more cautious about spending, you know, pulling in the reins to say, okay. This is like something we have seen before or, hey. This is something different here. What is going on? And how is that thought process for you right now? Jennifer Tejada: Yeah. Thanks for the question, Jeff. And, you know, as we said, like, we have a lot to be proud of in the quarter with a very strong bottom line result, you know, 29% margin up 800 basis points over year over year, 70% free cash flow. But we are unsatisfied with our retention effort at this or our retention outcome from this quarter. It is a little different than anything that we have seen in the past in that what we saw this quarter was improvement around logo retention, so fewer customers leaving the platform. And actually fewer absolute customers downgrading. But the customers that did downgrade tended to be larger downgrades in size tied to pretty significant reorganizations. And those reorganizations, you are hearing about them in the news every day. They come with sometimes thousands of jobs leaving a business, a lot of leadership turnover and change, and that has made it hard to anticipate the scale and scope of those. Having said that, some of the things that we have done to better understand what is happening in those customers is, one, take a multi-quarter view on renewal planning with the customer so that as those customers make changes, we are moving in lockstep with them to giving them an alternative from a flexible pricing perspective. I talked about a gaming platform in prepared remarks. Where they came to us with this challenge. You know, we are changing our organization pretty significantly and want to reduce seat-based licensing and by moving the seat-based licensing conversation off the table, in service of usage and a platform license, we are actually able to expand with them in the quarter. So as we scale that motion, we expect this to improve as well. But, you know, overall, I am confident in the long-term outlook because we see the same customers increasing their usage on products and features. So even though there may be fewer seats in the renewal, their actual usage of the platform is actually improving, and we have seen several examples of that. In addition, you have seen we have really upped our focus on new customer acquisition, and that really reinforces our product leadership and our market not just in digital operations, but also in this broader, you know, new evolving category called AI ops where I think we are going to continue to be the choice of not only AI natives who can find less expensive offerings in the market, but also large enterprises that want to grow with us. So we are really focused on those large customers and making sure we can anticipate any changes that might be coming and focused on flex pricing and multiyear agreements to support them and to reduce risk over time with those longer-term agreements. Howard Wilson: Mhmm. Jeff Van Rhee: Helpful. If I could sneak one other in from a sales standpoint. Not long ago, I know you were watching the maturity of the sales reps as what you thought would be kind of a key indicator when they hit their productivity. I think 60% at that time had been there a year. And I am curious now, obviously got some new leadership relatively new in the sales or you know, when sitting in the CEO chair, you know, what are the indicators that you are watching most closely there for sales? What are you expecting? What are you looking for there? Number one is what are customers telling us? What are they telling us about their ability to leverage and get value from the platform? How do they feel about their account coverage, and continuity in terms of their engagement with PagerDuty? Are they getting the support that they need? Both pre and post-sale? And so, Todd and I have really been focused on listening to her and getting out and talking to our largest customers, and that has been not only very well received, but we have been, I think pleasantly surprised by the love people have for our products and services, but also the admission that some of the challenges with the adoption and realization is not purely due to PagerDuty's engagement model, but also the fact that their organizations are changing pretty rapidly. So they are asking for more proactive help in that area. From a field perspective, I think Alison Corley, joined us a few quarters ago as chief customer has really gotten her legs under the desk and has really gotten customer success oriented around a much deeper understanding of how customers are actually faring from a pure platform health perspective, and that has enabled us to have higher-level conversations with customers earlier in the process. But also to swarm customers with the care they need even if their organizations have changed meaningfully. And in the sales organization, Todd is really doubling down on what we call land realized and expand, making sure that our reps who have ramped, have the support that they need to really go after growth and expansion, focus on new product attachment, particularly those usage-based products, but also services attachment. To ensure, you know, faster time to value for our large customers as we close and move on. And we have seen that result in some really great wins this quarter. I talked about an automotive manufacturer that is doing some really interesting stuff with us, and that is a ramped rep who really understands the platform. But is also leaning into not just our core incident management, but our new AI and automation features. Operator: Yep. Jeff Van Rhee: Yep. Got it. Appreciate it. Jennifer Tejada: Thank you. Operator: Thank you, Jeff. Next, we will turn to the representative from RB. Could you please introduce yourself and join the call? Mike Richards: Hey, guys. It is Mike Richards on for Matt. Thanks for taking the question. I guess just to start understanding that you are making these changes to sort of get ahead of renewals moving forward. I was wondering maybe and it is early with these seat-based compressions, is there an opportunity to go back into these accounts you know, before their next renewal to offer the usage-based pricing or services where you can sort of, like, get back what you lost. Absolutely. For a minute. Jennifer Tejada: One of the benefits of long-term agreements is it gives us more time to go in during the period proactively with not only new pricing and packaging offerings, but also more flexibility to get across products and new add-ons. And, you know, we have seeded several thousand customers with our PagerDuty advance. Products and services and seeing really good engagement there. And in fact, had a lot of with our SKU that you are aware of called AI ops. Which is really about event management, event correlation, and root cause analysis. But that was our first usage-based pricing offering, and that is growing, you know, over 50% year over year, and it has been consistent growing on a solid base. It is not a small revenue product. So, absolutely, this gives us an opportunity to be more proactive. And in fact, the vast majority of customers that Todd and I have seen together are nowhere near a renewal. We are talking about you know, getting feedback on the product, how can we help them attach to uses. We have a bandwidth of trying to accomplish and telling us a lot of the same things. One, we are actually starting we are moving from experimentation to deploying AI investments, and we need to do that in a safe and responsible way, and we need your help doing it. Lot of interest in the MCP, which was released for general availability. Earlier in the quarter. And, also a lot of positive feedback in, very significant feature-based release, across our entire platform. I think this is the largest release in the company's history. Frankly. And that has been made possible for through our developer's own use. Of AI. So absolutely proactive. It is a team sport, and we have Allison Todd, and their teams along with Catherine who leads our digital first business. And all of the executive sponsors in the business really, focus on making sure that there are no surprises and we are not turning up to the party late. Mike Richards: That is great to hear. And then, Howard, just a quick one for you. Just in terms of the guidance system, assuming that the dollar-based churn that you are seeing now from CPaaS compressions is sort of stabilizing from here. Or are you assuming that it continues to worsen? Howard Wilson: Yes. So what you our guidance has factored in sort of the visibility that we have today around dollar-based net retention through Q4. And that is driven primarily by the renewal rate. And the visibility that we have around those renewals is now sort of taking us out further and earlier into the process. That gives us a lot of confidence in the guidance that we have given. So we have not provided a specific number around dollar-based net retention, but we do expect that some of the seat-based pressure that we have had will continue in Q4. Mike Richards: Thanks, guys. Jennifer Tejada: Thank you. Howard Wilson: Thanks, Mike. Operator: Thank you. Turning next to Andrew Sherman with TD Cowen. Andrew, please go ahead. Andrew Sherman: Great. Thanks. Good to see you. Much Jen, how much of the surprise in the quarter from some of the reorgs in the layoffs? It sounds like that pressured seats. How much of that do you view as, like, one-time because some big companies had layoffs and how much is like, is all this kind of out of your control or are there things that you can do to kind of pinpoint this sounds like some of the earlier renewals will help. And I know there is a big renewal base in Q4. So like how do you kinda prevent that happening in Q4 too? Agree. Jennifer Tejada: Question, Andrew. And it is nice to see the real Andrew Sherman. We see a name and then see a face. So thanks for being here today. You know, we already are making progress by being more proactive and explicit in, going to customers before they come to us to say they have problems. And I mentioned earlier that the absolute number of customers downgrading and of customers leaving the platform has improved. And has decreased over the quarter. So that is I think, a good leading indicator. We also are not waiting for to tell us that, they have got challenges. We are in there all the time asking questions with a pod model now that includes the sales rep, the solutions consulting, in some cases, their first-line managers as well as the customer success manager. And where we are engaging with premium support and, professional service that also gives us better visibility. So we do expect that to improve. You know, we are also seeing generally is just what our customers sort of refer to as being cautious about their budget because they just do not they are uncertain. About where that is going to be in the next couple of quarters. So by getting further out in advance of renewals, we also can capture budget even ahead of renewal timing. So we like I said, we do expect it to improve. I do not expect the macro to change meaningfully, and we are prepared and I think in a very strong position from a financial perspective with the durable balance sheet very strong operating margins, and free cash flow. To work through this process with our customers. Andrew Sherman: Yep. Okay. Thanks. And then on the consumption change, talked a bunch about it last quarter too, but sounds like consumption of the platform was still healthy. Was is that the case? And how are you kind of how quickly can you move to this consumption model so that the seat pressure becomes less and less of a headwind? Jennifer Tejada: Yeah. We are seeing usage go up across almost every usage metric on the platform and also that new customer growth that we talked about earlier both in terms of new loanable lands as well as net new customers. And new and free and paid customers, all growing in double digits. That is heartening in terms of demand for the product. And I would just remind you that it is not a one-dimensional shift from seat-based to usage-based because we have a lot of new customers and, frankly, growing customers that are very happy on a seat-based model where we do not see these tailwinds. We are really seeing them the most pronounced in the very largest customers. We have thousands and thousands of employees and, therefore, reorganizations that might impact thousands of employees that then cause seat-based compression for us. The other thing that I would say is as we move from single-year to multiyear, again, that gives us more time to seed some of these, usage-based products. And a number of our customers who are engaging in based have credits that they will be burning down, which we expect will then convert to ARR. So we will get some benefit as those customers spend more time and have more experience with these usage-based solutions. And with our Agentic incident management suite now in the marketplace, that gives us more surface area to grow in. Andrew Sherman: Great. And our maybe maybe just to emphasize one of the points that Jen made there. You know, when we see these customers who have the seat reductions, you know, the good thing is that they are staying with PagerDuty because they recognize us as the leader. In terms of how they manage their AI operations today. What we have seen is that as we start moving them to our flexible licensing model, they have access to more product footprint than they would have in the past. And as they have access to more of that product footprint, it allows them then to use more of the platform. And that we expect over time going to then lead to them growing with us further. So whilst their base might have shrunk for now, in fact, they are setting themselves up the foundation to really grow as they continue to scale their operations. Andrew Sherman: That is great. Thanks, Howard. Congrats, and best wishes. Great working with you. Howard Wilson: Thanks. Thanks, Andrew. Operator: Thank you. Next from Truist, have Miller Jump. Miller, come on up. Great. Thank you for taking the Howard, congrats on your next steps. Miller Jump: I am going to annoy you guys and ask another question about the seat count headwinds. But I guess the question is, really you know, it sounds like it is purely layoff driven. And from that perspective, would you characterize all these as businesses that are more challenged, or is there any evidence you are starting to see that AI is potentially pushing out investments in headcount in some of these businesses? Jennifer Tejada: You know, generally speaking, what I am seeing, you know, when if I try and correlate customers that are making changes, to what we are seeing in their earnings announcements, etcetera, there is really a focus on improving operating margin, reducing costs, and sort of rethinking how they might be attacking, you know, different efforts across the business. You know, frankly, we are also building more and more automation into the platform as well. Right, which, you know, over time means that seat-based licensing is not really as well tied to the value proposition that we are delivering. So this is a natural evolution, but it is more pronounced when you see a large customer with a significant headcount reduction, then come to us. So on one hand, it is interesting. It is kind of a dichotomy even within some of the same accounts. On one hand, we will see the rightsizing as a headwind, but the same customer will then come to us and say, our number one priority is resilient. So now that we have gotten the contract rightsized, how can you help us improve? To Howard's point, we almost see immediate growth opportunities following that sort of, resizing. And so and I think it is a temporal thing because we have seen our we have even seen customers who have significantly reduced their spend with us come back a year later and only to build back up. We are also seeing, you know, a number of opportunities where we are winning competitor replacement even where the competitor was less expensive. But not serving the resilience proposition. And, you know, if you think back just over the last eight to twelve weeks, there have been a number of public service failures where, you know, we are the only platform that is still standing in because of all of the architectural redundancy we built into the product. And so that sort of reinforces the tailwind that is you know, operational resilience as a priority. Miller Jump: Makes sense. I guess I want to ask one about the bottom line for Howard. Obviously, a big step up that you are now projecting this year. Point well taken about, you know, 30% is kind of that long-term target that you are working towards. I know you are not guiding the year ahead, but like, can you talk about trajectory at all and just the potential for these types of gains in the future versus how you would expect it to ramp? Howard Wilson: Yeah. Well, thanks, Miller. We are proud of the progress that we have made. I mean, this is our sixth consecutive year of us continuing to drive that improvement in terms of operating margin. And we also, you know, have looked across the threshold around GAAP profitability for the full year next year. So this has been like a steady program that we have been running. We are not setting expectations for next year. But what I can tell you is that, you know, we remain committed to looking at ways in which we can, you know, optimize the spend within the business and deliver, you know, good results. So we are continuing to make investments in the things that are important for in terms of our customers, our transition, and our product. And you can expect to see more of that. Miller Jump: Thanks very much. Howard Wilson: Thanks, Miller. Operator: Okay. Next, we will hear from, the representative from Morgan Stanley. Again, please introduce yourself. I you are a new face for us. Oscar Savedra: I am Oscar Savedra on for Sanjit Singh. And congratulations from me to you, Howard, as well. Howard Wilson: Thank you. Both at Oscar Savedra: you get to do some fun stuff during retirement. Guess my first question, you know, with regards to guidance for Q4 right now calling for 1% of growth at the midpoint, I was wondering like how much of that is based on what you are seeing in the pipeline in terms of the upcoming big renewal quarter versus maybe a bit more conservatism around you know, maybe the timeline to when that usage-based part of the model will begin to offset the seat pressure that you have seen. Howard Wilson: Yeah. Sure. So when we look at the guide that we provided for Q4, we have factored in the visibility we have around renewals. Q4 is our largest quarter. In terms of renewals. We do expect that as we transition customers to the new pricing and packaging model, that that will mitigate the impact of some of the contraction that we have seen. And set those customers up for growth. We are not expecting that to have a major impact in Q4. So whilst we are moving customers to this new pricing, that obviously is not something that you just turn on instantly. But we are making good progress and we are working with a large number of customers who have renewals in this quarter around moving them to that new model. But we have factored in both looking at the engagement that we are having with customers and early engagement we started with them now months ago with some of the changes we have implemented and also having a look at the customer's own state of usage and adoption of the platform to try and make sure that we can be really targeted to help drive and improve their adoption. So we are expecting some of the same that were emerging in Q3 would still persist to some extent in Q4. We are still expecting to see stabilization in that the number of customers that are downgrading or churning. We have got a good handle on that. We are looking at ways in which we can mitigate any contraction. Oscar Savedra: Got it. And maybe as a follow-up, you know, Jennifer, you talked about, you know, improvement in customer log retention and being less absolute customers in size. I was just wondering, like, if you can sort of, how do you square that with the downtick in we saw in the customer spending over $100,000 in ARR? Jennifer Tejada: Yeah. It really comes down to the just the impact of down sells at the larger end of the market. And customers, I think, are expanding at a similar rate that they have in the past, but they are smaller expansions and a little more cautious than they have been in the past. So it is on us to work with them to see the value from those investments quickly. So that they can continue to build on them. I also believe that as Allison has gotten closer to the business, she is identifying more opportunity in the base, particularly as it relates to giving customers exposure to new products and services across the platform, and that is something that we are working to do a better job of attaching. Oscar Savedra: Got it. Thank you very much, guys. Jennifer Tejada: Thank you, Oscar. Howard Wilson: Thank you. Operator: Thank you. And turning next to BofA. Again, please yourself and ask your question. George McGrion: Hi. It is, George McGrion on for Koji Ikeda. Really appreciate you taking our question today. So I wanted to ask about the AgenTex suite. And kind of the, you know, the tailwind that that might be to consumption as we kind of shift to consumption. You know, just among the products and features that are in, generally available today, MCP server, Shift Agent, you know, etcetera. Do you kind of see any difference in the way that customers that are engaging with those products are using the platform today? Maybe any increase or is that early? And then also on the other hand, just in terms of how the suite further differentiates PagerDuty from the competition, you see that kind of showing up in your competitive win rates today? Or is maybe that too early? Thank you. Jennifer Tejada: Yeah. And we are seeing thank you for the question, George. We are seeing really positive response to the Gentex suite for a couple of reasons. One, most agents that you will hear about in and around the incident management space can only work across the environments that they are built in. And because of our 700 plus strong integration ecosystem and the data that we have built over many, many years focused on incident management. Our agents are able to leverage a much broader context to determine what is truly a challenge to troubleshoot and triage that and ultimately resolve it. And with the benefit of MCP can work hand to hand agent to agent with other platforms, whether it is one of the cloud providers or hyperscalers or in the case of Glean who we mentioned earlier, where the agents are able to work together seamlessly. Right? The other thing is, our products and services have always been human in the loop or human in the lead, and so the user can see the agent at work and engage in that process, which builds trust. And what we are seeing is that then drives, more usage and more adoption and then more usage. So it is a bit of a self-fulfilling cycle in that regard. And I think from a competitive standpoint, because it is not a single SRE agent, we have an agentic scribe an agentic shift agent that takes a lot of the pain out of scheduling and escalation development. We have got an agentic analyst that helps you understand actually what is going on during an incident, what has happened in the past, and how you can apply some of those learnings very quickly, like during the incident, instanti And then, of course, the SRE who is doing some of the work. And you can imagine where this can go over time. Now that we are able to, add and scale agents on this platform. So I do believe it is quite unique in the market. And also resilient like all of our products and services are. So, so that we are really excited about. And with other usage-based products like AI ops, what we saw was a pretty steady, growth over a period of time. By first seeing the product, getting customers to try it and use it, and then getting them to consume in the case of AI more events, in the case of the Gentex suite. More credits. And so we do we do expect to see those customers grow as they get a hang of using not just the agents, but also our generative offering as well, which all lives under the PagerDuty, advance umbrella. And then to your question around, you know, why are we confident, one, it is just seeing the usage patterns even on a smaller base, healthy growth. Two, customers have helped us design these agents. So all of our PD advanced products and services started in an early design program. So they basically, were built in service of what our customers told us they needed. So we are meeting the demand in the market first in many cases. And, likewise, they are more intuitive to sell. In some cases than maybe some of our more technical automation offerings of the past. So the field is really excited learning how to talk about them, how to show customers how to try them, get them, enabled. And get customers discovering them in product. George McGrion: You very much. Jennifer Tejada: Thank you. Howard Wilson: Thanks, George. Operator: Okay, team. I believe we have one more question queued up from William Blair. Is that Jacob on the line? Feel free to turn your video on and unmute. Yes. Hi, everyone. This is Jacob Zirvan for Jacob Vares. For taking the question. You touched on the solid momentum with new logo ads this year. Could you give us some more color on how these logos are landing in terms of size relative to prior years? Especially as you are prioritizing larger deals and multiyear commitments. Jennifer Tejada: Yeah. This is one of the things that I look at every quarter. And, you know, frankly, we are seeing good new logo acquisition across all of our segments. And remember that the way we land customers is often through our digital first or self-service environment, and then they will either grow unaided within the digital first organization, or they will grow through the with the help and support of the go-to-market. So we are seeing both, you know, showing promising growth. And know, what I would say is I had a look last week at just the batch of new customers this quarter. I was really pleased to see this balanced mix between new AI natives, some of the hottest companies you are hearing about, some of the fastest scaling companies in the world. I think we mentioned, any scale you may be familiar with Ray and Perplexity. But, also, we are really continuing to see a lot of diversity across industry verticals and, you know, digital first customers as well as more traditional companies that are deep in the middle of transformation. You know, in some of our markets, we have seen some really good competitive replacements where other point solutions have not served customers as they have scaled, and we have been able to provide them with a much more resilient, broader product offering. So it really is a pretty balanced, base of customers. Howard, anything that you would add there? Howard Wilson: Yeah. And I would say that, you know, the size of land can vary, as Jen said. Like, sometimes we have small customers why where it may be a few 100 or a few thousand dollars. Within this quarter, we ask also had a few customers above $100,000. So lands that were, you know, large lands, so those tend to be in the enterprise segment. Sometimes that is also a mix that can be a more traditional type of industry, but certainly a lot of the software and technology and AI leaders also tend to come in at some of the higher values north of 50k. Jacob Zirvan: Got it. Thanks. Just one more on my end. You had a meaningful decline in stock-based comp this quarter. I guess as you are positioning for GAAP profitability, should we expect this level of stock-based comp like, a forward basis? Howard Wilson: The I you can expect stock-based comp to decline. The rate of decline, you know, will be different as we sort of move forward through, you know, through the end of this year and into next year, but that is the trend that you can anticipate. Jennifer Tejada: Yeah. And as you know, that is a lagging indicator. It is the result of pretty significant effort over the last several years that you sort of see show up in the out years, and we are continuing to be committed to managing stock-based comp effectively as part of our, you know, profitable growth ambition. Jacob Zirvan: You Thanks, Jacob. Operator: Howard, Jen, we have made it through another batch of questions. Jen, can I turn it over to you for any final remarks? Jennifer Tejada: Yeah, sure. Thank you. Thanks, everybody, for joining us today. We feel we are uniquely positioned to support enterprise resilience across customers' strategic digital and AI operations. Our product velocity and expansion into cutting-edge use cases continue to widen our competitive moat. We are central, ubiquitous, neutral, connected, and everywhere. And the strength of our P&L and balance sheet ensures that we are able to drive differentiated customer value in any market cycle. I just want to mention that we are grateful for the trust of our shareholders, the ingenuity and dedication of all of our employees, and the support from our customers and partners. And we wish you a wonderful Thanksgiving. Thank you, everyone.