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Operator: Good day, and thank you for standing by. Welcome to Lotus Technology Inc. American Depositary Shares third quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You would then hear an automated message advising your hand is raised. To withdraw your question, please press 11 again. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Ms. Michelle Ma, Head of Investor Relations. Please go ahead. Michelle Ma: Thank you, Amber. Welcome to Lotus Technology Inc. American Depositary Shares third quarter 2025 earnings call. My name is Michelle Ma, the Head of Investor Relations here at Lotus Technology Inc. American Depositary Shares. With me today are CEO, Mr. Qingfeng Feng, and CFO, Dr. Daxue Wang. Our conference call materials were issued today and are available on our Investor Relations website. We are also broadcasting this call via webcast. Before we continue, please be reminded that today's discussion will contain forward-looking statements pursuant to the safe harbor provisions of The US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's actual results may be materially different from the views expressed today. Further information regarding risks and uncertainties is included in relevant filings of Lotus Technology Inc. American Depositary Shares with the US Securities and Exchange Commission. The company undertakes no obligation to update any forward-looking statements except as required under applicable law. Please also note that our earnings press release and this conference call will include the disclosure of unaudited GAAP financial information as well as unaudited non-GAAP financial measures. You can also find a reconciliation of these figures in the press release available on our Investor Relations website at ir.group-notice.com. With that, I'm delighted to turn the call over to our CFO, Dr. Wang, please. Daxue Wang: Good morning, good afternoon, and good evening, honored shareholders, analysts, and friends from the media. Thank you for joining us for Lotus Technology Inc. American Depositary Shares Q3 2025 earnings release. I'm Daxue Wang, Chief Financial Officer of Lotus Technology Inc. American Depositary Shares. It is my privilege once again to present the company's unaudited financial results. In the third quarter, the company delivered nearly 1,800 vehicles to distributors. This represents a 35% decrease year-on-year but a 28% increase quarter-on-quarter. As a result, total delivery for the first nine months of the year reached 4,612 units, down 40% compared to the same period last year. These figures reflect a transitional period characterized by the impact of tariffs, gradual destocking activities, and the phased commencement of gradually upgraded module deliveries. Revenue for the third quarter was $137 million, down 46% year-on-year, but up 10% sequentially. Revenues for the first nine months totaled $356 million, down 45% year-on-year. Gross margin improved to 8% in the third quarter, up three percentage points from the previous quarter and five percentage points from the same period last year. This improvement was driven by a favorable shift in our sales mix towards upgraded models reflecting healthy inventory dynamics and continual recovery in our underlying profitability. Gross margin for the first nine months remained stable compared to the same period in 2024, safely in positive territory. Now allow me to break down our sales by category and region. By category, lifestyle vehicles accounted for 77% of the total deliveries in Q3, down from 83% in Q2, contributing 72% of the total deliveries for the first nine months of the year. In terms of regions, deliveries in the US sports car market began a gradual recovery in the first quarter. This improvement came after the initial US, UK tariff disruptions were resolved, with UK vehicles ultimately securing a favorable tariff rate of 10%. Overall, deliveries in the first nine months of 2025 were primarily driven by China and Europe. It's worth noting that our delivery growth in China for the first nine months outpaced the broader premium auto segment in the country. This underscores the competitive strengths of our product portfolio in an increasingly challenging environment. Now let me turn to the key financials. As I already covered deliveries, revenue, and gross margin, I will proceed to other financial metrics. The cost of revenue decreased by 35% year-on-year to $126 million in Q3 and a total of $327 million for the first nine months of 2025. This resulted in a gross profit of $11 million for the quarter and $29 million for the first nine months. We reported an operating loss of $95 million in the third quarter, a 41% improvement year-on-year. The net loss for the quarter was $65 million, a 68% improvement year-on-year. For the first nine months, the operating loss was $370 million, narrowing by 40% year-on-year, while the net loss narrowed to $378 million, down 43% year-on-year. For your reference, on a non-GAAP adjusted basis, the net loss for the first nine months was $2 million lower, primarily due to the impact of share-based compensation. Adjusted EBITDA under the non-GAAP for the same period narrowed by 48% year-on-year to $294 million. Beyond these numbers, I would like to reiterate that we have now reduced operating expenses for eight consecutive quarters through value-added measures. This underscores our strong commitment to operational efficiency. Our efforts in cost discipline and image optimization are reflected in the significantly narrowed loss for both the quarter and the year-to-date. We remain focused on prudent resource allocation and margin enhancement while also preparing for a more dynamic operating environment in the quarters ahead. During the third quarter, we achieved several key milestones amid challenges posed by fierce market competition. We will be unveiling our new PHEV model in the coming months to further expand our electrification product roadmap and to meet consumer demand in diversified powertrain segments. Our CEO, Mr. Feng, will elaborate further on these developments. With that, I will now turn the floor over to Mr. Feng. Qingfeng Feng: Thank you. Good morning, good afternoon, everyone. I'm Qingfeng Feng, CEO of Lotus Technology Inc. American Depositary Shares. Thank you for joining the Lotus Technology Inc. American Depositary Shares quarter three 2025 earnings call. Now I'd like to walk you through the company's latest progress across four key areas: recent highlights, market strategy, product portfolio, and the acquisition of Lotus UK. Zero One Electra, Emira, and Mira. For Lotus, with a 77-year track DNA, it is important to keep enhancing its global image. On September 5, Lotus Technology Inc. American Depositary Shares made a strong appearance at IAA Mobility 2025 in Germany, showcasing the concept car Theory One Electra EMEA, and the Mira, demonstrating a seamless blend of brand legacy, cutting-edge technology, and electric strategy. The 2025 Lotus car one-make racing series kicks off in June, featuring an international lineup of drivers. George Tang: The third round concluded successfully in Chengdu, with a season finale set to take place in Sepang International Circuit in Malaysia this month. On September 14, during the London Design Festival, Lotus served as the official automotive partner and opened an immersive exhibition at our Mayfair showroom, exploring the design DNA of the brand and receiving positive feedback from the public. Qingfeng Feng: On November 16, driver Lu Wenlong piloted the Mira GT4 to a third-place finish in the Macau Grand Prix with the Bay Area GT Cup. This marks back-to-back podiums for the Mira GT4 following its first and second-place finishes in the same event in 2023. The Macau circuit is known for its long straights and tight twisting corners, regarded as one of the most challenging street circuits. This double podium not only highlights the driver's exceptional skills but also underscores the outstanding performance and reliability of the Mira GT4. It strengthens customers' trust and enthusiasm for our sports car, carrying over Lotus' racing track DNA. George Tang: For market strategy, Lotus Technology Inc. American Depositary Shares continues to optimize our global presence and enhance our retail efficiency. As of September, we had 213 retail stores worldwide, with a well-balanced distribution across four key regions: Europe with 70 stores, China with 54, North America with 49, and other markets with 40. This covers roughly 45 markets globally. Besides the retail channel efficiency improvement, we've also explored other measures to reduce our costs and improve our efficiency. For example, we've implemented prudent cost control measures and optimized our store portfolio. This includes relocating high-cost stores, closing underperforming locations, and expanding high-efficiency outlets. It helped boost our conversion rates while reducing operating costs. In addition to that, we've also relocated our European headquarters from The Netherlands back to The UK, cutting operational expenses and allowing us to focus resources on key markets. Returning to London's birthplace also helps us better tell the brand story and strengthen our reach across Europe and beyond. Such measures further improve our overall efficiency. We are also preparing to enter new markets, starting with Brazil. Brazil is the seventh-largest automotive market in 2024, with total sales of roughly 2 million and a new energy vehicle penetration rate of around 8%. In the first nine months of this year, total sales reached 1.44 million units, with a penetration rate of new energy vehicles increasing to 10.1%. As for our product portfolio, two years ago, we planned on that. Actually, we've already launched our hybrid technology, and we believe that all of you will soon see the fruits. For Lotus Technology Inc. American Depositary Shares, we currently offer two models globally, including the Mira, Electra, and Mira, all of which were updated in 2025. The new versions have all been well received, with their share of total sales continuing to grow. We plan to introduce two additional hybrid models based on our new architecture. The first hybrid model is set to launch in China in the first quarter of next year, with a dedicated technology preview event in January and a European release. The new hybrid also carries over inherited DNA in the following areas. The first is ultimate handling, thanks to Lotus' engineering. It is also equipped with dual-chamber air suspension and an expanded 48-volt active stabilizer. It is capable of a long range and high performance, enabled by the latest architecture delivering over 1,000 kilometers of range and 952 horsepower. It also features an inspired design, with the sensational width-to-height proportion of our hypercar, staying true to Lotus' design DNA. George Tang: The introduction of the hybrid model offers more choice for luxury vehicle buyers and will help us expand into broader markets, including regions with slower EV adoption such as Italy, Spain, and Saudi Arabia. It will also help us attract new customer segments. For the acquisition of Lotus UK, we are now making steady progress on the merger or acquisition of Lotus UK, which we expect to complete in 2026. After the acquisition, we will operate under our "One Lotus" strategy. We plan to maintain a consistent global identity as a high-performance premium luxury brand to strengthen worldwide recognition and maximize our heritage. We are also streamlining reporting lines to enable faster, clearer decision-making. A globally aligned governance model, with global standards and regional adaptation, will improve oversight and support medium to long-term strategy execution. For our business integration, we are driving synergy across key areas. In R&D, we consolidate global engineering under one team to improve efficiency, share technology, and accelerate new vehicle development. In purchasing, we leverage shared sourcing to reduce costs across lifestyle vehicles and sports cars. In logistics, we will optimize warehousing and parts distribution to further lower costs. We have also aligned channels and systems globally to eliminate duplication and boost brand value and operational effectiveness. Thank you. We will now open the line for your questions. Operator: Thank you. We will now begin the question and answer session. Press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Translate your questions to English right away. We will now take our first question from Laura Lee from Deutsche Bank. Please go ahead, Laura. Laura Lee: Hey. Thank you for the opportunity. Could you elaborate a little bit more about the key highlights of the upcoming PHEV models? And maybe talk more about the strategic rationale behind those products? Thank you very much. Qingfeng Feng: Thank you for your question. First, allow me to elaborate on the highlights or features of our hybrid model. It features three firsts: it has the best energy-efficient engine, the best performance high hybrid system, and the highest power motor. These three features demonstrate the Lotus DNA from both the handling and performance perspective. As for the details about how to further enhance its handling and performance, as well as the details of our hybrid architecture, please stay tuned to our tech preview event in January. Also, we would like to elaborate on the strategic rationale behind our hybrid model. First, I'd like to start with the market. For the China market, the premium vehicle market in China, including plug-in hybrids and extended ranges, makes up a large and rapidly growing segment among new energy vehicles priced above 400,000 RMB. About 47-70% are plug-in or extended range models, and their growth is a major driver of broader new energy vehicle expansion. The penetration rate of new energy vehicles in this price bracket has also risen quickly, reaching over 40% from January to September. Within that, plug-in and extended ranges accounted for more than 30%. The competition in China's premium hybrid SUV segment is still relatively underdeveloped. The premium hybrid SUV segment means the price is over 500,000 RMB, and the development is relatively underdeveloped compared to the battery electric SUV space. Most current models also lean heavily toward business or off-road use. This creates a clear opening for Lotus Technology Inc. American Depositary Shares to introduce our hybrid models. In Europe, hybrid models represent a large and growing share of the auto market. As emission standards tighten, new energy vehicle adoption is accelerating in Europe, just as it is in China. From January to September this year, NEVs, including battery electric vehicles, plug-in electric vehicles, and hybrid electric models, reached 59-60% of the total market. Among those NEVs, PHEV and HEV together accounted for about 73%. Notably, plug-in hybrid sales have surged in Europe. As of September, PHEV sales have grown year-on-year for seven consecutive months, with EU-wide sales up 65% in September alone. In the premium hybrid segment, Lotus Technology Inc. American Depositary Shares will be the first to introduce such a model in the EU. Last week, I visited the EU, and I heard positive feedback from our dealers when they learned about this hybrid model. In the successive phase, we are going to invite dealers and media to have an in-depth test of our new models. Laura Lee: Thank you. Qingfeng Feng: Okay. The first one is the color. Operator: I'm looking forward to the launch. Our next question comes from Dunlin Ren from CICC. Dunlin Ren: Hello? This is Dunlin from CICC auto team. Thanks for taking my call, and congrats on your sequential improvements. I have one question about your gross margin. Do you have any guidance on your gross margin for this year and next year? Daxue Wang: Hi, Dunlin. Thank you so much for your question. With the recovery of the vehicle gross margin in the second half of the year, our gross margin for the full year is expected to remain at a high single-digit range. Looking ahead, gross margin is projected to further improve, primarily due to the following factors. First, the launch of the PHEV products, which is based on our Luoyang architecture, will further reduce the per-unit vehicle costs and achieve higher gross margins. Second, as BEV fixed-lifted products penetrate global markets, their sales are expected to increase, thereby boosting the gross margins. Third, the implementation of the put option with Lotus UK will further enhance efficiency. For instance, the manufacturing segment's gross profit will be consolidated into the listed companies, and economies of scale resulting from the integration of the supply chain and research and development will contribute to higher gross margins. So I think for next year, we have confidence it is going to be higher than this year. Thank you so much. Dunlin Ren: Thank you. That's all from me. Very clear. Thank you. Operator: I am showing no further questions at this time. With that, I'll now turn the conference back to Ms. Michelle Ma for her closing comments. Michelle Ma: Thank you all again for joining us today. We will conclude the call soon. The Investor Relations team remains available to answer any further queries you have. Please feel free to contact us through the contact information on our website. Have a great day. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Good morning, and welcome to the Corporación América Airports S.A. Third Quarter 2025 Conference Call. A slide presentation accompanies today's webcast and is available in the Investors section of the company's website. As a reminder, all participants are in a listen-only mode. There will be an opportunity to ask questions at the end of the presentation. At this time, I would like to turn the call over to Patricio Inaki Esnaola, Head of Investor Relations. Please go ahead, Patricio. Thank you. Patricio Inaki Esnaola: Good morning, everyone, and thank you for joining us today. Speaking during today's call will be Martin Eurnekian, our Chief Executive Officer, and Jorge Arruda, our Chief Financial Officer. Before we proceed, I would like to make the following Safe Harbor statement. Today's call will contain forward-looking statements, and I refer you to the forward-looking statements section of our earnings release and recent filings with the SEC. We assume no obligation to update or revise any forward-looking statements to reflect new or changed events or circumstances. Please note that throughout this call, all references to revenues, costs, adjusted EBITDA, and margin will refer to figures excluding IFRIC 12. Also, all comparisons discussed are year-over-year unless otherwise noted. I will now turn the call over to our CEO, Martin Eurnekian. Martin Eurnekian: Thank you, Inaki. Good day, everyone, and thank you for joining us today. We delivered another very strong quarter at Corporación América Airports S.A. with solid execution across the board. Passenger traffic was up more than 9%, supported by good momentum in other markets. Italy and Armenia reached historical records, and Argentina continued to perform exceptionally well, with double-digit growth in both international and domestic travel. Revenue growth once again outpaced traffic, rising 17% in the quarter. Aeronautical revenues posted solid double-digit gains, and commercial revenues were up 18%, driven by continued strength in cargo, fuel, VIP lounges, and other passenger-related services. We also continue to see healthy traction in revenue per passenger, which increased nearly 7%, reflecting the ongoing success of our commercial initiatives. This strong operating performance carried into profitability metrics. Adjusted EBITDA increased 34% to $194 million, marking a new record for the company, geared mainly by Argentina, Armenia, Brazil, and Italy. The margin expanded over five percentage points, with easier comparisons also contributing to the strong results in Argentina. We also maintain a solid financial position, providing us flexibility to continue moving forward with our investment plans and long-term growth strategy. On the investment side, CapEx program approvals are underway in Armenia and Italy. Last week, the Italian government issued the Environmental Impact Assessment Decree, representing an important milestone in connection with the approval process of the Florence Airport master plan. We also continue advancing our inorganic expansion projects as we evaluate opportunities across our key target markets. All in all, it was another quarter of strong performance and disciplined execution. We are very proud of our team of executives. Turning to Brazil's traffic on slide four, we delivered another quarter of healthy traffic growth across most markets. A total of 23.3 million passengers traveled across our airport network this quarter, up over 9%, supported by solid domestic and international trends. Domestic volumes increased just over 10%, driven primarily by Argentina and Brazil, with additional contributions from Italy. International traffic rose 8%, with growth in nearly all countries, led by strong performances in Argentina, Italy, and Brazil. Let me walk you through performance by country. Argentina continued to stand out, with total passenger traffic up nearly 13%, marking a third-quarter record. Domestic traffic grew nearly 11%, supported by sustained demand and incremental capacity, particularly for JetSmart and Aerolineas Argentinas. International traffic increased 16%, reflecting strong connectivity gains, including new and resumed routes from LATAM, GOL, Copa, and JetSmart, among others. Operations were deeply disrupted by attempts at union strikes and adverse weather, but the overall momentum remained very solid. This strong performance continued into October, with domestic and international passenger traffic increasing by 10% and 15%, respectively. In Italy, traffic was up nearly 10%, reaching a record high. International traffic, which represents over 80% of the total, increased almost 7%, driven by strong results at Florence and Pisa. Pisa also supported domestic traffic, which rose nearly 6%. This positive trend continued into October, with domestic and international passenger traffic increasing by 2% and 8%, respectively. Brazil delivered a growth of over 8% in total traffic, with both domestic and international segments growing at double-digit rates, reflecting improved trends. Traffic in October remained solid, up 10% year-on-year. Uruguay saw a 5.3% decline in traffic, affected by several days of adverse weather as well as a six-day planned closure of the main runway to complete the installation of a new Precision Instrument Landing System. During the quarter, Azul launched a new route between Montevideo and Campinas, which should support traffic going forward. In October, however, traffic recorded a rise of 6.9% versus the same month last year. Armenia continued to perform well, with traffic up just over 6%, reaching a record high. The traffic increase was supported by strong international demand and expanded connectivity from new airline entrants. Wizz Air also established a new base at Zvartnots, adding eight new European routes in October, further strengthening Armenia's positioning as a growing regional hub. As a result, traffic in October rose by a strong 15% against the same period last year. Lastly, Ecuador posted a slight 1% decline in total traffic, reflecting a still challenging security environment and softer international demand. JetBlue and Avianca increased frequencies on several international routes, while domestic traffic was stable. Although operations were temporarily affected by a two-day planned runway closure in September, in October, traffic increased by 1.2% compared to the same month last year. In summary, it was another quarter of broad-based traffic growth across most of our markets, underscoring the strength of our network and the depth of demand across our operations. Moving on to Cargo on Slide five, we delivered another strong quarter, with cargo revenues up 20% year-over-year, driven by a 23% increase in Argentina and double-digit growth in both Brazil and Uruguay. This performance reflected improved pricing dynamics, including the new cargo business model implemented in mid-March in Argentina, which is performing as planned. Looking ahead, we will continue to build this momentum by enhancing our current capabilities and leveraging growth opportunities across our airports while maintaining a competitive and efficient cost structure. I will now turn the call over to Jorge, who will review our financial results. Please go ahead. Jorge Arruda: Thank you, Martin, and good day, everyone. Let's begin with our top line on slide six. Total revenues excluding IFRIC 12 increased 16.6%, nearly doubling passenger traffic growth of 9.3%. This strong performance was driven by double-digit growth in both our aeronautical and commercial revenues, supported by positive contributions across all of our operations, with Argentina, Armenia, Brazil, and Italy each delivering double-digit revenue growth. Our revenue per passenger was up 6.7%, reaching $20.2 compared with $19 in the same quarter last year. Aeronautical revenues increased 15.2%, mainly driven by a strong performance in Argentina, complemented by broad-based increases across most countries, with the exceptions of Ecuador and Uruguay. Argentina was once again the key driver, with aeronautical revenues up 22.1%, mainly reflecting a 15.9% increase in international traffic volumes. Strong momentum continued in Brazil and Armenia, each delivering double-digit growth, while Italy posted a 9.8% revenue increase, all consistent with passenger traffic trends. In contrast, Uruguay and Ecuador reported slight declines in aeronautical revenues due to lower passenger traffic resulting from scheduled runway closures related to the installation of a new instrument landing system in Uruguay and runway repaving works in Ecuador. Commercial revenues were up 18%, well above the 9.3% increase in traffic, supported by higher contributions from cargo revenues and solid growth across VIP lounges, parking facilities, food and beverage services, as well as other passenger-related services. Fuel-related revenues, primarily in Armenia, also supported the increase. Overall, we saw solid performance across all markets. Armenia and Argentina stood out, with commercial revenues up 22% and 19%, respectively, while Italy and Brazil also delivered double-digit growth, highlighting the continuous strength of our commercial portfolio and our ability to drive value beyond the core aeronautical business. Turning to Slide seven, total costs and expenses excluding IFRIC 12 increased 7.9%, aligned with higher activity, but remained well below revenue growth of nearly 17%. Cost of services were up 5%, largely due to a higher concession fee aligned with revenue growth, as well as higher fuel costs in Armenia, consistent with the growth in fuel revenues. This was partially offset by lower services and fees and maintenance expenses. SG&A increased 20%, mainly reflecting taxes and salaries in Argentina. In Argentina, total costs and expenses were up 3.3%, benefiting from favorable comparisons as the same quarter last year had absorbed significant inflation-driven cost increases, along with continued focus on cost efficiency. The comparison was further supported by the faster pace of currency devaluation relative to inflation during the quarter, which diluted peso-denominated costs when translated into US dollars. Moving on to profitability on slide eight, adjusted EBITDA excluding IFRIC 12 was up 34%, reaching a record of $194 million, reflecting strong performance across all countries except Uruguay, with double-digit growth in Argentina, Armenia, and Brazil. Argentina delivered another outstanding quarter, with adjusted EBITDA up 68%, supported by the aforementioned easier comparisons, solid top-line growth, strong passenger trends, and continued momentum in our commercial activities. Armenia also performed very well, with adjusted EBITDA up 25%, driven by higher passenger traffic and improved fuel margins. At Brazil Airport, adjusted EBITDA increased 19%, reflecting healthy traffic growth and strong performance across VIP lounges and cargo operations. Italy posted a 10% increase, or 18% when excluding construction service at Toscana Aeroporti. This increase was driven by higher passenger traffic and solid growth in duty-free, VIP lounges, and parking revenues. In Uruguay, results reflect a temporary operational impact, with adjusted EBITDA down 11% following a six-day planned runway closure to install a new instrument landing system. Finally, Ecuador delivered a 4% increase in adjusted EBITDA, supported by stronger duty-free and retail revenues. Overall, adjusted EBITDA margin excluding IFRIC 12 expanded 5.2 percentage points to 41.2%, driven by significant improvement in Argentina and continued operational efficiency across most markets. Notably, in Argentina, we delivered a 12 percentage point margin expansion, driven by easy comparisons, strong revenue growth, and effective cost controls. Turning to Slide nine, supported by continued strong operating and financial performance, we ended the quarter with a total liquidity position of $661 million, up 26% from the $526 million recorded at year-end 2024. Importantly, all of our operating subsidiaries generated year-to-date cash flow from operating activities, underscoring the strength and consistency of our cash generation across markets. Cash used in financing activities mainly reflected debt repayments in Brazil and Ecuador, as well as dividends paid to non-controlling interests in Corporación América Airports S.A. subsidiaries. Moving on to the debt and maturity profile on slide 10, total debt at quarter-end was $1.1 billion, while our net debt further decreased to $579 million from $718 million in December 2024. Our net leverage ratio also improved, reaching 0.9 times. To wrap up, we delivered another quarter of strong results marked by strong execution and financial discipline. Our balance sheet remains robust, providing the capacity to pursue new growth opportunities, both organic and inorganic, to continue creating value across our portfolio. I will now hand the call back to Martin, who will provide closing remarks and discuss our view for the remainder of the year. Martin Eurnekian: Thank you, Jorge. Let's turn to Slide 12 to wrap up our presentation. This was another very strong quarter for Corporación América Airports S.A., marked by solid performance across our portfolio. We delivered higher profitability with further margin expansion, all while preserving a strong financial position. Overall, the quarter highlights the strength of our portfolio and the quality of our management team. We are also making good progress on initiatives that enhance the passenger experience and expand our commercial offering. In Argentina, we inaugurated a new centralized car rental hub and a new digital mobility platform. In Brazil, the Brasilia shopping mall is on track to open in 2026. Armenia opened a fully redesigned duty-free