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Best Buy's Third Quarter Fiscal '26 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for playback and will be available by approximately 1:00 p.m. Eastern time today. [Operator Instructions] I will now turn the conference call over to Mollie O'Brien, Head of Investor Relations. Mollie O'Brien: Thank you, and good morning, everyone. Joining me on the call today are Corie Barry, our CEO; Matt Bilunas, our Chief Financial and Strategy Officer; and Jason Bonfig, our Chief Customer Product and Fulfillment Officer. During the call today, we will be discussing both GAAP and non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and an explanation of why these non-GAAP financial measures are useful can be found in this morning's earnings release, which is available on our website, investors.bestbuy.com. Some of the statements we will make today are considered forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may address the financial condition, business initiatives, growth plans, investments and expected performance of the company and are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's current earnings release and our most recent Form 10-K and subsequent Form 10-Q for more information on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements to reflect events or circumstances that may arise after the date of the call. And now I will turn the call over to Corie. Corie Barry: Good morning, everyone, and thank you for joining us. Today, we are very pleased to report strong results for the third quarter. On revenue of $9.7 billion, we delivered an adjusted operating income rate of 4% and increased our adjusted earnings per share 11% year-over-year to $1.40. We delivered better-than-expected comparable sales growth of 2.7%. Our better-than-expected profitability was due to the higher revenue and lower-than-expected SG&A expenses. We continue to drive strong sales performance across computing, gaming and mobile phones. We also saw growth in other categories, including wearables and headphones. This growth was partially offset by declines in the home theater, appliance and drone categories. In computing, we delivered our seventh consecutive quarter of positive comps with sales growth coming from across the assortment and price points. This is due to continued momentum driven by customers' need to replace and upgrade products, combined with our unique blend of broad assortment and expert advice, service and support. We were there for students and their families no matter their budget, and we're pleased with our back-to-school sales performance. We were also focused on helping customers get what they needed to transition to Windows 11 as Microsoft ended support for the Windows 10 operating system mid-October. This contributed to our comparable sales performance evidenced by strong Windows-based sales overall and almost 30% year-over-year growth in desktop computers. In gaming, we continue to see strong demand for the Nintendo Switch 2, as expected, the growth rate slowed from the more material Q2 launch time frame. We also continue to see healthy demand for handheld gaming and augmented reality glasses. In mobile phones, we leveraged our expanded partnerships and in-store operating model improvements with the largest carriers to drive strong sales growth across phones. Our Q3 Enterprise comparable sales were driven by growth across both our online assets and our stores. Online sales were up for the fourth consecutive quarter due to higher traffic and increased customer adoption of our highly rated app. We also drove our fastest shipping fulfillment speed ever, coupled with our highest on-time rate for a third quarter. According to our 5 Star surveys, our store customer experience ratings for product availability, store appearance and associate availability all improved year-over-year. We were also pleased to see continued year-over-year growth in our overall relationship Net Promoter Score, reflecting improved customer perception on all relationship attributes with the largest gain in meeting my tech needs for the second straight quarter. For the most part, customer shopping behavior in Q3 did not change materially from the commentary we have shared for the past several quarters. Customers remain resilient, but deal focused and attracted to more predictable sales moments including back-to-school sales events and our Techtober sales held in close proximity to the October Prime Day event. September, which was relatively quiet outside of the Labor Day sales event, has lowest growth of the quarter. Importantly, while customers continue to be thoughtful about big ticket purchases in the current environment, they are willing to spend on high price point products when they need to or when there is technology innovation. To summarize our Q3 performance, we are flexing the unique strength of our model as customers need to upgrade or replace their CE and new products are coming to market. I want to thank our amazing employees for their dedication to our customers and their strong execution in delivering these Q3 results and setting us up well for an exciting holiday quarter. I would like to provide a few updates on the progress we are making on our fiscal '26 strategy. As a reminder, our strategy is to continue to strengthen our position in retail as a leading omnichannel destination for technology, while at the same time, building and scaling new profit streams that we believe will drive returns in the future. Our first fiscal '26 strategic priority is to drive omnichannel experiences that resonate with our customers. Last quarter, we provided multiple examples of store refreshes and upgrades planned for the back half of the year, many of which were in partnership with our vendors. A few updates. We launched the latest AI glasses from Meta across all stores. In more than 50 locations, we now have immersive showcase areas staffed by Meta experts to help customers discover and try the technology hands on. The strong customer demand for in-person demos continues to outpace available appointments. We introduced new experiences with Breville and SharkNinja that feature expanded assortments for at-home baristas and chefs and innovative health and beauty solutions. Very early reads are positive and we are excited to monitor customer response during the holidays as many of these new experiences will be staffed with expert sales associates to bring this innovation to life for our customers. We expanded the merchandising areas featuring TVs from TCL, Hisense and LG, which are staffed by dedicated experts to address questions and help customers get what they need. These were not all live for the whole quarter, but very early reads are showing positive results. And earlier this month, we implemented most of the new IKEA pilots we announced last quarter. These 1,000 square foot areas are staffed by IKEA coworkers and showcase kitchen and laundry room settings from IKEA and appliances from Best Buy. While there are only 10 pilot locations, this is the first time IKEA products and services are available through another U.S. retailer, creating innovative ways for both of us to meet customer needs in a changing environment. We continue to drive the digital experience forward as well. Usage of our app is growing every quarter, which helps us recognize more customers as they shop with us and gives us the opportunity to provide better personalization and product recommendations. In addition to launching our marketplace, we continue to make online customer enhancements, a few specific examples. We improved the online TV shopping experience by both lowering the price for our delivery and installation services and improving the digital flow to make it even easier for customers to add the services to their online TV purchase. For shippable products across categories, customers in all our markets can now pick a 2-hour window for delivery up to 7 days out. This capability was only available in about 1/3 of our markets last year. This is a great option for customers, especially those who may want more security around their high price point purchases. As always, we have a relentless focus on the employee experience and being the best place to work, which is driving engagement, historically low turnover and healthy applicant pools. This, in turn, allows us to provide our customers the expert service that Best Buy is known for across stores, online and in homes. On top of that, our vendors have grown their investment in our specialized labor programs to augment our staff. We continue to expect vendor labor investment to be approximately 20% higher than last year in the second half of the year. Our second strategic priority for fiscal '26 is focused on incremental profitability streams. We are excited about our new Best Buy marketplace. We are about 3 months into the launch and have more than 1,000 sellers and 11x more SKUs available online for customers than we did before. Now we have more tech options than ever for our customers, both from big names like Samsung, Dell, HP and Intel and new vendors that help us level up our tech assortment across categories. We also have hundreds of new brands and new categories like licensed sporting goods, seasonal decor and much more. For our sellers, our marketplace provides an additional avenue to increase their reach and build their brands, leveraging our qualified traffic. I will share some early results and learnings. As expected and an important goal of Marketplace, we are seeing high unit sales in categories like accessories and small appliances. The 5 Star customer reviews for 3P experiences are similar to those we see for our first-party business. Customer return rates for marketplace items have been running lower than our first-party return rates. And for customers who do have a return, they are taking advantage of the convenient return to store option for more than 80% of product returns. Marketplace ramped through Q3 in terms of sellers, SKUs, traffic conversion rate and sales. We expect to continue to ramp through Q4. Our marketplace results had a positive impact on our Q3 gross profit rate, and we expect it to positively impact our Q4 gross profit rate as well, and it is already providing opportunities for Best Buy ads through new advertisers. Speaking of Best Buy ads during the quarter, we hosted our first-ever client showcase in September called We Got Next. It spotlighted our scale, performance and innovation to key decision-makers across agencies, brands, partners and press. We were encouraged by the reception. Advertisers are particularly excited about our new in-store takeover product, unique to Best Buy. This high-impact program features both large-format signage across the store and screens across the TV wall and computer monitors. It begins running in January with Meta and ESPN. We continue to invest in strengthening and advancing the technology platform we need to capitalize on the opportunity we see ahead. During the quarter, we launched our self-serve platform, My Ads, which is particularly important for our new marketplace sellers. We also enabled on-site programmatic buying, augmented our reporting capabilities and expanded our on-site ad supply. We are successfully expanding into new opportunity areas like agencies and demand-side platforms or DSPs. We are also gaining traction in non-endemic categories, with several partners testing the platform in differentiated ways. Financial services is emerging as a standout vertical with PayPal, Klarna and Capital One shopping, all activating campaigns. Other new non-endemic categories include quick-serve restaurants and sports entertainment. Our retail media network is already highly profitable and our Q3 growth in ad collections had a positive impact on our gross profit rate, and we expect it to positively impact our Q4 gross profit rate as well. We expect a neutral impact on this year's operating income rate compared to last year due to the investments we are making in technology and talent. This brings us to our third strategic priority for fiscal '26, which is a long-standing strategic imperative, driving efficiencies and identifying cost reductions are crucial to help fund investment capacity for new and existing initiatives and offset pressures in our business. There are many ways we realize these efficiencies, with technology and analytics, through ongoing vendor partnerships and vendor selections throughout the enterprise and by modifying existing processes or customer offerings. In our customer support capability, we are leveraging AI to streamline interactions and provide new experiences that empower customers with more self-serve content and options. As a result, we drove a 17% decline in the number of customer contacts in Q3 and improved our customer experience scores. By leveraging our new data-driven sourcing solution to choose the most efficient location to fulfill more than 70% of our online orders, we are seeing faster delivery times, better on-time delivery and lower costs. Going forward, we will continue to use AI augmented optimization across multiple areas of our business, from scan detection to customer support to personalized e-mail marketing. And we are increasingly using AI for product search, product recommendations and enriching product content as well as expanding into conversational AI and agentic commerce. We have officially kicked off the holiday season we feel well positioned with compelling deals on hot products, strong marketing and competitive fulfillment options. From a timing perspective, our promotional plans for the most part, line up with last year, doorbusters drop every Friday through the holiday and our Black Friday sales started the week before Thanksgiving. We have something for every budget with deals across a wide range of price points. Because of our unique position, we can also offer customers great prices for the latest innovation and premium products and assortment that not everyone has. This includes limited quantity hardware, games and toys that drive traffic and excitement to our stores and digital properties through invitation-only and other exciting launch events. We expect gaming to be a hot holiday gift category with products like the Nintendo Switch 2, the ASUS Rog Xbox Ally handheld gaming system, gaming laptops and gaming monitors. Other exciting gifts for holiday include AI glasses from Ray-Ban and Oakley, 3D printers, OLED TVs, the new Hyperboot by Nike, limited quantity Pokemon cards and LEGO toys and JBL PartyBox speakers. For those looking for gifts that can be used every day, we have great deals on the new remarkable Paper Pro and Copilot+ laptops, small appliances like Ninja SLUSHi machines and Breville Barista espresso machines, health products like the new Oura Ring 4 and much more. In stores, you can interact with our immersive experiences and demos and get advice from our blue shirts and vendor experts. And every year ahead of holiday, we, like many vendors, hired thousands of seasonal flex employees. This year, we tried something new and brought all the new associates together for a full weekend earlier this month. The event was a resounding success, not only in training the new employees on products, tools and transacting, but immersing new team members in the values, energy and collaboration that define Best Buy's culture. Of course, all the in-store products and more are available for customers who prefer to shop from home. We have our holiday gift ideas page with curated gift list based on interest and a personalized discover page designed to help customers discover new technology. In addition to great price points, we have our comprehensive trade-in program that we will highlight throughout the holiday to help customers more easily get new technology. For example, customers can save up to $1,200 by trading in their tablets or up to $1,100 trading in their phones. We also have great no-interest programs available on the credit card in addition to buy now pay later options to help customers complete their holiday shopping list. We are excited about our holiday marketing campaign that meets people where they already are across sports, streaming and social. We're teaming up with more than 200 influencers and Best Buy creators as they highlight the tech that's topping their gift list. And this year, we are going even deeper with sports. We continue to be the official home entertainment retailer of the NFL, and our holiday campaign will have an increased in-game presence across NBC, Peacock, CBS, Fox and Netflix. We will also have presence on cbssports.com and across streaming sports content on ESPN. In summary, we are pleased with our Q3 financial results and execution, which included improved share positions. We expect to deliver sales growth for the year. The high end of our Q4 outlook assumes growth in computing, gaming and mobile. It also reflects trend improvements in TVs driven by a blend of sharp pricing, increased marketing, specialty labor and improved delivery and install offerings. Our results demonstrate an important aspect of our thesis. Our model really shines when there is innovation. This is because we are the trusted source for the latest and greatest new technology. We have a broad range of assortments and price points for every budget in addition to unique in-store and digital experiences. We also have Geek Squad services to help our customers, and we are a true partner to our vendors, working with them from early in the product development cycle, all the way to launching products on our sales. And now I would like to turn the call over to Matt for more details on our Q3 performance and Q4 outlook. Matthew Bilunas: Good morning. Let me start with an overview of how the third quarter performed versus expectations we shared with you last quarter. Enterprise comparable sales growth of 2.7% exceeded our outlook of being similar to our second quarter growth of 1.6%. Our adjusted operating income rate of 4% was 30 basis points better than expected, which was largely driven by lower-than-planned SG&A expense. I will now talk about our third quarter results versus last year. Enterprise revenue of $9.7 billion increased 2.4% versus last year. Our adjusted operating income rate increased 30 basis points compared to last year, and our adjusted diluted earnings per share increased 11% to $1.40. By month, our Enterprise comparable sales were up approximately 3% in August, 1% in September and 5% in October. In our Domestic segment, revenue increased 2.1% to $8.9 billion, driven by comparable sales growth of 2.4%. Our online revenue of $2.8 billion increased 3.5% on a comparable basis and represented 31.8% of our domestic revenue. Our online comparable sales growth includes net commission revenue earned from our third-party marketplace sellers. From an organic standpoint, the blended average sales price of our products was approximately flat to last year, with the unit growth being the primary driver of our sales growth. International revenue of $794 million increased 6.1% versus last year. The revenue increase was primarily driven by comparable sales growth of 6.3% and revenue from Best Buy's Express locations that are not yet included in comparable sales. The previous items were partially offset by the negative impact from foreign exchange rates. From a category standpoint, the largest drivers of international comparable sales growth were computing and mobile phones. Our domestic gross profit rate decreased by 30 basis points to 23.3%. This was primarily due to lower product margin rates partially offset by rate improvement within the services category. The lower product margin rates were primarily driven by an unfavorable sales mix and increased personalized promotional offers. Our international gross profit rate increased 30 basis points to 22.8%. The higher gross profit rate was primarily due to favorable supply chain costs. Moving to SG&A, where our domestic adjusted SG&A decreased $4 million, which included lower Best Buy Health expenses that were largely offset by higher incentive compensation expense. During the third quarter, we recorded pretax noncash asset impairments of $192 million related to Best Buy Health, which were excluded from our adjusted results. The impairments were prompted by a change in Best Buy Health's customer base during the quarter and reflect downward revisions in our long-term projections in part due to pressures in the Medicaid and Medicare Advantage markets. Year-to-date, we have returned a total of $802 million to shareholders through dividends of $602 million and share repurchases of $200 million. For the year, we still expect to spend approximately $300 million on repurchases. Let me next share color on fourth quarter guidance. From a top line perspective, we expect our fourth quarter comparable sales to be in the range of down 1% to up 1%. In addition, our fourth quarter comparable sales outlook for Canada more closely aligns with our expectations for the domestic segment. On the profitability side, we expect our fourth quarter adjusted operating income rate of 4.8% to 4.9%, which compares to 4.9% last year. Moving to gross profit. We expect our fourth quarter gross profit rate to decline versus last year due to a lower product margin rate, which is primarily due to increased promotional investments. Other notable drivers that are expected to benefit our gross profit rate include growth from Best Buy ads, our recently launched online marketplace and improved profitability from our services category. Moving next to SG&A, where the most notable planned puts and takes are the following: increased SG&A in support of our Best Buy ads and marketplace initiatives, which include advertising, technology and employee compensation expense. Offsetting these items are lower Best Buy Health and incentive compensation expense. Lastly, the low end of our guidance reflects our plans to further reduce our variable expenses, including incentive compensation to align with sales trends. Let me provide more details on our updated full year fiscal '26 guidance, which incorporates the color I just shared on the fourth quarter and is the following: revenue in the range of $41.65 billion to $41.95 billion; comparable sales growth of 0.5% to 1.2%; adjusted operating income rate of approximately 4.2%; an adjusted effective income tax rate of approximately 25.4%; adjusted diluted earnings per share of $6.25 to $6.35 and capital expenditures of approximately $700 million. Our full year gross profit and SG&A working assumptions are still very similar to what we shared last quarter, and some of the key callouts are the following: we believe our fiscal '26 gross profit rate will now decline approximately 15 basis points compared to last year. The high end of our guidance continues to reflect incentive compensation that is approximately flat to last year. As I noted, we now expect our adjusted effective income tax rate to be approximately 25.4%, which compares to our prior guidance of 25%. I will now turn the call over to the operator for questions. Operator: [Operator Instructions] Your first question comes from Simeon Gutman with Morgan Stanley. Simeon Gutman: Nice third quarter. I wanted to ask about the puts and takes on Q4. It looks like the comp maybe be light from what we were expecting standing from the second quarter, meaning once you guided the prior quarter, but a little bit better on profit. So can you talk about -- I guess there's a lot of scenarios what could amount, but how you set up your fourth quarter guide? And any difference in thinking from when we talked about it 3 months ago? Matthew Bilunas: Yes. Overall, the high end of our Q4 guide from a sales perspective is pretty similar to what we guided the last time, maybe just a little bit lower. We did raise the bottom end of that sales guide from something that was implied to down 4% or maybe more to the number we talked about here today of down 1%. So feeling good about where sales are effectively similar to where we expect them to be on the August call. On the EBIT side, we actually slightly lower the EBIT expectations from what we would have implied last Q4 of closer to 5%. So most of that was on the low end. We did have a little bit more rate pressure on the low end because we have adjusted the revenue expectations, and therefore, the incentive compensation changed a little bit. So overall, at the high end, not a very big difference from what we would have implied in the guide on the August call. Simeon Gutman: Okay. And then the follow-up, based on the adoption of either Switch 2 or other things in entertainment as well as iPhone. What do the curves look like? Meaning, does it portend that you have another year's worth of good momentum? Like is a lot of demand pent-up? How do you think about it as you go into fourth quarter and into next year? Matthew Bilunas: Sure. I mean, I think for -- to support the fourth quarter guide, we are still expecting growth on the computing side and mobile phones. Computing is still going to be fueled by the need to replace and upgrade and plus all the ongoing innovation around AI. That will continue into Q4 and likely continue into next year as we still see that there are millions of people who have yet to upgrade the Win 10 device and there's further opportunities even on the Mac side of the business, who haven't upgraded to the newest chip technology. You think about mobile phones is expected to continue to grow as we get into Q4 likely as we get into next year as well. We are seeing continued benefit from the in-store improvements with the carriers. On the entertainment side, as again in Q4, we still expect to see Switch help us grow in Q4, but on the other console side, that will likely slow as you get into -- they're just later stages of the replacement cycle of those 2 other consoles, plus, there's been some pretty transparent price increases that are obviously probably having a little bit of an impact. As you get into next year, likely still a little opportunity before we lap the Switch 2 launch midway through the year. We are expecting to see improved trends on the TV side as we get into Q4. We have very competitive pricing. We've put more marketing into the business, and with additional labor and just some changes to the service offers, we feel like that's going to help us improve the trends on the TV side as well. We are seeing already some improvements on the unit -- actually saw units grow a little bit in Q3 on the TV. So that is helpful. And plus, we have a lot of other initiatives. We have the marketplace that's continuing to ramp and scale as we get into Q4. So we feel really great about that, especially as we get into marketplace next year and being able to scale even more along with the ads business. Operator: The next question comes from Peter Keith with Piper Sandler. Peter Keith: Nice quarter. I'd like to just follow up, Matt, on that last response on the Q4 outlook for comp because it does seem like you have quite a bit of momentum coming out of Q3 and some product momentum for the holiday. So what's driving the decel in the overall outlook vis-a-vis Q3? Matthew Bilunas: Yes. Let me just start at a high level for Q3. Like I said, we were expecting a pretty similar Q4 guide overall from a sales perspective. Q3, if I start back in Q3, it did come in a bit better than we expected. We saw a strong back-to-school period. We saw a strong October with Techtober in the early part of the year. So we are seeing a positive growth as we go into Q4, although the Q4 did see some growth last year versus Q3 that saw a little bit of more -- saw some sales pressure. So the comparisons get a little bit tougher as you get into Q4. Obviously, the holiday is never easy to predict. What we do believe is the -- we have a range of scenarios and the range we've provided gives us a great place to plan our business operationally. Some of the categories that changed a little bit in terms of sales growth momentum as you get in from Q3 to Q4. Gaming, we are expecting it to grow overall, but maybe not at the same pace that we saw in Q3 and Q4. Wearables will be another category. I would say probably aren't going to see the same type of growth that we had saw in Q3. Peter Keith: Okay. Helpful. And then maybe another question for Corie on marketplace. How is it going now that it's rolled out? Do you still expect it will have a positive impact on EBIT this year? It sounds like you've shared some helpful KPIs. Are there any challenges now that it's out live? Just kind of give some of