store, and Uruguay is moving ahead with expanding its duty-free and VIP lounge areas. Strategic priorities across our concessions continue to advance. We continue to make progress in both the AA2000 rebalance in Argentina as well as the approval of the CapEx program in Armenia. In Italy, the government issued the Environmental Impact Assessment Decree last week, marking an important milestone in connection with the approval process of the Florence Airport master plan. Turning to our inorganic expansion pipeline, we recently signed an award agreement for the Baghdad Airport project in Iraq, and the government process continues for the Angola tender. In Montenegro, the government's tenders commission announced the result and ranked Corporación América Airports S.A. in second place. We continue evaluating additional opportunities across other countries. Looking ahead, we anticipate positive traffic trends to continue into the fourth quarter, though with a more moderate pace of domestic traffic growth in Argentina. Overall, we anticipate solid results in the fourth quarter, although not benefiting from the easier comparisons that supported the third-quarter performance in Argentina. In summary, our third-quarter performance reinforces the resilience of our business model, the quality of our assets, and the strong execution by our teams across all markets. Operator, please open the line for questions. Operator: Thank you. You will then hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by two. And if you are using a speakerphone, you will need to lift the handset first before pressing any keys. And out of consideration for other callers on the line today and the time allotted, we ask that you please limit yourself to one question and one follow-up. Thank you. And your first question will be from Guilherme G. Mendes at JPMorgan. Please go ahead. Guilherme G. Mendes: Yes. Thanks, guys. Good morning, Martin, Jorge, and Inaki. My first question is on the rebalancing in Argentina. Martin, you mentioned that these discussions are progressing well. Can you share what are the main milestones that we could expect for the near term? And the timing for the potential approval? And a follow-up on the commercial revenues overall, congrats on the strong performance. What can we expect going forward? Is this a more normalized level, or can we still expect some kind of improvement on the commercial revenues per passenger? Thank you. Jorge Arruda: Hi, Guilherme. How are you? This is Jorge. Thanks for your question. So in connection with Argentina, we continue to make progress both at a technical and political level. It's difficult for us in management to provide a timetable, but the message again is that we continue to make good progress in connection with the rebalance of the concession agreement. In connection with your second question, commercial revenues, commercial revenues in the quarter were up 18% versus last year. It's a very good performance, and as we reported, there are a number of reasons including VIP lounges, car rental, fueling, cargo, etc. We continue to see the same trend. I'm not sure that it is accelerating, but definitely, we will continue to see the trend continue. Guilherme G. Mendes: Very clear, Jorge. Thank you. Jorge Arruda: Thank you. Operator: Next question will be from Andres Cardona at Citigroup. Please go ahead. Andres Cardona: Hi. Good morning. Hello. My question is about any update you could share with us about the Armenia and Italy investment opportunities. If you have any update or visibility about the timeline to provide more details of the projects. Thank you. Jorge Arruda: Hi, Andres. It's Jorge again here, and thanks for your questions. So let me start with the second one. In Italy, as Martin has mentioned, we have recently obtained the approval for the environmental assessment of the project. The next step formally is the so-called Conferenza di Servizi to take place, which is a kind of forum of various government entities led by the Ministry of Infrastructure. We expect that to commence towards the end of the first quarter, and it's a process that should take approximately three months, after which then we would basically be ready to start the work. So that's the current timeline that we have been told. Again, when we are dealing with the government, it's difficult for us in management to set up a precise timetable. But that's our best guess as of today, and we will continue to keep the market updated. In connection with Armenia, we continue to make good progress in terms of discussions and connection with discussions with the government and government officials in general. And again, it's difficult for us to provide a precise timetable, but again, we'll keep the market posted. Operator: Thank you. Next question will be from Daniel Rojas at Bank of America. Please go ahead. Daniel Rojas: Good morning, gentlemen. Can you hear me? Operator: Please go ahead, Daniel. Daniel Rojas: My question was regarding the Baghdad Airport. Can you give us an idea of the size of the opportunity? And what else can you share with us in terms of potential traffic in that airport? Thank you. Jorge Arruda: Hi, Daniel. It's Jorge again. Thank you very much. As we have announced, we signed an award agreement, which is a document that is non-binding in connection with the process. We are expecting to be called by the government to finalize the process and sign the concession agreement. Once that happens, we will inform the market and provide more details about our financial plan in many aspects, including debt, equity, CapEx, etc. But what I wanted to anticipate is that we have a very constructive view in connection with the potential growth of traffic in that country and in that region. Daniel Rojas: Okay. That's fair. Thank you. Operator: Thank you. And at this time, we have no other questions registered. I would like to turn the call back over to Martin. Martin Eurnekian: I would just like to thank everybody for your time and participation and remind you that our team is always available to take any additional questions. Enjoy the rest of your day. Thank you very much. Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your line.
Peter Meintjes: Good morning, everybody, and welcome to the Pacific Edge 1H Financial Results Presentation. I'm Pacific Edge's CEO, Dr. Peter Meintjes. And with me today is Grant Gibson, our CFO, and available online for questions is our Chairman, Chris Gallaher. But just an important notice to take notice of when considering the information in today's presentation. So, our financial results for this half are below our expectations. We ran fewer tests than we had desired. We have ran fewer commercial tests than desired and our operating revenue is down. However, we maintain that we are in the strongest strategic position yet. And despite a net loss of $19.1 million and cash of $22.1 million in the bank, we want to highlight for investors the importance of the strategic milestones that we have managed to achieve through this half. And we managed to do this maintaining a U.S. market presence to position ourselves to successfully appeal Medicare tests and commercial tests. And so while there have been some challenges associated with non-coverage determination being the predominant feature of operating the market and we have had to migrate our customers from Triage to Detect. Our U.S. sales per FTE has maintained its -- our sales force efficiency has been maintained, and we are operating as well as we can under the circumstances. Most importantly, though, we have an expert Contractor Advisory Committee, a C-A-C or CAC that has been convened by Novitas for February 19 in 2026. And this acknowledges the weight of the evidence behind urine-based biomarkers for hematuria evaluation in general, of course, driven by the evidence portfolio of Cxbladder. We also, in the half, achieved an absolutely critical milestone with longer-term economics for Triage Plus being locked in at USD 1,328 per test, a significant uplift from our previous $760 per test for the prior generation. Given this market position, though, we are considering capital alternatives to meet longer-than-expected Medicare re-coverage time line. We wanted to remind all our investors of how Pacific Edge creates value and specifically with adoption, retention and revenue generation, evidence coverage and guidelines and research and development because while our revenue -- adoption revenue and retention and revenue generation is somewhat down, we continue to be market-leading in the performance of our evidence coverage and guidelines, and we maintain our strength in development of new products within our research, development and innovation. In fact, we have the strongest position we have ever had. We are in the strongest position we have ever been in to drive Medicare policy change. The importance of the Contractor Advisory Committee cannot be understated. We currently -- since 2020 or between 2020 and April 2025, Pacific Edge had reliable reimbursement from Medicare, but no coverage policy with coverage policy language explicitly documented at Novitas. And while that was good for revenue growth in our business and the subsequent non-coverage determination has obviously been a challenging headwind for us to navigate, it will become a defining change for Pacific Edge to have positive coverage language and actual positive Medicare policy change as a consequence of the Contractor Advisory Committee. And so these Contractor Advisory Committees are generally convened ahead of developing new or substantially revised Medicare medical policy of an LCD and it's worth noting given that our current status is non-covered, we expect that a substantially revised medical policy would lead to a coverage policy after considering all of the evidence. Of course, this has been precipitated by 2 things. One, the strength of our evidence from our STRATA Study, but two, that the STRATA Study has already been recognized as something sufficient to drive policy change with the AUA Guidelines. And that allowed the biomarkers for the first time to be used for microhematuria evaluation. The purpose of a CAC is to discuss -- evidence of this CAC is to discuss evidence for the use of urine-based biomarkers in patients with microhematuria. And given the recent published evidence for Triage Plus, we expect that Triage Plus will also be considered as part of that Contractor Advisory Committee in February. The people who make up a Contractor Advisory Committee, and I look forward to questions on this later, are health care professionals, beneficiary representatives and representatives of medical organizations. And Pacific Edge has been given the opportunity by engaging with Novitas to nominate urologists that we believe are familiar with the latest evidence for urine-based biomarker testing for patients with hematuria. And among those are many of our clinical advisers who are familiar with Cxbladder specifically. The meeting date is set for the 19th of February at 6:00 p.m. East Coast Time, which will be noon on Friday, February 20 in New Zealand. So as we look to our evidence road map, the evidence generation road map, the top 4 studies have been highlighted. That highlight represents that these are all new publications that have not previously been considered by Novitas, and we expect that all of these can be considered firstly by the CAC and in the creation of the integration draft policy, but ultimately, in the final policy as it is developed. One thing that has changed is we've historically reported in this view, the study from Kaiser Permanente, but we have separated out the publication time lines for our core evidence that's internally developed and independent studies like the Kaiser study. And so you'll see that on a later slide in this presentation. Looking at the following slide. This is one of key significance to many investors. This is management's best understanding of the time lines that Novitas is operating under given the information that we have. Of course, acknowledging first that we have had a Medicare non-coverage determination for Triage, Monitor, Detect and Triage Plus since April 24 this year, but that was on an evidence review that was limited to evidence published prior to the 9th of September 2023, which at this stage is very stale evidence on which to have based the decision. Pacific Edge has submitted reconsideration requests of the -- what's known as genetic testing for oncology specific tests, L39365 for Triage and for Monitor. Pacific Edge has submitted a new LCD request for hematuria evaluation for Triage and Triage Plus. This is important regardless of whether Novitas elects to make a change to 39365 or establish a new LCD, the critical distinction between prior reliable reimbursement with the absence of any positive policy and what we are trying to achieve through a CAC and draft LCD language is the establishment of clearly articulated language that supports the appropriate use of non-invasive urine-based biomarkers, for example, Triage and Triage Plus in the evaluation of hematuria patients. No prior policy exists for that, and that is one of the reasons that Novitas is following this robust approach in using a Contractor Advisory Committee. So, Novitas controls all the timings of these events. And while from our perspective, announcing a CAC to convene on the 19th of February is a delay from our prior expectations, given the robustness of the process, this is something that we see as tremendously positive because of the increased certainty in medical policy change that we expect to come from convening a CAC. Furthermore, evidence published after the Contractor Advisory Committee, they can also be submitted during the comment period. So, those studies highlighted in yellow, that's not the limit of what can be considered for the coverage policy. That's just the limit of what can be considered during the Contractor Advisory Committee. Our independent studies also supplement our primary evidence generation portfolio, the most important of which is the real-world utility study of Triage in microhematuria patients at Kaiser Permanente, but we also wanted to highlight that some of our investigator-initiated trials that have been part of a program of work for the last 2 or 3 years, the first one of those is reaching maturity. It's going through peer review at the moment, and we are optimistic that it will publish in Q1 2026. This is evidence that is not necessarily -- well, I'll retract that. In the first of these, the one from Kaiser Permanente is extremely relevant in the changing of medical policy for an organization like Novitas. The patient preference, for example, is less likely to sway organizations like Novitas that are extremely influential in helping physicians adopt our test for our sales force because we are able to make very, very clear that patients actually prefer to use our test when offered the alternative. And that is somewhat of a no-brainer. The difference between an invasive procedure and a non-invasive procedure, patients typically prefer non-invasive to actually show that with data will be a first-of-kind study and that has been developed under the banner of our investigator-initiated trials. And what you can see in the bullet points below, 74.2% preferred Monitor versus cystoscopy and comparable diagnostic performance is shown. And we expect this research to be published as an abstract for AUA 2026 and possibly before that will even come out in print. Importantly, our budget impact models continue to demonstrate the economic value for Cxbladder. We've updated this slide to highlight the value proposition when performing this -- when running a budget impact model using Triage Plus. And so where with Triage, you were able to rule out, I believe, 78% of microhematuria patients, with Triage Plus, we're able to rule out 85% of hematuria patients. And the greater number of patients that you can rule out, the greater value you are creating for hospital systems that deploy this kind of testing across the patient population that they serve. Again importantly, this is not the end of the road for Pacific Edge in terms of developing budget impact models. And we are targeting a publication for Triage Plus in FY '27. And we are targeting a publication -- or sorry, we are targeting commencing work for a budget impact model for Surveillance Plus in FY '28. And also along the general theme of health economics and sustainability, there is also a publication that we are working on with collaborators at the Canterbury Health System in New Zealand about the carbon footprint impact of implementing Cxbladder at primary care and draft presentations at conferences have already been communicated. So talking about some of the numbers explicitly here. Global commercial test volumes of 13,191 for 1H '26 were down 10% on the 2H figures amid the challenges of selling a test that is not covered by Medicare. The reduced reach of our sales force as our sales force continues to shrink, but that has been partially offset by a 5.4% uplift in APAC. Our response to the Medicare non-coverage has been a very important focus for us in this half. Cxbladder Detect is something that has not had new evidence generated for some time and is not included in the guidelines. Consequently, all the tech customers were migrated over to Triage, accelerating a plan we had hoped to implement at the time of launching Triage Plus with coverage, and that has created some operational challenges as we do that. But nonetheless, that allows us to collect revenue on the Triage tests through the appeals process. The sales force continues to be focused on patients that are suitable for Cxbladder Triage, which are younger patients with commercial insurance and typically with microhematuria presentations. Our sales performance has been sustained from an efficiency standpoint in 1H '26. The clinical commitment that we measure as tests per ordering clinician has fallen, reflecting the disruption of transition from Triage -- sorry, a disruption to Triage from Detect and challenges of selling a test not covered by Medicare. But we are well ahead of the low point we had in Q3 2022 of 160, and we've largely been able to maintain our sales force efficiency at 403 for this quarter. Our sales FTE are down to an average of 12 in Q2 '26 from greater than 30 as we continue to focus on cash conservation where prudent. Importantly, foundations for growth, we have U.S. cash collections processes continue to improve, although a loss of Medicare coverage has impacted our testing volumes. Denied Triage tests will be appealed to an Administrative Law Judge, ALJ. And given the guideline inclusion, we expect we can successfully make the case that Triage has been used in a medically reasonable and necessary fashion. Unfortunately, appealing takes time, but we are appealing over 2,000 tests to Medicare and commercial providers through external review. And for Medicare, it takes 6 to 9 months. For commercial payers, it can take longer than that in excess of a year. So, Medicare tests completed in 1H that have been denied for payment have had no revenue recognized in this half, but we expect to recognize some revenue again in the second half when we have successfully appealed. There are measures in place to mitigate the loss of Medicare coverage and including enhanced patient responsibility, increased utilization of appropriate patient types through EMR integration and improving the medical necessity documentation to improve the payment success that we have during billing and appeals processes. And improved cash collections are typically permanent improvements, although we are in a situation with a non-coverage determination. So some of those things are challenging for the current half, but we expect a resumption of those improvements after we establish -- reestablish coverage. So, consolidating New Zealand and developing Australia and APAC, we continue to seek a national hematuria evaluation pathway in New Zealand. And we're working with local urologists and with Te Whatu Ora to affect that. In Australia and South -- and the Asia Pacific regions, Southeast Asia is still in business development. We're planting early green shoots there. But we are also working on a number of contracting arrangements with Australian hospitals, and we hope to have some non-material announcements about progress in that area in the coming months. We also continue to drive value through product innovation. And our next generation of tests is our major focus of the Research Development & Innovation pillar and specifically the development part of that. We've been working very hard on Triage Plus and Surveillance Plus. Triage Plus has been analytically validated and clinically validated for all hematuria patients, micro and gross hematuria patients. That's a broader indication than for Triage and a broader indication than what the guidelines currently support. And this bodes well for an expanded patient population as and when Triage Plus complete -- as and when we complete our credible study for the utility of Triage Plus. It also has a higher price. That price is still in draft, but is expected to become final within the next few days and effective on -- sorry, January 1 next year. It is currently being run in early access with a select few customers as we -- and we are leveraging the AUA Guideline for Triage in appealing Triage Plus tests as well. With Surveillance Plus, we are looking at recurrent disease in non-muscle invasive bladder cancer patients. The product is still in development and is the improvement over the Monitor product that we currently have. And Surveillance Plus has deviated from Triage Plus through the development process. And this is, of course, expected that they serve a different patient population and different markers are informative and the work that we've done internally has demonstrated to us that the DNA markers from the ddPCR are more informative than the RNA markers that we historically used in Cxbladder Monitor to the point that we can actually exclude the RNA markers from the final product. And we have taken that product through a freedom to operate, which has been completed satisfactorily and gives us the freedom to operate. And we are taking it through a provisional patenting process. We are also seeking a technology crosswalk for Surveillance Plus to a test that has an $1,800 price point in the Medicare fee schedule and are hopeful for a claim-by-claim reimbursement because there is no coverage -- there's no non-coverage determination for Surveillance Plus. And so our expected path is to get it coded, get it priced by crosswalk to the candidate mentioned here and then to initiate claim-by-claim reimbursement until the local coverage determination incorporating Surveillance Plus is developed. That we expect to take a number of years. We have not put specific timings on that, but that is the future state that we imagine for our business with Triage Plus for the risk stratification of hematuria patients and Surveillance Plus for the surveillance of non-muscle invasive bladder cancer patients for recurrence. I wanted to also highlight the importance of the DRIVE Study. So the DRIVE Study has been referred to for a number of years. It was started as far back as 2019. It began enrolling and enrolled largely entirely for veterans population. And the study confirmed the superior performance characteristics in both gross hematuria and microhematuria for Triage Plus over our existing tests. And it also works on a broader range of hematuria patients as established in the clinical validity. So hopefully, we made clear in the diagram on the left that while the AUA Guidelines recommends Triage for a narrow patient population, and that's based on the STRATA evidence. The STRATA evidence itself actually covers patients that were in the low-risk group, intermediate risk group and the high-risk group and the STRATA study can be used to justify using Triage in any of those risk categories for microhematuria. But the DRIVE Study has validated Cxbladder Triage Plus for all of the risk categories of microhematuria and the gross hematuria patients, so the broadest range of patients in hematuria evaluation. We remind our investors of the opportunity that we are chasing here. So with the increase of our test price to $1,328, we've increased our estimate of the TAM in the U.S. while maintaining the TAMs for APAC and Europe constant. And it is a substantial TAM at full volume of $10.8 billion. And specifically, we are targeting the patients that are referred for clinical work. That's how we determine our TAM that using Triage Plus for the intended use at the point of being referred for clinical workup gets us the largest possible TAM and the evidence we are generating is for that. We're also looking to expand our market opportunities with innovation at the product level. And for this, we have made clear for investors that we are pursuing an IVD product that is a simplified version of the assay that we currently run as a service. And over time, we will be able to simplify the product -- simplify the service to the point of being able to put it in a kit and allow labs other than Pacific Edge in appropriate jurisdictions where we have sought. We've completed all the product registration and market access initiatives to be able to run that test in clinical routine. So the benefits of this approach are that IVDs can be run by any accredited lab partner in any geography. The customer-side logistics are easier, faster and customer service is local. Lab partners make a margin by running the IVD test, which increases their enthusiasm and motivation for sales and marketing efforts in their territory. It is a decentralized deployment, which allows faster scalability, and we need to focus on scaling our logistics, but the clinical operations can be scaled very dramatically by working with established partners in the region and as they focus on customer acquisition. So the work that we're doing, Pacific Edge is simplifying the test and accelerating the development of an IVD called Triage Plus IVD for decentralized lab deployment and international market expansion with the key objectives of: one, establishing an IVD regulatory framework for our next-generation tests that include Europe, FDA and ISO-13485 for the rest of the world. And then we're targeting prototypes by the end of FY '26, manufacture and commencement of clinical and analytical validation commencing in FY '27. I'll now turn to Grant for our financial performance for the half. Grant Gibson: Great. Thanks, Peter. So in the first half, our operating revenue was down to $5.9 million from $10.9 million in the second half of '25. So, all that reduction is actually from the U.S. market. As Peter mentioned, the loss of Medicare coverage has meant that total tests post 24th of April have not been accrued or included revenue and will only recognize revenues if we are successful at the ALJ appeal level, which, as Peter noted, it's going to take 6 to 9 months for us to be able to refresh those tests if they're successful. Volumes have also been impacted by the disruption caused by the loss of coverage and transitioning clinicians from the previously dominant tests in the U.S. market to Triage. We've also have reduced sales FTE as we've looked to manage our costs through this time. So with the drop in the U.S. revenue, APAC contributed 15% of the revenue for the half, up from 8% in the second half of FY '25. So, we continue to maintain a U.S. presence that positions us for an affirmation of Medicare coverage. We're reducing operating expenses where possible. So in the second half of '25, we actually dropped our cost base by 5.9% in the first half of this year. As we continue to focus on expenses, we can reduce them where possible. Our operating cash flows of $19 million were higher than the $12.3 million in the second half of '25. But we do note that cash outflow in the first half of the year is generally higher in the second half, with payments that cover a 12-month period weighted towards the first half. As noted, we've also been impacted by the loss of Medicare coverage and we expect to receive revenue for tests that we performed in the first half, 6 to 9 months after as we take them through the ALJ appeal level. Cash at the end of the half was $22.1 million and we did a capital raise of $20.7 million in August 2025. As Peter has noted though, with the delay of the re-coverage, we expect that we will need to complete capital initiatives and/or reduce cash burn and we're in the process of considering options. Our operating expenses were down 5.9% in the second half. So of those, the lab costs were down approximately 10% based on lower test volumes. Our research costs were also down 4.5%, and some of the clinical studies come to an end and the cost base -- and the costs related to those start to reduce. Our sales and marketing were down 9% as we managed our FTE in the U.S. market to ensure that we were prudent with our operating expenses. General and admin costs were up 3.4%. We had some late legal fees relating to our efforts to overturn the Medicare loss of coverage in late FY '25 that come into this first half. And I'll pass you back to Peter. Peter Meintjes: Thanks very much, Grant. As we look forward, from my perspective, it's extremely important for investors to understand that this is -- Pacific Edge is in the strongest strategic position than we ever have been. And my conviction is underpinned by a number of long-term value creation notes here, medium-term value creation and near term. And so in the long term, the price increase that we have for Triage Plus provides us with extraordinarily improved economics. And so as that test becomes our dominant test, when it has successfully achieved coverage, we are in a vastly different operating position than we are today and then we were when we had a $760 price with increased margin and margin percentage. Surveillance Plus, while in development, is also seeking a direct technology crosswalk to an $1,800 price point based on its final product configuration. And that, we think, is a very important long-term consideration for generating value for investors. So, our continued investment in innovation and product development for IVD kits supports our ambitions to enter international markets and to adopt a decentralized deployment model and that remains a focus of us in a smaller capacity, but is something we continue to try to activate. In the medium term, the DRIVE publication provides a clinical validation of Triage Plus that we believe is sufficient for inclusion alongside other tests in the AUA Guidelines and is sufficient for Novitas to make a positive coverage determination. So, we are delighted that, that has been published in time to be considered firstly by the CAC and secondly, when Novitas begin to draft policy. Our clinical evidence generation program is scheduled out for over 4 years to deliver strategic milestones that will deliver sustained value creation for shareholders with multiple catalyzing events. And AUA Guideline inclusion demonstrates