the puts and takes that you're seeing on that launch? Corie Barry: Yes. I'm incredibly proud of the work the team has done to launch the marketplace in a very omni-channel way. We mentioned now more than 1,000 sellers that we onboarded in a quarter and 11x more SKUs. So right away, we can see customers looking for that broader assortment. We can see them leaning into some of the unit growth that we were looking for in places like accessories where you can have a much deeper assortment or small appliances where again, you have that ability to have more breadth across what we're doing. So we're really happy with that. We did hit a few of those points on the call where we're seeing that high unit sales in categories, we're seeing return rates be actually a little bit less than what we're seeing in first party and 80% of those returns coming back to stores. We really like the customer experience metrics we're seeing. And so in general, those kind of early indicators really feel healthy and good to us, but it still is really early in the ramp. And we want to make sure we give ourselves enough time to create the kind of scale that we're going to see throughout Q4. But we're excited with the progress that we're making and how quickly we've been able to broaden that assortment how much our customers are leaning into that broader assortment for us. Matthew Bilunas: Yes. Regarding the OI rate impact for the year, I think we had previously said we thought maybe it would be a little bit of a rate improvement for the enterprise for the year. We're now expecting that to be a bit more neutral. Nothing super material has changed in our outlook. There's been just a little bit of a different product mix and a little bit slower ramp than we would have had originally modeled. So again, we never really expected it to have a really huge impact to the rate this year, but more neutral this time at this quarter end. Corie Barry: The last thing I'd say, Peter, I think the great part about having this, especially as we head into Q4, is it just really extends the amount of giftable items that we have for our customers. And the teams are finding really interesting ways to highlight these new extended assortments. So as you look on our global homepage or as you look at search, we're finding new ways to kind of pull the depth of this assortment up. So people really realize there's a lot more out there that our customers can find to be the perfect gift giver. Operator: The next question comes from Joe Feldman with Telsey Advisory Group. Joseph Feldman: So I wanted to touch on the loyalty program a bit. And just if you could share some more details on how that's been performing. It seems like it's been a good driver for much of the year. I don't recall hearing too much this morning on it. So I was just curious if you could share some thoughts. Corie Barry: Yes. I mean, obviously, our membership program remains a really important part of our customer experience and the way in which we engage with our customers. We have more than 100 million members across our 3 tiers, obviously, the free -- my Best Buy membership is the one that has the greatest reach. But on the paid membership side, which is Best Buy Plus, Best Buy Total, we ended the year with nearly 8 million paid members, and that was up from 7 million the year before. And what our focus is right now is how can we continue to drive real value and unique offers for those members. And so one of the things that we have found to be really working well for us is the strategic use of some very personalized promotions. And it's where we can use the breadth of our data to really try to reengage maybe some of those customers who haven't been engaged with us. You can use this data we have about our customers plus the signals we're seeing from customers in the way that they're shopping and really target them carefully with offers, which we're finding is a very unique way for us to reengage those customers who maybe would have lapsed or wouldn't have been shopping with us this holiday season. And another piece that we tried and we have talked about is a deep discount on the NFL Sunday ticket for Plus and Total members, so more of that idea of because you're a member with us, are there other ancillary, especially services and subscriptions that might really resonate. And we're going to continue to test and try and build on those learnings across our membership. The goal no matter what is consistent. We want to drive engagement. We want to increase the share of wallet and we want to use this as another tool that helps us fuel our ads business. And so I think the evolutions that you'll continue to see from here will all be based in continuing to fulfill that goal for our customers. Joseph Feldman: That's great. And then just maybe shifting gears a little bit and may be early, but I did want to ask about how are you thinking about stores and store investment for the coming year? You've done a lot of things to keep tweaking the model and trying different things inside the stores. And I'm just curious how your initial thoughts for next year would look. Corie Barry: Yes, I'm going to start where I always start, which is our stores are incredibly crucial assets. They provide not only differentiated experiences, not only differentiated services but also amazing multichannel fulfillment options. We still are running at 46% in-store pickup no matter what all of the advancements that we made in terms of shipping speed are. So this is a really important asset base for us. And we've been very consistent, and this is true for this year and it will bleed into next year. Our focus right now is on great store look and feel. And so a lot of our capital investments this year have been about ensuring that we're really investing in that look and feel. We've listed a number of the ways we're doing that both ourselves and in partnership with our vendors. And that will continue as we think into next year as we continue to refresh and make sure that we feel like our store updates reflect those great immersive experience in places like AR and gaming and TVs, small appliances, many of the categories that we've talked about, including the experiences that we're driving in mobile in partnership with some of our vendors. We do have some cohort of stores where they're a little bit larger than what we need. And so we've been working on several different ways. And this, again, will move into next year, including relocations, resizing some of the existing formats, now we're looking at some of the new and more innovative ways where maybe we can consolidate the space and bring partners like the IKEA pilot is a great example of that. But you can imagine there's a multitude of partners who might be interested in having some of that shop-in-shop space. And then finally, we've talked about some of the smaller format stores. We now have 3 new small format stores open, testing kind of a couple of different concepts. One is somewhere like Bozeman, where maybe we can enter a market, we wouldn't otherwise enter in other areas, it's closing a larger store and opening a small one. We like what we're seeing in those small format stores, and I would expect us to lean into those a bit as we head into next year as well. So I think all in all, what we're really focused on is making sure that if someone makes the trip to the store. And here's the fascinating small data point. When we look at our demographics, interesting, our youngest cohort, Gen Z is really leaning into the store experience. We can see it in their visits, and we can see it in where they choose to interact, and we can see it in our ability to start to grow share with this cohort, and it's a cohort who is starting to see our brand as updated, refreshed and more relevant. So this -- I think this idea of leaning in here, both ourselves and with our vendor partners, augmenting maybe with the fewer smaller locations. I think that's what you're going to see us focus on as we head forward. Operator: The next question comes from Greg Melich with Evercore. Gregory Melich: Two questions. First, on tariffs. Could you just update us on how much of that do you think has actually flowed through to on the shelf AUR at this point? Is it all in the numbers now or the base? Matthew Bilunas: Yes. Overall, like we talked about in the prepared remarks, our ASP at an enterprise level is essentially pretty flat year-over-year. And most of the growth is coming from the unit side of the business. So that would infer that all of the tariff changes that we would have made on select portions of our assortment would be flowing through in the price. Again, that those -- any tariff increases we would have had were only on small portions of the assortment overall. The effective tariff rate is probably still in the mid-teens, if you will. But that is not what the actual price increases on those portions of assortment that the rate is they were close to that number. So all of that would be implied in the ASP generally being flat year-over-year. What's different about our industry in that is that it's a very -- as you know, very promotional industry. And so even though their tariffs we have to be competitively priced all the time to be competitive. And so that sometimes will mute the overall impact to ASPs. Also we have product at every part of someone's budget, whether you're in computing or TVs. And so any product mix changes, assortment changes can also have an impact on ASPs as well. So overall, they are included, but we're all seeing pretty competitively priced industry and our ASPs, like I said, are not necessarily the one that's not driving our business overall. It's more on the unit side. Corie Barry: I just want to lift up one thing that Matt said. Our #1 focus is on our customer and ensuring we have every price point and every budget available. And one of the interesting things when we looked at our price bands, you can imagine we're looking at how many SKUs we have in each price band in a couple of our largest categories year-over-year, very similar amount of SKUs by price band. And so I think the team is doing an amazing job staying focused on having that breadth of assortment regardless of, to Matt's point, whether or not we have a few small price adjustments coming through so that whatever the budget is, we're there for them, and that will be the goal through the holiday. Gregory Melich: Got it. Makes a lot of sense. I'd love to follow up on labor and working with vendors. Could you just level set us on how much of the store has some vendor support into labor? I think you said that you're adding TVs recently. And just -- I'd love to hear how that really helps engagement score with customers when you have vendors funding some of the labor in the store? Corie Barry: The amount of vendor labor is not a static answer. It flexes and kind of depends on both time of year and, of course, launches or innovation as different vendors choose to lean in and lead out at various points in time. I think one of the differences in our model when it comes to labor is we actually have a number of different ways in which we interact with customers from a labor perspective. We have everything from kind of that adviser who can flex over the whole store all the way into our own specialized category labor or something like an appliance pro who really understands appliances, all the way into vendor labor, which the team, again, I give them a lot of credit, has done a great job. That is a very close partnership between us and our vendors. And in most cases, that is our labor that we are training and deploying that is, of course, more trained against that particular vendor assortment, but is part of our broader umbrella of labor here at Best Buy. And then sometimes, we have a few examples where we also have just flat out vendor-provided labor that's in our stores. And what I think we've gotten good at is the operating model amongst all of those different types of labor. So you know when to hand off to a specialist who might have more experience in a certain product. And those specialists also understand when it's time to maybe hand back off to someone who might be more of a generalist because they want to go shop a different department. And so that when we concentrate on how does the operating model work at Best Buy, it is embracing that vendor partnership labor, but also ensuring it stays consistent with the culture, the values, the way that we think about serving the customer here at Best Buy. Operator: The next question comes from Jonathan Matuszewski with Jefferies. Jonathan Matuszewski: Corie, you referenced Agentic Commerce. I was curious if you could expand there how you think about the top line and potential margin benefits from the prospects of something like instant checkout? And if you have any time line slated for integration, that would be great. Corie Barry: My time line is fast. How's that? But at the same time, joking aside, you really have to prioritize not just where is the incremental margin flow through, but what does the customer experience really look like, and particularly in a business like ours that often includes maybe scheduled delivery, maybe installation, maybe services or membership. You really need to think about in instant checkout. How do you want those experiences to translate for the customer. And that's just when we're talking about the actual transaction point. More broadly, we want to make sure we're thinking about how does our brand, how does our specific knowledge of our customers show up and how is it helpful to customers as they're using a variety at this point of agentic tools. So we're obviously working quickly to make sure that we are relevant and showing up in the right places. But most important for us is protecting the customer experience, so that, that stays consistent with how we would want them to experience our own digital assets. Jonathan Matuszewski: That's helpful. And then, Matt, how should we think about the magnitude of hiring and technology spend for retail media maybe next year versus what took place in 2025, trying to understand maybe how much of the neutral operating margin impact for this business is being constrained by elevated investments this year? Matthew Bilunas: Yes, thanks. We're not obviously going to guide next year, but I do think as it relates to how we're thinking about next year at a high level, we're clearly seeing some sales momentum this year, and we would hope to be able to continue to drive continued momentum on the sales side as we get into next year and obviously, higher sales helps from a rate leverage perspective. It is likely true that as we get into next year for some of our initiatives, we're going to need to continue to invest in those marketplace and the ads business, exactly how much and how much flows through still haven't completed the math on that quite yet. But that is something we want to do because over the long period of time, it's going to help us drive more rate and fuel our other parts of our business over the long term, and we think that it's a good trade-off. So exactly how much that looks next year, hard to say, but we do think it's an accretive thing for us over the 1- to 3- to 5-year period. Operator: The next question comes from Seth Sigman with Barclays. Seth Sigman: I wanted to ask about SG&A. You were able to manage that down quite a bit this quarter despite the best sales growth in more than 4 years. So just curious, was there anything unique this quarter you could unpack that, that would be helpful. And then I'm just curious, does SG&A need to come back more as you think about a scenario where comps remain positive, what does the normal operating leverage in the business look like? Matthew Bilunas: Yes. I mean, for Q3, I think we did see a rate favorability on the SG&A side. A lot of that came from the higher-than-expected sales expectation and higher sales year-over-year. We did see a combination of a few things coming better than we expected, like lower technology spend, a little bit lower labor spend in the quarter. Again, nothing -- we also had a few smaller settlements that also helped us in the quarter as well. Those things -- none of them were dramatic, but a lot of that SG&A favorability on the rate is just coming from the leverage we get on the sales in terms of our performance. So as we get into next year, again, not guiding, but there's places where we're obviously always have a little bit of inflation as we go year-to-year in terms of wages and whatnot, we'll factor those in. And there's some places where we feel like we're going to need to continue to invest to drive long-term growth. We just talked about a couple of marketplace in the ads business. So -- but that would be our goal to be able to drive sales over the long term and get rate leverage as we grow that sales exactly how much. We're still -- like I said, we're still doing the math on that next year. But we have been really good about finding operational efficiencies and cost reductions to kind of help offset the pressures that we have. We've been doing that for years. We would continue to expect to be able to do that. We've talked a lot about those places in the past where and we're using kind of new data-driven sourcing around our supply chain. We have a primary relationship with FedEx as a partial carrier. We've talked about the automated guided vehicles in our warehouses, which we continue to test and roll out. And then there's just a lot of efficiencies through technology and analytics that we can help with our partners, drive more efficiencies around customer supporting capabilities and just future AI opportunities as it relates to a lot of our business areas overall. So there are places for us to kind of offset some of those pressures that do come every year like we've been doing. And so we feel like over the long term, that would be our intent is to try to drive more profitability in our business as we grow the sales. Seth Sigman: Okay. That's helpful. And then, obviously, great to see comps positive, but I want to ask about the categories that are not performing as well, what needs to happen for the CE category and the appliance category to get back to growth? Matthew Bilunas: Thanks for the question. The appliance category is probably the most difficult one that we have in the market today, the vast majority of the appliance market is duress customers, meaning that they're replacing a product that is broken in some way. We're also seeing a very high amount of single unit purchases, meaning a washer breaks, they're not replacing the washer and dryer repair, they're just replacing the washer, which is just very different than what generally happens in the market, and that is a very high percentage in total, which means that promos are not as effective as they are in total because you're dealing with a fixed customer base. We also don't have a Pro business. And really, our sweet spot is primarily premium and packages in historic years. Really, what we have to do is shift our model a little bit. So we're looking at increasing our labor coverage in the department, also looking at focusing on delivery and speed of delivery in particular, which is critical in a duress market, and then also looking at even having opportunities in some of our stores for a customer to be able to take the product with them that day, which is also something that is emphasized more in the market that we're in. So looking to adjust our model until it flips back a little bit more towards our sweet spot, which is, again, that premium in packages, but we really need to meet the customer where they're at in a very duress market. And hopefully, as housing and different things change, then the market starts to swing back to something that might be a little bit more normal. Corie Barry: On the TV side, I would just make a couple of comments there. Our revenue performance did improve sequentially, even though it was still down year-over-year. What's interesting is that our unit performance really accelerated and moved to slight growth in the quarter. And so you can see some of the industry-wide ASP compression there, which we've talked about. Our share trends have improved materially on the unit side, and we believe that we're up slightly year-over-year on TV. And a lot of that is because we have invested in some of the things that we've been talking about, the sharp pricing, the increased marketing that expanded specialty labor and those expanded merchandising experiences in the stores with TCL and Hisense and LG and then augmenting that with the expanded services offerings and working on how that experience works digitally. All of that, I think the team is doing a great job putting together a more fulsome assortment and more -- even more price point options for our customers, which is at least moving that business in the right trajectory. Operator: The next question comes from Christopher Horvers with JPMorgan. Christopher Horvers: So my first question, I'm going to try to go at the marketplace and the ads margin and accretion a little bit differently. I know that others have asked. So can you talk about what you're seeing in terms of like the benefit of both businesses to the gross margin line in the second half? And then as you think about in 2026, one would expect the revenue growth there to accelerate, is it your expectation that as the business scales, the margin rate of those businesses also accelerate? I think on our side, we think about that as strong double-digit margin rates for both businesses. Matthew Bilunas: Yes. I'll break down a little bit for both the different parts of the P&L here. First, if I think about gross profit rate for both ads and marketplace, they have both helped the gross profit rate in the back half of this year. So obviously, on the marketplace side, we're scaling that business. If you think about the rate is helpful there. As we get into next year, we would continue to expect the marketplace to scale, we're clearly going to lap the launch in midway through next year, which might have an impact. But generally speaking, the more you grow it, the more GMV, the more net commissions should be helpful to the gross margin rate, not exactly not linear every quarter, depending on the scaling and when we lap. On the ad side, from a gross profit rate perspective, again, we're continuing to explore and expand into new parts of the ads business and to the extent that we are successful in driving incremental revenue and profitability from that, which we're planning to do. That would also be helpful to the gross profit rate into the future. Now again exactly how much and how it laps every quarter might not be exactly the same, but those would be the intent. On the OI rate side, I think it's going to come down to, as we talked a little bit earlier, like how much do we feel like we need to invest and what the opportunity for that investment in return looks like. And so as we get into next year, that's something we're still evaluating in terms of the technology, the people and other things that we might need to drive those 2 initiatives. We think those are the right decisions overall over time for us to drive more rate opportunities from those 2 initiatives, exactly how much flows through to OI, we're not quite ready to commit to at this point, but we do believe it's a good return for us. Corie Barry: And Chris, the last thing that I would add, and I know you know this, but I feel compelled. Our goal here is really to stay more relevant with the customer. And our goal is to drive more units to be there more often in consideration and to make sure that we are leveraging like partnerships. We mentioned a few on the call to stay relevant with that consumer who has so many choices. And so that part we're starting to see early green shoots on, and that becomes really the flywheel that we've been talking about that helps feed all parts of the business. And that's as much what we're focused on building and expanding next year as anything. Christopher Horvers: Got it. And then how are you planning the holiday? You mentioned a largely similar promotional calendar in an event-driven consumer, but November was tough last year, and you had a government shutdown to stop -- to start the month, as we look at monthly 2-year trends are all over the place, but the business is bending upwards. So can you talk about what you're seeing here in November, if there was any impact early in the month on the shutdown and how you're thinking about sort of the cadence over the quarter given the comparison dynamics last year? Matthew Bilunas: Yes. I mean as we start Q4, we are lapping strong sales last year. As we noted on the call last year, we were running at about 5% growth for the first 3 weeks of November. I'm not sure how much the government -- we haven't done the math on specifically the government shutdown probably doesn't help. Certain geographies, obviously, are more impacted than others. But we are comping a pretty larger amount of growth through the first 3 weeks of November. So the shape of the quarter is likely going to be a little bit different this year compared to last year. November was up 4% last year. December was down 2%. So as we get into December, the compares get a little easier, and we are seeing people gravitate towards those big events that, obviously, this week and as the weeks before Christmas are the biggest events in the holidays. So we do feel like there's an opportunity there for us. So still feel like there's an opportunity for us to grow our sales. The shape will look a little different, even though the timing is pretty similar to how we saw it last year. Operator: Your next question comes from Anthony Chukumba with Loop Capital Markets. Anthony Chukumba: I know this is always kind of tough because all the different product categories that you're in, but how do you feel just at a high level in terms of market share, I mean, particularly given the fact that your sales have accelerated and you did have the best comps in several years. So how do you think about that at a high level? Corie Barry: I appreciate where you started, Anthony, which is it is really difficult in this industry. There just isn't a single source of share information, and there are multiple cuts. That being said, when we try to pull and triangulate all the data sources, we believe we have improved our share position over the last 2 quarters. And in Q3, we estimate that our share was flattish to slightly up. Obviously, we've always said share is a long game conversation for us and all the initiatives that we're talking about are driving toward more of the sustainability to at the highest level, drive shares. And in that, you're going to constantly be making trade-offs, promotion decisions, trade-off pricing decisions. We feel like we're strong right now, particularly in computing and gaming. I talked about our TV unit share position, which now we feel like is erring on the positive side, and there's a lot of these kind of newer categories or the expanded assortment that we're seeing in marketplace that is bolstering our point of view about how we feel like we're sitting for share. So again, always a conversation, longer game, but feel like the trajectory is headed the direction that we want. Anthony Chukumba: Got it. That's helpful context. And then just real quickly on the Switch 2, obviously, that's been selling quite well and Nintendo just hiked their unit estimate for their fiscal year. How have you felt about your Switch 2 allocations relative to your initial expectations? I know you historically have over-indexed on Nintendo products, particularly relative to PlayStation and Xbox. But just love to hear your thoughts just in terms of how you feel you guys are doing from an allocation perspective. Jason Bonfig: Yes. Thank you for the question. We've actually been very happy with Switch 2 obviously, the launch was outstanding. It drove growth last quarter, and we do expect gaming to continue to grow as we lead into Q4. It's been highly publicized at the amount of Switch 2 units in the market is a lot higher than what Switch 1 was in the same time frame. So we have actually been happy with the ability to come closer to meeting customer demand. We do think demand over holiday will continue to still be very strong. And then in gaming, in general, it's not just Switch. There are other aspects of that business that are diving growth. We're just seeing a handheld in general, whether it be the new product from Asus that is a partnership with them in Xbox or other products from companies like Lenovo with their Legion Go. Just handheld gaming is a driver across the entire gaming segment. We're really excited that we think we have the best assortment there and can really meet customers' needs across anything they want to do, whether it be Switch all the way up to any aspect of handheld gaming in total. And that's really making up for some of the slowing sales that you see in just the traditional PS5 and Xbox as those get to the end of their life cycle. Corie Barry: And one of the things, Anthony, that's interesting about all the devices that Jason just talked about, these are pretty high price point devices. And especially considering their gaming, they tend toward kind of a younger cohort, so we really like our position here, and we're kind of doubling down both physically and digitally to make sure we offer the best possible experience. I give our teams a ton of credit as part of the reason that we're able to get the kind of allocations we can is because we can deliver these amazing experiences, especially at retail. So with that, I think that's our last question. Thanks, Anthony. Appreciate it. So I think that's our last question. Thank you all so much for joining us. We hope you all have a lovely holiday season, and we look forward to speaking with you all at the end of our year. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Ladies and gentlemen, welcome to the Arrowhead Pharmaceuticals Conference Call. Throughout today's recorded presentation, all participants will be in a listen-only mode. After the presentation, there will be an opportunity to ask questions. I will now hand the conference call over to Vince Anzalone, Vice President of Investor Relations for Arrowhead Pharmaceuticals. Please go ahead, Vince. Vincent Anzalone: Thank you, Andrew. Good afternoon, and thank you for joining us today to discuss Arrowhead Pharmaceuticals' results for its 2025 fiscal year ended September 30, 2025. With us today from management are President and CEO, Dr. Christopher Anzalone, who will provide an overview; Bruce Given, outgoing Chief Medical Scientist, who will provide an overview of the Rodemplo FDA approval; Andy Davis, Senior Vice President and Head of the Global Cardiometabolic Franchise, who will provide an update on commercialization activities; Dr. James Hamilton, Chief Medical Officer and Head of R&D, who will discuss our development programs; and Dan Appel, Chief Financial Officer, who will review the financials. Following management's prepared remarks, we will open up the call to questions. Before we begin, I would like to remind you that comments made during today's call contain certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact are forward-looking statements and are subject to numerous risks and uncertainties that could cause actual results to differ materially from those expressed in any forward-looking statements. For further details concerning these risks and uncertainties, please refer to our SEC filings, including our most recent annual report on Form 10-K and our quarterly reports on Form 10-Q. I'd now like to turn the call over to Christopher Anzalone, President and CEO of the company. Christopher Anzalone: Thanks, Vince. Good afternoon, everyone, and thank you for joining us today. Before we begin, I'd like to announce that this will be Bruce Given's final earnings call. He's been a valuable member of the Arrowhead Pharmaceuticals team for almost fifteen years. He will continue to help Arrowhead Pharmaceuticals as a trusted adviser, but now that Rodemplo has received its first FDA approval, he will be stepping back from day-to-day operational responsibilities and, hopefully, he can finally enjoy his time in retirement. Or his re-retirement, which is probably more accurate. His contributions to Arrowhead Pharmaceuticals' success, both current and future, have been critical, and we owe him a heartfelt thank you. Later in the call, you will hear from Bruce, who will discuss the Rodemplo FDA approval when he came back to Arrowhead Pharmaceuticals and out of retirement to help us get across the finish line. Bruce leaves us in a strong position with a very strong group of leaders across the organization. As you all know, James Hamilton has already assumed much of Bruce's prior responsibilities as Chief Medical Officer and Head of R&D. So thank you again, Bruce, for getting us to today. Thank you, James, for taking us into the next chapter for Arrowhead Pharmaceuticals. Let's now turn to our business and what progress we've made during the recent period. This has been a very busy and enormously productive last few months. The most impactful change is the FDA approval of Rodemplo. On November 18, we announced that the FDA approved Rodemplo, indicated as an adjunct to diet to reduce triglycerides in adults with familial chylomicronemia syndrome or FCS. FCS is a severe, rare disease with an estimated 6,500 people in the United States living with genetic or clinical FCS characterized by triglyceride levels that can be ten to 100 times higher than normal, leading to a substantially higher risk of developing acute recurrent, potentially fatal pancreatitis. This is Arrowhead Pharmaceuticals' first FDA-approved medicine, marking a major milestone for the company as it transitions into a commercial stage. Rodemplo is the first and only FDA-approved siRNA medicine for people living with FCS and can be self-administered at home with a simple subcutaneous injection once every three months. Rodemplo is the first and only FDA-approved medicine to be backed by adequate well-controlled studies that include patients with genetically diagnosed and clinically diagnosed FCS. After many months of preparation, our commercial team was able to hit the ground running, and I'm happy to report that we have the drug in the channel a mere week after approval. We also launched Reliant Rodemplo, a patient support program providing support services and resources for patients at each stage of the treatment journey with Rodemplo, including financial assistance options for eligible patients. In addition, we also announced the one Rodemplo pricing model that creates one consistent price across current and potential future indications. This is important. We are committed to sustainable innovation. This requires rational drug pricing according to the value a medicine offers to patients and healthcare systems. It also means that we will not ask different patients to pay different amounts for the same drug based solely on what disease they've been diagnosed with. Rodemplo is a pancreatitis drug, and when we think about pricing, we look to those patient populations who are at greatest risk of acute TG-related pancreatitis. The patients we are serving now are also those at greatest risk of pancreatitis, people with FCS. This includes those with a defined set of mutations as well as those who share the same level of chylomicronemia symptoms but with more heterogeneous and often less well-characterized genetic backgrounds, who we refer to as clinically defined or phenotypic FCS. The broader patient population would substantially increase the risk of acute pancreatitis for those with persistent chylomicronemia, meaning fasting triglycerides greater than 880 milligrams per deciliter. We believe there are approximately 750,000 of these patients in the US, and while they often have less day-to-day symptoms than FCS patients, they are clearly at high risk for acute pancreatitis. The one Rodemplo pricing model has these patients in mind, and the $60,000 annual WAC price is designed to provide real value to patients and healthcare systems in this population. Our Shasta 3 and Shasta 4 Phase III studies are designed to support an sNDA for this population, and while those studies are ongoing and we are actively serving the FCS population, we will have time to help payers properly appreciate Rodemplo's value, and payers will have time to plan and budget for its possible eventual adoption and regulatory review and approval. Outside of Rodemplo, we have also made good progress with two other pipeline programs in the cardiometabolic space. Zidaziran, aerodimer PA. Let's start with zodasiran. During the recent period, we dosed the first subject in the Yosemite Phase III clinical trial of zidaziran, our clinical candidate being developed as a potential treatment for homozygous familial hypercholesterolemia, or HoFH. HoFH is a rare genetic condition that leads to severely elevated LDL cholesterol and early-onset cardiovascular disease. Yosemite will enroll approximately sixty subjects over the age of 12 who will be randomized to receive four doses once every three months of two hundred milligrams of zidaziran or placebo. The primary endpoint is the percent change from baseline to month twelve in fasting LDL-C. The Phase II data in this patient population were encouraging, and we hope to have this study fully enrolled in 2026, complete the study in 2027, and if successful, enable an NDA filing by the end of 2027 and launch in 2028. The next new pipeline program in cardiometabolic is Aerodimer PA. During the last quarter, we filed a request for regulatory clearance to initiate a Phase III clinical trial of Aerodimer PA, being developed as a potential treatment for atherosclerotic cardiovascular disease or ASCVD, due to mixed hyperlipidemia, in which both LDL cholesterol and triglycerides are elevated. This is a very large population without proper treatment options. We believe there are approximately twenty million people in the US with mixed hyperlipidemia. Aerodimer PA is a dual-function RNAi therapeutic designed to silence the expression of the PCSK9 and APOC3 genes in the liver, designed to reduce both LDL-C and TGs. This represents an important step forward for the RNAi field as we believe it is the first clinical candidate to target two genes simultaneously in one molecule and an important step forward for preventative cardiology as both LDL and TGs have epidemiologic support as being important drivers of ASCVD risk. Both these programs fit well strategically with our growing commercial focus on the cardiometabolic space and on the physicians that treat these patients. Also during the quarter, we expanded our clinical pipeline in CNS. We filed a CTA to initiate a Phase III clinical trial of ARO MAPT as a potential treatment for tauopathies, including Alzheimer's disease. ARO MAPT is Arrowhead Pharmaceuticals' first therapy to utilize a new proprietary delivery system, which in preclinical studies has achieved blood-brain barrier penetration and deep knockdown of target genes across the CNS, including deep brain regions, after subcutaneous injections. Nonclinical evaluations in monkeys with subcutaneous administration of ARO MAPT using clinically translatable doses have shown better than 75% knockdown of the tissue level of MAPT mRNA in CNS. Importantly, monkey tissue level knockdown has translated into CSF tau protein reductions with a duration of effect supportive of either monthly or quarterly subcutaneous dosing. This is an exciting program, and we look forward to initiating the study shortly. We also continue to make good progress on our first two obesity programs. ARO I and HBE, and ARO AP7. Together, we have randomized one hundred and ninety-two patients, all with a BMI greater than thirty. Because we started ARO I and HBE earlier, it is about two quarters further into the Phase I study than ARO AP7. Our plan has been to share early data at the end of the year, but due to travel schedules and the holidays, this will push a couple of weeks later into the early part of 2026. We also expect to have more fulsome data toward the end of 2026. We also made important progress in business development. First, as we announced yesterday, we earned a $200 million milestone payment from Sarepta following a drug safety committee review and subsequent authorization to dose escalate, and achievement of the second prespecified patient enrollment target for ARO DM1. This follows a $100 million milestone earned previously when Arrowhead Pharmaceuticals reached the first of two prespecified enrollment targets and subsequent authorization to dose escalate in a Phase I/II clinical study of ARO DM1. This partnership continues to be productive, and we look forward to continued progress. In addition to progress on the constructive partnership, we announced a new global licensing collaboration agreement with Novartis for Arrow SNCA, Arrowhead Pharmaceuticals' preclinical stage siRNA therapy against alpha-synuclein for the treatment of Parkinson's disease. The collaboration includes a limited number of additional targets outside our pipeline that will utilize Arrowhead Pharmaceuticals' proprietary TRiM platform. Arrowhead Pharmaceuticals received a $200 million upfront payment from Novartis and is also eligible to receive development, regulatory, and sales milestone payments of up to $2 billion. Arrowhead Pharmaceuticals is further eligible to receive tiered royalties on commercial sales up to low double digits. As I mentioned before, the recent approval of Rodemplo is clearly the most important recent development. Arrowhead Pharmaceuticals has been busy across the pipeline and in business developments during the recent period. Business development and licensing are critical to our business model, and we are pleased to have these two significant deals closed this year. With that overview, I'd now like to turn the call over to Bruce Given. Bruce Given: Thanks, Chris. Good afternoon, everyone. I'm happy to give my final update to Arrowhead Pharmaceuticals shareholders at such an important time and with Arrowhead Pharmaceuticals in such a position of strength. We have built something truly unique and powerful at Arrowhead Pharmaceuticals, and with the first FDA approval behind us, it feels like the right time for me to step back and retire. So let's review some of the key parts of the recent FDA approval that we announced last week. Mostly, I'll discuss the label and information contained in the packaged insert. Rodemplo is approved as an adjunct to diet to reduce triglycerides in adults with FCS. The recommended dose of Rodemplo is twenty-five milligrams, and it can be self-administered at home by subcutaneous injection once every three months. Rodemplo has no contraindications, warnings, or precautions. The most common adverse reactions include hyperglycemia, headache, nausea, and injection site reactions. The FDA submission was supported by clinical data from the Phase III PALISADE study in patients with both genetic FCS and those with the same clinical manifestations of the disease but without solely a genetic cause, referred to as clinically diagnosed FCS. The blinded portion of the trial compared a year of therapy with Rodemplo or placebo dosed every three months and tested two doses of Rodemplo versus placebo. The primary endpoint was the change in median triglycerides at month ten. There were also multiplicity-controlled secondary endpoints, all of which were statistically significant, including notably the occurrence of acute pancreatitis, for which the twenty-five and fifty-milligram doses were combined for comparison to placebo as called for in the analysis plan. Rodemplo achieved deep and durable reductions in median triglycerides as early as one month when the first measurement was taken. Overall, these reductions were around eighty percent from baseline, and reductions largely maintained median triglyceride levels below the usual guideline-directed threshold of five hundred milligrams per deciliter throughout the year of treatment. Five hundred milligrams per deciliter is the recognized threshold where the risk of pancreatitis increases relative to a normal population. Importantly, patients with genetic FCS versus clinical FCS showed similar reductions from baseline. We see the clinical FCS population as having the same high unmet need as the genetic FCS group, and as such, we think it is crucial to have shown that both patient populations showed similar large reductions from baseline triglycerides with Rodemplo therapy. Rodemplo is also labeled as having reduced the rate of adjudicated pancreatitis events versus placebo, a very welcome finding for FCS patients and their caregivers and an important validation that reductions in triglycerides can, in fact, lead to reductions in pancreatitis. Let me close by saying that it's gratifying to have been a part of Arrowhead Pharmaceuticals from the early days of our siRNA developments and part of the Rodemplo program at its inception and again over the last several years. And more importantly, it's exciting to hear the enthusiasm about this new medicine from patients, caregivers, and physicians. I'd also like to wish all of you an enjoyable Thanksgiving holiday. I'll now turn the call over to Andy Davis. Andy Davis: Thank you, Bruce. It's been exactly one week since the launch of Rodemplo, and the early feedback we've received from healthcare professionals, patient societies, and payers has been very encouraging. We hear lots of enthusiasm about the differentiating attributes of Rodemplo, which generally fall into five value pillars, some of which the team has touched on briefly already. First, the reduction in triglycerides is both significant and sustained. In PALISADE, Rodemplo reduced triglycerides by an unprecedented minus 80% from baseline as early as month one and maintained this marked reduction with minimal variation throughout the full twelve-month treatment period. This compared to a minus 17% reduction in the pooled placebo group. With Rodemplo, patients now have real hope, many for the first time, of achieving triglyceride levels below guideline-directed risk thresholds associated with acute pancreatitis, such as five hundred milligrams per deciliter. In PALISADE, fifty percent of patients at the twenty-five milligram dose achieved TG levels below five hundred milligrams per deciliter, with approximately seventy-five percent achieving levels below eight hundred and eighty milligrams per deciliter at month ten. Second, the numerical incidence of acute pancreatitis in patients treated with Rodemplo was lower compared with placebo. As we all know, this is the outcome of most importance for healthcare professionals, patients, and payers. Third, Rodemplo demonstrated favorable safety and tolerability. Importantly, the US-approved package insert contains no contraindications, no warnings, and no precautions associated with the use of Rodemplo. Fourth, Rodemplo can be self-administered at home with a simple subcutaneous injection once every three months, just four injections per year. Physicians tell us this infrequent dosing schedule is likely to reduce the treatment burden on physicians, patients, and caregivers. And fifth, early feedback on the one Rodemplo pricing model has been positive. As Chris highlighted, this model creates one consistent price of $60,000 per patient per year across current and potential future indications such as severe hypertriglyceridemia. Again, this means that we will not ask different patients to pay different amounts for the same drug based solely on what disease they have. We have been in important discussions with payers, and early signs for market access are encouraging. As a reminder, we believe there are an estimated 6,500 people in the US living with genetic or clinical FCS, and the prescriber base comprises specialist physicians such as lipidologists, endocrinologists, preventive cardiologists, and internal medicine physicians with a focus on lipid disorders. These specialists often operate within multidisciplinary teams that may include gastroenterologists, advanced practice providers, and specialized dietitians. At launch, we are targeting approximately 5,000 healthcare professionals through personal engagement. And finally, our Reliant Rodemplo patient support program is operational and designed to make every step of the journey easier. This program is designed to assist patients and physicians with insurance verification, financial assistance options, a first dose starter kit, and supplemental injection training. We launched just one week ago, but our care coordinators are already actively processing Rodemplo start forms, conducting patient welcome calls, and engaging payers to obtain approvals. And as Chris stated, we're happy to announce that we already have the drug available in the channel ahead of schedule. I will now turn the call over to James Hamilton to discuss the broader R&D portfolio. James Hamilton: Thank you, Andy. I'd like to give a quick review of the status of our late-stage Phase III studies and also describe the design of a couple of our early-stage programs. Let's start with the suite of Phase III studies of Rodemplo designed to potentially support a supplemental NDA filing to expand the label beyond genetic and clinical FCS. Shasta 3 and Shasta 4 are Phase III studies designed to compare reductions in triglycerides with twenty-five milligrams of Rodemplo compared with placebo over twelve months of treatment. Between the two studies, we enrolled approximately 750 patients. In addition, the MIRROR III study enrolled approximately 1,400 patients. This study in patients with mixed hyperlipidemia is designed to supplement the safety database we file the sNDA for Rodemplo in severe hypertriglyceridemia. We are not planning to seek approval in the mixed hyperlipidemia patient population. We completed enrollment in the global Shasta 3 and Shasta 4 as well as MIRROR III Phase III clinical studies in June 2025. We anticipate completing the primary portions of these studies in mid-2026 with top-line data expected in the second half of 2026. If successful, we plan to make submissions before the end of 2026 for regulatory review and potential approval. The SHTG program also features a study named Shasta 5 to directly assess the ability of Rodemplo to reduce the risk of acute pancreatitis as the primary endpoint in SHTG patients at high risk of acute pancreatitis. We are currently enrolling patients in that study. Of note, we will also be assessing pancreatitis risk reduction in Shasta 3 and Shasta 4 as a key secondary endpoint, but Shasta 5 is the first event-driven study to assess acute pancreatitis as the primary endpoint. I would also like to provide an update on our obesity programs ARO Inhibit E and ARO ALK7. Both of these programs target the known active impact that is involved in signaling to adipocytes to store fat. ARO Inhibit E inhibits one of the ligands in the pathway, and ARO ALK7 inhibits the receptor on the adipocyte that these ligands bind. So essentially, we are trying to reduce the message sent to store fat and the way the message is received at the end of the service. ARO Inhibit E started enrolling patients in December 2024, and ARO ALK7 initiated in May 2025. Both programs are currently in Phase I/IIa, first-in-human dose-escalating studies to evaluate safety, tolerability, pharmacokinetics, and pharmacodynamics. Both programs include Part one, designed to assess single and multiple doses as monotherapy, and Part two designed to assess multiple doses in combination with other therapies. As ARO Inhibit E started about two quarters earlier, we have more mature data in that study. The study is nearly fully enrolled, and we are on schedule and currently planning to share initial data from this program around the middle of 2026. This is a rather robust first-in-man study that is collecting multiple measures of drug activity and pathway activity, and we are eager to share initial findings. We were originally planning on sharing the first data around the end of the year, but due to the holidays and travel, January worked best for all schedules. For ARO ALK7, we intend to provide a brief snapshot of early safety and target engagement results from that study. Both targets have strong genetic validation, and both programs have yielded promising results in preclinical studies. So it will be interesting to see similarities and differences in patient response in the clinical trials. I will now turn the call over to Dan Appel. Dan Appel: Thank you, James, and good afternoon, everyone. I'll provide a brief outline of our financial results. As we reported today, our net loss for fiscal year 2025 was $2 million for a loss of $0.01 per share, based on 133.8 million fully diluted weighted average shares outstanding. This near breakeven result compares with a net loss of approximately $599 million for a loss of $5 per share based on 119.8 million fully diluted weighted average shares outstanding in fiscal year 2024. Revenue for fiscal year 2025 totaled $829 million and was driven entirely by our license and collaboration agreements with Sarepta, Sanofi, and GSK. Of the $829 million, roughly $697 million pertain to the Sarepta arrangement. Of that $697 million, $587 million relates to the ongoing recognition of initial surrender consideration, $94 million relates to the achievement of the first EM-one milestone, and $16 million relates to the reimbursement of incurred collaboration program costs. Additionally, the license to Sanofi for Greater China rights to Rodemplo added $130 million to our fiscal 2025 revenue. And lastly, to round things out, we recorded $2.6 million earlier in the year related to a milestone payment under the GSK HBV agreement. Turning to expenses, total operating expenses for fiscal year 2025 were approximately $731 million compared to $605 million for fiscal 2024, an increase of $126 million. The year-over-year increase was driven by $101 million of higher R&D expenses and $25 million of higher SG&A, both of which I will explain in brief. The key drivers of research and development spend included costs to run our clinical trials, our clinical manufacturing costs, as well as expenses related to active programs in the preclinical stage. 2025 R&D costs were heavily impacted by our Phase III clinical trials for Rodemplo and SHTG. It's worth noting that in fiscal year 2025, nearly two-thirds of our clinical trial spend can be attributed to the late-stage development of Rodemplo and SHTG. As we have mentioned, the SHTG registration studies are now fully enrolled, and we expect data to read out next year. Accordingly, the majority of remaining Phase III registration clinical trial costs are expected to occur over the next twelve months. Our SG&A costs increased by $25 million year-over-year, driven primarily by our preparations for the commercialization of Rodemplo. All of us here at Arrowhead Pharmaceuticals are enormously proud of the capabilities we have built to commercialize Rodemplo, not only in our commercial functions but also across regulatory, supply chain, order to cash, and indeed across all of our enabling support functions. Turning now to cash flow, net cash provided by operating activities during fiscal year 2025 was $180 million, compared with net cash used in operating activities of $463 million in the prior year, for a net positive change year-over-year of $643 million. This increase in cash from operating activities is driven by cash received from licensing and collaboration agreements, partially offset by the aforementioned increase in R&D and SG&A costs. Turning to the balance sheet, our cash and investments, including available-for-sale securities, totaled $919 million as of September 30, 2025, compared to $681 million as of September 30, 2024. The increase in our cash and investments was primarily related to our licensing and collaboration agreements with Sarepta, Sanofi, and GSK, partly offset by our ongoing cash burn. Our common shares outstanding as of the end of the quarter were 135.7 million, down 2.4 million from the prior quarter due mainly to the repurchase of shares from Sarepta. I'll use this opportunity to reiterate two developments that are subsequent to the fiscal year and leading up to today, which were financially meaningful for Arrowhead Pharmaceuticals and our balance sheet. Firstly, as Chris mentioned earlier on the call, we announced a licensing and collaboration agreement with Novartis for ARO SMTA, Arrowhead Pharmaceuticals' preclinical stage siRNA targeting alpha-synuclein for the treatment of synucleinopathies, such as Parkinson's disease. Novartis will also be eligible to select a limited number of additional collaboration targets outside of Arrowhead Pharmaceuticals' current pipeline to be developed using our proprietary TRiM platform. The closing occurred last month, and we have already received $200 million in the bank as an upfront payment. As a reminder, we are also eligible to receive up to $2 billion in future milestone payments from Novartis, as well as royalties on commercial sales. Secondly, just yesterday, we announced we earned our second development milestone under the Sarepta collaboration agreement for ARO DM1. As Chris mentioned, this triggered a $200 million obligation from Sarepta that will be recorded in 2026, and we expect to receive the cash in January of 2026. This is, of course, additional to the $100 million earned for the first ARO DM1 milestone in fiscal quarter four of 2025. Finally, we are not providing detailed financial guidance at this time for the coming fiscal year, beyond reiterating that, while we view the launch of Rodemplo as a truly transformational event for the company, we do not anticipate that the commercial sales of Rodemplo will have a substantial impact on our financial statements in fiscal year 2026. We also believe our cash runway, even in the absence of any further capital from new deals or other sources, and all the while funding a broad ambitious set of commercial clinical programs, to be sufficient to extend into fiscal year 2028. With that, I will now turn the call back to Chris. Christopher Anzalone: Thanks, Dan. Arrowhead Pharmaceuticals has been working to bring important medicines to patients in need for over fifteen years. As Bruce mentioned, it's very gratifying to see Rodemplo approved by the FDA and the overwhelmingly encouraging feedback we received from the FCS community. But Rodemplo is just one part of a large pipeline we've created to help potentially millions of patients in a diverse set of disease areas. We spent years building the TRiM platform to enable us to bring RNAi where it is needed. We are now able to address seven different cell types and have current clinical programs in five of these. Further, we will meet our twenty in twenty-five goal whereby we will have 20 individual drug candidates in clinical trials by the end of this year. Our partnering has been helpful but judicious, with approximately half of our clinical pipeline wholly owned and half partnered. We have late-stage studies ongoing, again, both independently and with partners, that may potentially lead to multiple new commercial launches over the next few years. In addition, we have a strong financial position that enables us to properly invest in our growth today and in the future. We believe we now have everything we need to be in the next class of large and ultimately profitable biotech companies. Thanks for joining us today, and I would now like to open the call to your questions. Operator? Operator: Thank you. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. And we ask that you please limit yourself to one question. One moment, please. Our first question comes from the line of Luca Issy with RBC Capital Markets. Luca Issy: Bruce, congrats on your re-retirement, I should say. So all the best in the next chapter. And then maybe if I can stick with you, can you just maybe talk about what's the plan to show in terms of acute pancreatitis for Rodemplo? Are you confident just the three and four in Q3 2026 can actually hit acute pancreatitis? Or is the base case scenario, those two trials, are maybe underpowered to show benefit and you actually need Shasta five to actually hit on acute pancreatitis given the positive death population is enriched for history of acute pancreatitis. The only reason why I'm asking is it looks like you doubled the size of the n, I should say, in the Shasta five trial according to clinicaltrials.gov. As of Monday last week. So, again, any call there, much appreciated. Thanks so much. Bruce Given: Well, I sure will. And, you know, thank you for your kind regards. Shasta three and four were powered on the basis of triglyceride reduction, which is the primary endpoint. So, you know, we did not specifically power Shasta three and four for pancreatitis. However, it was on our mind, and as was also done in the core studies, you know, there is the intent and by design, the capability to pool both Shasta three and four for evaluating versus, you know, placebo on reduction of pancreatitis. And, of course, we only have one dose of Rodemplo, instead of two doses, you know, two different doses like we had, for instance, in the Phase II program. So, you know, there's, I would say, reasonably good power for, you know, for seeing a difference in acute pancreatitis. But we're not dependent on it because we've designed Shasta five specifically to, obviously, be able to have a primary endpoint of acute pancreatitis. We did change the design of it in Shasta five recently to make it a more generalizable population in patients with persistent chylomicronemia and a history of pancreatitis. The original design was a much more enriched population, but it would have actually been less representative than, you know, the duly designed trial. So it's not so much a matter that we've been powered so much as we, you know, broadened the power of the patient population to be more inclusive of the high-risk population in SHTG. So, you know, we certainly we oftentimes refer to it as a belts and suspenders approach. You know, there's a, you know, obviously, a decent chance that we will show statistical significance in the Shasta three and four programs, but we're not entirely dependent on that because of Shasta five, which is a, you know, study. The first of its kind specifically designed to demonstrate a benefit versus placebo in acute pancreatitis. Luca Issy: Got it. Thanks so much. Congrats again. Operator: Thank you. One moment, please. Our next question comes from the line of Prakhar Agrawal with Cantor Fitzgerald. Prakhar Agrawal: Hi. Thank you for taking my questions and congrats on the quarter as well as the update throughout the quarter. Maybe on the obesity side, I had a couple of questions. So on ARO Inhibit E for the update early next year, if you can just provide more details on how much data will be disclosed, especially on the MAD side. And how much follow-up will you have on ARO Inhibit E for both monotherapy and combo cohorts? And also the same question on ARO ALK7. What cohorts will be disclosed and will there be any weight loss data at all from ARO ALK7 early in the year? Thank you so much. James Hamilton: Yeah. Sure, Prakhar. This is James. I can cover that. So for ARO Inhibit E, it's a little bit ahead, as Chris mentioned, probably by a couple of quarters. So the study is nearly fully enrolled. We have a good amount of data in both the SAD and MAD healthy volunteer or obese healthy volunteer cohorts. So we'll have biomarker data, MRI data, and as well as safety in those cohorts. And then the combo cohorts are almost fully enrolled. I think we're waiting on a few more diabetic patients to enroll in the highest dose combo cohorts and should have probably not through the end of the study, but ample post-dose follow-up in both the diabetic and the nondiabetic cohorts from ARO Inhibit E. And then ARO ALK7 will be a little bit more limited, focused mostly on monotherapy safety and knockdown data, knockdown of the target for that study. Christopher Anzalone: Yeah. And keep in mind here that we want to present data that are interpretable, and we're not going to have all cohorts. We're not going to have all patient data in all cohorts even if they're fully enrolled. We don't get data in real-time necessarily. So you'll have probably two bites of the apple, maybe three bites, but certainly two bites of the apple. You know, our goal here is this first round of data is to give you an idea about how these are going. And then, you know, the fuller story should come out once we have the more wholesome datasets in later 2026. Prakhar Agrawal: Got it. Thank you so much. Operator: You're welcome. Thank you. Our next question comes from the line of Maury Raycroft with Jefferies. Maury Raycroft: Hi, thanks for taking my question and congrats on the progress and best wishes, Bruce, in retirement. I was gonna ask a follow-up to Luca's question earlier. We're expecting to see the patient baseline profile for your SHTG pivotal next week. What are your estimates on AP events to accrual based on your patient's baseline characteristics? And also your change in plans to broaden the AP adjudication criteria. Bruce Given: You know, Maury, I think it's a little bit hard to answer just because we have adapted our protocols now to go ahead and adapt the modified Atlanta criteria, you know, since those have been accepted by both FDA and EMA, and here in the US, at least payers. And this is really gonna be our first experience with using that particular scale, which makes it a little hard to estimate exactly how many events we will have. So it's hard to say. What you will see next week is you will see the percentage of patients that had a history of pancreatitis that were enrolled in the study. And, you know, based on that, you know, that, I think you'll see that, you know, there's a good chance that we'll have, you know, the necessary number of events. But I'm a little bit uncomfortable trying to give any real prediction when we're using a scale that we haven't used before. Maury Raycroft: Understood. That's helpful. Thanks for taking my question. Operator: Thank you. And our next question comes from the line of Jason Gerberry with Bank of America. Gina: Hi. This is Gina on for Jason. Congrats on all the progress this quarter, and thank you so much for taking part in the question. Just a couple from us. I guess, first on your ARO MAPT program, maybe just discuss which aspects of the drug are maybe differentiated from A and J's recently failed anti-tau antibody and what kind of still gives you the confidence in the target after the failure. And then based on your current cash position and the progress that you've made on these partner milestone triggers, do you have any updates on your visibility on launching a CVOT study? Is that more tied to seeing how the FCS and central SHTG launches are progressing? And then can you just remind us of any potential milestone triggers from the Sarepta programs that you're expecting in 2026? Thank you so much. Christopher Anzalone: Alright. I count three questions. James, want to take the first one? James Hamilton: Sure. Yeah. I'll take the first one on the MAPT program. So the J and J antibody, the monoclonal as well as other monoclonals, are, you know, IV administrated monoclonal antibodies. Probably a small fraction of those molecules cross the blood-brain barrier and then are primarily focused on binding to that extracellular tau. So tau that's been released from damaged cells or has been secreted and that can propagate and bind to tau that's outside of the cell. Our approach is very different. We use a targeting ligand to facilitate delivery of the siRNA across the blood-brain barrier into the neuron to silence the expression of tau. So we're sort of turning off the faucet for all of the expression and preventing the neurofibrillary tangles to form in the first place. We should get that over time to be able to reduce the level of intracellular tau and extracellular tau, whereas the monoclonal antibodies are really just able to get the extracellular tau. So that's the key differentiator. Christopher Anzalone: And on the other two questions, I'll answer the last one first. Sarepta milestones. So we are eligible to receive the first of $550 million annuities in February. So we expect that over the next several months. That's correct. February. Right, Dan? Dan Appel: Yes. Correct. Christopher Anzalone: On the visibility on the CVOT. So that CVOT, as you know, is for the dimer. That's a big opportunity for us. And so we are moving as quickly as we can to that CVOT. We'll have a good idea, I think, this summer if we have a drug. You know, we'll know PCSK9 knockdown. We'll know APOC3 knockdown. We'll know LDL decreases. We'll know triglyceride decreases. And so given what those data look like, I think, again, as early as this summer, I think we'll know if we have something that really could be an important treatment for these mixed hyperlipidemia patients. Should that be successful? Should that look good? We are not waiting on anything, you know, to start those studies other than finishing this Phase I/II. Our plan is to be able to roll directly into pivotal studies after these Phase I/II studies. Again, should they all go well and there's nothing gating there other than the data looking good. We also are hoping to have parallel pivotal studies, you know, one that will be a CVOT and then one that will be looking at simply lowering LDL, you know, over the course of the year. As you know, that has been an approval endpoint in the past for PCSK9 inhibitors. And we think that could be a good way to get to market very quickly and, frankly, help us to pay for the CVOT. So that's our plan now. We'll have a much better idea about how quickly we can move in the summertime once we start to see data. We're really looking forward to seeing those data. Gina: Thank you. Operator: Thank you. And our next question comes from the line of Edward Tenthoff with Piper Sandler. Edward Tenthoff: Great. Thank you very much. And Bruce, wishing you all the best, and James, wishing you all the best of luck. It really is a super exciting time for the company. I wanted to get a sense just with respect to upcoming data readouts next year, specifically asking, do you think you'll have your first look from the Aerodimer PA next year? And what other datasets beyond the obesity data in the first half should we be thinking about? Christopher Anzalone: Thanks, Ted. We have a bunch of, I think, potentially very interesting data readouts throughout 2026. As you mentioned, obesity will be the first. You know, as I mentioned, we should have two bites of an apple or thereabouts, and we'll have our first early dataset, you know, in January. And then as the data mature in both those programs, say towards, you know, the end of the second quarter or something around then, we'll have a much larger dataset. We think those are important. In the summertime, we expect to have dimer data. I think those are extraordinarily important. You know, the idea that we might have a drug candidate that can simultaneously lower LDL and triglycerides to treat twenty million or so people in the United States with mixed hyperlipidemia is a very exciting opportunity. And, again, we'll I think we'll know if we have something that could really fit there in the summertime. Also in the summertime, I think we'll have our first bit of ARO MAPT data. And we'll be looking for tau levels in the CSF. That also would be extraordinarily exciting. We could be sitting on one of the most exciting potential Alzheimer's drugs in the clinic. And, hopefully, we'll be derisking the entire blood-brain barrier platform that can enable us to treat a variety of CNS diseases. So that's an important readout. Of course, also in the third quarter or so, we expect to have the readout for Shasta three and four. You know, that are designed to enable the sNDA by the end of the year. And then, of course, at the end of the year, we expect to file our sNDA. So look, there will be other things happening during the year, but, you know, those to me feel like the primary ones. And, of course, we'll be in the market. You'll be in the market, and, you know, we will be really looking forward to seeing the adoption curve that Rodemplo is gonna have. Edward Tenthoff: Great. Any update on ARO RAGE just to be comprehensive? Thank you. Christopher Anzalone: Yeah. Thank you. Yes. So as you know, Ted, the data so far for ARO RAGE have been enticing. You know, we've seen that we can knock down RAGE deeply, both looking at circulating biomarkers as well as valve. You know, that's super interesting. Where we've struggled is looking for biomarkers to show potential clinical benefit. And so rather than running directly into a large asthma or COPD Phase II, we were hoping to have a baby step to see some evidence of that. So we have started a challenge study. Don't expect to have data in '26, maybe at the very end of '26, but we've just started that. And so my hope is that that will show us that knocking down RAGE is an important thing. Look, it's been an undruggable target for some time, and now we can drug it. So now let's see what that does for us. I think at the end of that, we can then ask ourselves, do we want to build out a pulmonary franchise or do we want to partner that? And I think a positive challenge study readout would allow us to partner that under attractive terms. Edward Tenthoff: Great. Well, guys, congrats on all the great progress. I'm really excited to see the Rodemplo launch. It's a great job. Christopher Anzalone: Thank you, Ted. Operator: Thank you. Our next question comes from the line of Mani Foroohar with Leerink Partners. Mani Foroohar: Yes. Thanks for taking the question. Congrats on the progress in the first product launch. And best wishes also to Bruce on his re-retirement. So something tells me you're gonna pop up again soon. I don't think you're done with us. Apropos of the question, can I want to follow-up on sort of broader pipeline? I know Ted touched on new ARO RAGE study, etcetera. How do we think about Aerodimer application in terms of pursuing CVOT, the right target for that technology? And where are the right places for you to put that to work? Now that you've got sort of a very different place in terms of your balance sheet? Bruce Given: I'm happy to take that. You know, obviously, we're excited about the Rodemplo and APOC3 inhibition generally for, you know, patients with severe hypertriglyceridemia. You know, that's been a very, very poorly treated population, you know, for a long time. You know, the LDL side of the equation, on the other hand, has been really a different story. And other than HoFH, you know, there's a pretty good number of tools in the tool chest for dealing with LDL. You know, the patients on that LDL side of the equation, patients with heterozygous familial hypercholesterolemia, which is, you know, a pretty good-sized population, for instance. But the twenty-some million patients in the US alone that have mixed hyperlipidemia has been an interesting population. You know, we could address the LDL part, but we've done really a terrible job historically of being able to address the triglyceride piece of that. And, you know, the post hoc analyses that have been done of CVOT have shown that for the same LDL reduction, you can really rank order the risk, you know, that patients have by how high their triglycerides are. And, of course, the Mendelian randomization data has also said that triglycerides are an independent predictor of events and mortality in that mixed hyperlipidemia population is huge. It's a very big population. So, you know, there's never really been a very good way of addressing, you know, both sides of the problem in mixed hyperlipidemia, both the LDL and the triglycerides. And here we're talking about a drug that could potentially do it with a single, you know, say, injection, you know, get both their LDL and their triglycerides, probably on top of the statins. I think you're gonna always have a statin there if the patients could tolerate it. But you could have a daily statin and a quarterly dimer injection, and that's and potentially, you know, treat, you know, that twenty million patients, you know, to low-risk levels of LDL and triglycerides. That would be, you know, quite an amazing opportunity, I think, from a marketing perspective. Compared to what you can do today, which is you can probably get the LDL taken care of today, but you probably can't do much at all, you know, worthwhile in the triglycerides. So this is what makes this, you know, to us, such an interesting proposition. Christopher Anzalone: Yeah. As you know, Mani, what we used to former strategy was to make Rodemplo, you know, a three-step drug. Step one is FCS. Step two is SHTG. Step three after a CVOT would be this, you know, would be to be part of a treatment in mixed hyperlipidemia. Once we were able to perfect, at least in animals, the dimer platform, it didn't make any sense any longer. You know, we like the idea of keeping Rodemplo as a pure play pancreatitis drug. Full stop. And now I think we'll have a tool to more completely treat that mixed hyperlipidemia population should this dimer translate well from animals to humans. Mani Foroohar: That's helpful. And as a follow-up, when you think about potential dimer applications, etcetera, how are you thinking about the data next year from Horizon and how and potential applications of combining what hopefully will be a validated APOC3 target with other approaches to their risk-elevating elements of the lipid profile? James Hamilton: Yeah. Sure. So of course, our siRNA is targeting LPA is partnered with Amgen. So we would have to work with them on, you know, any kind of dimer applications. But there are other applications beyond, of course, the PCSK9, APOC3. I mean, we're looking at other dimers in the CV space, both targeting the hepatocytes and extrahepatic cell types. So this is probably not the only dimer that you'll see out of Arrowhead Pharmaceuticals. Mani Foroohar: Alright. Thanks, guys. That's really helpful, and congrats again. Operator: Thank you. And our next question comes from the line of Patrick Trucchio with H.C. Wainwright. Patrick Trucchio: Congrats on all the progress. I have a few follow-up questions. Just the first is just regarding, I'm wondering if the FDA has provided clarity on what level of pancreatitis evidence would be required for a future pancreatitis risk reduction claim, particularly in the high-risk SHTG patient population. And separately, wondering if there's been discussions around a potential pediatric pathway just given that FCS presents in childhood? And then just on the MAPT program, I'm wondering what level of CSF tau knockdown or biomarker response would you consider clear clinical proof of concept in humans just given I think you have greater than seventy-five percent knockdown in the NHP data? Bruce Given: So the first one is less level of AP that we think the FDA is required to have it on the label. Yeah. You know, we have not discussed with the FDA specifically what it would take to get a claim per se. I'm not sure we've really felt that was necessary. I mean, I think physicians, you know, have no real question about the relationship of triglycerides to pancreatitis risk, especially now that it's been proven. And payers haven't seemed to be concerned about that either, at least in the US. So I'm not sure, you know, what the value of a claim would be. And, of course, at this point, it's untested, you know, whether the agency, you know, would consider providing that, you know, that claim. I don't know that we've really thought of it as being necessary, Patrick, to be clear. In FCS. Patrick, is your question on SHTG or FCS? Patrick Trucchio: It's around actually the high-risk SHTG patient population. Bruce Given: Yeah. But the answer is the same, I think. You know, we at least have not approached asking them, you know, when they give a claim, what it would take to get that claim. It's very possible that what they would require is something, you know, like Shasta five. But, you know, the Shasta five was really designed primarily, you know, on the possibility that the payers in countries outside the US might require a dedicated outcome study. So it was more payer-focused than it was regulatory-focused. And, you know, we know, we really were not committed one way or the other about whether it'd be submitted to regulators asking for a label change. We were more interested really in protecting the possibility that there would be payers outside of the US that would require, you know, a specific proof of concept in a dedicated study. So we really haven't raised this with regulators, you know, anywhere on a global basis at this point. James Hamilton: In terms of what we're looking for based on the data, as you mentioned, at the tissue level, we were seeing seventy-five percent plus reductions. And similar reductions in the CSF in monkeys. I mean, we typically translate well from cynos into the clinic into humans. And I think based on some of the other data out there with the intrathecal intrathecally administered ASO, and they were able to achieve CSF reductions of about 50% to 60% and those CSF reductions corresponded to improvements in tau PET signals. So, you know, I think that's probably where we're aiming for in our clinical study is at least 50% to 60% reduction in the CSF. That's what others have shown that seems to have translated into a meaningful tau PET signal. Patrick Trucchio: Great. Thanks so much. Operator: Thank you. Your next question comes from the line of Andrea Newkirk with Goldman Sachs. Andrea Newkirk: Good afternoon. Thanks for taking the question. Maybe one more on the Rodemplo launch. Recognize it's only been about a week since the approval. But now that you have launched, just curious if you'd be willing to comment on your expectations for the cadence of the initial launch here in FCS and how you think it may be similar or different from that of the Triglyceride launch, particularly in the context of the significant pricing differential that you have? Thank you so much. Andy Davis: Happy to take that, Andrea. This is Andy. So we do have very high ambitions for the Rodemplo launch. Expected to be the best in class. And as you know, there are a number of reasons why we believe that to be the case. Largely around the attributes of Rodemplo that we do believe make it a special molecule in this category. We talked about obviously the significant and sustained TG reduction. We've talked about the reduced incidence of acute pancreatitis. But even more importantly, we hear a lot of positive feedback around the safety and tolerability profile. So no contraindications, no warnings, and no precautions. And we do have a lot of physicians and patients who are enthusiastic about the once every three-month dosing regimen. So with those product attributes, we have very high ambitions for the launch of Rodemplo in FCS specifically. Operator: Thank you. And our next question comes from the line of Mike Ulz with Morgan Stanley. Mike Ulz: Good afternoon. Thanks for taking the question, and congratulations on all the progress as well. Maybe just a follow-up on the Shasta three and four studies. You mentioned adopting the modified Atlanta criteria. Just curious now that you've seen some more detail around the core studies, are you considering any sort of, you know, adjustments or fine-tuning to your studies going forward? Thanks. Bruce Given: Other than adapting the ATLANTIC criteria, I think we're, you know, feeling pretty good about the design and, you know, it was negotiated with the FDA. I don't think we saw anything in core that, you know, would cause us to, you know, see a need to change anything else. There's nothing that comes to mind. You know, James, would you see it any differently? You don't look closely at this too. James Hamilton: Yeah. I agree. It didn't inspire any changes in the protocol. So, yeah. Mike Ulz: Great. Thank you. Operator: Thank you. Our next question comes from the line of Madison Elsadi with B. Riley. Madison Elsadi: Good afternoon. Thanks for taking our question. I wanted to ask about your neuromuscular franchise. Just given your integrin-targeted delivery mechanism, which, you know, one could assume may be safer and perhaps more targeted than a TFR-mediated approach. Should we expect DMPK knockdown and splice correction data comparable to kind of the pure benchmark levels? And, relatedly, wondering what dose do you anticipate observing really optimal biomarker activity? I believe previously, you said that even a low dose may be active. Thanks. James Hamilton: Sure. Yeah. I think most of that will defer to Sarepta. Probably can't comment on the dose where we'd expect to see maximum knockdown. We don't know that yet. And so I would, you know, want to venture a guess there yet. In terms of the knockdown, I mean, I think that is probably a goal is to have something that looks at least similar to or equivalent to what others have shown for DMPK knockdown and splice correction with this platform. Madison Elsadi: Got it. And then, if I may, are there any bile cells associated with hitting a certain threshold or are the milestones largely related to regulatory progression? James Hamilton: Yeah. Based only on regulatory and commercial, there are no sort of activity-based or PD-based milestones. Madison Elsadi: Got it. Got it. Thanks. Operator: Thank you. And our last question comes from the line of Joseph Tome with TD Cowen. Joseph Tome: Hi there. Good afternoon. Thank you for taking my question. Just another quick one on the dimer. Just curious based on your work in SHTG, what proportion of patients are already on an anti-PCSK9 treatment? Is this, you know, an under-treated population on both sides? And then can you give us an indication in terms of the triglyceride and LDL cutoffs that you're looking in patients enrolled into the early dimer study? Thank you. James Hamilton: Sure. Yeah. I think based on the work that we've done, I mean, a lot of those patients may be on a statin, probably less so on fibrates and very few of them on PCSK9 inhibitors. Actually, they're not that commonly used in that population. In terms of the cutoffs and the inclusion criteria, so we allow patients in that study with mixed hyperlipidemia or triglycerides up to 880. So it's a pretty high threshold. And they have to have either that non-HDL of a 100 or an LDL greater than 70 to get into the study. So they have to have true mixed hyperlipidemia, both high triglycerides and high non-HDL or LDL cholesterol. Joseph Tome: Thank you. I'll