that the success of this strategy that can be repeated to expand the indications for existing products and establish new indications for new products. In short, we know what it takes to get a product included in guidelines, and we expect of ourselves to be able to do it again. Commercial headwinds, acknowledging that there remain some, commercial headwinds is important. There remains a non-coverage determination for Triage, Detect, Monitor and Triage Plus, and it creates challenges for our sales and marketing teams in that operating environment. and additional challenges for reimbursement. But we are doing everything that we can from an appeals standpoint and doing everything that we can to convince customers of the value of the test despite the Medicare non-coverage determination given the AUA Guideline inclusion. The convening of the Contractor Advisory Committee is a major catalyst for forward-looking policy. And specifically, as I mentioned before, it will be the first time that there will be coverage policy language that would be proposed by Novitas not just paying for our tests on a claim-by-claim basis. And that provides us with the greatest certainty of enduring coverage from Novitas, but also the greatest ability to improve the success percentage of being paid on Medicare Advantage tests and for commercial payers. So the commercial catalysts for near-term value creation, the AUA microhematuria guidelines are an enabler of sales, marketing and reimbursement activities. But because of the language associated with Triage and the language associated with intermediate risk patients, we have to reeducate our customer base and that has proved to be challenging at least initially, and we're continuing to work on that. We are continuing to seek payment from Medicare for all Triage tests performed on Medicare patients through the Medicare Appeals process relying on the AUA Guideline, and we are doing the same through the external review process for commercial insurers. We also expect through the efforts that we've made in digital development to increase the percentage of electronically ordered tests. And that, of course, is expected to lead to stickier customers and more reliable payment over time. And we are -- as mentioned earlier, Cxbladder is under consideration by Te Whatu Ora for a national pathway in New Zealand and we're optimistic that, that will be -- that we will learn something in FY '27 about the status of implementing Cxbladder in that national pathway. We thank you for your time, and we look forward to taking your questions. Operator: [Operator Instructions] And your first question comes from the line of Rob Morrison of Craigs Investment Partners. Rob Morrison: Congratulations on getting Novitas to open that committee, looking forward to a positive result from that. So on the call and in the documentation, you speak about the options available to you include raising capital and/or burn reduction. Have you reduced your burn so far in the second half? Peter Meintjes: We have made modest reductions to our burn. And I think as Grant highlighted, we actually do expect -- there are a number of expenses that are front loaded for the year and we expect the second half to have a lower burn rate than the first half, yes. Rob Morrison: Okay. But it won't be something like -- so the cost base in the first half was $26 million. You wouldn't expect that to half. It might be down, I don't know, like low tens of percentages. Peter Meintjes: We would not expect it to half, yes. Rob Morrison: Cool. So, you've given best and worst-case scenarios for re-coverage, which look to be between June and September quarter 2027. Could you give us a bit of a flavor for the assumptions behind that? Peter Meintjes: Yes. Absolutely. So from our perspective, it always feels like Novitas is acting very slowly. But the reality is, in March 2025, they had a change in personnel, a new person joined in May, which was a month after we lost coverage. And so since being newly appointed in the role and with the -- it's been less than 6 months of non-coverage and less than 6 months of a new Medical Director at Novitas to actually get Novitas to initiate a CAC. What it would have been great if they could have scheduled that CAC for November, but they didn't. They scheduled it for February. And so while that is a prima facie delay in time lines, that's the greatest level of confidence that we have ever had in forward-looking policy. So, I think from Novitas' perspective, they would consider how quickly they're acting to be very quick, whereas from our perspective, it feels very slow, particularly since we have a high burn rate. Past the CAC, there is no commitment to the time line. And so we're clear that these are management estimates, but the assumptions in why we think it might be on the shorter side are that they have restricted the Contractor Advisory Committee to the microhematuria guideline and tests that fit into that, which is very narrow. And so consequently, the policy that they could develop would also be narrow and the number of products that they would have to consider would be relatively narrow. And the AUA research team have already done the research and created the guidelines. So, they have a step up. So from the 20th of February, we estimate it would be around 3 months for them to develop draft policy and publish it because of the narrow scope. If it was a broader scope, we think they would take longer. So, that's one of the main assumptions. We also believe that they have -- that there is a lot of pressure from the AUA. And that pressure from the AUA will also encourage Novitas to act quickly, but within the bounds of the process they are obligated to follow as outlined by the program integrity manual. But once draft policy is published, it would then be at 60 days of notice and comment. And any time after they have successfully considered all of the comments, they could then publish with 45 days of becoming effective. And we think that they are motivated because of the aforementioned factors, the narrow scope of pressure from the AUA and ongoing dialogue that we have with them in formal situations that we think that they could act quickly. Nonetheless, we paint the worst-case scenario for our investors out of an abundance of caution and acknowledge also that even after the CAC, there is a non-zero chance that they don't develop policy at all. We consider that to be extremely unlikely, but Novitas does control it. Rob Morrison: Okay. And just to read that back to you, so the committee will happen in Feb, 3 months to draft the policy and publish it, but then there's kind of a year in there for various other processes that need to occur based on your conversations with Novitas. Peter Meintjes: Yes. So, I would point you to Slide 7 of our deck, the Medicare re-coverage and estimated time lines. And so we are estimating Q3 to Q4 of 2026. But we are highlighting that the -- and that's based on those assumptions that Novitas is under pressure to act quickly and has the information they need to act quickly given the CAC formation and the narrow scope. But we also note for investors that it could be between Q2 and Q3 that they have given that is 12 months after when they open. Operator: [Operator Instructions] And your next question comes from the line of Matt Montgomerie of Forsyth Barr. Matt Montgomerie: Just on your language, Pete, in terms of the CAC meeting, it's coming across extremely positive in terms of the likelihood that you think there will be a re-coverage decision. I'm keen to double-click on that a little bit around, is that extreme positivity coming from precedent around CAC meetings? Or is it coming from direct conversations that are being had between you and others in the industry? Peter Meintjes: It's coming from multiple sources. But probably the most relevant one is just the facts that are specific to this situation. So the facts in this situation are that there is a guideline that recommends the use of our products and others for hematuria evaluation and there is no policy at Novitas for hematuria evaluation. This has practicing urologists and the entirety of the AUA quite frustrated, confused, annoyed in your preference there that they are unable to use guideline recommended testing on their Medicare patients without having to go through extra administrative procedures, et cetera. They basically believe that Medicare should fall in line with what urologists have recommended. So when we think about -- and so that's one set of facts is that there is a guideline. There's also the evidence for Triage Plus as well. And then there is the non-coverage determination. So if you've got a non-coverage determination and the purpose of a Contractor Advisory Committee is to make changes to policy, we're going to be changing it from a non-coverage determination to something else. And while we cannot rule out that it will change -- that it will just change the language and still be a non-coverage determination, the overwhelming odds are that when you have clinical utility data, guidelines and physician opinion in a Contractor Advisory Committee saying, we want this test, we need this test. This is how we want to practice medicine. That's what the result needs to be from Novitas. Now, what is Novitas' job in the situation? It's not to tell urologists know. Novitas' job is to figure out the appropriate policy so that only the appropriate patients are getting the testing and getting and they are only paying for when appropriate patients are getting the test. So that's -- it moves from an if to a how. Does that make sense? And does that answer your question for you? Matt Montgomerie: Yes, no, that's a good response. And then secondly, going back to one of Rob's question. I was wondering, Grant, if you could give us guidance for second half OpEx. Presumably, you've got pretty good foresight on it given that the CMS changes won't be coming through in the second half. And clearly, the rope for cash is relatively limited at the present time. So, I assume you've got quite structured plans in place for the second half. Grant Gibson: Yes, we do. We've got to continually balance that though with the expectation of reaffirmation of Medicare coverage. So if we do cut too deep, that will take a long time to get us back and we don't believe that that's in the benefit of the long term value of the shareholders. So it is a continuing balance. You will see though that if you look at our FTE numbers in the U.S., we have reduced our sales presence in the U.S. We are looking at other areas where we can continue to reduce costs, but I won't actually put a figure on that. Matt Montgomerie: But it would be fair to assume -- it'd be fair to assume like the decline will be relatively small then on that basis in the second half? Grant Gibson: Yes. As Peter mentioned before, we won't be halving or anything of that space. We need to maintain a strong presence in the U.S. really for re-coverage. Peter Meintjes: Yes. A lot of the support that we get from the AUA is essentially contingent on maintaining a presence in the market commercially and fighting the fight together. Matt Montgomerie: Yes. And then one more on sort of the non-CMS U.S. price. Looks like it collapsed or fell quite meaningfully in the half. Could you just sort of talk through this and then what the CMS contribution was in the half in the very short period in April that you had coverage? Grant Gibson: I wouldn't -- I don't think your classification is actually correct. Medicare dropped to basically 0 from 24th of April. So it was like the tap got turned off when the non-coverage came through. Other reimbursement has been reasonably strong and continuing to increase. As Peter mentioned, we are focusing more on commercial payers as that patient mix moves more towards the Triage intermediate risk. And we are working on growing the revenue from those commercial payers as well. So, Medicare is the big story in our reimbursement mix that has dropped to basically 0 until we go through these ALJ appeals. Peter Meintjes: That's right. The last thing that Grant said there, it's like it has dropped to 0. We cannot confidently accrue until we have developed a pattern with the ALJ, and we are yet to have an ALJ scheduled. The government shutdown, we do believe has delayed some of the scheduling here, but we have probably half a dozen or a dozen tests that are ready for scheduling. We don't have that yet. So, we anticipate to have at least some success that we can point at. And while we have modeled for ourselves 0 success at the ALJ because we believe it is responsible to do so, we actually expect on the basis of the fact pattern that evidence up until 2023 was the only thing that was considered in policy that went into effect in 2025 when in 2024, there was a randomized controlled trial that was ignored. There was an additional analytical validation that was ignored. And then earlier in 2025, there was a guideline that was created on the basis of those pieces of evidence. We think that an Administrative Law Judge is going to understand that fact pattern and find in our favor. Now, is that more work for us? Yes, it is. But we are up for that challenge because we think we should have that revenue. Notwithstanding, even if we are successful at that, that does not ameliorate the operating challenges that we have in driving volume when physicians have to go through extra administrative lengths to manage patients when there is a non-coverage determination. It's just more admin basically. Matt Montgomerie: Just on the CMS mix, like I appreciate, it's gone to 0 since late April. But if we sort of pro rata the revenue from the first half of last year within CMS on the 24 days that you had coverage, it implies and then do the same for volumes. It implies that non-CMS U.S. revenue was sort of flat on the second half of last year, strong volume growth. But like I suppose the math is the math, the missing piece that I don't have is what the CMS revenue contribution was in 1H '26 to then sort of work it out? Like my estimate here is sort of a shade under $1 million. Peter Meintjes: I don't think there's anything additional we can really give you on that, Matt. We don't break down costs. Grant Gibson: We'll see if we can come with something. Matt Montgomerie: We can take it offline. That's fine. Operator: And that does conclude questions by the phone. I would like to hand over for any written questions. Grant Gibson: Okay. Andrew, your first question was about the Kaiser study. I believe that's been covered on Slide 8. So, that is going through the final stages prior publication. So, that should be available for the CAC meeting. Okay. Next question from [ Andrew ]. The Novitas CAC, while it's very disappointing with the meeting pushes out the potential time line for reinstatement of Medicare, is it reasonable to actually feel optimistic that Medicare coverage will be obtained? I believe we've answered that one. And given the clinical evidence, will the CAC meeting review the Kaiser study? So again, we answered that. Okay. Andrew, so Triage Plus pricing in the U.S., at its 2025 AGM, Pete discussed that under the Protecting Access to Medicare Act, the price of Triage Plus will over time decline from the original technology resources based pricing down to the value-based pricing. Are you able to give any indication as to how long this initial technology and resource-based pricing will be in place and when the change to value-based pricing will occur? And has this changed some or fixed in over a period of time? Peter Meintjes: So great question. Triage Plus is what's called a CDLT, a clinical diagnostic lab test, which means it is subject to PAMA review every 3 years. It's only subject to that review after it reaches a certain threshold. And so it will be -- it will be a number of years before it crosses that threshold. But when it crosses that threshold, the math on this is something that I can sort of describe in general terms, but it will be imprecise. It is available for people to go and do their own research on. But you can roughly -- it roughly approximates the average of the private payers. It is also worth noting though -- so it doesn't include zeros. So if a private payer gives you -- declines your test, that doesn't count towards your average. If a private payer pays for your test but pays you 0, it also doesn't count. But you take the average of what private payers pay you and it becomes that. Now, there is a theoretical situation in which it actually doesn't come down at all, particularly since our Medicare price is $1,328 and our commercial price is $3,995 a test. And what are colloquially termed Cadillac plans, they actually pay the full amount for that kind of test. So, $1,328 in the context of genomic test is not high. It is, we believe, a good price for the value that it delivers to the system based on how much -- based on the budget impact modeling that we have done. When we publish the budget impact model, we can be more precise -- sorry, when we publish the budget impact model for Triage Plus, we can be more precise about what value we deliver to the health system. But we actually expect that it could rise as a consequence of value-based practices as well. And that is totally possible and within the rules of PAMA, but it only happens if private payers are paying more on average than less. But given the low technology resources pricing we have today, compared to other genomic tests, it is also possible that, that number goes up. It's a long way away. And I don't think that this should be a significant part of anybody's model at this time. Grant Gibson: Okay. [ Adrian ], I'm going to combine both your questions. So, you did ask on the second half cash burn, and we provided answers that we can on that. Any capital initiative, is it likely to follow the tone of that CAC meeting in the 16th of February? And how much would you be looking to raise? Is $50 million reasonable for additional equity through re-coverage? Peter Meintjes: So, I don't think we can comment on any of the specifics that are noted in that question. But we do believe that the Contractor Advisory Committee, that will be open to the public to dial in. The details will be on Novitas' website. When we have the details, we will likely make those available to our New Zealand audience because it's actually geo-blocked their website and you might not be able to access it, but we will figure out a way to get those details through to our shareholders who would like to dial in. And we're anticipating an overwhelmingly positive Contractor Advisory Committee, but we will leave that to shareholders in the market to decide what they think from that language. Noting the timing, we will try to coalesce and condense everything that happens on that call and distill it down for our investors and our shareholders and provide a market update after the Contractor Advisory Committee summarizing our view of that. But the other elements of your question, I can't comment on. Grant Gibson: Great. And that's the end of the online questions. Peter Meintjes: Well, thank you very much, everybody. That's everything for me today. I appreciate your time, and thank you, Grant. Thank you, Chris. Grant Gibson: Thank you.
Operator: Greetings, and welcome to WeRide's Third Quarter 2025 Earnings Conference Call. Please note that today's event is being recorded. The company's unaudited financial and operating results were released by Newswire earlier today and are currently available online. Joining us today are WeRide's Founder, Chairman and CEO, Dr. Tony Han; and CFO and Head of International, Ms. Jennifer Li. Before we continue, I would like to refer you to the safe harbor statement in the company's earnings press release, which also applies to this call as today's call that includes forward-looking statements, including WeRide's strategies and future plans. These forward-looking statements are made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. The company's actual results could differ materially from those stated or implied by these forward-looking statements as a result of various important factors, and please refer to Risk Factors section of the company's Form 20-F filed with the SEC and announcements on the website of the Hong Kong Stock Exchange for the full disclosure of these risk factors. The company does not assume any obligations to update any forward-looking statements, except as required under applicable law. Please note that all numbers stated in management's prepared remarks are in RMB terms, and we will discuss non-IFRS measures today, which are more truly explained and reconciled to the most comparable measures reported in the company's earnings release and filings with the SEC and the Hong Kong Stock Exchange. With that, I'll now turn the call over to the company's Founder, Chairman and CEO, Dr. Tony Han. Please go ahead, sir. Xu Han: Thank you. Hello, everyone. Thank you for joining us today. I would like to begin by highlighting some of the key milestones we achieved this past quarter. Q3 was a period of extraordinary progress for WeRide. Most notably, we made history in Abu Dhabi by securing the world's first city level fully driverless robotaxi commercial permit outside the United States. And we will begin -- actually we have already started the driverless operation through Uber, which I'm going to detail in the later slides this week. With our recent expansion into Belgium and our inaugural driverless robotaxi license in Switzerland, WeRide has become the only company with autonomous driving permits for 8 countries. By October, we have developed L4 fleet in 11 countries and more than 30 cities with over 1,600 L4 level autonomous driving vehicles in operation worldwide. Abu Dhabi Model and Global Expansion Xu Han: So as mentioned earlier, WeRide has been officially approved to provide full driverless commercial robotaxi service in the UAE's capital, Abu Dhabi. This landmark authorization removes the requirements for in-car safety officer and demonstrates the regulators' strong confidence in our technology. Following this approval, WeRide and Uber jointly launched the region's first fully driverless [wire charging] robotaxi service this week. starting from Yas Island and with a citywide rollout underway. Our commercial operation at Abu Dhabi has begun in last December. Our service now covers roughly 50% of the city's core area. In half of 12 hours, our single vehicle can complete up to 20 trips per day. I think this is a quite exciting progress. In the third midterm -- in the midterm, we aim to extend our service hours to 24/7, increase vehicle utilization to more than 25 trips per day and improve human-to-vehicle ratio to 1:10. These numbers will lead us to a very healthy unit economics. We believe Abu Dhabi will set a global benchmark for large-scale and commercially viable robotaxi operation. And with all of these numbers, I think our unit economics is very, very healthy and can be profitable. So I just want to emphasize this kind of breakthrough is quite exciting, and we work so hard for a whole year to achieve this full driverless robotaxi operation in Abu Dhabi. And this is the first city level outside of United States who are capable -- first city level robotaxi service out of the United States, and it is actually provided through Uber platform. So with all of these important factors, this is unparalleled, and we are so exciting that we are making history. Xu Han: Now let's talk about our current operation in Dubai. In September, we secured a self-driving vehicle trial permit from Dubai's Roads and Transport Authority and have begun road testing for our driverless operation in Dubai. Our goal is to launch supervised trial on Uber this year and the driverless commercial operation in the year of 2026. I mean, next year, we are going to provide driverless robotaxi service in Dubai. Xu Han: Then we are going to talk our current operation in Saudi Arabia. In Riyadh, we began offering robotaxi rides through Uber in October, making our robotaxi service first and only publicly accessible robotaxi service in the Kingdom. With our development in the 3 largest cities in Middle East, that is Riyadh, Abu Dhabi and Dubai, we have more than 100 robotaxi vehicles in the Mid East region. The launch of driverless operation in Abu Dhabi is paving the way to scale the fleet to more than 500 vehicles by next year and tens of thousands by 2030. So we are very excited and very confident -- and very confident and very optimistic about our full driverless robotaxi operation in Middle East. Xu Han: But that's not only our operation region. And I want to talk about East Asia and Europe. First, in Singapore, together with Grab, we received approval from the Land Transport Authority for both robotaxi and robobus in the area called Punggol District. We plan to increase our AV test volume by 4x by the end of this year. We also are integrating our technology into Grab's fleet management and routing system so that in future, we can provide driverless robotaxi through Grab in Singapore, just what we have done in Abu Dhabi through Uber. Actually, this -- all of these efforts will pay the groundwork for commercial service in the next phase. And then let's talk about Switzerland. In Europe, the expansion in Switzerland continues to lead our robotaxi deployment. We received the country's first driverless robotaxi license, enabling our autonomous operation in the Furttal region. A full driverless public service is expected to be launched in the first half of 2026. That is our current operation in Europe and in East Asia and Singapore. Xu Han: And now let's talk about China. In our China market, we continue to expand and innovate. As we scale our commercial fleet, we also launched a 24/7 driverless commercial service in Huangpu District at Guangzhou. This is an area of 150 square kilometers. As of October, we have deployed more than 300 robotaxi in Guangzhou and over 100 in Beijing. All -- for all of this service, you can hail a driverless robotaxi in this region through our WeRide Go app. User value is kept very close to our heart, and we recently introduced China's first free pickup and drop-off feature for robotaxi service we called PU/DO service, allowing our system to intelligently recommend optimal boarding locations. This greatly improved both operational flexibility and user experience, which is well captured by our operational data. In November, each robotaxi completed up to 25 daily trips in Guangzhou and 23 in Beijing, which is a clear evidence of accelerated adoption. Other Applications and Technology Foundation Xu Han: Next, let's talk about our other applications. First, robobus. our robobus obtained Belgium's first Level 4 test permit, and we launched our operation in Leuven, making Belgium the 11th country covered by our service. In Guangzhou, after serving more than 1 million passengers since 2021, we received an order -- received an order for additional 100 midsized robobuses. This is a very exciting achievement. Actually, this is a newly developed robobus. In Hong Kong, we established a partnership with Kwoon Chung Bus Holding to deploy more than 500 Level 4 vehicles over the next 3 years. And for our L2+ Level ADAS system, WeRide and Bosch achieved a major milestone in November with the start of production of WePilot 3.0. This is an end-to-end system. It's just like what Tesla has achieved through their FSD system. Our WePilot is totally comparable to what Tesla can do with FSD. The WePilot 3.0 will debut with the refreshed Chery EXEED ES and ET model and existing owners will receive OTA upgrades. With this kind of new feature, every owner of Chery EXEED ES and ET can enjoy the experience of Tesla's FSD. With this exceptional end-to-end system, WePilot has also been selected as the major ADAS system provider by Guangzhou Automotive Group, GAC, for several of their passenger car models. So that part is actually a very exciting progress, demonstrating WeRide can not only capable of doing L4 level robotaxi, but also are capable of doing L2++ level ADAS for massive production car. Xu Han: This page actually shows -- summarize our footprint in the global. Actually, WeRide's strategy prioritized a balanced development in the global market. I want to explain this slide a little bit. You can see like in these 11 countries, we have different levels of operation. We have tested or we can operate it without a driver. So they are showing in the legend. So you see our multiproduct offering has maximized the value of our strategy, making us the only company whose technology is available in the 11 countries shown here. So we actually have a wide spectrum of applications and service available for the global market. Next, let me discuss about the backbone of our technology. This is called WeRide One Universal platform. By starting from supporting L4 applications alone in early days, WeRide One has grown gradually grown into a more powerful platform that empowers the full spectrum from L2 to L4 while continuously breeding new tools and systems. So one of the most preeminent is our world model, WeRide Genesis. So in our Genesis model, you can see Genesis is a new platform and will allow autonomous vehicles to be tested in a digital twin of the real world safely, efficiently and at a large scale. It features the data loop, algorithm loop and simulation validation loops that are essential for scalable autonomy. This is our world model, and it's seamlessly integrated with our end-to-end system. So this is a unique technology advantage. Our world model can be seamlessly integrated into end-to-end ADAS system and our L4 system can leverage on the data we collected from our L2 level data. So this Genesis form as the core flywheel, actually, we call it a double flywheel. We can actually leverage on L2++ level massive production car data to improve our robotaxi. In turn, our robotaxi data with redundancy can help us to boost the performance of our ADAS system. I want to emphasize in this world, there's only one company WeRide can do so. On one hand side, we have a large-scale robotaxi fleet make WeRide capable of doing leading robotaxi service like Waymo and other companies like they can do in the U.S. so that we can actually capture all the characteristics of full driverless operation. At the same time, WeRide to apply [indiscernible] 3.0 and very advanced ADAS system comparable to the FSD of Tesla, and we can leverage on mass production car data and collect all this kind of data in a very broad sense in all kinds of scenario to help us to improve the performance of robotaxi. We believe we can combine the benefits of L4 and L2+. This hybrid architecture enhance adaptability, reliability, safety and transparency, ultimately enabling robust commercial deployment. We look forward to sharing more about this advantage soon. In summary, Q3 was a quarter of exceptional execution. We expand our global leadership, and we translated technology innovation into commercial reality. With that, I will hand over the call over to our CFO, Jennifer, to discuss our financial performance. Jennifer, please go ahead to