now hand the call back over to President and CEO, Chris Anzalone, for any closing remarks. Christopher Anzalone: Thanks very much for joining us today. Again, thank you to Bruce, you know, for all he has brought to the company. He is re-retiring. He is not going to be gone, however, and I do trust that he will still be around and helping us out going forward. So, again, thanks to Bruce and thanks to James for continued and ongoing leadership. Again, thank you all for joining us today, and I hope you have a pleasant Thanksgiving holiday. Operator: Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Senstar Technologies Third Quarter 2025 Results Conference Call. All participants are in a listen-only mode. Following management's formal presentations, instructions will be given for the question and answer session. As a reminder, this conference is being recorded. I would now like to turn the call over to Corbin Woodhull of Hayden IR. Corbin, would you like to begin? Corbin Woodhull: Thanks, Senstar Technologies management, for hosting today's call. With us on the call today are Mr. Fabien Haubert, Chief Executive Officer of Senstar Technologies, and Ms. Alicia Kelly, the Chief Financial Officer. Fabien will summarize key financial and business highlights followed by Alicia, who will review Senstar's financial results for 2025. We will then open the call for a question and answer session. I would like to remind that all financial figures discussed today are in US dollars and all comparisons are on a year-over-year basis unless otherwise indicated. Before we start, I'd like to point out this conference call may contain projections or other forward-looking statements regarding future events or the company's future performance. These statements are only predictions, and Senstar cannot guarantee that they will, in fact, occur. Senstar does not assume any obligation to update that information. Actual results or events may differ materially from those projected, including as a result of changing market trends, reduced demand, the competitive nature of the security systems industry, as well as other risks identified in the filed by the company with the Securities and Exchange Commission. In addition, during the course of the conference call, we will describe certain non-GAAP financial measures, which should be considered in addition to and not in lieu of comparable GAAP financial measures. Please note that in our press release, we have reconciled our non-GAAP financial measures to the most directly comparable GAAP measures in accordance with Reg G requirements. You can also refer to the company's website at www.senstar.com for the most directly comparable financial measures and related reconciliations. And with that, I will now hand the call over to Fabien. Fabien? Please go ahead. Fabien Haubert: Thank you, Corbin. And thank you to those joining us today to review Senstar Technologies' third quarter 2025 financial results. We continue to deliver on our strategic objectives throughout the first nine months of 2025 while balancing targeted investments to drive long-term market share gains across our key verticals and geographies. Revenue from our four core verticals increased by 12% in aggregate, year over year, and 23% on a year-to-date basis, with notable strength from the correction and energy verticals. In parallel, our disciplined operating models generated gross margin above our targets, as well as continued profitability and a growing cash balance with no debt. Those results reflect our differentiated technology and strong execution in addressing the needs of our customers. Our performance is driven by an unwavering focus on generating sustainable growth across our core and emerging verticals. Now moving on to a review of quarterly highlights. Revenue in the third quarter was relatively flat compared to the same quarter last year, reflecting the impact of a fuel loss contract in the prior year that did not reoccur. On a year-to-date basis, revenue increased by 8%. We are prioritizing repeatable deployments and scalable account growth and experiencing increasing market demands for advanced differentiated solutions as well as tailwinds from growing legislation around the security of critical infrastructure. Our growth margin of over 67% reflects the differentiation power of Senstar Technologies in a competitive market and underscores the team's success in meeting the growing global demand for securing modernization. We continue to invest in technological innovation to boost our competitive strength and gain market share in scalable verticals. Consistent with prior quarters, we maintain rigorous margin objectives aimed at generating sustained profitability going forward. Operational leverage combined with stable revenue generation drove third-quarter net income to $1 million and $3.2 million year to date, a significant improvement versus the comparable nine-month period in 2024. In terms of core geographic markets, Senstar's diversified footprint continues to strengthen, with North America delivering broad-based double-digit gains across our key verticals. North America remains our largest market as a percentage of our sales, with revenue increasing by 17% in the third quarter, mainly due to continued momentum in the correction and utilities verticals, as was the case in the prior quarter. Revenue from the USA was particularly strong, increasing by 22% in the third quarter, driven by the successful efforts of our business development team to gain market share across multiple high-growth verticals. Sales from Canada increased by 7% on a year-to-date basis, sustained by utilities and correction. Our methodical investments in the EMEA region over the last several years are positioning Senstar to capture new opportunities with key accounts in targeted verticals. Transports, utilities, solar farms, logistics, and data centers are continuing to show momentum and robust customer adoption, leading to 15% revenue growth year to date. The Asia Pacific region is stabilizing following a decline in 2025. Our business development and QCAM strategy are starting to deliver new wins across data centers, utilities, correction, and logistic verticals. APAC remains a key market for Senstar, and the achievements of our business development team are positioning the company for long-term gains in the region. Moving on to product updates. Technological innovation is the cornerstone of our playbook to advance our competitive positioning and capture market share. Our advanced proprietary technology translated to impactful wins from our AI-powered intrusion detection systems MultiSensor Cascade Plus. Leveraging the first-generation sensor, Cascade Plus adds support for daisy chaining up to 16 devices as well as power over Ethernet support for third-party devices, covering 100 meters distance for a single PoE connection. Our industry-leading technology virtually eliminates unison, celebrates, optimizes total cost of ownership, and reduces installation and maintenance expenses, opening the door to significantly larger market opportunities. The momentum generated from MultiSensor is in full alignment with our focus on delivering disruptive security solutions and the targeting of highly scalable projects and customers alike. Turning to other strategic initiatives, as discussed on the prior earnings conference call, Senstar is actively working to broaden its addressable market by targeting the security of critical points within non-critical infrastructure, such as hospitals, museums, educational institutions, and logistic facilities. Our business development team is successfully expanding into new QGANs while deepening existing customer relationships through cross-selling. The team is fully ramped and increasingly converting pipeline opportunities into incremental sales across our target verticals and geographies. The sales strategy of our business development team is centered on high-growth verticals, an appetite for complexity, opportunities for scalability worldwide, and leveraging our preexisting footprint. These efforts will be sustained as we build upon the development of large key accounts aimed at accelerating market share gains across high-potential sectors. In summary, our third-quarter results demonstrate the resilience of our business model. Execution of our disciplined strategy is expanding our market presence, strengthening competitiveness in core verticals, and accelerating growth in high-value solutions while upholding our 60% plus growth margin profile. With the momentum generated throughout the first nine months of this year and a growing pipeline of opportunities to capture, we reiterate our commitment to sustainable business and profitability. We remain dedicated to innovation, investing in next-generation security solutions that enhance our competitive position and support customers worldwide. Before turning the call to Alicia, I want to express my gratitude to our employees for their strong execution of our strategy to grow market share across key global verticals, to our valued customers for their continuous partnerships, and to our shareholders for their ongoing support. Thank you for your attention. I will now turn the call over to Alicia for a review of the financial results. Alicia Kelly: Thank you, Fabien. Our revenue for 2025 was $9.5 million, declining modestly by 2% compared to $9.7 million in 2024. On a year-to-date basis, revenue increased by 8%, driven by corrections, rapid gains in energy, coupled with growing momentum from utilities and data centers. The US was the strongest performing geographic market in the quarter, with revenue increasing by 22% year over year and 19% on a year-to-date basis versus the prior year period. Growth in the region was fueled by steady demand in corrections and energy verticals, along with new customer wins resulting from our business development team's efforts to grow market share. Revenue from the EMEA region declined by 10% in the quarter, though increasing by 15% on a year-to-date basis. In the year-ago quarter, EMEA was awarded multiple large contract wins, leading to challenging comparisons in the third quarter of this year. New customer wins and increased cross-selling with existing customers drove the performance in the first nine months of the year, most notably in the transport, utilities, renewable energy, and data center verticals. Asia Pacific experienced continued pressure in the quarter, with sales declining by 14%, primarily resulting from the phase-out of a contract that did not contribute revenue in the current quarter. As Fabien discussed previously, the rate of decline improved as our business development focused on key account initiatives helped to secure strategic wins in data center, utilities, corrections, and logistics. Similarly, revenue from Canada declined 21% in the quarter due to the normal quarterly fluctuations in the timing of contract awards. However, Canada's revenue increased 7% on a year-to-date basis on sustained traction with utilities and correction verticals. LATAM continues to represent a growth opportunity for Senstar, though the region remains smaller in terms of revenue contribution. As we have stated in prior quarters, demand for security modernization in LATAM remains, and we continue to be well-positioned to capitalize on opportunities in the region. The geographical breakdown as a percentage of revenue for 2025 compared to the prior year quarter is as follows: North America, 51% versus 43%; EMEA, 36% versus 39%; APAC, 12% versus 14%. And all other regions were immaterial for both periods. Third-quarter gross margin of 67.3% compares to 68% in the year-ago quarter. The stability in gross margin is primarily the result of favorable product mix, diligent expense controls, and component and design optimizations. Our operating expenses were $5.2 million, up 10% compared to $4.8 million in the prior year third quarter and represented 55% of revenue versus 49.1% in the year-ago period. The increase was primarily driven by G&A expense growth of 47% due to an exceptional cost association with a consulting engagement in support of strategic growth. In addition to targeted selling expenses in core and emerging vertical end markets. As a positive offset to research and development investments, we were awarded a one-time government subsidy for an AI development initiative, validating our innovative technology solutions. Relatively flat revenue and gross margin drove our operating income for the third quarter to $1.1 million, down 37% compared to $1.8 million in the year-ago period. Operating margin of 12.1% in 2025 compares to 18.8% in the year-ago period. On a year-to-date basis, operating income increased by 31% to $3.1 million, reflecting the value of our platform, solid execution in a competitive market, and disciplined operating model. The company's EBITDA for the third quarter was $1.3 million compared to $2 million in the third quarter of last year, with EBITDA margins contracting to 13.9% from 20.7% in the year-ago quarter. Financial income was $282,000 in the third quarter of this year compared to financial income of $111,000 in the third quarter of last year. This is mainly a non-cash accounting effect we regularly report on due to adjustments to the valuation of our monetary assets and liabilities denominated in currencies other than the functional currency of the operating entities in the group, in accordance with GAAP. Net income attributed to Senstar Technologies shareholders in the third quarter was $1 million or $0.04 per share compared to net income of $1.3 million or $0.06 per share in the third quarter of last year. Added to Senstar's operational contribution are the public platform expenses and amortization of intangible assets from historical acquisitions. The corporate expenses for the third quarter were approximately $890,000 compared to roughly $470,000 in the year-ago period. Turning to the balance sheet. Cash and cash equivalents and short-term bank deposits as of 09/30/2025 were $21.7 million or $0.93 per share. This compares to $20.6 million or $0.88 per share as of 12/31/2024. The company had zero debt as of 09/30/2025. Before opening the lines for Q&A, I'd like to remind those listening that we will be attending the 22nd Annual Security Investors Conference on December hosted by Raymond James in New York City. We encourage those who are interested to register with your Raymond James sales representative. That concludes my remarks. Operator, we would like to open the call for questions now. Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. Corbin Woodhull: You may press 2 if you would like to remove your question from the queue. Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. So that we may address questions from as many participants as possible, we ask that you limit yourself to one question and one follow-up. If you have additional questions, you may requeue, and time permitting, those questions will be addressed. One moment, please, while we poll for questions. Corbin Woodhull: Thank you. Operator: Our first question comes from the line of Mike Distler with AMX Holdings. Please proceed. Mike Distler: Yes. Good afternoon, folks. Thanks for taking my quick question and comment. The only question I had on the financials was just on the corporate expense side. You went from a, I know, $4.30, I think, to $9.80. I was just wondering why there was such a tremendous jump over 100%. Is the simple question. Alicia Kelly: Yes. So the corporate expenses went from $470,000 to $890,000 this quarter. And that is the abnormal cost that we were speaking about in terms of consulting fees. Mike Distler: Okay. And the only other thing I understand the consulting fee having been queued in. I've been a, you know, almost thirty-year member of the collection of shareholders. Just quickly, the interesting part about the AI development, and I'm not, you know, on the bandwagon necessarily, but I think you guys are already pursuing this. In terms of not just sales, but partnerships. I know that your business development sales folks are already directed this way and, you know, whether it's the protection of actual facilities or energy behind those facilities. And just know that your legacy utility companies, your current, you know, twenty-year relationships, those folks are also dipping their toes into providing that energy, not just all these new newfangled, the koiwis, etcetera. So I know you're on this, and I just thought if you have any comment, I'd be happy to hear it. Fabien Haubert: So regard related to AI in particular? Yeah. Okay. Let's do it this way. Mike Distler: And the energy involved. Right. Both of them. Fabien Haubert: Oh, okay. So I'm not sure. Okay. I'm gonna try to I think I understand you're gonna okay. We use today there are three ways which AI crosses our world. The first way is that, you know, we have sensors which analyze data coming from the sensors on fences buried and we're developing, of course, we're working with AI models who are helping having 100% detection reducing next zero the false alarm rate, and helping us not only but to classify the information to provide not only alarms, but what we call situational awareness. That's the number one. The number two use of AI like every company, we're taking steps ahead to use AI to smoothen our process to be quicker, faster, more efficient, and, of course, we're working and implementing, of course, following the compliance of all data protection, whatever, to improve our performance. On the third way, AI is translating into the building of a lot of new data centers. Those data centers that you refer need power. So, yes, indeed, the development of AI worldwide does translate as we see it in a multiplication of the data centers, in the complex signification of the data centers, which lead themselves to the multiplication of new power generation solar. It could be the small and modular reactors. It could be different sources of generation. Which we intend to ensure the protection of both the data centers themselves and their source of power. Does it answer your question? Mike Distler: Yes, sir. Thank you, Fabien. Just one more comment. It's just that your business development group, I'm sure, is already doing this. It's working in tandem in partnership with like in kind, meaning not only using AI to improve Senstar's products, but to actually integrate the construction of these facilities with you folks at the desk, helping them out and they helping you out. And I just think that kind of partnership would benefit both, not you know, not obviously, I'm a long-term player here. And I just wanted to I'm sure your people are doing this, and I just thought I'd stress that some of those like in kind sit downs, before shovels hit the ground are super helpful. That's it. And I thank you for your continued success, and that's my comment. Thank you very much. Fabien Haubert: Thank you for your support and trust in our Absolutely. Thank you. Corbin Woodhull: Thank you. Operator: Our next question comes from the line of Ken Liddy with Oppenheimer. Hi. You mentioned in the call that the multisensor is showing some progress. I wanted to see what customers, what verticals are most interested in deploying the multisensor and their solution. Fabien Haubert: Thank you for your questions. So we have I can answer it without we're not giving typically names of customers or whatever. But what I can tell is that we have two data in multicenter. The first multicenter is the first generation. It's used as a stand-alone product. And we have been basically mainly broadening a lot of POCs in many verticals to secure teleports of prison, to secure, I would say, teleport entrances of I would say, utilities, power generation, whatever, we have deployed it as well into to secure some logistic premises. And we're pushing it via distribution. It's a bit hard to say everywhere it's been going because we have been starting to push it through distribution. So we have the water is starting to boil, generating more and more interest. And the product is broadly currently tested to be evaluated as a standard or whatsoever. And that is happening in a lot of verticals. Some we have access because we know of. Some we do not see. So, yes, we see a movement happening here, which is very encouraging. On top of it, we have the multicenter daisy chains and, that you can use as a virtual fence. Using different technology video, radar, PIR, accelerometer, with all process with intelligence, used in daisy chain like to secure a perimeter. And we have basically had some very interesting first wins. The product not really is not long back, and we had some very interesting first win in the data center worlds with this solution. Ken Liddy: Okay. That's helpful. And, if I customers trying to secure a prison, are they ordering one multisensor or several multisensors? How does that work? Fabien Haubert: So you have two cases. Where, you know, a lot of critical infrastructure business are rather conservative and evaluating and standardizing some technologies because before, it becomes, authorized to bid with because you go through lots of public tenders and then so on. So in this case, the order typically one and two to put in place to stay for several months. That's one thing. When we work, it depends on the nature. Some are sold. It depends on the nature of the of prisons, of the of the place. In some cases, you will have many teleport to be guarded. And depending on the size and the configuration and what you want to use it for, you might put two, three, four, five multiplied number of sites. Or very often what happens is that people use it to secure a spot which is showing some problems today. And to replace different technologies. In other words, to make it simple, when people build something from scratch, they will design it around the product. That can take several weeks or months before it happens. The way it's been used so far is it's this product solve problems with other technology have difficulty to solve, other than using in combination. They buy basically one, two of those, to basically fix their current issue before redesigning their systems. So when it's a fireman, a firefighter use, it's gonna be a couple of units. When they think long term, then the units can be higher. Ken Liddy: Understood. And then one other question. Typically, the fourth quarter tends to be one of your two biggest quarters of the year. Do you see that being playing out that way this year? Fabien Haubert: I'm sorry. We're not giving forward-looking statements. I do regret there. It's not something we can share. What I can tell you is that the whole team is working as hard as they can to deliver the best result possible. Ken Liddy: Is there a particular region or a vertical that is looking stronger than others at this point? For the Sorry. What? The future. Not for the court. I'm saying overall in your business. Fabien Haubert: Okay. Let's put it this way. I cannot give forward-looking statements. That being said, we have two strong areas which are North America USA mainly. And Europe, which we want to keep boosting and investing a lot. So, we're working hard to develop those. On the verticals our core verticals are heavily growing. And we want to keep basically investing on those. Some areas will show some verticals more than the others, so it's hard to give you an answer per, globally. But what we see that overall, those four verticals keep growing two-digit even when the turnover is rather stable. Which is really proving that we're adopting the right strategy. Ken Liddy: Okay. Thank you. Operator: Thank you. Our next question comes from the line of Noam Nakash with IMA Value Fund. Please proceed. Noam Nakash: Yeah. Hi, Fabien. Thank you for taking my question. The question is, without the ending of the Asia Pacific contracts, what is the calculated growth for the company in the quarter? Fabien Haubert: It's hard to say. I'm afraid. I cannot comment it. Let's put it this way. We had one of very large one, this last year, which did not reoccur. It's hard to provide a comment, and we're not getting into this level of details. But let's put this way, it was sufficiently material last year that it has been hard to compensate with the growth associated by other verticals. Noam Nakash: Mhmm. And just another follow-up. Looking forward, you wrote about the operating model of 10% organic growth. Do you think it's still the run rate going forward? Fabien Haubert: We're striving and fighting for it, Noam. The only thing I can tell you. Noam Nakash: Okay. Thank you. Thank you, Noam. Please apologies that we're not authorized to provide some looking forward statements. But what I can tell you is that the whole team has been and keep being extremely involved to work on developing a sustainable growth. Noam Nakash: Another follow-up if I may. The consulting fees. Do you believe they will support future growth? Fabien Haubert: This is what we hope. We have invested substantial money to work on different ways to grow. And, absolutely, we're at least this investment we made on how to build our growth is we hope will translate into some future growth. It's a hope. It's a wish, and we work hard on it. Noam Nakash: Okay. Thank you. Operator: Next question comes from the line of Ken Liddy with Oppenheimer. Please proceed. Ken Liddy: Hi. In your operating expenses, your general and administrative are up considerably in the quarter and for the year. Is that from hiring new people to develop your business? Fabien Haubert: So the major increase in our expenses has been in a large consulting fee to work on our future growth. On top of it, there are some investments being made, of course, to be able to sustain the growth. I will quote business development where we have invested some. But I want to insist that most of this increase in operation came from a G&A around this consultancy around the growth focus. Ken Liddy: And where is there a specific region that is directed that you're trying to grow? Like, is there a specific reason or specific vertical that you're trying to grow? Fabien Haubert: We want to keep growing globally. We believe that our goal is to grow globally, by gaining market share in our verticals globally, by basically increasing our footprint in our verticals. Of course, working on cross-selling our evolution, by adding by combining technologies, we have a very ample portfolio. And on top of it, developing what we said, securing noncritical critical spots, excuse me, of noncritical infrastructure. But, yes, globally, we want to address this growth globally. Ken Liddy: Understood. And, the consulting fee, about how much was that in the quarter? Fabien Haubert: I'm afraid we cannot disclose in detail, but it was a substantial part of the major vast majority of this expense raise. Ken Liddy: And should we expect that in future quarters? Or is this more of a onetime? Fabien Haubert: So it's something what you call exceptional. We cannot comment whether there will be further expenses like that so far. Ken Liddy: Okay. Thanks. But it's not something which we want to make structural. Okay? It's exceptional. Sometimes exceptional career. Yeah. Ken Liddy: Understood. Thanks for the clarification. Corbin Woodhull: Thank you. Operator: There are no further questions at this time. Mr. Haubert, would you like to make a concluding statement? Fabien Haubert: Thank you. On behalf of Senstar's Management, I would like to thank our investors for their interest and long-term support of our business. Have a good day. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by, and welcome to the Web Travel Group Limited First Half FY '26 Results Briefing. [Operator Instructions] I would now like to hand the conference over to Mr. John Guscic, Managing Director. Please go ahead. John Guscic: Thank you, Harmony. Good morning, everyone. Welcome to the Web Travel Group results for the first half of FY '26. Joining me today is our CFO, Tony Ristevski. Grab your ticket and your suitcase, thunders rolling down the tracks. Web knows where it's going, and we know we'll never go back. Investors, if you're weary, lay your head upon my chest. We'll take what we can carry, and we'll leave the rest. Big Web rolling through fields where sunlight streams, meet me in the land of hope and dreams. Welcome, guys. We said that we would deliver world-class growth in FY '26, and we said that margins would stabilize. And we've done both things. If you go to Slide 3, you'll see that our TTV is up 22%. Our margin is at 6.5%. We'll talk about how we get there and the construct in a second. EBITDA for the group is up 17%. If we break it down to the underlying performance of WebBeds, TTV of $3.2 billion, up 22% on the first half of '25, revenue of $204.6 million, up 20%, EBITDA of $94 million, up 21% on the corresponding period. We've maintained market-leading TTV growth rates while maintaining margins. Revenue is a reflection virtually identical with TTV and EBITDA is up almost exactly the same. We'll go through the construct of how that all transpired in a second. If we get to the overall group performance, underlying EBITDA is up $81.7 million after corporate costs of $12.3 million. NPAT is $48.6 million, and we continue to skew out cash at a rate well above our contemporaries where we're up circa $120 million in the year. CapEx is in line with our expectation at $18.6 million. And our cash position is exceptionally strong, notwithstanding that we spent $150 million on buying back shares in the second half of the last financial year. What we have done is to provide greater flexibility is increased our undrawn revolver credit facility from $40 million to $200 million. Moving through to our key metrics. I've covered most of these, but bookings at 5.70 million, TTV at $3.17 million. In both cases, we're seeing strong organic growth in all regions. And our bookings and TTV combination reflects the expansion of the network in which -- or the distribution network in which we participate in both various geographies and various channels that have all expanded during the first half of '26. Record revenue at $204.6 million and record EBITDA at $94 million, obviously, reflecting our revenue growth as well as our planned increase in operating expenses as we future-proof our business to maintain the margin levels that we are currently delivering and expect to deliver for the foreseeable future. Let's go through the highlights. Bookings up 18% across all regions. TTV up 22%. Revenue, 20%, expenses up 19%. That's reflecting CPI increases, the reintroduction of the bonus scheme, which we didn't get paid in FY '25, as well as the previously flagged investment in hotel contracting. In functional currency, we expect expenses to go up in high single digits. We'll talk a little bit about the functional currency in a little while as we go through what has transpired. EBIT is up 21%. We said at the start of the year, we reaffirmed during the AGM that EBITDA margins will be between 44% and 47%, and we are at 45.9%. So let's get into a little bit more of the detail of what we've been able to deliver. As those who are familiar with the business are aware that we carve out our superior growth rate in 3 separate buckets. One is what does the market growth or system growth look like. What are we adding to the pile through new customers and through improved supply arrangements or entering into new markets. And the third is same-store sales, which we call conversion, what are we doing to increase the sales that we make from our existing customer base. So if you look at systems growth, so if you're not growing at 5%, you're going backwards against the market. We think our estimates are the overall hotel supply and distribution market grew circa 5%. We looked at our business and what's different between the first half in specific inventory that we've sold and/or specific clients that we've sold to. That accounted for about 5% of our growth. And all the rest is the singular focus of an organization of circa 1,900 employees looking to ensure that we provide the right product at the right price at the right time for our customer base and enhancing the value of our supply partners by giving them global distribution. And again, we had another standout result where we improved our conversion by another 12% in the first half of '26. All right. Let's get a little bit technical here, and we're going to have to talk about the vagaries of the FX market and how that played out for us over the year and talk specifically about the regional performance of our respective markets and how that's been translated to our functional currency. So as you can see, in aggregate, globally, our bookings are up 18%, but in the functional euro currency, we're only up 14%. This is an anomaly from this perspective. What we have seen in FY '26, as we compare the exchange rates of the euro, in particular, against FY '25 is the euro has appreciated considerably, in particular, against the U.S. dollar. The net effect of that is that at a functional currency level, we're only up 14%. At a bookings level, which is activity, we're up 18%. At Aussie dollar level, we're up 22%, and 22% is circa normal. If you had a bookings growth rate of 18%, then you would expect average booking values to go up circa 3% to 4%. So 22% is the expected outcome of bookings of 18%. How we got there is a little bit unusual. So let's go through the individual markets and call out what's actually happened. So Americans had clearly, the standout performance in the half, up 36%, a factor of, again, some great client wins and massive market share gains from existing clients driving a massive outperformance in that particular market. And yet when you translate that to euros, it's only up 27%. The vast majority of that delta is the previously mentioned exchange rate between the U.S. dollar and euro. Let's go to Europe. Europe, very strong results at a bookings level, up 14% in the most mature distribution market in the B2B landscape. That is a superior result. And perversely, TTV in euros is down 12%. And that's because there are not just the euro that we sell in Europe, we're selling GBP pounds. We're selling Scandinavian currencies, we're selling Eastern European currencies. The way we account, we've got Turkish lira in there, and all of those currencies have depreciated against the euro, which shows the 14% bookings translating to 12% at a TTV level. Okay. Let's go to APAC and strong growth, double-digit growth in APAC and TTV growing faster than bookings. That's purely a function of average booking value increasing quite significantly in APAC because there was an FX drag on many of those currencies against the euro. So we saw ABV rates of circa 5%, driving a 2% net TTV to euro improvement. And the starkest example is the Middle East, where solid bookings, 6%. They were up massively in April and May, as you will have at our full year highlights as we -- of FY '25 when we called out our respective results, they were up significantly. There's been a significant softening in the Middle East market as a consequence of the war in Israel and Gaza and the bombing in particular, of Iran and Qatar saw a significant slowdown in region of that particular, in market, and that resulted in the subdued growth. We have high conviction that our Middle East business will continue to grow at above market rates. And as we'll talk about in the forward-looking element of our presentation, as the FX exchange rate delta ameliorates over time, that will translate to double-digit TTV growth in the market. So overall, really strong performance and that's how we landed in our respective marketplaces. Moving on to Slide 9. Again, for those who have been on us for this particular journey, in particular, in the post-COVID world, you've seen a significantly streamlined business doing significantly more volume, significantly more profit with lower resources invested in that effort. So the time scale to the right shows you the history of our business. In particular, it's a proud moment for our entire organization to see that growth rate continuing at our expectation of delivering towards our $10 billion TTV target. We're on track for that particular effort. We spoke about our margin where -- we said that we would be circa a year ago, I said that we would be at least 6.5% over the next 3 half reporting periods, which is an 18-month period. We continue to be on track to deliver 6.5% not only for FY '26, but with all the things that we've done in our business for FY '27, and I'll talk about those when we get to the forward-looking statements about our business. How we get to improve margins when clearly 6.5% is less than 6.6% is during the course of the year, we sold our DMC business, which is a high-margin business, low volume. That accounts for circa 20 basis points, and we actually improved our margin across the board to deliver 6.5%. So the most simple way of looking at it is the -- we're on a run rate to circa $6 billion in TTV this year. We delivered circa $5 billion last year. And what we've done is deliver the exact same TTV plus the incremental circa $1 billion over the full year, and we've maintained margins across the entire pool of business that we've sold to, which is in line with our overarching strategy over the last 12 months of ensuring that we solidify that margin and anchor it to the 6.5% and continue to deliver superior revenue and TTV growth as we deliver across the 3 piles that I talked about, systems growth, new customer supply and markets and improved conversion. So moving on to Slide 10. We're expanding our customer base. I've had opportunities through various presentations internally over the last few weeks to reflect upon the journey that we've undertaken from a customer base. And in essence, we started as a business where we sold Dubai as a destination to the Middle East. We made a small acquisition in Sunhotels in which we sold Mediterranean beach holidays to Scandinavians, and it was predominantly through a retail channel and predominantly through a narrow focus of customers. What we've done exceptionally well over the post-pandemic recovery period is broaden out that customer mix, in particular, looking at where are the fastest-growing customers globally and how can we tap into meeting their needs as a wholesale bedbank provider. And we've done that very well, and you see the superior results, in particular, in the Americas where we're partnered with the most innovative OTAs in the region to maintain our superior growth rates. Our customer diversification extends to what I've just described in America versus the tour operator business that we provide the same offering to and the same level of success in Europe, let alone the super apps in Asia or the corporate clients that we deal with in the Middle East. So we've got a really broad portfolio of customers that we continue to expand, and we have a strong pipeline for the balance of FY '26 and into FY '27. The next element is our supply mix in which we have a renewed sense of focus over the course of the last 12 months, and it's the most important strategic focus -- sorry, most important operational focus of our business going forward. So we were unhappy with our performance in FY '25, where there was the wrong inventory being sold at the wrong prices to some of our clients. We are addressing that, in particular, with our efforts to improve directly contracting sales in Americas, in particular, where we are significantly underweight. There's an enormous opportunity for us as we play out that particular strand of our tactical initiatives, and that will continue into FY '27. The second thing that has been, again, a credit to the hybrid business model we have of directly contracted inventory and partnering with the major third-party suppliers is we've seen an increase in supply of last-minute accommodation over the course of this half. Our average booking window has compressed by circa 5%, which is material in as someone who's been in this industry for 20-odd years. So it's the most significant compression of the booking window because of the broad range of supply that we have, we're able to tap into that particular compressed booking window and our percentage of last-minute bookings is up significantly against the same period of last year. And as we continue to grow, we have increased our relevance and presence with the major hotel chains. And we've got to the -- we've got into now the consideration set of being a viable distribution partner on a semi-exclusive basis to some of the largest hotel chains in the world, and we couldn't make that claim 2 to 3 years ago. As we were a business of circa $2 billion to $3 billion, we're a long way from having the global reach and presence that we now do have. And that dialogue is changing, and there will be some considerable success stories as we roll out our chain strategy over the course of the next 2 to 3 years. Moving on to geographic mix. In a Utopian world, we think we'll have 3 equal regions of roughly 30% each between Europe, America and APAC. We're getting pretty close to that. Middle East will be circa 10% of our overall business. We will continue to grow in all regions. We are not underinvesting in any. We have high-quality individuals who are running our sourcing and sales organizations in all those regions. And that's why we continue to outperform our competitors at both the TTV and EBITDA level. One of the significant contributors, and those who have followed our story will know that Europe is our highest margin region. We have improved margins in our highest margin region. And as we've grown faster in some of those regions, it's more than compensated for that TTV margin geographic mix that would have been down with pressure on us, and it's one of the reasons why we're so confident about delivering 6.5% for the balance of this year but also into FY '27. Finally, if we talk a little bit about scalability in the biggest hat tip I can give to the operational element of our organization and the people responsible for efficiency across the entire organization. It's an incredible achievement that we're now delivering bookings at circa triple what we were doing per FTE pre-pandemic. We're up 174%, and that number will continue to expand as we deliver the multitude of initiatives that we have within our organization that enable us to leverage technology to become more relevant and embedded in our business and to drive greater efficiency. And that's, as I said, a credit to, in particular, the operations teams within our business, which are all in-house. If we move to AI, there are a number of things that we have done. In particular, we have delivered margin optimization over the last number of years through a significant investment that we have made in that particular space. We think that we have market-leading solutions there. We also have a number of other AI initiatives undertaken within the business to improve how we surface inventory, the quality of the inventory we surface and how we service that inventory once it's been sold. There's been a little bit of a conversation about most particularly in the last week or so from industry commentary about the impact of what AI tools by some of the large language models will have on our business. The short answer is that will be another growth engine for us. The most recent example is Google announced their new travel initiative. And as I've shared previously with my colleagues on this particular call, there's only one team -- one time in the history of my 14 years, I generally thought -- apart from COVID, of course, but what I generally thought we faced an existential threat was when Google Flights was launched at the top of the funnel on all Google Search to displace the existing meta providers and take and capture demand before it fell to people like Webjet back in the day. The new Google -- and if that had been -- if that had played out, you wouldn't see the success of the large OTAs globally and Webjet's continued success over that intervening 10-year period. Now there are many reasons for that because at the end of the day, in this Google AI initiative and the various others that are coming down the track that we are aware of, what they all are is fixing a specific problem. And it's a problem that we have discussed many times internally when we were Webjet is how do you improve the search experience for customers, and we now have the answer: AI makes it infinitely better than typing in a date range, number of packs and a location and hoping that the 1,000 properties in Paris come to in the sequence that you would like. So it's an incredible fill up for those businesses that have -- that will -- sorry, for consumers that will enable them to derive superior results faster and have it tracked and be able to keep a log of everything that you're looking at before you make your booking decision. But the booking decision will not be made by the AI. The booking decision, and this is straight from Google last week, the booking decision will be -- they will not be the merchant of record. They'll pass that through to their partners. They will not service the customer. They will not go through all the things that we go through to enable that to happen. And where we fit in and why this is going to be a sustainable growth channel within our organization is we feed the people who are the consumer-facing level. We feed the OTAs that are going to be partnering with them. We feed any of the other channels that they choose to partner with. So rather than being a displacement for us, we think this will continue to enable us to grow faster as we have because we have a very broad range of inventory as demonstrated by the fact that we're on track to sell $6 billion of it. And it's not going to become less attractive in an AI world. What AI will do is deliver these incredible insights to get to our inventory faster. So we're very excited about that particular initiative. Finishing off the scalability, investment in contracting staff, we think will have a meaningful impact, in particular, in Americas, where we believe our margins will go up on the back of that. And in light of the fact that 5 or 6 years ago, we were the only publicly listed company that had publicly declared data about this industry, you'll see that with new people coming into the public markets, it still remains a significantly fragmented market, which continues to create opportunities, and we will look to take advantage of those opportunities over the course of this and the next financial year. So with that, I will now hand over to Tony to go through the finances. Tony Ristevski: Thank you, John. Good morning, everyone. Can you turn to Slide 12, which is our first financial summary, the P&L. Consistent now for the better part of 7 years, we've presented the P&L in the statutory format, which is to the left and the one that's more relevant, which is the underlying format to the right. John has already gone through the key operational results as it relates to review and EBITDA for the WebBeds business. Corporate cost is the next idea there in line, and that is pretty much consistent to what I said 6 months ago, where we're on track to do circa $24 million, but I'll talk a bit a bit about that in the next slide. And our operating expenses, which we do exclude from underlying of $5.5 million for the half is really predominantly a function of a mark-to-market to the equity-linked instrument that is a function of share price. Our share price obviously at 30 September is lower than what it was at 31 March, and that resulted in a revaluation downwards, which we do exclude from the result. The other key item there to call out is our effective tax rate at an underlying level. It is on track to be around 17% for the year. But this time last year, when we were part of the enlarged Webjet Group, we had the benefit of Australian earnings to offset the corporate losses, which were incurred in root, which for this half, we don't get that benefit. So consistent with what I said 6 months ago, our effective tax rate going forward will be in the vicinity of around 17%. The other key thing to call out on the slide is, as you can see, there at an underlying NPAT level, despite the record earnings for the half. But at an NPAT level, we are down versus last year, and that is really a function of the demerger, which I'll take you through the next slide, which is quite important. So if you then turn to Slide 13. What our NPAT represents in the first half of '26 is really the stand-alone business in its post-demerger format. So if you then look to the left there of corporate expenses, being $12.3 million, if you go back 6 months ago, second half '25, the exit run rate for corporate cost was $11.1 million. So when you then look at it in the context of the $12.3 million, it's the natural progression as we stand into an individual corporate function post demerger. Then if you then go to the next item, which is depreciation and amortization, the compare is a function of the demerger allocation. But then if you look at the second half of '25, that was $13 million approximately in D&A, and that did grow up 20% into the first half into $15.5 million and on track to be around $31 million for the full year. And then if you then go to the right there with net interest and finance costs, 12 months ago, at the half, we were in a positive situation, $600,000. Then in the second half of '25, we went to a negative $4.3 million, resulting in a $3.7 million for the full year of a net expense. Obviously, in the first half, we're at $7.4 million of net expense. And that's really a function of a couple of items there. Firstly, we did upsize our revolver, which does have a cost. Secondly, we did effectively reduce our cash balance by approximately $300 million, which we're getting the benefit for, firstly, through the demerger, handing $143 million over to Webjet. And then in the second half, $150 million through the buyback. And obviously, as has been the case over the last 7 or 8 years, our option premium costs are pretty much growing in line with our TTV numbers. So all in all, we're expecting net finance costs to be around $15 million for the full year. Going on to the next slide, which is our balance sheet. Strong healthy cash number, which John talked to earlier. Our working capital, which is our debtors and creditors is consistent now as we normalize after last year, where we did have a contraction around creditor days. Debtor days are sort of around 20 days going forward and creditor days are around the mid-30s going forward. So overall, quite pleased to see that both have stabilized. And I'll talk about the cash consequences of that on the next slide. Turning to the next item of substance, which is probably borrowing costs. You would see in our statutory accounts with the convertible notes due to mature April of '26, the borrowing cost has now been classified as current as opposed to noncurrent. But equally, as you would have seen 6 months ago during the April period of '25, we did upsize our revolver from $40 million to effectively $200 million, plus we've got an undrawn facility there of another $18 million. So all in all, we currently sit around $700 million of liquidity. So to the extent that we will be looking at a potential redemption event, we are well capitalized and have a well amount of liquidity to deal with that eventuality. Lastly, on capital efficiency, the key thing there is that it has grown materially from where we were at this time last year as our earnings grow organically through the generation of cash and earnings, it has now grown to almost 22%. And when I look back over the previous slide, it is now sitting in record territory, ROIC. And that will only continue to expand as we organic grow our business into the financial year. Then I'll turn to the next slide, on Slide 15, which is talk about cash. As always, our cash comes from our profits. And then the other key element to consider here is obviously working capital. We are working capital positive in the first half, which is consistent with the trading over that summer shoulder period. You got to recall, when we look at our TTV numbers being record levels across that August, September period, we do collect that cash. And then there's an unwind of payables that typically occurs across October and November. So what you'll see consistent with past years is in the second half, we'll have negative working capital, and that will result in approximately a cash conversion number of about circa 100%. Looking down to the next items there from a financing dividend perspective. Obviously, we'll continue to invest in our business and the prospects around growth. So no dividend has been declared. Talked about cash conversion being approximately 100%. And in terms of capital management, we talked about this 6 months ago. We obviously completed the buyback in the second half, which did address 88% of the potential dilution that could come from the node. We upsized the revolver, and coupled with the cash from operations, we are well equipped from a liquidity perspective to deal with whether it's commercial or redemption come April of '26. But come May of '26, we'll be a bit more explicit around how we think about capital management going forward once that event is behind us. And lastly, on the last slide being CapEx. No surprise there. We did churn spend half-on-half as a result of the point-of-sale solution being accelerated this time last year, which is why we ended up being smaller in spend this half. Going forward, we do see CapEx to be effectively like-for-like in terms of underlying functional currency versus '26 versus '25. And then from an outlook perspective, we do see that it will grow in line with inflation. So on that note, I'll hand over to John. John Guscic: Thank you, Tony. For those who have seen the ASX announcement this morning, you'll note that Tony has resigned from our business. It's bittersweet to make that announcement. We have sat across the table from each other for 15 of these half year results and full year results update. We will, in turn, spend plenty of time celebrating everything that Tony has done with us during the next 6 months. Tony will still be with us at the full year results, and we'll give him a proper sendoff there. And in between times, he will get his regular torture from me. So thank you for everything you've done for us, Tony. Tony Ristevski: Looking forward to it. John Guscic: So let's go on Slide 18 reconfirming the financial outlook statements. As you'll see on the left-hand side, in relation to WebBeds in functional currency, we made the following promises at the AGM in August that our TTV margin would be at least 6.5%. We are on track. Expenses to grow in high single digits. We are on track. EBITDA margin is expected to be between 44% and 47%. We delivered that in the first half, and we are on track. CapEx to be in line with FY '25, as Tony just covered, on track. If we get to the mothership at Web Travel Group, corporate cost is $24 million. We're consistent with what we said in August, D&A at $31 million. That's consistent with what we said in August. Net financing costs are at $15 million, that's circa $1 million lower than what we said in August, underlying effective tax rate, 17%, full year cash conversion, 100%. So everything we said in August, we have ticked and bashed. So now I spoke earlier about the impact of the euro to USD headwinds and the AUD to euro tailwinds. As we roll forward another 6 months, we expect that to be less pronounced based on existing exchange rates. And therefore, the results in FY -- in the second half of FY '26 will be less impacted by currency fluctuations based on what has happened today. I make no forward-looking statement about what might happen with those exchange rates. Moving on to FY '26 trading update and guidance. So second half TTV up until the 21st of November, we are up 23% versus the same time this last year. So strong growth in the second half, remarkably consistent with the growth in the first half. First half was skewed to first quarter outperforming second quarter being a little bit below that number. And now we're seeing a nice rebound into the third quarter, and we expect that to continue for the full year. Our EBITDA guidance is between $147 million to $155 million. That is an increase of circa the bottom range, 22% to the top 29%, which means basically that we are delivering significantly superior EBITDA in the second half because we delivered 17% in the first half. So to get to 22% means the second half at a minimum is going to be high 20s, 27-odd, and it could be as high as mid-30s in second half performance, which goes to the conviction and the confidence of all the things I spoke about of why the business has delivered against the promise of superior TTV growth and stabilized take rate, delivering increased and superior EBITDA, notwithstanding the continued investment that we make in our business. If we move to the final slide, and we start to think of what's next year going to look like. We continue to build out our marketplace. Our marketplace continues to be more relevant for all of our major players and all of our major partners. So we see no reason that we won't be able to deliver on our TTV growth rates that enable us to get to 30 -- sorry, $10 billion by FY '30. This time last year, I said that we just delivered circa 6.5% TTV margin we would for the next 12 months. I mean in the same position today, we will deliver it for the back half of this year. We'll deliver that number again in FY '27. I've spoken a couple of times about this, but I just want to make the point that the investment that we've made this year is in our OpEx this year around contracting staff, we believe will make a meaningful impact to our results in FY '27. And WebBeds remains a highly scalable business, and we expect to deliver circa 50% EBITDA margins in FY '27. So information, Web will provide for you and will stand by your side. You'll need a good companion for this part of the ride. Leave behind your sorrows, let this day be the last. Tomorrow, there'll be sunshine and all this darkness past. Big Web roll through fields where sunlight streams. Meet me in the land of hope and dreams. With that, Harmony, we will take questions. Operator: Your first question comes from Sam Seow from Citi. Samuel Seow: Congrats on the results. Just if I could just quickly ask on that 10 basis points of improvement in the revenue margin. You called out that optimization initiatives driving the growth. Could you possibly present some color on that? Is it direct contracting? Is it something you've done in Europe there looks like? Or yes, just any color on that would be greatly appreciated? And then maybe a question for Tony. What kind of uptick do you expect purely from the accounting change in the second half? John Guscic: Thanks for the question, Sam. We have increased the proportion of directly contracted sales during the half. So that's contributed to it. We have increased pricing in some jurisdictions. And as you will have noted from previous conversations where we've been very explicit, the other 3 regions beyond Europe, operate at a lower margin. And notwithstanding that they've grown in aggregate faster, we've still been able to increase the margin because of those activities. So that sharpening of focus around who we're selling -- what we're selling to who is what's contributed to that outcome. Tony Ristevski: And on the second part there, Sam, that uptick in trading is effectively offsetting less than pronounced delta half-on-half around the accounting change. I would describe probably 6 to 12 months ago. The underlying business performance is actually improving as a result. What we're seeing is less what I would call, variability half-on-half around that retrospective approach to the error rates that I would describe 12 months ago, landing on a margin for the year at least 6.5%. Samuel Seow: Got it. Got it. And just quickly, I noticed when you break down your TTV, your underlying market growth there at 5%, normally, that's pretty standard. But just of interest to me, obviously, particularly in the first half of your year, the market appeared to be quite volatile. So just kind of wondering how you put that 5% together? Is that your market specifically? Is it just more domestic focused? Because obviously, inbound in the U.S. was quite soft and some of your peers talking about channel changes, et cetera, and percentage of last minute bookings. But yes, just kind of that color on the 5%, it seems quite robust. John Guscic: Your question is very relevant, and it's one of the things that we've tried over the course of the last 4 to 5 years to talk about our geographic spread. We talk about our channel mix and in that portfolio of businesses, you have winners and losers. And even with the market up 5%, I'll be hazarding a guess that 15% of our customers went backwards. 