discuss about the financial numbers. Financial Review (Xuan Li) Xuan Li: Thank you, Tony. Hello, everyone. Before we dive into the third quarter financials, I want to highlight that all figures are in RMB and comparisons are year-over-year unless otherwise stated. Now let's discuss our third quarter financial performance. We delivered total revenue of RMB 171 million with a year-over-year growth of 144%, driven by our continued fleet expansion and increase in service penetration. The revenue growth also reflects the significant milestone we have achieved during this quarter, supported by our advanced technology, robust deployment and operational capabilities. Our revenue came from both product revenue and service revenue. Product revenue delivered strong growth of 428% to RMB 79 million in this quarter, an encouraging result driven by the increased sale of our robotaxi and robobuses. Service revenue grew 67% to RMB 92 million in Q3, supported by an increase of RMB 29 million from intelligent data service and an increase of RMB 8 million in autonomous driving-related operational and technical services. Service revenue has surpassed product revenue in this quarter, demonstrating a continual growth momentum and healthy business structure. Among our product lines, what really stood out in Q3, same as in the last 2 quarters was our robotaxi businesses. Robotaxi revenue increased 761% year-over-year to RMB 35 million in Q3, accounting for 21% of total revenue in this quarter. With our new federal permits in UAE, we are the first and only robotaxi company that have begun full driverless robotaxi operation in UAE. Removing in-car safety officer is a critical milestone from a financial perspective, which will enable our robotaxi service to achieve unit economic breakeven. The quality of our growth is also compelling. Group level gross profit increased 1,124% to RMB 56 million for the third quarter with a group level gross margin of 33%, demonstrating our industry-leading gross margin as our business continue to grow. We aim to keep delivering business value along with our globalization strategy. Operating expense decreased 51% to RMB 436 million, with R&D expense accounting for 73% of the total operating expenses. To break down further, R&D expense increased by 24% to RMB 316 million in the third quarter of 2025 compared to the same period of 2024. Excluding share-based compensation, R&D expense grew 39% to RMB 288 million as we further strengthened our global data compliance and advanced R&D efforts for our pre-installed robotaxi. The increase in R&D expense was primarily due to an increase of RMB 31 million in service fee for R&D projects, an increase of RMB 21 million in personnel-related expense from headcount increase and an increase of RMB 23 million in material consumption and depreciation and amortization expenses. Administrative expense decreased by 84% to RMB 100 million in the third quarter of 2025 compared to the same period in 2024. Excluding share-based compensation, administrative expense increased by 23% to RMB 74 million. The increase was primarily due to an increase of RMB 6 million in professional service fee, mainly related to legal compliance service and an increase of RMB 4 million in personnel costs as we continue to build necessary supporting function to grow our business. Selling expenses increased 23% to RMB 19 million in the third quarter of 2025 compared to the same period of 2024. Excluding share-based compensation, selling expense increased by 36% to RMB 19 million, which was well below the sales increase. Our commitment to R&D is the backbone of our strategy. We will continue to direct our resource there to pioneer the industry innovation and keep building our competitive advantage. Alongside this, we will strategically grow our global team with a clear focus on region that has accelerated the adoption of L4 solutions. This ensures that we have a world-class talent needed to support our business expansion. Our net loss narrowed by 71% to RMB 307 million in the third quarter of 2025. On a non-IFRS basis, adjusted net loss increased 15% to RMB 276 million, largely due to an ongoing R&D investment and broader operational support required for the expansion of our business. As of September 30, 2025, we had RMB 4.5 billion in cash and cash equivalents and time deposits, RMB 926 million in investment in wealth management products and RMB 18 million in restricted cash. We had short-term bank borrowing of RMB 245 million. Our current liquidity reserve, along with the proceeds from our recent Hong Kong due primary listing in November have enabled us with a resilient position for our R&D-focused strategy and our globalization deployment process. Our fully driverless robotaxi commercial permitting in Abu Dhabi is not just a local milestone. It's a scalable blueprint for the global industry. It demonstrates a viable path for city level full driverless cooperation outside the U.S. along with the potential for profitable unit economics in major international markets. Our strategy is to scale this model globally. We have the complete package, the technology, the operational experience, a proven safety record and regulatory trust. In the next 5 years, we will achieve large-scale L4 deployment, creating a sustainable business and delivering tremendous value of autonomous driving to the shareholders. With that, operator, we are now ready to take on some questions. Question & Answer Session Operator: [Operator Instructions] The first question comes from the line of Tim Hsiao from Morgan Stanley. Tim Hsiao: This is Tim from Morgan Stanley. Congratulations on the strong results and continuous expansion in robotaxi operation globally. I have 2 questions. The first question, we noticed that WeRide officially started commercial deployment of driverless robotaxi in Abu Dhabi, UAE. So in addition to the volume upside to revised fleet sales, as Tony just mentioned, how should we quantify the revenue opportunities of vehicle sales, revenue charge and profit sharing in the long run? That's my first question. Xuan Li: Okay. Thank you, Tim. That's a great question. I'll take the first one. So for the benefit of all listeners, I'd like to briefly elaborate on our robotaxi business model. In domestic China, we mainly own and operate vehicles by ourselves and on our own ride-hailing platform, WeRide Go. So before -- after the UE gets to breakeven point in the next few years in China, we will gradually engage third-party owners and partnership with them. And for now, we pretty much own like all the vehicles by ourselves. And international market is different. From day 1, we collaborate with platform partners such like Uber, Grab, SBB, TXAI, and we generate revenue from 3 main streams -- 3 streams. The first one is revenue share from the ride fare and second one is the annual licensing and third is the sale of the vehicle. So vehicle sale is considered as the product revenue. WeRide can scale up the robotaxi fleet much quicker and in a lighter business model -- like on an asset basis since the robotaxi operation fleet doesn't sit on our own balance sheet. We really just sell this to our partner already. And the revenue share and annual licensing of the recurring service revenue over the whole lifespan of the vehicle, which tend to be 5 to 7 years. In particular, revenue share will become a significant multiplier following the expansion of the fleet size. We'll take [United States] as example. A robotaxi at a human level utilization, which means they can complete like 25 orders per day, can generate an annual like revenue of over USD 90,000 like on the platform. If WeRide take 30% of the revenue share, that will give us USD 30,000 per car per year as service -- as a revenue share. If we can take 70% of the revenue share, that will give us like USD 60,000 per car per year. So if we are moving this one step closer to the goal -- and to see what we have already, let's say, in Abu Dhabi, right now, we have a significant presence with near 100 robotaxi in Abu Dhabi. Now we already cover 50% of the city core area. And the commercial model is we're integrating on platform like Uber. Right now, we are charging at the same price level at UberX and Uber Comfort. In fact, if you get like get on the Uber and to call the robo -- just to call normal ride-hailing car in half of the city, no matter you pick UberX, Uber Comfort or autonomous option, you can all get the ride vehicle. And this demonstrates that our service is competitive as the mainstream like ride-hailing from day 1 on the pricing level. And unit economic is -- on the unit economic side, the most critical metric is utilization. Right now, we already achieved a daily average like 12 order per vehicle in a 12-hour shift. Sometimes we can get to -- on the good days, we can get to more than 20 orders per vehicle per day for the 12-hour shift. and it's already indicating a strong user preference and stickiness. So for your information, for 12 orders per vehicle per day, we can already get to the breakeven threshold in this market. So there's huge profitability potential. Based on our current driverless cost structure and plan to extend the hours to 24 hours next year, we project an average daily order can reach to 25 per vehicle per day. And this level of utilization will lead to a very strong profitability potential next year. So the -- while the specific percentage of revenue share is confidential between different partners and -- but this approach can empower a sustainable win-win partnership for everyone in the ecosystem. Tim Hsiao: My second question is also related to WeRide's global business. So looking forward, in addition to operations in Abu Dhabi and Switzerland, which we just announced, which markets could step up as a key volume driver to WeRide? And does WeRide need to accelerate R&D and selling, spending more aggressively into next year 2026 to finance the company's robust expansion in overseas? That's my second question. Xu Han: Okay. I'll take the question. And so first of all, I think -- so besides Abu Dhabi and Switzerland, which markets would step up as key volume driver. So to us, in our plan is like -- so first of all, in the Middle East, we have 2 major cities in UAE, Dubai and Abu Dhabi currently is already -- we have already got the permit, and we are doing extensive road testing. And UAE is definitely the one country we pay a lot of attention to. It's a very important market. And there's also Saudi Arabia. So you can see major countries in Middle East. So they are part of potential countries. And also Europe and also -- and other developed countries in Asia like Japan, Singapore and Korea, they are all potential markets can help us to drive the volume up. But one thing I want to point out is like you just asked a very good question that is it's also I have been thinking about this over the years all the time that is what are our target markets and which markets can make -- can we make our service and products very profitable. And I think through our tested -- through our operation in Abu Dhabi, we find something so-called Abu Dhabi model, okay? Together with Uber, we found the unit economics is good and give us a very promising projection that we will soon in this region, we can make a good, very profitable service. This Abu Dhabi model actually created a road map for other cities. So with Uber, and I think we will try to copy this kind of model to the similar cities. And also this is a good combination of our current technology, our strategy and compared with our -- and also our collaboration with our strategic partnership. So with this model, I think we tend to copy to Singapore by for another alliance with Grab, also a very important strategic partner to do in Singapore and also potentially all East Asia. And in China, we are focusing on developing a robo testing service based on our own application. And about expansion, although we are increasing R&D investment to build stronger technology platforms, and we want to also try hard to recruit top talent, but we expect the growth of related expansion to be moderate because we want to adopt a satellite model to strike a balance between scaling and investment. One of our very midterm goal is trying to reach the profitability at the same time, maintain a strong market share. And also, we still want to innovate. So we have to strike a balance between investment and expenditure and the development. But with our current progress, I think I'm very optimistic because I have already seen the success of the Abu Dhabi model. And what's next to do is trying to find all the places we can easily copy our Abu Dhabi model to and by gathering all strength from these potential markets, we want to achieve profitability in the near future. Tim Hsiao: Thank you so much for sharing great insight congratulation and looking forward to more exciting project around the world. Operator: The next question will come from Alex Yao from JPMorgan. Alex Yao: I have 2 questions. Number one, what is your take of the robotaxi business in China? How do you envision economics to change in the future for China and for international market, respectively? The second question is how quickly can the driverless milestone of Abu Dhabi operation be replicated in other markets? What can we expect for your fleet expansion plan globally? And what are the catalysts or hurdles for your plan? Xu Han: Okay. Let me try to answer these questions one by one. Although it's claimed to be 2 questions, 2 groups of questions. So first question, if I remember clearly, it's roughly about our -- what do you think about China market and what's our plan for China market and our thoughts on the economics of China market. So first of all, China is a unique market with the largest user base and the dynamic economics. And also, it is a great test ground. It has been both our technology proving ground and ideal operation -- sandbox for our very innovative ideas. But of course, that doesn't mean like we treat them as a lab, okay? We want to -- while we do the robotaxi operation or trial operation, we keep safety as our top priority. But still with all kinds of scenario, all kinds of different climate, different weather conditions, China is a vast country. And we actually -- we tested so many different method, different algorithms. So that part, actually, China is unique and a very big market. But we believe -- but China is also a very -- in terms of development, it's not that balanced. They have a Tier 1 city looks like Paris and New York. There's Tier 4 city looks like rural area. So we believe profitability in Tier 1 cities can be achieved with a combination of 3 elements. Number 1, city level drivers per meet; number 2, average daily order of high double digits. That means like what we try to achieve in Mid East should be achieved in China also, more than 20 orders per day. Number 3, kind of a relatively healthy price, okay? Although these days, the taxi fare in China is still relatively low, but we expect to see the fare to grow a little bit. So it's still kind of relatively healthy. So with these 3 factors, we believe we still need to expand our market in China, mainly in Tier 1 cities. So far, we have achieved, like, as I mentioned before, right, 300 robotaxi in Guangzhou and another 100 robotaxi -- more than 100 robotaxi in Beijing in the areas of 150 kilometers area, and we are continuing to expand that. And also, we have implemented PU/DO, I mean, pickup and drop-off features help us to improve the user experience. And I think we aim at supply better robotaxi service than the traditional taxi service supplied by human driver. Therefore, we can get more orders and also we can give better user experience so that we can be ordered more frequently. And we expect that the economics of all of these markets will help to improve over time. And also, we want to actually learn what we have in China to expand to -- and learn what we have learned in China and use them as our competitive advantage in the global market. Therefore, I think we still treat China as one of the most important market, and we will keep on invest and inject resource in this market. Xu Han: Okay. The second group question is about how quickly we can copy up Abu Dhabi model to the rest of the world, okay? First of all, thanks for asking this question. And we believe we have find this kind of Abu Dhabi model. It's kind of like a Matthew Effect. And WeRide is kind of a unique first mover because we just got a city level driver permit. It is the only one so far out of the United States that you can have a citywide driver permit and you can provide the service through Uber. So that means make the service model be [indiscernible] available. Therefore, I think we can quickly copy to similar market like Dubai in UAE same country, Riyadh in Saudi and same region and Singapore with a Grab support. So we are trying to copy to these kind of countries. And I believe the regulatory condition, all of other factors are quite similar. And we also want to emphasize Europe is a very important market, and we are trying to see whether we can copy to Europe. And about the catalyst hurdles, catalyst is actually because of this Matthew effect, other countries are more prudent to allow our operation, more prudent to give us permit. But at the same time, the hurdles is still the regulatory issues. We want to make sure we use our -- leverage on our current successful experience to get more driverless permit so that we can deploy the service. That's all I want to say about this question. Operator: Next question comes from Ming-Hsun Lee of Bank of America. Ming-Hsun Lee: I have 2 questions as well. So first question, we are seeing more OEMs and the ride-hailing companies announcing to plan -- enter the robotaxi business. What are WeRide's key advantages? And how should we think about the competitive landscape in the future? That's my first question. Xu Han: Okay. So I think these days because of the increasing discussion and the increasing maturity of robotaxi, you see so many car OEMs and platforms -- car hailing platforms start to talk about robotaxi or start to announce their robotaxi strategy. But one thing I want to mention is like robotaxi to do robotaxi is not easy, okay? It takes many years of efforts, technology accumulation, regulatory exploration. And that's why there are so few mature robotaxi company in this world. If you count the mature robotaxi service once they have open to public driverless robotaxi operation, I think you can contact most of 3 or 4, okay? So not so many. So it's not because of while you see a few companies getting mature, then you can announce your strategy, better, you need to show whether you have enough technology accumulation, enough experience to do robotaxi. So our -- WeRide's competitive advantage is still in several areas. First of all, technology, right? WeRide, our ability to massively deploy both L4 and L2++ level mass production vehicle help us to actually, first of all, gain data -- to gather data more efficiently and make our algorithm more generalizable. So that one actually in turn strength our technology. Second, our capability actually for fast iteration is there. And think about for [indiscernible] OEMs, right, they have -- usually, they have a relatively small ADAS system development team. What you can do for L2++ FSD -- L2++ ADAS system is far from what you can achieve in L4 because L4 is a driverless operation. And L2 is just like assisted driving system. For the L2 system, you don't need to take the final responsibility. But for L4 system, you have to be redundant, have to take the responsibility. Over the past 9 years, we have accumulated lots of experience. We -- that's why we can roll out the robotaxi service. And I haven't seen any other car OEMs or car hailing platform be able to do so. So that is one of our advantage. And one thing -- the last thing I want to emphasize is about the core of our company. The core of WeRide is really the AI technology. WeRide since day 1 has been an AI company, and we hire so many top talents and set up our company for the fast iteration in the AI algorithm. I don't think traditional car OEMs or traditional car hailing platform are capable of this kind of faster iteration. So let's wait and see. But so far, I haven't seen any major car OEMs or car hailing platform company have successfully rolled out any robotaxi service, driverless robotaxi service to public, okay? That's my answer to these 2 questions. Ming-Hsun Lee: Sorry, one more question from me. So following the last question, do you think the amount of data and the development of AI models have given OEMs certain age to enter and compete in robotaxi? Is it possible to evolve from L2 to L4? Xu Han: Very good question. So first of all, I want us to think about one thing. So who are the best L2++ or ADAS system company in this world, probably Tesla. In China, I think we can name a few, maybe XPeng, Li Auto. But if you look at their strategy, they are doing L2++ ADAS system, and they talk about robotaxi, but when they come to robotaxi, they always try to attack this problem or approach this project directly from L4 level. Why there's no L3 strategy, okay? Where are the L3 strategy? There's no L3 strategy from Tesla. There's no -- XPeng and Li Auto, they all skipped at L3. Why is that? Because if you directly grow L2++ to L3 and then to L4, they found it's really very, very difficult. It's just like you are climbing a cliff. Instead, you maybe directly solve the problem. That is using what your experience directly solve L4 system level problem. That is just like we have already done for the past 8 or 9 years. The technology has been there. We have used deep learning algorithm based on large language model, a lot of data. But all of this, I want to say, it's based on our past 8 years' experience. Currently, true car OEMs can leverage on the cutting-edge large language model stuff, but there are a lot of infrastructures that are relevant like data simulation and the cloud computing platform. All of this, I don't think the car OEMs have enough accumulation. Still take many years of them to really roll out a simulation platform, to roll out the protocol, to roll out the pipeline to test the driverless robotaxi. One thing I want to emphasize, having a pretty good ADAS system can let you drive for 100 miles without takeover is far from to roll out driverless robotaxi. To roll out a driverless robotaxi, you have to capable of making that car drive back itself more than 10,000 miles. So that is a kind of magnitude of difficulties. So it's just like swimming in swimming pool and then you want to swim then across the English channel, that's different. So I think I'm not saying -- I'm not going to say it's absolutely not possible to gradually grow from L2++ to L4, but it will take a long, long time. Before that, I think first class, the Tier 1 robotaxi company like WeRide will have already taken over the global market has already been very profitable. So time left for this major car OEMs to gradually grow from L2++ to L4 is very, very limited. Operator: We will now take the next question from Liping Zhao from CICC. Liping Zhao: So first, I want to follow the previous technical question. And this question is for Tony because you are quite confident in maintaining the leadership in the industry. What tools and technology approaches help you stay ahead of the curve? Could you please share more color from a technical perspective? And then I'll have a follow-up. Xu Han: Okay. So first of all, just as I have discussed, right, there's only one company in the world to my best knowledge that are capable of doing robotaxi, has already achieved open to public their operation, at the same time, supply ADAS system to mass production car company that's WeRide. And so we have a so-called dual flywheel strategy that is we can gather the data we collected through our robotaxi fleet, all kinds of corner cases and use that to facilitate our L2++ development. At the same time, we can also get what we have collected from L2++ system like AI drive based on navigation and make our L4 system more stable and more generalizable. And so by combining the 2 source of data, 2 source of problem, we actually gradually evolve to a super platform that are capable of robotaxi at the same time with limited hardware and limited HD map and navigation map make us to cover the whole global market. So these 2 parts actually leverage on each other, help us to improve or to iterate our algorithm at a speed cannot be achieved by a single strategy company, okay? So that's one of our advantage. And the other thing is like the globalization. Since we have deployed the fleets in the global market, we can collect the data and also we can get heterogeneous source of data from all over the world. We can have the data that's collected in a very dry climate in Middle East. And sometimes we can get data from very humid tropical area in Singapore and very cold area in Japan and in China. And I can't imagine any other company have this kind of wide spectrum of application area. And with all of this data and also we hired a group of talented engineers, we actually evolve very fast. The other thing I want to emphasize is our Genesis platform. It's actually based on physical AI model and with a lot of considerations on a really world model physical AI world. And it actually seamlessly integrate with our end-to-end system. This kind of simulation platform give us a big advantage to develop. And with combination of all of this kind of algorithm and data, I think this massive effect is here. We have many, many driverless permits in all over the world in many countries, and we have many car OEMs collaborating with us. We have heterogeneous data collected from different country, different level of autonomy. And by combining all of this, I think we can achieve accelerated development speed, which is much faster than our competitors. That's my answer to your question. Liping Zhao: That's very helpful. And my second question is for Jennifer. The Board of the company has authorized USD 1 million share repurchase program in May this year. And could you please update what is the status on this program? Xuan Li: Thank you, Liping. Regarding the USD 100 million share repurchase program, which is authorized by the Board in May, we haven't -- no purchase have been initiated to date. The reason is the preprioratory work for our Hong Kong IPO constituted for a close period under the securities regulation, which -- during which the trading was restricted. As a listed company, we are also required to obtain specific shareholder approval to ratify this program. We are currently preparing to call an extraordinary general meeting to seek approval, which will allow the program to proceed. Thank you. Operator: Our last question comes from Paul Gong from UBS. Paul Gong: Paul Gong from UBS. I have 2 questions. The first one is regarding the robotaxi revenue contribution. We have noticed that while this is about 7x year-over-year growth, it seems to have a little bit fluctuation compared to the second quarter. Could you please elaborate more on this? And my second question is regarding the European strategy. Congratulate for the permit in Switzerland recently. Can you share more on the next step of the company's plan for European expansion? Xuan Li: Okay. I'll take the first question. I think Tony probably want to take the second. So regarding the fluctuation of robotaxi revenue, we will say for the past 3 quarters, you can see our robotaxi revenue made like a 20% -- 22% contribution in first quarter, 36% and 21% revenue contribution for the past 2 quarters, which already showcased a very continuous momentum. The fluctuation was expected given that our delivery schedule is in tandem with the permit upgrade and the corresponding expansion of our operating area. We made a significant step forward by securing the city level driverless operation permit in Abu Dhabi, which will pave the way for accelerating expansion in the entire Middle East going forward. Thank you. Tony, do you want to take the second one? Xu Han: Yes, I will take the second one. Okay. The second question is about our -- actually our -- since we have already got the driverless robotaxi [indiscernible] Switzerland and what's our next step for Europe. Okay. So European market is a great market for robotaxi. I think the taxi fare in Europe is high and also European -- most of the countries in European market, they are short of labor. And that is actually a very, very good scenario or opportunity for robotaxi company to deploy robotaxi service to fill the gap between the shortage of driver and the increasing demand for taxi. These days, we know the numbers that people -- especially after the coronavirus, if possible, people like to take kind of private transportation if possible. So I think there's an actual growing demand for our taxi. So if we can deploy robotaxi as a very cost-effective method, people will love this kind of product. So since in Switzerland, we have already get it. And now we are considering some other countries like we established an office in Stuttgart and also try to explore in Paris. So in the next 12 months, we will solidify our foundation actually with our trial operation in France, in Belgium and also our current operation in Switzerland and talk to all the possible countries. And we also formed a strategic partnership with Uber, with Renault, with SBB, STL, et cetera. And there are a lot of airports in European countries talking to us to explore the possibility of our robobus. So we want to use all of our applications like robobus, Robosweeper to actually help us to explore the possibility to extend to certain countries because in certain European countries, they would like to tend to adopt robobus or Robosweeper first and then try to do robotaxi. And gradually, we want to go to Switzerland, Belgium, Germany, France, Spain and Norway, these kind of countries to extend to more countries. And then, of course, I want to emphasize our approach is dynamic. It depends on availability of strong local partner and also depends on regulatory policy and the local -- shortage of the labours, all of these factors we have to consider. But for sure, we will gradually expand to the aforementioned countries and all other potential countries in Europe. Operator: Thank you. If there are no further questions, I'll conclude the call today. Thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Xu Han: Thank you very much. Thank you. Bye.
Peter Meintjes: Good morning, everybody, and welcome to the Pacific Edge 1H Financial Results Presentation. I'm Pacific Edge's CEO, Dr. Peter Meintjes. And with me today is Grant Gibson, our CFO, and available online for questions is our Chairman, Chris Gallaher. But just an important notice to take notice of when considering the information in today's presentation. So, our financial results for this half are below our expectations. We ran fewer tests than we had desired. We have ran fewer commercial tests than desired and our operating revenue is down. However, we maintain that we are in the strongest strategic position yet. And despite a net loss of $19.1 million and cash of $22.1 million in the bank, we want to highlight for investors the importance of the strategic milestones that we have managed to achieve through this half. And we managed to do this maintaining a U.S. market presence to position ourselves to successfully appeal Medicare tests and commercial tests. And so while there have been some challenges associated with non-coverage determination being the predominant feature of operating the market and we have had to migrate our customers from Triage to Detect. Our U.S. sales per FTE has maintained its -- our sales force efficiency has been maintained, and we are operating as well as we can under the circumstances. Most importantly, though, we have an expert Contractor Advisory Committee, a C-A-C or CAC that has been convened by Novitas for February 19 in 2026. And this acknowledges the weight of the evidence behind urine-based biomarkers for hematuria evaluation in general, of course, driven by the evidence portfolio of Cxbladder. We also, in the half, achieved an absolutely critical milestone with longer-term economics for Triage Plus being locked in at USD 1,328 per test, a significant uplift from our previous $760 per test for the prior generation. Given this market position, though, we are considering capital alternatives to meet longer-than-expected Medicare re-coverage time line. We wanted to remind all our investors of how Pacific Edge creates value and specifically with adoption, retention and revenue generation, evidence coverage and guidelines and research and development because while our revenue -- adoption revenue and retention and revenue generation is somewhat down, we continue to be market-leading in the performance of our evidence coverage and guidelines, and we maintain our strength in development of new products within our research, development and innovation. In fact, we have the strongest position we have ever had. We are in the strongest position we have ever been in to drive Medicare policy change. The importance of the Contractor Advisory Committee cannot be understated. We currently -- since 2020 or between 2020 and April 2025, Pacific Edge had reliable reimbursement from Medicare, but no coverage policy with coverage policy language explicitly documented at Novitas. And while that was good for revenue growth in our business and the subsequent non-coverage determination has obviously been a challenging headwind for us to navigate, it will become a defining change for Pacific Edge to have positive coverage language and actual positive Medicare policy change as a consequence of the Contractor Advisory Committee. And so these Contractor Advisory Committees are generally convened ahead of developing new or substantially revised Medicare medical policy of an LCD and it's worth noting given that our current status is non-covered, we expect that a substantially revised medical policy would lead to a coverage policy after considering all of the evidence. Of course, this has been precipitated by 2 things. One, the strength of our evidence from our STRATA Study, but two, that the STRATA Study has already been recognized as something sufficient to drive policy change with the AUA Guidelines. And that allowed the biomarkers for the first time to be used for microhematuria evaluation. The purpose of a CAC is to discuss -- evidence of this CAC is to discuss evidence for the use of urine-based biomarkers in patients with microhematuria. And given the recent published evidence for Triage Plus, we expect that Triage Plus will also be considered as part of that Contractor Advisory Committee in February. The people who make up a Contractor Advisory Committee, and I look forward to questions on this later, are health care professionals, beneficiary representatives and representatives of medical organizations. And Pacific Edge has been given the opportunity by engaging with Novitas to nominate urologists that we believe are familiar with the latest evidence for urine-based biomarker testing for patients with hematuria. And among those are many of our clinical advisers who are familiar with Cxbladder specifically. The meeting date is set for the 19th of February at 6:00 p.m. East Coast Time, which will be noon on Friday, February 20 in New Zealand. So as we look to our evidence road map, the evidence generation road map, the top 4 studies have been highlighted. That highlight represents that these are all new publications that have not previously been considered by Novitas, and we expect that all of these can be considered firstly by the CAC and in the creation of the integration draft policy, but ultimately, in the final policy as it is developed. One thing that has changed is we've historically reported in this view, the study from Kaiser Permanente, but we have separated out the publication time lines for our core evidence that's internally developed and independent studies like the Kaiser study. And so you'll see that on a later slide in this presentation. Looking at the following slide. This is one of key significance to many investors. This is management's best understanding of the time lines that Novitas is operating under given the information that we have. Of course, acknowledging first that we have had a Medicare non-coverage determination for Triage, Monitor, Detect and Triage Plus since April 24 this year, but that was on an evidence review that was limited to evidence published prior to the 9th of September 2023, which at this stage is very stale evidence on which to have based the decision. Pacific Edge has submitted reconsideration requests of the -- what's known as genetic testing for oncology specific tests, L39365 for Triage and for Monitor. Pacific Edge has submitted a new LCD request for hematuria evaluation for Triage and Triage Plus. This is important regardless of whether Novitas elects to make a change to 39365 or establish a new LCD, the critical distinction between prior reliable reimbursement with the absence of any positive policy and what we are trying to achieve through a CAC and draft LCD language is the establishment of clearly articulated language that supports the appropriate use of non-invasive urine-based biomarkers, for example, Triage and Triage Plus in the evaluation of hematuria patients. No prior policy exists for that, and that is one of the reasons that Novitas is following this robust approach in using a Contractor Advisory Committee. So, Novitas controls all the timings of these events. And while from our perspective, announcing a CAC to convene on the 19th of February is a delay from our prior expectations, given the robustness of the process, this is something that we see as tremendously positive because of the increased certainty in medical policy change that we expect to come from convening a CAC. Furthermore, evidence published after the Contractor Advisory Committee, they can also be submitted during the comment period. So, those studies highlighted in yellow, that's not the limit of what can be considered for the coverage policy. That's just the limit of what can be considered during the Contractor Advisory Committee. Our independent studies also supplement our primary evidence generation portfolio, the most important of which is the real-world utility study of Triage in microhematuria patients at Kaiser Permanente, but we also wanted to highlight that some of our investigator-initiated trials that have been part of a program of work for the last 2 or 3 years, the first one of those is reaching maturity. It's going through peer review at the moment, and we are optimistic that it will publish in Q1 2026. This is evidence that is not necessarily -- well, I'll retract that. In the first of these, the one from Kaiser Permanente is extremely relevant in the changing of medical policy for an organization like Novitas. The patient preference, for example, is less likely to sway organizations like Novitas that are extremely influential in helping physicians adopt our test for our sales force because we are able to make very, very clear that patients actually prefer to use our test when offered the alternative. And that is somewhat of a no-brainer. The difference between an invasive procedure and a non-invasive procedure, patients typically prefer non-invasive to actually show that with data will be a first-of-kind study and that has been developed under the banner of our investigator-initiated trials. And what you can see in the bullet points below, 74.2% preferred Monitor versus cystoscopy and comparable diagnostic performance is shown. And we expect this research to be published as an abstract for AUA 2026 and possibly before that will even come out in print. Importantly, our budget impact models continue to demonstrate the economic value for Cxbladder. We've updated this slide to highlight the value proposition when performing this -- when running a budget impact model using Triage Plus. And so where with Triage, you were able to rule out, I believe, 78% of microhematuria patients, with Triage Plus, we're able to rule out 85% of hematuria patients. And the greater number of patients that you can rule out, the greater value you are creating for hospital systems that deploy this kind of testing across the patient population that they serve. Again importantly, this is not the end of the road for Pacific Edge in terms of developing budget impact models. And we are targeting a publication for Triage Plus in FY '27. And we are targeting a publication -- or sorry, we are targeting commencing work for a budget impact model for Surveillance Plus in FY '28. And also along the general theme of health economics and sustainability, there is also a publication that we are working on with collaborators at the Canterbury Health System in New Zealand about the carbon footprint impact of implementing Cxbladder at primary care and draft presentations at conferences have already been communicated. So talking about some of the numbers explicitly here. Global commercial test volumes of 13,191 for 1H '26 were down 10% on the 2H figures amid the challenges of selling a test that is not covered by Medicare. The reduced reach of our sales force as our sales force continues to shrink, but that has been partially offset by a 5.4% uplift in APAC. Our response to the Medicare non-coverage has been a very important focus for us in this half. Cxbladder Detect is something that has not had new evidence generated for some time and is not included in the guidelines. Consequently, all the tech customers were migrated over to Triage, accelerating a plan we had hoped to implement at the time of launching Triage Plus with coverage, and that has created some operational challenges as we do that. But nonetheless, that allows us to collect revenue on the Triage tests through the appeals process. The sales force continues to be focused on patients that are suitable for Cxbladder Triage, which are younger patients with commercial insurance and typically with microhematuria presentations. Our sales performance has been sustained from an efficiency standpoint in 1H '26. The clinical commitment that we measure as tests per ordering clinician has fallen, reflecting the disruption of transition from Triage -- sorry, a disruption to Triage from Detect and challenges of selling a test not covered by Medicare. But we are well ahead of the low point we had in Q3 2022 of 160, and we've largely been able to maintain our sales force efficiency at 403 for this quarter. Our sales FTE are down to an average of 12 in Q2 '26 from greater than 30 as we continue to focus on cash conservation where prudent. Importantly, foundations for growth, we have U.S. cash collections processes continue to improve, although a loss of Medicare coverage has impacted our testing volumes. Denied Triage tests will be appealed to an Administrative Law Judge, ALJ. And given the guideline inclusion, we expect we can successfully make the case that Triage has been used in a medically reasonable and necessary fashion. Unfortunately, appealing takes time, but we are appealing over 2,000 tests to Medicare and commercial providers through external review. And for Medicare, it takes 6 to 9 months. For commercial payers, it can take longer than that in excess of a year. So, Medicare tests completed in 1H that have been denied for payment have had no revenue recognized in this half, but we expect to recognize some revenue again in the second half when we have successfully appealed. There are measures in place to mitigate the loss of Medicare coverage and including enhanced patient responsibility, increased utilization of appropriate patient types through EMR integration and improving the medical necessity documentation to improve the payment success that we have during billing and appeals processes. And improved cash collections are typically permanent improvements, although we are in a situation with a non-coverage determination. So some of those things are challenging for the current half, but we expect a resumption of those improvements after we establish -- reestablish coverage. So, consolidating New Zealand and developing Australia and APAC, we continue to seek a national hematuria evaluation pathway in New Zealand. And we're working with local urologists and with Te Whatu Ora to affect that. In Australia and South -- and the Asia Pacific regions, Southeast Asia is still in business development. We're planting early green shoots there. But we are also working on a number of contracting arrangements with Australian hospitals, and we hope to have some non-material announcements about progress in that area in the coming months. We also continue to drive value through product innovation. And our next generation of tests is our major focus of the Research Development & Innovation pillar and specifically the development part of that. We've been working very hard on Triage Plus and Surveillance Plus. Triage Plus has been analytically validated and clinically validated for all hematuria patients, micro and gross hematuria patients. That's a broader indication than for Triage and a broader indication than what the guidelines currently support. And this bodes well for an expanded patient population as and when Triage Plus complete -- as and when we complete our credible study for the utility of Triage Plus. It also has a higher price. That price is still in draft, but is expected to become final within the next few days and effective on -- sorry, January 1 next year. It is currently being run in early access with a select few customers as we -- and we are leveraging the AUA Guideline for Triage in appealing Triage Plus tests as well. With Surveillance Plus, we are looking at recurrent disease in non-muscle invasive bladder cancer patients. The product is still in development and is the improvement over the Monitor product that we currently have. And Surveillance Plus has deviated from Triage Plus through the development process. And this is, of course, expected that they serve a different patient population and different markers are informative and the work that we've done internally has demonstrated to us that the DNA markers from the ddPCR are more informative than the RNA markers that we historically used in Cxbladder Monitor to the point that we can actually exclude the RNA markers from the final product. And we have taken that product through a freedom to operate, which has been completed satisfactorily and gives us the freedom to operate. And we are taking it through a provisional patenting process. We are also seeking a technology crosswalk for Surveillance Plus to a test that has an $1,800 price point in the Medicare fee schedule and are hopeful for a claim-by-claim reimbursement because there is no coverage -- there's no non-coverage determination for Surveillance Plus. And so our expected path is to get it coded, get it priced by crosswalk to the candidate mentioned here and then to initiate claim-by-claim reimbursement until the local coverage determination incorporating Surveillance Plus is developed. That we expect to take a number of years. We have not put specific timings on that, but that is the future state that we imagine for our business with Triage Plus for the risk stratification of hematuria patients and Surveillance Plus for the surveillance of non-muscle invasive bladder cancer patients for recurrence. I wanted to also highlight the importance of the DRIVE Study. So the DRIVE Study has been referred to for a number of years. It was started as far back as 2019. It began enrolling and enrolled largely entirely for veterans population. And the study confirmed the superior performance characteristics in both gross hematuria and microhematuria for Triage Plus over our existing tests. And it also works on a broader range of hematuria patients as established in the clinical validity. So hopefully, we made clear in the diagram on the left that while the AUA Guidelines recommends Triage for a narrow patient population, and that's based on the STRATA evidence. The STRATA evidence itself actually covers patients that were in the low-risk group, intermediate risk group and the high-risk group and the STRATA study can be used to justify using Triage in any of those risk categories for microhematuria. But the DRIVE Study has validated Cxbladder Triage Plus for all of the risk categories of microhematuria and the gross hematuria patients, so the broadest range of patients in hematuria evaluation. We remind our investors of the opportunity that we are chasing here. So with the increase of our test price to $1,328, we've increased our estimate of the TAM in the U.S. while maintaining the TAMs for APAC and Europe constant. And it is a substantial TAM at full volume of $10.8 billion. And specifically, we are targeting the patients that are referred for clinical work. That's how we determine our TAM that using Triage Plus for the intended use at the point of being referred for clinical workup gets us the largest possible TAM and the evidence we are generating is for that. We're also looking to expand our market opportunities with innovation at the product level. And for this, we have made clear for investors that we are pursuing an IVD product that is a simplified version of the assay that we currently run as a service. And over time, we will be able to simplify the product -- simplify the service to the point of being able to put it in a kit and allow labs other than Pacific Edge in appropriate jurisdictions where we have sought. We've completed all the product registration and market access initiatives to be able to run that test in clinical routine. So the benefits of this approach are that IVDs can be run by any accredited lab partner in any geography. The customer-side logistics are easier, faster and customer service is local. Lab partners make a margin by running the IVD test, which increases their enthusiasm and motivation for sales and marketing efforts in their territory. It is a decentralized deployment, which allows faster scalability, and we need to focus on scaling our logistics, but the clinical operations can be scaled very dramatically by working with established partners in the region and as they focus on customer acquisition. So the work that we're doing, Pacific Edge is simplifying the test and accelerating the development of an IVD called Triage Plus IVD for decentralized lab deployment and international market expansion with the key objectives of: one, establishing an IVD regulatory framework for our next-generation tests that include Europe, FDA and ISO-13485 for the rest of the world. And then we're targeting prototypes by the end of FY '26, manufacture and commencement of clinical and analytical validation commencing in FY '27. I'll now turn to Grant for our financial performance for the half. Grant Gibson: Great. Thanks, Peter. So in the first half, our operating revenue was down to $5.9 million from $10.9 million in the second half of '25. So, all that reduction is actually from the U.S. market. As Peter mentioned, the loss of Medicare coverage has meant that total tests post 24th of April have not been accrued or included revenue and will only recognize revenues if we are successful at the ALJ appeal level, which, as Peter noted, it's going to take 6 to 9 months for us to be able to refresh those tests if they're successful. Volumes have also been impacted by the disruption caused by the loss of coverage and transitioning clinicians from the previously dominant tests in the U.S. market to Triage. We've also have reduced sales FTE as we've looked to manage our costs through this time. So with the drop in the U.S. revenue, APAC contributed 15% of the revenue for the half, up from 8% in the second half of FY '25. So, we continue to maintain a U.S. presence that positions us for an affirmation of Medicare coverage. We're reducing operating expenses where possible. So in the second half of '25, we actually dropped our cost base by 5.9% in the first half of this year. As we continue to focus on expenses, we can reduce them where possible. Our operating cash flows of $19 million were higher than the $12.3 million in the second half of '25. But we do note that cash outflow in the first half of the year is generally higher in the second half, with payments that cover a 12-month period weighted towards the first half. As noted, we've also been impacted by the loss of Medicare coverage and we expect to receive revenue for tests that we performed in the first half, 6 to 9 months after as we take them through the ALJ appeal level. Cash at the end of the half was $22.1 million and we did a capital raise of $20.7 million in August 2025. As Peter has noted though, with the delay of the re-coverage, we expect that we will need to complete capital initiatives and/or reduce cash burn and we're in the process of considering options. Our operating expenses were down 5.9% in the second half. So of those, the lab costs were down approximately 10% based on lower test volumes. Our research costs were also down 4.5%, and some of the clinical studies come to an end and the cost base -- and the costs related to those start to reduce. Our sales and marketing were down 9% as we managed our FTE in the U.S. market to ensure that we were prudent with our operating expenses. General and admin costs were up 3.4%. We had some late legal fees relating to our efforts to overturn the Medicare loss of coverage in late FY '25 that come into this first half. And I'll pass you back to Peter. Peter Meintjes: Thanks very much, Grant. As we look forward, from my perspective, it's extremely important for investors to understand that this is -- Pacific Edge is in the strongest strategic position than we ever have been. And my conviction is underpinned by a number of long-term value creation notes here, medium-term value creation and near term. And so in the long term, the price increase that we have for Triage Plus provides us with extraordinarily improved economics. And so as that test becomes our dominant test, when it has successfully achieved coverage, we are in a vastly different operating position than we are today and then we were when we had a $760 price with increased margin and margin percentage. Surveillance Plus, while in development, is also seeking a direct technology crosswalk to an $1,800 price point based on its final product configuration. And that, we think, is a very important long-term consideration for generating value for investors. So, our continued investment in innovation and product development for IVD kits supports our ambitions to enter international markets and to adopt a decentralized deployment model and that remains a focus of us in a smaller capacity, but is something we continue to try to activate. In the medium term, the DRIVE publication provides a clinical validation of Triage Plus that we believe is sufficient for inclusion alongside other tests in the AUA Guidelines and is sufficient for Novitas to make a positive coverage determination. So, we are delighted that, that has been published in time to be considered firstly by the CAC and secondly, when Novitas begin to draft policy. Our clinical evidence generation program is scheduled out for over 4 years to deliver strategic milestones that will deliver sustained value creation for shareholders with multiple catalyzing events. And AUA Guideline inclusion demonstrates that the success of this strategy that can be repeated to expand the indications for existing products and establish new indications for new products. In short, we know what it takes to get a product included in guidelines, and we expect of ourselves to be able to do it again. Commercial headwinds, acknowledging that there remain some, commercial headwinds is important. There remains a non-coverage determination for Triage, Detect, Monitor and Triage Plus, and it creates challenges for our sales and marketing teams in that operating environment. and additional challenges for reimbursement. But we are doing everything that we can from an appeals standpoint and doing everything that we can to convince customers of the value of the test despite the Medicare non-coverage determination given the AUA Guideline inclusion. The convening of the Contractor Advisory Committee is a major catalyst for forward-looking policy. And specifically, as I mentioned before, it will be the first time that there will be coverage policy language that would be proposed by Novitas not just paying for our tests on a claim-by-claim basis. And that provides us with the greatest certainty of enduring coverage from Novitas, but also the greatest ability to improve the success percentage of being paid on Medicare Advantage tests and for commercial payers. So the commercial catalysts for near-term value creation, the AUA microhematuria guidelines are an enabler of sales, marketing and reimbursement activities. But because of the language associated with Triage and the language associated with intermediate risk patients, we have to reeducate our customer base and that has proved to be challenging at least initially, and we're continuing to work on that. We are continuing to seek payment from Medicare for all Triage tests performed on Medicare patients through the Medicare Appeals process relying on the AUA Guideline, and we are doing the same through the external review process for commercial insurers. We also expect through the efforts that we've made in digital development to increase the percentage of electronically ordered tests. And that, of course, is expected to lead to stickier customers and more reliable payment over time. And we are -- as mentioned earlier, Cxbladder is under consideration by Te Whatu Ora for a national pathway in New Zealand and we're optimistic that, that will be -- that we will learn something in FY '27 about the status of implementing Cxbladder in that national pathway. We thank you for your time, and we look forward to taking your questions. Operator: [Operator Instructions] And your first question comes from the line of Rob Morrison of Craigs Investment Partners. Rob Morrison: Congratulations on getting Novitas to open that committee, looking forward to a positive result from that. So on the call and in the documentation, you speak about the options available to you include raising capital and/or burn reduction. Have you reduced your burn so far in the second half? Peter Meintjes: We have made modest reductions to our burn. And I think as Grant highlighted, we actually do expect -- there are a number of expenses that are front loaded for the year and we expect the second half to have a lower burn rate than the first half, yes. Rob Morrison: Okay. But it won't be something like -- so the cost base in the first half was $26 million. You wouldn't expect that to half. It might be down, I don't know, like low tens of percentages. Peter Meintjes: We would not expect it to half, yes. Rob Morrison: Cool. So, you've given best and worst-case scenarios for re-coverage, which look to be between June and September quarter 2027. Could you give us a bit of a flavor for the assumptions behind that? Peter Meintjes: Yes. Absolutely. So from our perspective, it always feels like Novitas is acting very slowly. But the reality is, in March 2025, they had a change in personnel, a new person joined in May, which was a month after we lost coverage. And so since being newly appointed in the role and with the -- it's been less than 6 months of non-coverage and less than 6 months of a new Medical Director at Novitas to actually get Novitas to initiate a CAC. What it would have been great if they could have scheduled that CAC for November, but they didn't. They scheduled it for February. And so while that is a prima facie delay in time lines, that's the greatest level of confidence that we have ever had in forward-looking policy. So, I think from Novitas' perspective, they would consider how quickly they're acting to be very quick, whereas from our perspective, it feels very slow, particularly since we have a high burn rate. Past the CAC, there is no commitment to the time line. And so we're clear that these are management estimates, but the assumptions in why we think it might be on the shorter side are that they have restricted the Contractor Advisory Committee to the microhematuria guideline and tests that fit into that, which is very narrow. And so consequently, the policy that they could develop would also be narrow and the number of products that they would have to consider would be relatively narrow. And the AUA research team have already done the research and created the guidelines. So, they have a step up. So from the 20th of February, we estimate it would be around 3 months for them to develop draft policy and publish it because of the narrow scope. If it was a broader scope, we think they would take longer. So, that's one of the main assumptions. We also believe that they have -- that there is a lot of pressure from the AUA. And that pressure from the AUA will also encourage Novitas to act quickly, but within the bounds of the process they are obligated to follow as outlined by the program integrity manual. But once draft policy is published, it would then be at 60 days of notice and comment. And any time after they have successfully considered all of the comments, they could then publish with 45 days of becoming effective. And we think that they are motivated because of the aforementioned factors, the narrow scope of pressure from the AUA and ongoing dialogue that we have with them in formal situations that we think that they could act quickly. Nonetheless, we paint the worst-case scenario for our investors out of an abundance of caution and acknowledge also that even after the CAC, there is a non-zero chance that they don't develop policy at all. We consider that to be extremely unlikely, but Novitas does control it. Rob Morrison: Okay. And just to read that back to you, so the committee will happen in Feb, 3 months to draft the policy and publish it, but then there's kind of a year in there for various other processes that need to occur based on your conversations with Novitas. Peter Meintjes: Yes. So, I would point you to Slide 7 of our