10% of our geographies went backwards. You've called out the one that everyone can call out, which is inbound to America is down circa 15%. Americans going to Canada or Canadians go to America is down, I don't know, 20-odd percent. So all those things play out. I tend not to get overly focused on the individual travel corridors. I have lots of people in our organization who spend an infinite amount of time looking at these travel corridors. But when we roll them all up to a business that's up at $6 billion, there are winners and losers, and we end up with more winners than losers and that's why we continue to outperform the market. The second thing I'll touch on, which you, again, I think, was implicit in your question, and I didn't call it out, even though I spoke about it, even though it was written down in the deck somewhere that the macro events do impact us, but they impact us for a very short period because unless you're into a global issue, the markets are growing at, say, the underlying GDP growth is 2%, for example, and it goes to 1.5%, it has an outsized influence on businesses that are directly correlated to the underlying growth rate of their individual market. We're not in that state. So I called out in August that for the 2-week period, when Israel bombed Iran, all markets went backwards, and we still delivered 22% TTV growth and 18% bookings growth. At a transactional level, all of that, we had massive cancellations during that period that exceeded creative bookings, and we still delivered 18% bookings over the half. We had a phenomenal first 7 weeks, which we called out, that was significantly impacted, and we've recovered nicely into the second half of FY '26. So giving you more color is not going to help you is the short answer. It's in the aggregate. Does our business continue to grow faster than market? Checked. Where is it coming from? We've given you all of the regions. Within each of those regions, there's still winners and losers. There's still customers that win and lose. There's still geographies that win and lose. That's just the nature of having a global business in which we sell in more than 100 countries, and we sell to thousands of endpoints, and we sell thousands of destinations. Samuel Seow: That is actually very helpful. Just to kind of get an understanding of that diversification, but I might just jump back in line and appreciate some of your commentary. Operator: Your next question comes from Tim Plumbe from UBS. Tim Plumbe: Just 2 questions from me, if possible, please. John, just the first one around the directly contracted hotel strategy. Can you give us a sense in terms of how far progressed you are with the hiring? Do you still need to put on incremental heads? And in terms of getting full momentum of contracted hotels, where are we currently? And when would you expect to see full momentum? Is that kind of first half of '27 or second half of '26? John Guscic: Thanks, Tim. Look, we have -- depending on how you count it, we have circa 1/4 of our employees involved somehow in getting inventory onto the system through contracts or through negotiating contracts or through loading contracts through the myriad of solutions that we provide all of our partners to get those contracts for sale at any point in time. What I've called out in the -- at the end of last year's financial results is, well, I'll call it out here, we are well over 60% directly contracted in all regions except the Americas. And what we are doing is addressing that specifically in the Americas. So in aggregate, we're over 50% directly contracted but we're under 50% in the Americas, and we want to lift the Americas closer to what we're doing in the other 3 regions. There are some unique elements of that, which suggests that if we got to 50%, that would be an optimal structure for us. I don't think it will get to the circa 2/3 that we do in some of the other regions. For the large domestic market that we're servicing in America and the broad geographic spread of that, it just becomes inefficient to have more contractors. So our focus beyond our existing circa 500 people is adding contracting in America, and we expect that to -- it will start to improve our overall margins and our -- the surface ability of that inventory in FY '27. Tim Plumbe: Great. And then just the second question was a bit of a follow-on from Sam and for Tony. So just thinking about that seasonal skew, you mentioned less pronounced than before, like if you back solve the guidance that you guys put out previously, it kind of implied a 20 to 60 basis point half-on-half seasonal tailwind in the second half. Are you saying that there will still be a seasonal tailwind but less pronounced than previously expected? Or there is no seasonal tailwind? John Guscic: Correct. Tony Ristevski: Less than pronounced than, Tim. So as I said, you can do the math to back off the 6.5% is less pronounced than what we anticipated because of the portfolio growth in the business and the way it has. Operator: Your next question comes from Ben Gilbert from Jarden. Ben Gilbert: Just the first one for me. Just in terms of sort of the 3 pillars of growth as you look forward, it's been pretty consistent in terms of the composition. Do you envisage the composition changing much moving forward? I'm just interested in the comment around the change strategy that you talked over next 2 to 3 years. Is that more an opportunity around conversion? Or is that going to provide new supply in markets around the world? John Guscic: Supply will -- look, customers, we're slowing down in the rate of new substantial customers that can be added. That is slowing down, but supply is actually increasing. Not only for the direct customer conversation we had with regard to the incremental investment that we are making, but in particular to some of the larger chain hotels in getting greater access to the various rate plans that those hotels have on offer. So it's not unusual for a hotel to have 20 rate plans depending on your geography, the channel, the period, the season, et cetera. So we're getting -- as we become more relevant and more deeply entrenched as a reliable supply partner with those partners, we're getting access to more rate plans. So we see supply continuing to grow, customers are at a more moderate level. And the consequence of that will be that our conversion rate will continue to grow. And if I was to take a prediction 3 to 4 years out, the conversion factor would still be at least 3x the underlying new customer new supply mix because we are getting -- the data analytics in our business now has is remarkable compared to where we were 2 to 3 years ago. The sophistication of our conversations with our distribution partners and our supplier partners is predicated on that data. So we're not just saying, give us a deal, we're good guys. We're saying this is what we can do for you. This is how we will do it, and this is the benefit that you'll get. So that's why the conversion number ultimately continue to outperform the other 2 metrics. Ben Gilbert: So this is a lot of that work you did around the consolidation of the tech stack, right, when you sort of put the hotels, the DOTW in. So you're giving your customers also client or your supply partners confidence around your pricing deck, which is what's then allowing you to get the exclusives, little bit of that moat, if you like, so that you can then sell on to your customers. Is that fair? John Guscic: Correct. Ben Gilbert: Yes. So in terms of the competitive pressure you're seeing out there, it doesn't seem like there's any escalation in the competitive threat out there's. There's chatter previously that some of the bigger global OTAs might be trying to push into your space, but it doesn't really seem like there's much evidence of them having any impact at all based on the strength of those numbers. Is that fair? John Guscic: The simplest -- the way I can put your mind at rest, Ben, is that our sales to the largest global OTAs is greater than our underlying bookings growth of 18%. Operator: Your next question comes from Andrew Hodge from Canaccord Genuity. Andrew Hodge: Just a question sort of extending on that idea around the contracted increase, if you like, with the business development that you're putting in. When you think about the impact to the business, does it have a greater impact on your revenue margin or on your TTV growth? John Guscic: Thank you for the question, Andrew. I'll take a step back and see, just doing -- let's just do simple math. This is a hypothetical example. So last year, we're doing -- and I'll say, completely hypothetical, so don't take it literally. Last year, we did $5 billion of TTV. Let's say we did 50% directly contracted at that $5 billion. So we go back to our hotel partners and say we're selling you at a rate of $2.5 billion, and we're selling now from other people at $2.5 billion. And then I go to this year, and we're run rate of $6 billion. So we're selling, let's say, 60%, and again it's hypothetical. I'm not suggesting the delta is that great. Just the math works easier in my mind, and we deliver $3.6 billion of directly contracted hotels and only $2.4 billion of third party. So our $2.5 billion has gone to $3.6 billion. Our hotel partners see that. Then they're going, s***, these guys are delivering. And then our guys going, of course, we are. We always told you we would. It's only the investment analysts who didn't believe that we would deliver. But the rest of us, we believe we would deliver. So how do we fix -- how do we continue to show that we are a great partner, and we can get you sales from around the world. And then, as I said, go back to the previous question, what's the data analytic tools that we have that we arm our guys with, it gives them insights in where they're performing against their peers, where they're not performing against their peers, where their price is too high, where their price is too low. We're having that conversation. When you have that conversation, getting access to inventory, is a hell of a lot easier because, one, you're demonstrably better than you were a year ago. Two, you're giving them insights that they don't have. At the end of the day, a hotelier has an OTA as a booking engine to compare themselves but doesn't have the demand pattern that we do. So we can show them. Yes, this is what your price. You're $10 more expensive here, but it's costing you 10 basis points of occupancy or you're $10 cheaper, you can go up and still get the same occupancy that you're getting, et cetera. These are the conversations that we have, which are very different to the conversations we had when we just went in there and said, we promised to do good by you by selling your stuff. Andrew Hodge: And then just a clarification on the second half '26 trading update. I just want to make sure that, that's your report, that the numbers that you provided there are in your reporting currency rather than the functional currency? John Guscic: Correct. Aussie dollars. Operator: Your next question comes from Wei-Weng Chen from RBC Capital Markets. Wei-Weng Chen: So I appreciate your comments before about the consumer AI tools and I guess, downplaying the threat. But is there an opportunity for you guys to go maybe for a lack of better term, B2B2C kind of via partnering with these AI companies like Google and supplying them with inventory? John Guscic: I'll answer it that over the course of the last 2 years, in particular, as we're seeing this coming down the pipe, we have had many, many conversations about how we will take advantage of this and how we will -- how we think we can mitigate the risk to our business. So we have no confirmed plans about B2B2C, but it's certainly something that we focus on internally of how do we maximize the growth rate of our business and having a business like that potentially gets you there. I'm not saying we're going to do it, but it's one of the ones -- and there are a myriad of others, Wei-Weng, that we're also considering, but there are other opportunities as well that are in our consideration set as well. Wei-Weng Chen: Yes. Okay. And then I guess, speaking about opportunities. I mean your name is Web Travel Group, but in terms of operating businesses, you're still a group of one. So I guess what's the thinking in terms of building out more operating pillars? What are some of the organic opportunities you're looking into and maybe some of the inorganic options that might be available? John Guscic: I just came from a Board meeting yesterday where we perhaps made a more derisory comment about Web Travel Group versus WebBeds as the naming convention. We're still ambitious to be a travel group. We spend a little bit of time in the presentation talking about liquidity, and we spent a little bit of time talking about the fragmented nature of the industry. All of those things remain relevant to our thinking about what we do on an inorganic side. And on the organic side, you touched on it with your question. Are there other adjacencies to what we do, white labels, B2B2C, et cetera, how do they fit into the strategy? They're all things that we are currently contemplating. Wei-Weng Chen: Yes. Cool. And then just last question for me. I guess noting the comments about the business being increasingly Northern Hemisphere based and the challenges of managing out of Australia. Do you have a preference for where your next CEO -- CFO, sorry, is going to be based, balancing, I guess, management considerations with the fact that you've got a predominantly Australian investor base? John Guscic: The new CFO will be based in Australia. Operator: Your next question is from Abraham Akra from Shaw and Partners. Abraham Akra: Two questions from me. I suppose some of the concerns related to Google's agentic AI push into travel is increase in direct bookings to hotels and away from some of your customers like OTAs. What do you think about this assessment? John Guscic: It's a little bit muted. If the question was, are they going to be using OTAs more or less than currently? Abraham Akra: Using OTAs less given Google is going to partner with some of the hotel chains and hotel partners. John Guscic: Well, yes, that will be dilutive to everybody if they do that, clearly, but that would be an outcome that would be suboptimal to getting the overall results because the whole thing about what they're trying to do is they are the most sophisticated meta search in the world and the most sophisticated booking engine -- I'm sorry, the most anticipated results delivered agent in the world focused around your needs, you're not going to be just getting -- serving up chain hotels, you're going to be serving up everything. And if it is chains that they go through and chains bypass OTAs, yes, that will be a potential downside risk. I would hazard to guess that if we looked at what our performance would be in circa 3 years after this has launched, and let's pretend there's been a 10% dislocation to this market, 20%, pick a number, doesn't really matter. It's all conjecture at this point. Pick a number, 20% improvement -- sorry, this channel becomes 20% of the overall market, it will be a net contributor to Web Travel Group's business. Abraham Akra: Understood. John Guscic: Let me give you just one bit of color just so to put your minds at rest about why this is -- this is a threat, don't get me wrong, but it needs to be put into the context of what the threat actually is. So go to a market like Italy, massive destination for many people as an inbound market. I don't have the number off the top of my head, but I think it's circa 80 million or 90 million tourists go to Italy a year. And in Italy, they have 94% independent hotels. So as we have said previously, when we set this business up more than 10 years ago, we said we would be the distribution arm for independent hotels. That would be one of the strengths of our business, still remains one of the strengths, notwithstanding chain hotels. Chain hotels are massively important. They're our biggest supply partner and increasingly a bigger supply partner. And I don't have the time on this call to explain it to you, but if you go through the travel ecosystem and the legacy technology that sits within that travel ecosystem, you will know that there is nobody who ever can do everything for all people, whether you're an agentic AI or not. Just from a fundamental element of having a PMS, they are so old and clunky and putting booking engines on them has improved their direct conversion, but they still have significantly more supply from third-party distribution as a hotel chain than they do from direct. That's after 20 years of trying. So that's inevitable. Abraham Akra: Very helpful. And I suppose your comment earlier around the average booking window compression by 5%. Is that a function of your booking mix or customer booking trends? John Guscic: It's impossible for me to answer that with any certainty. All I can tell you is what's happened. It's a little bit like someone -- usually on one of these calls, some will say, who are you winning share from? How do I know? I just know we are. So I just know it is. I'm not sure why it's happening. It might be geographic mix, it might be the fact that -- but it's happening in 3 regions out of 4. So that's just unusual. That's all I'd point out. Just been a lot of last -- shorter booking window, last-minute bookings are less, the length of stays, moderately down, et cetera. Abraham Akra: Got it. And last one for me -- just a quick one. John Guscic: You've outplayed your hands. You have to cover the questions, Wei-Weng. Tony Ristevski: No, it's Abe. John Guscic: Apologies, Abe. I'm apologizing you. I apologize to Wei-Weng. Abraham Akra: He's a good analyst. And lastly, the 23% year-on-year TTV growth year-to-date in the second half. Do you mind providing a regional breakdown? John Guscic: We've given you in the first half. All 4 regions are up. They're not massively different to where they were so that's where we're at. Operator: Your next question comes from Mitch Sonogan from Macquarie. Mitchell Sonogan: Just a quick one on the EBITDA margin target in '27, guiding to around that 50% range. I guess can you maybe just talk to the key swing factors on how you're balancing that, just noting, obviously, given the 44% to 47% range for FY '26. So yes, just trying to understand the specific target around 50% and how you're thinking about it? John Guscic: Yes. We're seeing revenue growth faster than EBITDA -- sorry, expenses, and it doesn't require a big tick to go from somewhere between 44% and 47% to get to 50%. So it's not a stretch target in that sense. If we keep the revenue margin consistent and added the expected TTV increase, and we still had low single-digit expenses, it gets us there. So they're the sort of guardrails for you to think about. Mitchell Sonogan: Yes. And just noting you talked to potential impacts from macro events that have occurred over the last 6 to 12 months. Can you maybe just talk to what percentage of bookings in the different regions are domestic versus international, whether you can give that by the major regions? Because obviously, lots of people have looked at softer Australia into U.S. international travel, but the U.S. is a pretty domestic market. So yes, just keen to understand if you can give us some color on how we should think about that looking at future events that may come our way. John Guscic: There's always a sense of amusement when I see some travel-related data being announced publicly and all the travel stocks fall in unison in relation to it, in particular, in our case, less than 2% of our TTV is Australia. So in the game earlier of swings and roundabouts, if the entire Australian market was eliminated for some reason, we would have grown at 20% instead of 22%. So as I said, just -- I chuckle when I see investor response to news that's not relevant to what's happening to us as a global business. So to go to it, I'll just explain it as I have historically. Our biggest domestic market is clearly the U.S. And in most of our other markets, the domestic component is substantially less than half and what our sweet spot is, is interregional travel, Asians going to Asia, Americans going to America, Europeans going to Europe, Middle East going to the Middle East. That's where the vast majority of what we tap into which is, as you would expect, it's more frequent travel. It's short-haul travel. It's not your once-a-year Aussie going to Europe or going to New York and doing that. That's part of -- obviously part of our business, but it's not the main part of our business because that's -- you're once in a multi-generation trip. Our efforts on people going for 3 nights from Italy to Switzerland as going 6 nights from Paris to Majorca. There's a myriad of combinations. And literally, we have a dashboard that goes through them, and we look at the ups and the downs. But in the end, overall, the vast majority of our business is what we consider short-haul international travel, less than 6 hours. Most of it's around 3 hours flight time and you see what our average booking value is. All right. Have we lost everyone? Operator: Your next question comes from Patrick Cockerill from Ord Minnett. Patrick Cockerill: On behalf of John O'Shea. Just 2 very quickly from me. Firstly, on the revenue margin, noting that 6.5% now seems to be going longer than the initial 18 months or 3 reporting periods. Can you just give us a little bit of color around the factors at play there that has made that continue into your expectations for FY '27? John Guscic: I won't go through all the things I've said previously, Patrick, other than we have seen and will continue to see a noticeable shift towards directly contracted hotels operating at higher margins. And we continue to focus on geographic expansion, but it's sort of offset by some of the channel expansion, which gives us greater confidence in our ability to maintain that beyond -- into the next 3 reporting periods. So that's the major reason, and I've covered off that a few times already. So that's the key driver, Patrick. Patrick Cockerill: And then very quickly, just on your EBITDA guidance and the more pronounced 1H skew. Is this something we should expect going forward? John Guscic: More pronounced in what sense? The EBITDA number or the gross number? Patrick Cockerill: Skewed to 1H? John Guscic: But what's skewed? Sorry, I don't understand. Tony Ristevski: Look, I think, Patrick, we've always had a skew to first half. If you look at our reporting over the last so many years, that's why we changed our year-end from 30 June to 31 March to capture in the first half ending September, the contribution of the higher TTV that we get from Europe, which continues to be the trend in this reporting period. Operator: Your next question comes from Brian Han from Morningstar. Brian Han: John, in terms of future proofing the business to sustain growth, is it possible for cost growth to stay elevated in that high single-digit regions for the next couple of years? John Guscic: I wouldn't say that would be elevated if we're growing revenue at a multiple of it. So our focus -- whilst our public commentary is around things that investors can latch on to $10 billion TTV, 6.5% take rate, 50% EBITDA margin, our internal focus is on growing revenues at a rate faster than expenses with the exception of the markets in which we invest, and we've called it out in the presentation and in the Q&A about our investment in North American contracting. But if you strip that out and strip out the things that we are doing to maintain our overall competitiveness, our underlying growth rate is -- our expense growth rate is barely above CPI. Brian Han: Yes. I wasn't suggesting that that's actually a bad thing to grow your costs if it means, as you say, future-proofing the business to sustain the current growth rate? John Guscic: Yes. Look, look, the journey is an incredible journey that WebBeds as a business has been on, and you just need to go to slide -- we'll call it up, Slide 9 to see that. So over that journey, we've done things to enable us to continue to grow at the rate that we have. So whether it's building out specific tech for an individual region, building out analytics tools to support our sales initiative, building out efficiency tools to get better imaging, get better rates into the system faster, et cetera. We will continue to do that. We're not playing this game so that we can eke out system growth and defend our share. We are a disruptor in the overall industry and our growth rate reflects that. We have a clear vision about the value we add and how we can accentuate the difference between our competitors, and we've clearly demonstrated that over the last 15 years or 13 years. And there's no reason to suggest that, that run rate expires over the course of the next 2 to 3 years. There are lots of things for us to do, and we know what they are. Brian Han: It can't be clearer than $10 billion. Operator: Thank you. There are no further questions at this time. I'll now hand back to Mr. Guscic for closing remarks. John Guscic: Thank you, Harmony, and thank you to everyone who asked the questions. I'll just summarize that to all of our employees who have delivered this result, I'd like to give them a heartfelt thank you for their contribution to everything that we've been able to do in this year. We continue to have a highly engaged workforce, and none of this would be possible without them. So I'm delighted that they continue to provide the bulwark of what we need to enable us to continue to be the market leaders. And with that, I'll say, as I've said in the forward-looking statements, we've had a really strong first half. We will have an even stronger second half. With that, thank you very much. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.