deck, the Medicare re-coverage and estimated time lines. And so we are estimating Q3 to Q4 of 2026. But we are highlighting that the -- and that's based on those assumptions that Novitas is under pressure to act quickly and has the information they need to act quickly given the CAC formation and the narrow scope. But we also note for investors that it could be between Q2 and Q3 that they have given that is 12 months after when they open. Operator: [Operator Instructions] And your next question comes from the line of Matt Montgomerie of Forsyth Barr. Matt Montgomerie: Just on your language, Pete, in terms of the CAC meeting, it's coming across extremely positive in terms of the likelihood that you think there will be a re-coverage decision. I'm keen to double-click on that a little bit around, is that extreme positivity coming from precedent around CAC meetings? Or is it coming from direct conversations that are being had between you and others in the industry? Peter Meintjes: It's coming from multiple sources. But probably the most relevant one is just the facts that are specific to this situation. So the facts in this situation are that there is a guideline that recommends the use of our products and others for hematuria evaluation and there is no policy at Novitas for hematuria evaluation. This has practicing urologists and the entirety of the AUA quite frustrated, confused, annoyed in your preference there that they are unable to use guideline recommended testing on their Medicare patients without having to go through extra administrative procedures, et cetera. They basically believe that Medicare should fall in line with what urologists have recommended. So when we think about -- and so that's one set of facts is that there is a guideline. There's also the evidence for Triage Plus as well. And then there is the non-coverage determination. So if you've got a non-coverage determination and the purpose of a Contractor Advisory Committee is to make changes to policy, we're going to be changing it from a non-coverage determination to something else. And while we cannot rule out that it will change -- that it will just change the language and still be a non-coverage determination, the overwhelming odds are that when you have clinical utility data, guidelines and physician opinion in a Contractor Advisory Committee saying, we want this test, we need this test. This is how we want to practice medicine. That's what the result needs to be from Novitas. Now, what is Novitas' job in the situation? It's not to tell urologists know. Novitas' job is to figure out the appropriate policy so that only the appropriate patients are getting the testing and getting and they are only paying for when appropriate patients are getting the test. So that's -- it moves from an if to a how. Does that make sense? And does that answer your question for you? Matt Montgomerie: Yes, no, that's a good response. And then secondly, going back to one of Rob's question. I was wondering, Grant, if you could give us guidance for second half OpEx. Presumably, you've got pretty good foresight on it given that the CMS changes won't be coming through in the second half. And clearly, the rope for cash is relatively limited at the present time. So, I assume you've got quite structured plans in place for the second half. Grant Gibson: Yes, we do. We've got to continually balance that though with the expectation of reaffirmation of Medicare coverage. So if we do cut too deep, that will take a long time to get us back and we don't believe that that's in the benefit of the long term value of the shareholders. So it is a continuing balance. You will see though that if you look at our FTE numbers in the U.S., we have reduced our sales presence in the U.S. We are looking at other areas where we can continue to reduce costs, but I won't actually put a figure on that. Matt Montgomerie: But it would be fair to assume -- it'd be fair to assume like the decline will be relatively small then on that basis in the second half? Grant Gibson: Yes. As Peter mentioned before, we won't be halving or anything of that space. We need to maintain a strong presence in the U.S. really for re-coverage. Peter Meintjes: Yes. A lot of the support that we get from the AUA is essentially contingent on maintaining a presence in the market commercially and fighting the fight together. Matt Montgomerie: Yes. And then one more on sort of the non-CMS U.S. price. Looks like it collapsed or fell quite meaningfully in the half. Could you just sort of talk through this and then what the CMS contribution was in the half in the very short period in April that you had coverage? Grant Gibson: I wouldn't -- I don't think your classification is actually correct. Medicare dropped to basically 0 from 24th of April. So it was like the tap got turned off when the non-coverage came through. Other reimbursement has been reasonably strong and continuing to increase. As Peter mentioned, we are focusing more on commercial payers as that patient mix moves more towards the Triage intermediate risk. And we are working on growing the revenue from those commercial payers as well. So, Medicare is the big story in our reimbursement mix that has dropped to basically 0 until we go through these ALJ appeals. Peter Meintjes: That's right. The last thing that Grant said there, it's like it has dropped to 0. We cannot confidently accrue until we have developed a pattern with the ALJ, and we are yet to have an ALJ scheduled. The government shutdown, we do believe has delayed some of the scheduling here, but we have probably half a dozen or a dozen tests that are ready for scheduling. We don't have that yet. So, we anticipate to have at least some success that we can point at. And while we have modeled for ourselves 0 success at the ALJ because we believe it is responsible to do so, we actually expect on the basis of the fact pattern that evidence up until 2023 was the only thing that was considered in policy that went into effect in 2025 when in 2024, there was a randomized controlled trial that was ignored. There was an additional analytical validation that was ignored. And then earlier in 2025, there was a guideline that was created on the basis of those pieces of evidence. We think that an Administrative Law Judge is going to understand that fact pattern and find in our favor. Now, is that more work for us? Yes, it is. But we are up for that challenge because we think we should have that revenue. Notwithstanding, even if we are successful at that, that does not ameliorate the operating challenges that we have in driving volume when physicians have to go through extra administrative lengths to manage patients when there is a non-coverage determination. It's just more admin basically. Matt Montgomerie: Just on the CMS mix, like I appreciate, it's gone to 0 since late April. But if we sort of pro rata the revenue from the first half of last year within CMS on the 24 days that you had coverage, it implies and then do the same for volumes. It implies that non-CMS U.S. revenue was sort of flat on the second half of last year, strong volume growth. But like I suppose the math is the math, the missing piece that I don't have is what the CMS revenue contribution was in 1H '26 to then sort of work it out? Like my estimate here is sort of a shade under $1 million. Peter Meintjes: I don't think there's anything additional we can really give you on that, Matt. We don't break down costs. Grant Gibson: We'll see if we can come with something. Matt Montgomerie: We can take it offline. That's fine. Operator: And that does conclude questions by the phone. I would like to hand over for any written questions. Grant Gibson: Okay. Andrew, your first question was about the Kaiser study. I believe that's been covered on Slide 8. So, that is going through the final stages prior publication. So, that should be available for the CAC meeting. Okay. Next question from [ Andrew ]. The Novitas CAC, while it's very disappointing with the meeting pushes out the potential time line for reinstatement of Medicare, is it reasonable to actually feel optimistic that Medicare coverage will be obtained? I believe we've answered that one. And given the clinical evidence, will the CAC meeting review the Kaiser study? So again, we answered that. Okay. Andrew, so Triage Plus pricing in the U.S., at its 2025 AGM, Pete discussed that under the Protecting Access to Medicare Act, the price of Triage Plus will over time decline from the original technology resources based pricing down to the value-based pricing. Are you able to give any indication as to how long this initial technology and resource-based pricing will be in place and when the change to value-based pricing will occur? And has this changed some or fixed in over a period of time? Peter Meintjes: So great question. Triage Plus is what's called a CDLT, a clinical diagnostic lab test, which means it is subject to PAMA review every 3 years. It's only subject to that review after it reaches a certain threshold. And so it will be -- it will be a number of years before it crosses that threshold. But when it crosses that threshold, the math on this is something that I can sort of describe in general terms, but it will be imprecise. It is available for people to go and do their own research on. But you can roughly -- it roughly approximates the average of the private payers. It is also worth noting though -- so it doesn't include zeros. So if a private payer gives you -- declines your test, that doesn't count towards your average. If a private payer pays for your test but pays you 0, it also doesn't count. But you take the average of what private payers pay you and it becomes that. Now, there is a theoretical situation in which it actually doesn't come down at all, particularly since our Medicare price is $1,328 and our commercial price is $3,995 a test. And what are colloquially termed Cadillac plans, they actually pay the full amount for that kind of test. So, $1,328 in the context of genomic test is not high. It is, we believe, a good price for the value that it delivers to the system based on how much -- based on the budget impact modeling that we have done. When we publish the budget impact model, we can be more precise -- sorry, when we publish the budget impact model for Triage Plus, we can be more precise about what value we deliver to the health system. But we actually expect that it could rise as a consequence of value-based practices as well. And that is totally possible and within the rules of PAMA, but it only happens if private payers are paying more on average than less. But given the low technology resources pricing we have today, compared to other genomic tests, it is also possible that, that number goes up. It's a long way away. And I don't think that this should be a significant part of anybody's model at this time. Grant Gibson: Okay. [ Adrian ], I'm going to combine both your questions. So, you did ask on the second half cash burn, and we provided answers that we can on that. Any capital initiative, is it likely to follow the tone of that CAC meeting in the 16th of February? And how much would you be looking to raise? Is $50 million reasonable for additional equity through re-coverage? Peter Meintjes: So, I don't think we can comment on any of the specifics that are noted in that question. But we do believe that the Contractor Advisory Committee, that will be open to the public to dial in. The details will be on Novitas' website. When we have the details, we will likely make those available to our New Zealand audience because it's actually geo-blocked their website and you might not be able to access it, but we will figure out a way to get those details through to our shareholders who would like to dial in. And we're anticipating an overwhelmingly positive Contractor Advisory Committee, but we will leave that to shareholders in the market to decide what they think from that language. Noting the timing, we will try to coalesce and condense everything that happens on that call and distill it down for our investors and our shareholders and provide a market update after the Contractor Advisory Committee summarizing our view of that. But the other elements of your question, I can't comment on. Grant Gibson: Great. And that's the end of the online questions. Peter Meintjes: Well, thank you very much, everybody. That's everything for me today. I appreciate your time, and thank you, Grant. Thank you, Chris. Grant Gibson: Thank you.
Unknown Executive: Good afternoon, everyone. Thank you for joining us on today's webinar. Before we begin, I'd like to announce that we will be referring to today's earnings release, which was sent to the newswires earlier this afternoon. I'd also like to remind everyone that this conference call could contain forward-looking statements about Destiny Media Technologies within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements are based upon current beliefs and expectations of management and are subject to risks and uncertainties, which could cause actual results to differ materially from those forward-looking statements. Such risks are fully discussed in the company's filings with the SEC and SEDAR, and the company does not assume any obligation to update information contained in this call. During the webinar, we will discuss certain non-GAAP financial measures. The non-GAAP financial measures are presented in the supplemental disclosures and should not be considered in isolation of or as a substitute of or superior to the financial information prepared in accordance with GAAP and should be read in conjunction with the company's financial statements filed with the SEC and SEDAR. The non-GAAP financial measures used in the company's presentation may differ from similarly titled measures presented by other companies. A reconciliation of the non-GAAP financial measures to the most comparable GAAP financial measures can be found in the earnings press release. Also, I would like to mention that following the presentation, there will be a questions-and-answers session during which you can submit questions by selecting the Raise Hand icon at the bottom of your screen. Your questions will be polled in the order that they are received and at which point you'll be prompted to unmute your microphone before speaking. With that, I'd like to turn the call over to your host, Fred Vandenberg, Chief Executive Officer. Frederick Vandenberg: Thanks, Michelle. Today, we have myself. As Michelle said, I'm the Chief Executive Officer of Destiny doing business as Play MPE. Along with me, we have Assel is our Chief Financial Officer. Assel will be talking about significant components of our financial results. And we have Jen, who leads our strategic accounts. Jen will outline some of the achievements we made in the sales and marketing area. The first thing I wanted to talk to you today about was the modernization of our platform. We undertook a process to move away from the PC application several years ago. The basic features of that were done a few years ago, and in the recent past, we've made 2 significant achievements that have resulted in the retirement of the older platform. The first was we transitioned our client -- our largest client to the online platform. We did that in April of 2023. So it's a little older now. That transition went flawlessly. But due to the quantum of the data and the historical catalog of the world's largest record label, we maintained redundancy of that platform for -- until this year. Also, internally, we have a very sophisticated list management system, which is essentially the core of what we sell to our customers. We made many upgrades to that system, and we were able to retire that component as well. So we were able to achieve cost savings of not maintaining 2 different platforms. The result of these investments are really the cost savings in the 3 main ways: reduction of platform investments, but also we made a lot of upgrades that make the list management maintenance more efficient, plus our client processing systems are more efficient. This is a pretty big deal for us. The other investment that we announced back in August was the launch of Caster and Caster+. Now essentially, Caster+ is the old Caster, [ that's the sending side ] of Play MPE. And Caster now is the self-service component. This investment really helps us in 3 main ways. It allows us to sell at scale, so customers can self-sign up and distribute content without any Play MPE staff involvement. This also allows us to more easily set up trial accounts. This is an important thing to know and even important for our own staff to be aware of. This is really essentially the best way to sell. Our platform is -- the value proposition of our platform is not an easy one to explain. So the best way to sell it is to get people in it, see how easy it is, see how effective it is, see the information relayed back, and really just become hooked. It becomes an indispensable part of their workflow. Customers in our industry are hesitant for change. But with this, we can get them in the platform and trying it out. Also, it allows us to more easily set up reseller arrangements, whether it's white labeling, OEM, or partnership agreements. There are several label management services companies where they provide more enhanced distribution in a lot of different ways. Play MPE really is regarded as a leader in radio. That reputation helps us in that avenue, and we can partner with those label services companies to effectively increase our channel distribution. And now with the Caster, it's a little bit more easy to achieve that. We made a lot of improved sales and marketing capabilities. I'll let Jen really touch on those, but it's probably worth mentioning because it's a pretty significant change. The last -- sorry, not the last thing, but the profitability. We are a B2B company in niche business. We have a very strong position in that niche. We've had some success in growing, but it's at a rate of a little less than 10% while we modernize our platform. We have the largest record label as a customer. We've modernized the platform and improved our sales process, so we can continue to target revenue growth while reducing costs and improving shareholder value. MTR. In early fiscal 2022, the Board of Directors wanted to pursue an adjacent business to grow and diversify our revenue base. This led to the launch of MTR last year. MTR fits into a fast-growing radio tracking and analytics market. We've seen research reports where this market is in excess of $3 billion. And we believed that we could target a portion of that as a complementary business opportunity. When we pursued this, we targeted -- we had a targeted approach given our size and cost profile, where we only started tracking airplays for customers that would track at a smaller scale, and we started that in the United States, so we could get some real market feedback and assess our success. We had validated this need. It was an unmet customer need for our smaller customers. And that is ultimately who forms our customer base right now. This is a relatively low-cost entry into the market -- into a very large market, with a short payback period if we achieved certain targets. And when I say low cost, it's really a low cost to the size of the market. The company spent a little less than $600,000 in direct cost in developing MTR, which is a larger expense for a small company. But it was a big opportunity. Since that investment, competitive solutions have emerged, including Apple's free service. Apple's free service does pose a little bit of a drag on our sales. But anybody who's really commercially interested in growing their music presence is probably looking for more details. Certain customers that are really cost conscious can use this for free. We have not achieved our sales targets, and we're operating at a small loss. We do have repeat customers, though, and we're exploring ways to expand our sales approach and target markets. We're expecting to do ad tracking trial in early calendar 2026. We're targeting larger volume sales where this is where you get synergistic sales with Play MPE that our sales team can target the same customers with 2 different products. There's also a lot of other value adds with MTR. We are tracking more customers for Play MPE because of MTR. So it's not just that we're selling MTR to Play MPE customers. We are selling Play MPE to customers on MTR. We do also have advantages in that we're providing both the distribution services and the tracking, which really provides some interesting and valuable data points. We see insights of how customers are using Play MPE and how that results in their airplay tracking, the numbers, so we can provide some really valuable insights to improve their results. We're just trying to figure out how to monetize that information. And it also proves out the value of Play MPE. We've always known that Play MPE was an effective distribution tool, but now we can really draw the line between the distribution and the airplay. Lastly, I want to be clear on this one because I think maybe some comments I've made in the past have not been. We resolved our litigation in October. There was an outstanding claim against the company. The judgment was in our favor, and we were awarded costs. Those costs have not been reflected in the financial statements, but we expect them to be a reasonably large number, and we'll pursue them. And with that, I will turn it over to Assel. Assel Mendesh: Thank you, Fred. I will walk you through our financial performance for fiscal year 2025. So we'll start from the revenue. Our revenue overall was up by 2.3%, and it is 2.6% if we look at the constant currency basis. The major label side was up by $149,000, which is 6.8% for the year, while independent label revenue segment declined by $75,000, which is 3.4% decline. And decline occurred despite the increase in the number of total Caster customers, which was up by 7.4%, as well as the increase in new customers, which was 11.8%. The total number of releases stayed relatively the same, but what we see is the average spend declined by 10% per customer, or 3.2% per release. We believe that there are largely 3 factors that affected that, first being the general economic conditions; second being the volume discounts we gave early in the year, total was approximately $52,000. These discounts were intended to encourage larger sales, but the expected uplift didn't materialize. So the structure has now been revised for fiscal 2026. And the last one is that for the period of time, we had reduced sales staffing, which has since been addressed. And MTR revenue still less than 1% of total revenue, but it is up by 345% versus last year. Final point to note about revenue is that it is largely denominated in U.S. dollars. Right now, it is 91.8% in U.S. dollars. And now let's move on to the expenses and overall results. Cost of revenue, as you can see, declined -- sorry, was up by $76,000, which is 12.5%, mostly MTR-related data hosting and processing fees. The operating expenses increased by approximately $751,000, which is 20%. And mostly the drivers are, as you can see: amortization, which is noncash amortization of the software capitalized in the previous years of $364,000; onetime nonrepeating litigation-related costs of $249,000; onetime recruitment costs of $28,000; and MTR-related operating expenses of $61,000. As a result, adjusted EBITDA was down by $375,000. And turning to the liquidity. The cash balance was pretty strong, USD 1.12 million. The slight change versus last year is just the timing of our AR collection that cleared just a couple of days after the year-end. And the company continues to operate with no debt or any other material capital expenditure commitments. So that was all for the financial results. And now I'll pass to Jennifer to cover sales and marketing portion of today's call. Unknown Executive: Thank you, Assel. I'd like to start off with key marketing achievements for 2025. This included expanding our social media presence, improved digital marketing and site enhancements, as well as customer retention and reengagement sales outreach. Our new lead tracking has now given us full visibility from lead creation to conversion, identifying affiliate partnerships as the highest source. Our strongest partner provided 392 new accounts, 25 new customers, and our website organic referral traffic provided 1,919 new accounts and 379 new customers. We localized our sites, which launched -- we completed 3 major localized sites, U.S., Canada, and Australia. We've updated our Spanish site and our Latin America launch is planned post main site updates. SEO and organic traffic exceeded our targets. Our organic traffic was up by 46% on a goal of 20%. We had a goal of 10 keywords resulting in a first page ranking on search, and we have identified 20. And growth has primarily been driven by brand-aware users. Conversions and sales improvements. Our new account sales are up by 41%. That's 314 to 443, and our conversion rate has increased by 46% from the 6.5% conversion to 9.5%. Time to purchase has significantly dropped from lead to sale has gone from 59 to 24 days and from account to sale has gone from 40 to 24 days. Time between first and second sale on Caster has dropped from 115 to 39 days. On our partnership channels, we have outperformed with our largest partner delivering exceptional low-cost new accounts and customers with high LTV. Other partners have provided leads that significantly boosted our site referral traffic. Future looking, we will continue to expand our social media presence, evaluate our e-mail marketing campaigns, drip flows, and improve lead flow, and we'll focus on supporting our larger customer retention and improve our revenue per purchase. Moving on to our key sales achievements for 2025. Our total revenue was up 2.3%. We saw strong growth from our largest enterprise customer, which lifted total revenue of majors. Independents have softened due to volume discounts, as previously mentioned, economic factors, and a lower per-customer spend. Customer acquisition and platform growth, we saw growth in new customers in 2025. Our MTR platform is accelerating and structural corrections are in place to support a stronger 2026. Increased customer engagement. Our primary focus has been and will be to continue deepening engagement with our major labels through increased personal interaction and relationship building as well as attendance at key networking events in Canada and the U.S. Strengthening our value proposition, we've developed new sales tools and executed a full communications push around our Caster enhancements, focused on increasing reporting and analytics to strengthen our value proposition. Forward thinking will be focused on the player recipient relationship to build traction in underrepresented genres as well as our core formats, Triple A, Americana, Country, Non-Comm, and Christian. We're actively looking at complementary music technologies to explore strategic partnerships and potential expansion into adjacent service offerings. That concludes our sales and marketing summary, and I'll pass it over to you, Michelle, to open up for questions. Unknown Executive: [Operator Instructions] Our first question today is from [ Andy Sudiak ]. Can you advise the plan to increase shareholder value and if there is a plan to return value to investors in some capacity? Frederick Vandenberg: Thanks, Andy. The Board is considering alternatives on how much to invest for growth. Essentially, the issue before us is do we pursue a value approach even though we're small, or do we continue to invest into product development for growth and diversification. We've already achieved some cost reductions that we've talked about during the call. And I've made some recommendations to the Board. I'm just gathering some more information for them for their consideration. As far as returning that capital to the shareholders, there are a couple of different ways to do that, and we're going to pursue the most efficient, whether tax efficient or efficient for our shareholders, as possible. Unknown Executive: We have another question from [ Andy ]. What percentage of the market does Play MPE feel they currently have? Frederick Vandenberg: That's a little bit of a challenge to figure out. I think it's probably still between 5% and 10%. We are targeting growth. And I think with the recently launched Caster and Caster+, we can more easily integrate with the partners that we spoke about, essentially that can act as resellers. We're really regarded as the market leader when it comes to radio. That reputation hurts us and helps us. It helps us essentially in the industry, but maybe it hurts us in the sense that we're perceived as being more than a niche than we really are. But that's -- I think we can still grow quite a bit. We've made some improvements with the sales and marketing team, and we can grow from there, sell what we have. Unknown Executive: Our next question is from Thomas. Unknown Analyst: First of all, I just want to say thanks for bringing in Jennifer and Assel. I think it's bringing more color and it's pretty appreciated. The first question is on the litigation cost. I'm not sure how much you can disclose or tell, but should we assume that total cost of last couple of years could be recouped? Is that how it works normally? Or... p id="35782327" name="Frederick Vandenberg" type="E" /> It's a little bit complicated. Essentially, the way it works is you get an award of cost. And if it's your lowest award, you get probably 25% of your cost back. I don't think that -- there's a number of things that go into it, but essentially, that would be our worst-case scenario. And I think that we're very much likely not to be in there. There are double costs in certain circumstances, which brings us up to 50%, and then there's special costs. Essentially, those kick in at certain times based on certain events. It gets kind of complicated, but we expect a reasonably healthy award. Unknown Analyst: And is it -- without being too specific, is it like a onetime payment? Or do you guys have to agree with the payer on a schedule? Or is it a onetime payment or...? Frederick Vandenberg: Well, I do know it's not quite as easy as that. First is you define what the award is based on a schedule. So we have yet to do that. Then we set a schedule with the claimant. Unknown Analyst: And do we have a sense of the timing approximately? Or is it a couple of months, a couple of years, or I don't know? Frederick Vandenberg: I don't know. I can't answer that question. Unknown Analyst: I think it was last call, you've talked about having a consultant reviewing the business holistically. Did he present his findings or whatever or...? Frederick Vandenberg: Yes, he presented his findings. There was not anything revelatory in the report, I would say. So it really just highlights that we're taking, I think, the right approach to our growth strategy. And we're pretty strong in our position in the market, and we can grow from there. Unknown Analyst: And now that self-serve is available, is the goal to also run ads locally at multiple places in the plan? Or what's the strategy behind figuring out which market to kind of...? Frederick Vandenberg: Yes. Essentially, that's right. We have different markets where self-serve checkout can be used. We're very strong in that market, but they're generally small, so it doesn't -- it's kind of difficult for us to scale in those markets when we are using our staff. So that's one area where we would be using self-serve checkout. It's probably worth me reiterating what I said earlier about the billing of it. The billing of self-serve checkout, which we call Caster now, helps us in that what you just asked me about, the selling within a local territory and people can help themselves and come in, sign up, check out, and purchase from that way. And we can do that very efficiently and profitably now. It also helps us provide trial accounts. So we can provide trial accounts to larger strategic customers, and we're doing that as we speak. And we can do that now because essentially we restrict the trial use to a particular area. Before we couldn't do that. And then also, there's really savings in terms of our own staffing in client processing that is maybe hidden from the top line. It reduces our burden -- overhead burden. Unknown Analyst: Not sure if there are other people in line, but I have a couple more. Why did the currency -- not the currency but the denomination of revenue was mostly U.S. Wasn't it half and half almost with euro before? What changed there? Frederick Vandenberg: That's our largest customer moving from euro to... Unknown Analyst: Okay So there's nothing other than that [indiscernible]. And one more question. I'm just trying to figure out. Should we expect any more hires in the coming months or...? Frederick Vandenberg: No, I don't -- I think we're staffed up sufficiently. Unknown Analyst: And just to voice back on the first question from Andy, I guess I would like, as a shareholder, to see buybacks. I think with the current share price, I think there could be meaningful value created with not much dollars. Yes. I mean, it's just my opinion. Frederick Vandenberg: Noted. Yes. It's a good strategy for that, for sure, yes. Unknown Analyst: I mean, yes, I guess you could retire another what, 5% on -- I mean, there's not much stuff in the market. Frederick Vandenberg: Yes. With the TSX trading, that's the rate-limiting step on our buyback at 5%. But yes, we can do that. Unknown Analyst: Is there additional cost to do a substantial issuer bid or at least try or I don't know even if there's just admin costs related to those or...? Frederick Vandenberg: I don't believe so. But I still think we're limited potentially by the TSX. But I will -- that is one thing I will look into. Unknown Analyst: Yes. I mean, I guess another point as a shareholder, I would like to see is seeing more insider purchases on the market, at least from the Board. I think it hasn't been -- it's been a while since I've seen some. I know a couple of them are probably maxed out, but a couple of them I haven't seen probably any buys. I mean just me voicing an opinion. Frederick Vandenberg: Well, you did see me buy. Unknown Analyst: Yes, I've seen yours. Frederick Vandenberg: I bought in... Unknown Analyst: August. Frederick Vandenberg: Yes, in August, you saw that, okay. That was not in the ESPP. So I mean, I know it's -- anyway. Yes. Okay. Unknown Analyst: I mean, you don't have to answer anything. I was just voicing something I think a couple of people probably would like to see as well. And I know I've mentioned it last time, but I still haven't seen the replays from Q2 and Q3 on the website. I mean this time, I just took screenshot, but I'd kind of like to see the slides, but to circle back, but I mean, just if you ever have time. Frederick Vandenberg: Yes, I'll check on that. Unknown Executive: Thank you. That concludes all the questions for today. Thank you very much, everyone. Frederick Vandenberg: Thanks, everyone.
Operator: Good day, and thank you for standing by. Welcome to the Symbotic Fourth Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Charlie Anderson. Please go ahead. Charlie Anderson: Hello. Welcome to Symbotic's fourth quarter and Fiscal Year 2025 financial results webcast. I'm Charlie Anderson, Symbotic's Vice President of Investor Relations. Some of the statements that we make today regarding our business operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions, that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our Form 10 including the risk factors. We undertake no obligation to update any forward-looking statements. In addition, during this call, we will present both GAAP and non-GAAP financial measures. Reconciliation of GAAP to non-GAAP financial measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at ir.symbolic.com. On today's call, we're joined by Rick Cohen, Symbotic's Founder, Chairman, and Chief Executive Officer and Izzy Bartons, Symbotic's Chief Financial Officer. These executives will discuss our fourth quarter and fiscal year 2025 results and their outlook, followed by Q and A. With that, I'll turn it over to Rick to begin. Rick? Rick Cohen: Thank you, Charlie. Good afternoon, and thank you for joining us to review our most recent results. We made strong progress in fiscal year 2025, finished the year with good momentum. For the full year, we increased revenue by 26% year over year while delivering significant margin expansion and free cash flow generation. The cash on our balance sheet now exceeds $1.2 billion. During the fiscal year, we also expanded and upgraded our product portfolio. We added micro fulfillment, as a new category to address e-commerce, and upgraded our storage structure to a proprietary next-generation design that offers leading density and rapid installation. When we marry up our innovative bot technology, that can handle goods of many sizes, this new highly dense storage structure and our proprietary software we believe we can unlock more opportunities than ever before. This includes everything from smaller buildings to e-commerce facilities to perishable facilities where square footage is at a premium. We are seeing this play out with a growing sales pipeline as our solutions deliver space savings and installation efficiencies that result in higher value. Customers are already taking advantage of this breakthrough in installation efficiency. Notably, our largest customers opted to utilize our next-gen storage to combine what previously took two separate deployments or phases into one single phase for new sites. That means a phase one system deployment when we enter a distribution center for the first time we'll be able to do twice as much work versus when we began deployments for this previously. And the overall time to install and achieve acceptance for the same amount of case output in this example will be cut by more than half. Generating significant savings, reducing disruption, and generating a larger and faster return on investment for customers. Customers are also taking advantage of the modular build qualities of our next-gen storage with a handful of deployments that began in the fiscal fourth quarter connecting next-gen storage to prior-gen storage at the same site. And GreenBox is moving forward with next-gen storage signing up to utilize it at new sites near Dallas and Chicago, both of which were signed in the fiscal fourth quarter. Notably with these sites, Green Box coverage will extend from California to the Midwest to the Southeast. We also finished the fiscal year by signing a new customer, Medline, the largest provider of medical surgical products and supply chain solutions serving all points of care. This marks our first customer in the healthcare vertical, where we believe the case for automation is very strong given the importance of accuracy, speed, and cost. This is also one of the largest potential new verticals available to us. It is worth noting that there are over 500 healthcare distribution centers in The US alone, with a combined 76 million square feet of warehouse space according to the Health, Industry, Distributors Association. With our scale rapidly improving project execution and growing set of capabilities across the supply chain, we are in a better place than ever to bring our new customers covering multiple verticals, geographies, and use cases. Our focus in this has never been greater. In summary, delivered on the commitment we made at the start of the year to achieve strong top-line growth and a significant rise in operational systems, thanks to improvements in our deployment process. This also enabled us to deliver strong margin expansion. Looking ahead, our key objectives for fiscal year 2026 are number one, harness our growing product portfolio and capabilities to broaden our opportunities with customers, particularly in e-commerce with our micro fulfillment solution. Two, unlock higher margins by driving additional value for our along with operational improvements. Three, continue to invest in our innovation engine to expand our capabilities and support future growth. I just want to end by thanking our team for their efforts along with our customers and investors for their support. I'll now turn it over to Izzy, who will discuss our financial results and outlook. Izzy? Izilda Martins: Thanks, Rick. Fiscal fourth quarter revenue grew 10% year over year to $618 million exceeding our expectations. Year over year revenue growth in the quarter was driven by the expansion of the number of systems in operation. Fueling higher recurring revenue along with continued progress on our paid development program. Due to higher stock-based compensation our commitment to attracting and retaining top talent, and restructuring expenses primarily associated with acquisition integration activities, our net loss for the fiscal fourth quarter was $19 million versus net income of $16 million in 2024. Adjusted EBITDA in the fiscal fourth quarter of $49 million was at the high end of our forecast due to revenue and gross margin upside. And up from $42 million in 2024. Our backlog of $22.5 billion remained in a strong position. The increase from $22.4 billion last quarter was due to final pricing on projects started and the addition of backlog associated with Medline offsetting revenue recognized in the quarter. In our fiscal fourth quarter, we began 10 new system deployments. As Rick highlighted, this included two deployments for GreenBox and one for Medline. We also had six systems go operational in the quarter. Bringing our total to 48 operational systems or nearly double the level at the end of fiscal year 2024. Importantly, for the systems that went operational for our largest customer in the fiscal fourth quarter, we observed nearly three months of improvement in the time between start of installation and customer acceptance compared with our historical average with this same customer. This period of deployment is the portion that is most within our control. And it is also when we recognize the highest level of revenue and profit. With the continued growth in operational systems, we saw our software revenue grow 57% year over year to $9.3 million in the fiscal fourth quarter. And operations services revenue grew 21% year over year to $26.9 million. Turning to margins in the fiscal fourth quarter. System gross margin continued its trend at significant year over year improvement, driven by disciplined cost management solid project execution and strong supply chain partnerships as we roll out our next-gen structure and deliver increasing value to our customers. We expect to see additional expansion in systems gross margin. Software maintenance and support also saw a substantial year over year gross margin gains, benefiting from continued scale and exceeding 70% for the full year. In operation services, we posted a loss as we increased investment in additional resources to support certain sites and ensure their long-term success. Operating expenses on a GAAP basis in the fiscal fourth quarter were $149 million. Adjusted operating expenses in the quarter were $87 million up sequentially primarily due to strategic R and D investments in supporting our expanding product portfolio and cloud-based software tools. These investments are in areas where we see the greatest potential to increase value and long-term impact. We finished the quarter with cash and cash equivalents of $1.2 billion up from $778 million in the fiscal third quarter due to the timing of cash receipts tied to project milestones and the signing of new projects. Now turning to the forecast. As I've settled into the CFO role, I want to share some context for how I think about guidance. We will continue to guide one quarter ahead, with a focus on transparency and consistency. My approach will be to set a guidance range reflecting where we expect to land, based on our best view of the deployment schedules and a balanced assessment of both risks and opportunities. With that in mind, for 2026, we expect revenue between $610 million to $630 million representing year over year growth between 25-29%. Adjusted EBITDA between $49 million and $53 million. I want to reiterate what we highlighted during last quarter's earnings call. That is the introduction of our proprietary next-gen storage structure has resulted in a realignment of deployment. While this has no impact on our $22.5 billion of backlog, it does have an impact on how our revenue is phased throughout the fiscal year. With the quarters in 2026, showing less pronounced sequential growth. We believe this new technology advancement combined with the unique capability of our proprietary bots and software, is resonating with customers as they recognize our competitive differentiation and the significant value our solution creates. It also unlocks new opportunities across the supply chain as well as the opportunity for more efficient deployment which we expect will contribute to higher margins over time for Symbotic. With that, we now welcome your questions. Operator? Please begin the Q and A. Operator: Thank you. Question, please press 11 on your telephone. You'll hear an automated message advising your hand is raised. We also ask that you limit yourself to one question and one follow-up. As well, please wait for your name and company to be announced before proceeding with your question. One moment while we compile the Q and A roster. Our first question today will be coming from the line of Nicole DeBlase of Deutsche Bank. Your line is open. Nicole DeBlase: Yes. Thanks, guys. Good afternoon. Maybe just starting with Medline, is it possible for you to provide a bit more color on the relationship, what they've committed to? And then, you know, it seems like healthcare could be a pretty big opportunity with respect to new customers. Anything on how aggressively the sales force is pursuing that right now? Rick Cohen: You broke up a little bit, but the Medline relationship is something that we worked on for about a year, maybe a little bit longer. And it was a combination of understanding what they wanted to accomplish with the hospitals and the critical care units that they deliver with. And then for them to understand how the ability of our system to handle lots and lots of items, and also the incredible accuracy with which we ship product. And then thirdly, the ability we have to sequence products because oftentimes to hospitals you're delivering to a specific section to a specific floor. And so we work with them to give them a good understanding of the unique capabilities of our system. And so, that's why we won the award, and there are lots of warehouses, great customer, so we're very excited about that. In terms of future growth, we've added about five or six new salespeople in the past six months. And so we're much more in the aggressive marketing role than we were before. Probably a year ago, we were still wanting to make sure everything was working in testing out. And as I tell the organization, you can't scale chaos. But over the last year, as we began to hit all our timelines for bills, and price points for execution, and the quality of the way we measure it and some of our internal measures has more than improved by almost 300%. So we're feeling very bullish about being able to handle a much broader base of customers and to deploy systems that'll work on day one. Nicole DeBlase: Thanks, Rick. That's really helpful. And you kind of alluded to this, Izzy, when you were talking about like the cadence of 2026. But is the expectation that you guys start to really ramp next-gen systems still kind of around the middle of the year? I think that's what we shared on the last earnings call. And does that mean we're going to have kind of stable revenue through the first half and then the next step up kind of comes in 2026? Thank you. Izilda Martins: Nicole, that's exactly the way we're thinking of it. As you know, we unveiled it last quarter. So we had some signings then. Then this quarter's signings are all about the NextGen system. So what that does is exactly what you said. You'll have to call it see a less pronounced increase in revenue in call it, the fourth, the first, and the second, and then you'll see more of an increase towards the tail end. So, Nicole, I would say you got that right. Thank you. Nicole DeBlase: Perfect. Thanks. I'll pass it on. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Joe Giordano of TD Cowen. Your line is open. Joe Giordano: Hey. Thanks, guys. On Medline, can you talk about, like, what's contemplated there? Like, how many sites are we talking about? What, like, what types of technology is this encompassing? You know, is there break pack in this? Is there room for the micro fulfillment strategy in there as well? Like, what's what was, like, you know, effectively added to the backlog from them right now? Rick Cohen: Yeah. So, Joe, it's one site. It's a proof of concept. It is the way we look at it. Obviously, if we do a good job, they have a lot of warehouses. And initially, we contemplated a pretty straightforward moving case system, but we also think we can upsell or extend to sell to these customers micro fulfillment which could either be in a receiving room in a hospital for them or very specific selection for them in a warehouse. And then, break pack is also an opportunity for us to sell. So, basically, we could sell them three different products. But right now, we are starting out with the first original product. Joe Giordano: And then do we need to, like, just wanna make sure I understand this. The comments about Walmart where, like, the two phases being incorporated into one now. We need to, like, change the way we describe these things? I guess, like, I just wanna make sure the understand the definition. So if you say, like, 10 new systems were started, can some of those new systems effectively be, like, two that you would have said last time? And then we have to talk in dollar terms instead of number of sites now? Rick Cohen: I'll turn that over to Izzy because I'll get in trouble. Izilda Martins: I think the way you said it, you have it right in the sense of, you know, not all every system is created equal. But going forward, the size of the system is gonna be slightly larger. That's how I would think about it. They could be slightly larger, or we also have the ability to do some smaller systems. In terms of smaller space in a warehouse. So it gives us a lot of flexibility. But Izzy was saying is absolutely right, is that in the same amount of space, that we were going to install an operation some of our bigger sites, they can actually take down more of the warehouse because we can do more work in the same space. As we did before. Joe Giordano: Yeah. I see. Okay. Thanks, guys. Operator: Thank you. One moment. While we prepare for the next question. And our next question is coming from the line of Andrew Kaplowitz of Citigroup. Your line is open. Close enough. How are you good? How are you guys doing? Andrew Kaplowitz: So systems gross margin was, I think, a high watermark close to 22%, that's despite all the changes you're making to your systems. I think you had spoken about more flattish gross margin for Q4. So is Q4 a function of ASR mix maybe a little being a little higher? Is it safe to say you're on a better glide path? Given improved operating leverage, better execution? Any more color on whether you think your system gross margin continues to sort of just kind of go up from here? Izilda Martins: Yeah. So let me tackle what you said in the beginning of your question. It's how I think about, call it, ASR in the quarter. It's really, call it, mid to high digits in terms of a percentage of total revenue in the fourth quarter. I kind of would expect that to be about the same as we progress. I think the bigger part of your question is how you think about, okay, do you unpack the margins? And I would say, we feel really, really bullish about our system margins, not only where they are, but where we're headed. So I think if you see the last several quarters, have kind of a little bit of a lumpiness. But I think it's about the exit trend. Where we landed in the fourth. And I would say even though we don't guide to margins, would expect that to be a slight uptick in the first. I think it's more about when you think about how we're recognizing revenue in, call it, that twelve to eighteen month period given when we roll out the next generation storage system. That we expect those margins to really to be expanding. In the coming quarters. That's really what's the key part. And like I said, would reiterate, if there's one thing I would walk away from today, it's the fact that we are very bullish about where our margins not only where they are, but where they're going. Andrew Kaplowitz: It's helpful, Izzy. And then Rick, backlog, as you know, has been somewhat flash for Symbotic. I know your burn rates are going up. But do you think you could grow Symbotic's backlog in FY 2026? And or we know you're ramping on GreenBox, ASR. Can you give us an update on whether FY 2026 is a big year for Symbotic new customers, GreenBox? Can you start booking backlog for ASR? Like any thoughts around all that? Izilda Martins: Yeah. So you're trying to trap me a little bit. So we don't guide some backlog. But here's how I would say. Right? Given the guide we gave for the first quarter, I would expect our backlog in the first quarter to really be no different than where we are. You do have in the 10 ks, call it what our banding is, but what's coming through in the next you know, twelve months. So I would say too soon to tell of where backlog will be. It's not something but with we talk to in coming quarters. I think you have to take two takeaways. As Rick said, we built up our sales team. We constantly obviously have more opportunities. So we will continue to do that. I think it's also important to think about that backlog for us is strictly what you do from a gap perspective, not what we think could happen given that most customers will do one system at a time. And then last but not least, what I'll leave you with, maybe not in the next twelve months, but soon thereafter to some extent, is to think about we still have more than $5 billion of backlog to unlock. With the mini micro fulfillment systems. So I'm not troubled about backlog at all. I think that's more about our long-term strategy. But I would say that 2026 is a solid backlog. Andrew Kaplowitz: Appreciate the color, Izzy. Operator: Thank you. One moment for the next question. Our next question will be coming from the line of Mark Delaney of Goldman Sachs. Your line is open. Mark Delaney: Yes, good afternoon. Thank you very much for taking the questions. First one was on GreenBox. And now that you have a CEO of GreenBox, also given the new store structure that you've had and some of the progress you spoke to around building out sites there. I was hoping you could speak a bit more on the progress at GreenBox in terms of finding new customers who use the GreenBox sites? Rick Cohen: Yeah. So our first site that will come live will be Atlanta. I mean, some of these sites are still under construction. Some of it will be a year away, some maybe be a little longer. But Atlanta will come alive. A lot of interest in Atlanta. No customers to announce yet. But we expect hopefully by the in the next ninety days, next one hundred and eighty days, we'll have some announcements as to who our first will be. We continue to get interest. And now that we actually have facilities we are in discussions with customers about how much space they want and when, but nothing to announce yet. Mark Delaney: Okay. Anything in particular, Rick, you think new customers would wanna see in order to, get across the line? Rick Cohen: No. I think I mean, I think what's happened is what we're seeing is on the real estate space, there was a downturn after COVID. And then some of the big guys have gobbled up a bunch of space. So there's a shortage of space right now. So we're very well positioned. And so we're talking to people about some would be different. Some might be versions of GreenBox, some might be just JED storage, very proactive warehouse handling services. And then we're starting to talk to a few new customers about just being a whole active 3PL. So we're in a pretty good spot because we're ahead of the market and so we're talking to different customers about different things right now. Mark Delaney: That's helpful. And just one more for me if I could please on GreenBox. Your partner SoftBank has said they're looking to raise capital more generally in order to fund some of the investments they'd like to do. So as you think about what that may or may not mean for GreenBox, any implications you can share in terms of how GreenBox is looking to have the funding and what that might mean for the pace of deployment at GreenBox? Thank you. Rick Cohen: Yeah. So, I mean, our agreement with SoftBank is ironclad. They're there to provide the funding. We don't have any worries about providing the funding there. And we have a lot of cash to do our part of it as well. So funding will not be a problem with GreenBox. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Colin Rusch of Oppenheimer. Your line is open. Colin Rusch: Thanks so much, guys. You know, as you get into these customer conversations in a bit more detail, can you talk a little bit about the potential for adjustments to bot design or even system design more broadly? How we might think about the cadence of that evolution? Rick Cohen: Yeah, so that's a great question. What's happening is that the customers are coming in now, I'll answer your question in two ways. So what's happening is that the market is appreciating the fact that we're not selling the same system that we were ten years ago. And a lot of our competitors have not innovated. They're just scaling. So our bots for instance, we introduced to our customers what we call a stretch bot. So we can now handle the 36-inch case. We might even be able to handle two eighteen-inch cases. So the bots have more flexibility. We've introduced vision and LiDAR on some of our bots. So, we have collision avoidance. So customers are coming in and they've and even some of the ones that we talked to five years ago, who weren't ready to make a decision, they come in now and they say, my goodness. The pace of change with which you guys are doing things. So I think we're really differentiating us from the rest of the world. One of the things that we have done a lot of is we've moved to cloud-based. We're investing in AI resources, the database. So we can do sorting and slicing and pallet building, and for instance, truck routing. I think may be better than anybody in the world at this point. So I should avoid superlatives, but our customers say, nobody can do what you guys are doing. So it's not just building very aisle-friendly pallets, it's building super friendly aisle pallets, but we can actually route the whole truck because of the reliability of our bots, which made huge progress in the last two years in terms of we pick very, very, very, very high percentage what we say we're going to pick, and we never make a mistake picking. So for hospital supply, that's absolutely critical. But for other people, like we'll start to go live with our Southern Glacier site pretty soon in and it's liquor, and so it's both bars and restaurants, and so the ability to route trucks is really critical for them. They're telling us other people can't do it. So we continue to make improvements both in software. Our bots are getting much more technologically both intelligent but also better vision tools, collision avoidance, better routing, and we're also innovating on our pallet building and depalletizing to get product into the system. So it's been I mean, reason I do what I do is I love the innovation and I love the fact that we have a team that can do innovation very quickly. That's creating a big noticeable distinction between us and the rest of the market right now. Colin Rusch: That's incredibly helpful on our side. And then just from the human capital, you know, and the competition for talent, you know, we're hearing about a variety of different dynamics on that. Can you talk a little bit about your ability to attract folks and retain them as this market really heats up? In terms of, know, both physical AIs as well as some of the software that you're talking about? Izilda Martins: Yeah. So the reason we went public is because we had to create a compensation system that would allow us to attract people that were used to being compensated in stock. And so we're not doing billion-dollar packages out in Palo Alto, but we're doing pretty good in the Boston market. And in the East. We also have opened an office on the West Coast. We also opened an office in Vietnam because one Omni Labs, was one of the healthcare small healthcare start-ups that we bought, has a lot of Vietnamese people that founded that company and so we've opened an office in Vietnam where there's huge talent. So we're getting more than our fair share of talent and at a faster rate. One of the things that's been interesting is as the EV space falls down some, we are getting people from the EV world that are just disillusioned with some of the things that are happening there. And basically, bot, the way we're approaching it is an electronic vehicle with LiDAR and collision avoidance. It's not passenger carrying, but we do some very complicated things. And so we're able to attract people because they like the problems. We're solving. And our comp is as good as anybody needs to be. We're not gonna compete with ChatGBT, but there's plenty of people that aren't gonna work for them either. Colin Rusch: Excellent. Thanks so much, guys. Operator: Yep. Thank you. One moment for the next question. And our next question be coming from the line of Guy Hardwick of Barclays Capital. Your line is open. Guy Hardwick: Hi. Good evening. It looks like the based on the change in the RPO that there was very strong bookings in the quarter that $600-$700 million Izzy, could you just mix split that out between the Medline, new win, and pricing? Izilda Martins: Just so we, you know, just make it clear, Medline was something we signed in the tail end of the quarter. So Medline is not going to influence really our results in the fourth quarter. Really, Medline's about no different than how we spoken to we recognize our revenue over almost really a two-year period. So I wouldn't put a lot of, call it, pre ins to numbers or how we achieved our fourth quarter numbers with the announcement of a new vertical. I think the fourth quarter is about the momentum that we've created for over months on end on installations and moving, call it, six more sites to operational. That's really what drove it, plus the fact that, yes, we did sign 10 more new appointments. But overall, I would characterize the success of the fourth quarter based on the momentum that we've been working on for months on it. Guy Hardwick: So Medline was not in the RPO. The $22.5 billion RPO at the end of the quarter. Izilda Martins: Yes. It is in the RPO, but it's not any has no significant to the revenue generated in the court. Guy Hardwick: Okay. That so I'm just my question was more, was it material to that increase in the RPO? Because given you would imply that your bookings were at $700 million given the burn in the quarter plus the change in the backlog. So that's a very significant increase compared to, say, previous quarters. So the question is really the mix of that, how much of it was Medline versus increase in pricing. Izilda Martins: Yeah. I would say it's more about the increase in pricing or call it how you consider, you know, we did years ago and how inflation has moved. So that's really the main driver. In the RPO change. But yes, Medline is in there. Guy Hardwick: And just in the 10 ks which you referenced, Izzy, it looks like the 12% of the backlog will be delivered over the next twelve months. That's quite a big increase in the figure back twelve months ago in the 2024 ten ks, you said 10%. It looks like you actually missed that 10%. You came in more at 9%, particularly if you include the ASR R and D revenue. So given what you said also about being a back-end loaded year, 12% of that backlog seems quite a big significant step up on the previous delivery, which you effectively kind of missed slightly. So what reasons should we give us confidence that you can deliver 12% of the backlog in the next twelve months? Izilda Martins: I think it's all about what we said in our prepared remarks. Given that we're seeing call it, improvements from that start of installation to the end line. That's what gives us the, call it, the momentum that we're talking about. Yes, we do have ASR that we built in. During the year, so you're absolutely correct. But I think we need laser-focused on the exit trends and what the new structure delivers. As you know, not only is it more dense, but more importantly, from an installation perspective is that it has call it, somewhat sub-assemblies. That come in that have that process get done in a much faster pace. So quick call out on the ten to twelve I'm really comfortable with the 12% that we have in this year's band date. Thank you. Operator: Thank you. One moment for the next question. And our next question is coming from the line of Derek Soderberg of Cantor Fitzgerald. Your line is open. Derek Soderberg: Yeah. Thanks for taking my questions. On the recurring software fees, I'm wondering if you can share what new customers are signing up for in terms of an annual software fee on a percentage basis. Can you share that at all? Izilda Martins: Unfortunately, that's not an area that we give any more color. I think it's just in general, how you map, call it, what we move to operational, and when we start triggering that software fee. But I would think if you take the a little bit of the exit trend, that's really what we would be expecting. In the near term. Derek Soderberg: Okay, got it. And then, Rick, you mentioned there's about 76 million square feet of distribution centers in the healthcare vertical. I'm wondering if you've done the math internally how many modules does this equate to, or what's for the dollar opportunity? Just wondering if you can help us size that healthcare vertical in The U. S. Thanks. Rick Cohen: I haven't done that, but you can ask Izzy. This call is over. Derek Soderberg: Sounds good. Rick Cohen: Will do. Operator: Thank you. One moment. And our next question will be coming from the line of Jim Ricchiuti of Needham and Company. Your line is open. Jim Ricchiuti: Thanks. Evening. Think late in the quarter, there was an announcement regarding Symbotic working with a I guess a small battery technology company, I think, in The UK, Niabolta. And I'm trying to understand the significance of this. And, if you could talk to you know, how we might think of potential deployments. Is this gonna be on new projects? Is there a plan to move forward? With, you know, with retrofits as the maintenance schedules dictate? Rick Cohen: Yep. So all our new batteries starting I think, from February on have niobate batteries. So we, for the last fifteen years, have used ultracapacitors. An ultracapacitor can take a million charges, but the charge only lasts about eight minutes. Deniable is actually a battery, but it charges the same way as an UltraCap. And it can take a forty-minute charge. Now that may not seem that much to you at home, but the American grid, especially with all the stuff that's happening with AI, is pretty erratic, especially in hot weather places like Florida, Texas, which also had tornadoes. So the ability to go forty minutes is like a lifetime for us in terms of reliability of the bots. So when there's a power flicker, we want our bots to get back to a home station which is on a charge plate, and in the past, sometimes eight minutes wasn't enough. So this is just one more thing that as we show new customers what doing with battery technology, most people are operating their bots with a third rail. It's kind of an electronic wires in the system. And so you have a when you have a flicker, the whole thing is down. But so the progress we've made on battery technology, and we've taken stake in this company, It's very, very exciting, and we can actually use these batteries for other parts of our system, and sometimes actually to help our customers keep uninterruptible pyro supplies in their warehouses. So it's just one more thing of the MARCHER technology that we had a problem. The American grid is pretty bad. Erratic. And so we're thinking, how do we solve this problem for these automation systems? So I think this is really gonna help us in life sciences and a bunch of other areas. But just in general, our systems are way more reliable than they were even two years ago. Jim Ricchiuti: Thank you. Follow-up question. Just as we think about your fiscal twenty-six goals. I'm wondering how does geographic expansion figure into that? Obviously, you've got a site in Mexico that you're working on. And I'm just wondering if there's an opportunity you think, in fiscal twenty-six to perhaps get into Europe? Rick Cohen: Yeah. As a matter of fact, half our sales team is in Europe today. So it's been interesting with Europe because so many of the great automation companies came from Europe because Europe had either tight smaller land spaces more restrictive labor laws. But as we go to Europe, especially with our smaller, denser warehouses, people are really getting interested. We've been doing this long enough that reliability issues are not a problem. So I'm very optimistic about Europe. We see lots of opportunities. Operator: Thank you. One moment for the next question. And our next question be coming from the line of Ken Newman of KeyBanc Capital Markets. Your line is open. Ken Newman: Hey, thanks. Good evening, guys. For squeezing me in. Izzy, I wanted to go back to your comment about the change in the phasing of the revenue. I know you said you expect less pronounced sequential revenue growth in the first half versus the back half. Just looking historically though, I think in the last three years, Sales have typically been down sequentially, high single to low double digits, four q to one q. The midpoint of the guide is assuming something that's a little bit better than flat. So just wanna make sure we're understanding that growth comment for accelerating growth in the back half versus what already seems like a bit of a stronger start versus typical seasonality? Izilda Martins: That's fair. If you take the high end of the range we just gave for the first quarter, we would sort of break the trend that we've been typically seeing, at least from what I saw the last two years. Clearly, that's our main focus. But if you take, call it, the bottom end of the range I gave you, then that's really just about 1% less than where we landed in the fourth. So it depends. But if you take the midpoint, we're kind of flat. To exactly where we achieved in the fourth quarter. But internally, as you can imagine, we're trying to get past this lumpiness and really be continuing on continual improvement. And so although I guided right in between, guided a slightly under where we are in the fourth. So the guide was 06:10 to 06:30. But if you take that midpoint, that's really where I go about this less pronounced sequential improvement. But the overall goal, to be clear, is not to have that lumpiness in the first quarter going forward. Ken Newman: Okay. No, that's very helpful color. I appreciate that. And then, and secondly, for my follow-up, you know, we are hearing some more comments from hardware-related manufacturers around higher DRAM pricing. And memory shortages. Rick, can you maybe just remind us how memory intensive are the Symbot deployments? And just any comments on what you're seeing broadly from chip availability and pricing as it relates to your ability to keep margins stable. Even though I'm sure you're able to pass through the pricing. Is there a risk of, you know, just nominally margins kinda stepping down? Rick Cohen: No. Not for us. I mean, our bots are mean, basically, what our bots are doing is transmitting data back to us, which we then process in the cloud, and with different various algorithms, are mostly proprietary. So yeah, we're buying more cloud storage, but not significantly like the super big guys are. And it's coming down in price. But we're not doing that directly on the bots. What we're doing is we will take the information that the bots transmit back. That's a controllable expense, though it's going up. And then reprogram the bots for different various edge case behaviors. So like a bottle, see something and say, I don't know what to do. And so it'll transmit back to us. But the bots are being trained, but the bots are not truly independent AI machines. We kinda take that information back do the processing, run the algorithms, and then send it back out a software release. So chips are not really a problem for us. As we get bigger and better. I mean, think this time next year we'll have 20,000 bots. So we're a major factor for some of the medium and smaller-sized companies. And even NVIDIA, there's a certain amount of the lower-priced chips are what we're using. We may upgrade some of those chips, but they're not the $25,000 chips that other people are buying. And we don't use that many of them. Ken Newman: That's super helpful. I appreciate that. Operator: Thank you. One moment for the next question. And our next question will be coming from the line of Mike Latimore of Northland Capital Markets. Your line is open. Mike Latimore: Great. Yeah. I guess I'll just build off that last answer. I guess if you're expecting, you know, 20,000 or so bots in a year, you give us kind of a baseline of where we are now? Rick Cohen: Yeah. I mean, we have about 15,000 bots right now. Mike Latimore: Okay. Rick Cohen: So we expect to keep growing, and there'll be different kinds of bots that we'll use. There'll be different versions. The back of store mini system will use a similar bot. So there'll be different versions of our bots as well. Mike Latimore: Yeah. That makes sense. Then I guess just on the new system starts in the quarter, I think you said there were 10. Were there any break packs in there? And I think last quarter, you had guided to sort of, you know, mid single, upper single digits. And you are you or should we still think about that as kind of the run rate for a while? Izilda Martins: So I you know, there's a mix of the 10 in the 10 deployments we had in the fourth quarter. Yeah. There were a couple of breakbacks. Sorry. And your next question was can you repeat your latter part of your question? Mike Latimore: Sure, sure. Sorry. Yes. Last quarter, I think you had guided I think you had guided to system starts being in the kind of mid to high single-digit range, and then you did 10 this quarter. So I guess any new view on the system start number? Izilda Martins: It's something we don't typically guide to is what our, you know, call it system starts are going to be or which ones are gonna be moving into operational. Think the best way to think of it is although I said historically, I wanna get away from the lumpiness in the red I do think, though, sometimes we do have more of a tail end of those deployments in the fourth quarter. And we have a healthy amount that we have throughout all the quarters of next year. But I think it's less about trying to manage what they are and more about, okay, the size and how much is gonna be coming through in the revenue. So more importantly is the guide of the six ten to six thirty in the top. Mike Latimore: Yeah. Okay. Great. Thank you. Operator: Thank you. One moment for the next question. Our next question will be coming from the line of Greg Palm of Credit tell him, your line is open. Gregory Palm: Yeah. Thanks. I wanna go back to systems gross margin because that was certainly a highlight, and it sounds like you're pretty confident that that can continue to improve. Anyway to maybe, Azi, if you can sort of break out or bucket out some of the positive impacts happening from an improvement in the quarter? And just sort of broadly, what's standpoint relative to maybe the last, you know, twelve or eighteen months? Izilda Martins: Yeah. I mean, I think we keep going back to what the same thing, but I think we've actually seen it over multiple quarters. And really, the way I would think about it is we thought a little bit of, call it, a in our operation services. But yet, overall, we had a terrific gross margin on the bottom line. So if you just if you go through all the map in our earnings release, and I know it's not the easiest thing to track to, you'll come back to that the systems is really where the powerful improvement is. I think if you unpack the quarters, really what it comes down to, last year at this time, we did have some cost creeps. And I think if you walked the halls here in Wilmington, what everybody reminds me of is that we did have that really disciplined cost management for the entire year. And with no cost creep in how the supply chain supply chain team installed the systems, that's really what's driving the overall systems gross margin. And not to mention what it become as we deploy the more denser system. So even before that, I think that's really what's the highlight. Not only in the quarter, in the highlight of what we feel bullish about what the system's margins will be going forward. Gregory Palm: Okay. Yeah. Makes sense. And I guess, Rick, I'm fairly certain that Medline was a pretty large user of another competitor in the warehouse automation space. So I'm curious does this have potential to be a competitive displacement, something that could be expanded know, from this initial site? Like, I know they've already automated a big chunk of their footprint already. So just wanna hear what the actual opportunity with them could be over the years. Rick Cohen: The answer is yes. Our technology does things that other people's technology doesn't do. We also can augment some of the other technologies that we've seen in some of their facilities. But we would do bigger projects. And I think if they like what we're doing and we I don't wanna mislead anybody. We don't have a contract for any more than one. But if they like what we're doing, I think we have a huge opportunity with them. Gregory Palm: Okay. Fair enough. Appreciate the color. Operator: Yeah. Thank you. And our next question will be coming from the line of Keith Housum of Northcoast Research. Your line is open. Keith Housum: Good afternoon. Hey, Rick. I know it's kind of new news here, but, you know, the largest retailer in The U. S. Is scaling back some of their investments with I guess, a smaller competitor of yours. I guess, any thoughts on what was perhaps driving that? And any does that dampen any of the enthusiasm that you see from your customers about the use of this type technology for the fulfillment centers going forward? Rick Cohen: Yeah. No. Actually, it's actually supercharged. The interest in our technology. So what's happening in the e-commerce space and in the supermarket space in particular is the congestion from all the people picking orders in the store the DoorDash and that stuff, Instacart, was a great convenience. But it's really very confusing and messing up the stores. And so what we're talking to people about is how can you put 20,000 or 30,000 items in 10,000 square feet and deliver in a marketplace or a city that could actually use the fresh produce from the store it's e-commerce is evolving. In the way of, you know, the biggest guy in e-commerce delivers 1.2 packages 1.2 items per delivery. But the retailers in the food space are delivering probably 15 or 20 package order. And so it actually allows them to do a lot of things that you can't do when you're just delivering one or 1.2 eaches. The reason I can't speak fully, I mean, have my own view, but I'll express it here, Why that retailer made a change of mind with that technology, I think what you're starting to see and where is that we can actually use the same bot but pick each and pick each's or use a bring a bot can bring an item or a number of items to a pick station, very similar to what we do in our break pack installs, and actually do customer orders, which is initially, this is what we've been trying to explain to people. Three years ago, we did a break back. Where a bot would bring a tote to a person, the person would pick it, and then we basically batch pick it. The same more or less concept can be in the back of a store, except you're picking a customer order. And so the real problem that people are trying to solve with the e-commerce now is speed of delivery. And much more local. So I think our commitment and our largest customer asks us to develop this for them we're really excited. This is a very, very big market. Keith Housum: Great. Thank you. Appreciate it. Operator: Thank you. And that does conclude today's Q and A session. I would now like to turn the call back over to management for closing remarks. Please go ahead. Rick Cohen: Symbotic and Yes. Thank you, everybody, for joining our call tonight. We appreciate your interest in look forward to seeing some of you in the coming weeks at investor conferences that we'll attend. Goodbye. Operator: Thank you all for joining today's conference call. You may all disconnect.
Operator: Hello, everyone. We'll get started shortly. Hello, and welcome to Zoom's Q3 FY26 earnings release webinar. As a reminder, today's webinar is being recorded. It is now my pleasure to introduce Charles Eveslage, Head of Investor Relations. Charles, over to you. Charles Eveslage: Thank you, Megan. Eric S. Yuan: Hello, everyone, and welcome to Zoom's earnings video webinar for 2026. I'm joined today by Zoom's founder and CEO, Eric Yuan, and Zoom's CFO, Michelle Chang. Our earnings release was issued today after the market closed and may be downloaded from the investor relations page at investors.zoom.com. Also, on this page, you'll be able to find a copy of today's prepared remarks, and a slide deck with financial highlights that, along with our earnings release, include a reconciliation of GAAP to non-GAAP financial results. These measures should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. After this call, we will make forward-looking statements including statements regarding our financial outlook for the fourth quarter and full fiscal year 2026, our expectations regarding financial and business trends, impacts from a macroeconomic environment, our market position, stock repurchase program, opportunities, go-to-market initiatives, growth strategy and business aspirations, and product initiatives including future product and future releases and the expected benefits of such initiatives. These statements are only predictions that are based on what we believe today. And actual results may differ materially. These forward-looking statements are subject to risks and other factors that could affect our performance and financial results which we discuss in detail in our filings with the SEC, including our annual report on Form 10-K, and quarterly reports on Form 10-Q. Zoom assumes no obligation to update any forward-looking statements we may make on today's webinar. And with that, let me turn the discussion over to Eric. Who's giving his prepared remarks via Zoom custom avatar. Eric, Eric S. Yuan: Thank you, Charles. We delivered strong results this quarter with broad momentum across products, industries, and customer segments from online to our largest enterprise accounts. This performance reflects the durability of our business driven by the growing value we are delivering for customers as we evolve from a communications leader to an AI-first platform for work and customer experience. Our vision is to be the AI-first work platform for human connection. As we march towards this vision, we are focused on three priorities. Elevating core products with AI, driving growth of new AI products, and scaling AI-first customer experience. Pivoting to our first priority, at Zoomtopia, we unveiled AI Companion 3.0, our next-generation agentic AI that's transforming how work gets done. We're evolving Zoom into an AI-first system of action going beyond summarization to be your agent to proactively prepare for meetings, follow-up on tasks, and drive work forward. AI Companion runs on our federated AI architecture. Which lets customers use Zoom's models alongside their own or trusted third-party models unlike closed systems elsewhere. Spanning meetings, phone, chat, whiteboard, and soon the web Zoom brings intelligent assistance wherever work happens across major platforms. And customers are responding AI companion adoption continued to surge more than four times year over year, underscoring demand for smarter, more seamless ways to work. In tandem with AI companion growth, we saw continued strength across Zoom Workplace, Team chat monthly active users rose 20% year over year. As the canvas for asynchronous work, chat turns meetings into persistent workspaces. And with AI Companion, it provides summaries, composition tools, and easier search capabilities, customers can keep work in context, reduce app sprawl and take action faster. Our employee experience offering continued to shine even as we lapped the strong momentum of our previous Meta partnership, Workvivo logos grew nearly 70% year over year to 1,225 customers spanning mid-market up to the Fortune 10. Last, Zoom Phone surpassed 10,000,000 paid seats early in Q3, marking a major milestone and reinforcing its leadership in unified communications. It continues to perform well with consistent ARR growth in the mid-teens and numerous sizable wins in financial services and healthcare. For example, Rothman Orthopaedics, Platinum Dermatology, and a reputable clinic adopted Zoom Phone for its unified platform, advanced AI capabilities, and healthcare-specific integrations and compliance tools enabling seamless collaboration and better patient care, AI isn't just bolstering our core, it's opening new revenue streams and deeper customer value through customization and automation. Two quarters in, Custom AI Companion is scaling with several Fortune 200 wins and broad interest. Oracle, already a major Zoom workplace and contact center customer, chose to deepen its partnership with us this quarter. As one of the world's leaders in AI and enterprise technology, Oracle adopted Zoom Custom AI Companion to create powerful AI-powered assistants across its global workforce, helping employees turn everyday conversations into actionable insights. We were also delighted to see Salesforce deepen its partnership with Zoom by adding Custom AI Companion. Alongside horizontal momentum, we're extending AI into collaboration adjacent verticals as well. In Q4, we agreed to acquire BrightHire, a leading AI-powered hiring intelligence platform that elevates every stage of the hiring process enhancing one of the most critical business workflows while strengthening our collaboration platform. The same AI innovation powering how teams collaborate also transforming how companies engage their customers and Zoom is at the center. Customer experience is one of our fastest-growing businesses and an important long-term growth vector for Zoom. In Q3, customer experience delivered a phenomenal quarter with ARR continuing to grow in the high double digits. And early in the quarter, we were honored to be included in the 2025 Gartner Magic Quadrant for contact center as a service only three years after launching Zoom Contact Center. Within customer experience, AI has become a clear differentiator, creating additional monetization opportunities. Nine of our top 10 CX deals involve paid AI, such as Zoom Virtual Agent or AI Expert Assist, as enterprises use Zoom to deliver faster, more personalized service. For example, SolarWinds, LegalShield, and Bromcom chose Zoom to replace fragmented legacy systems with one unified AI-first platform. They turned to Zoom for its integrated approach across workplace, phone and contact center, and for the innovation of Virtual Agent 2.0, which helps simplify operations and enable faster, more intelligent customer engagement. We're encouraged by the rapid momentum of our CX portfolio, reflected in external recognition and customer wins, and driven by our AI differentiation and deep workplace integration. This progress advances our platform strategy to deliver a unified solution and expand long-term growth. In summary, we're executing a clear plan. AI-led innovation, platform expansion, and disciplined, durable growth. We're pairing innovation with financial rigor, delivering strong profitability and cash flow while investing for long-term growth. With accelerating adoption and marquee enterprise partnerships, we're turning our AI momentum into measurable value for customers and shareholders. Now let me turn it over to Michelle to take us through the financials. Michelle, Michelle Chang: Thank you, Eric, and hello, everyone. I'm excited to share Zoom's Q3 FY26 financial performance today. In Q3, total revenue grew 4.4% year over year to $1,230,000,000 or 4.2% in constant currency. This result was $15,000,000 above the high end of our guidance. Our enterprise revenue grew 6.1% year over year, representing 60% of our total revenue. Up one point year over year. Our online business continues to show signs of stabilizing, In Q3, average monthly churn was 2.7%. In line with Q3 of last year, and at an all-time low. In our enterprise business, we saw 9% year over year growth in the number of customers contributing more than $100,000 in trailing twelve-month revenue. These customers make up 32% of our total revenue, up one point year over year. Our trailing twelve-month net dollar expansion rate for enterprise customers in Q3 continues to hold steady at 98%. Pivoting to our growth internationally. Our Americas revenue grew 5% year over year, EMEA grew 3%, and APAC grew 4%. Moving to our non-GAAP results. Which excludes stock-based compensation expense and associated payroll taxes, acquisition-related expenses, net gains on strategic investments, net litigation settlements, and all associated tax effects. Non-GAAP gross margin in Q3 was 80% up 117 basis points from Q3 of last year. Primarily due to cost optimization efforts. We remain focused in the near term around balancing investments in AI, with cost efficiencies. Non-GAAP income from operations grew 11% year over year, to $507,000,000. Exceeding the high end of our guidance by $37,000,000. Non-GAAP operating margin in Q3 was 41.2%, up 234 basis points from Q3 of last year. The operating margin improvement was driven by ongoing cost management and timing of spend. Non-GAAP diluted net income per share in Q3 increased to $1.52 on approximately 305,000,000 non-GAAP diluted weighted average shares outstanding. This result was $0.08 above the high end of our guidance, and $0.14 higher than Q3 of last year. The EPS growth reflects strong business performance, effective cost management, as well as anti-dilution, driven by our buyback program, and our disciplined stock compensation management. Turning to the balance sheet. Deferred revenue at the end of Q3 grew 5% year over year, to $1,440,000,000 towards the high end of our previously provided range. In Q4, we expect deferred revenue to be up to 4% to 5% year over year. Looking at both our billed and unbilled contracts, our RPO increased 8% year over year to $4,000,000,000. We expect to recognize 60% of the total RPO as revenue over the next twelve months, down one point year over year. Operating cash flow in Q3 grew 30% year over year to $629,000,000 representing an operating cash flow margin of 51.2%. Free cash flow margin in the quarter grew 34% year over year to $614,000,000. Representing a free cash flow margin of 50%. Up 11 points year over year. The year over year increase in free cash flow margins was driven by improvements in the collection process, as well as stronger billings. We ended the quarter with $7,900,000,000 in cash, cash equivalents and marketable securities excluding restricted cash. Under the pre-existing $2,700,000,000 share buyback plan, in Q3, we purchased 5,100,000 shares for $414,000,000. As of the end of Q3, we repurchased 32,500,000 shares for $2,400,000,000. Turning to guidance. In Q4, expect revenue to be in the range of $1,230,000,000 to $1,235,000,000. This represents approximately 4.1% year over year growth at the midpoint. We expect non-GAAP operating income to be in the range of $477,000,000 to $482,000,000 representing an operating margin of 38.9% at the midpoint. Our outlook for non-GAAP earnings per share is $1.48 to $1.49 based on approximately 305,000,000 shares outstanding. For the full year of FY26, we are excited to raise both our revenue and profitability guidance. Now expect revenue to be in the range of $4,852,000,000 to $4,857,000,000 which at the midpoint represents 4.1% year over year growth. We now expect our non-GAAP operating income to be in the range of $1,955,000,000 to $1,960,000,000 representing an operating margin of 40.3% at the midpoint. In addition, our outlook for non-GAAP earnings per share in FY26 is increasing to $5.95 to $5.97. Based on approximately 308,000,000 shares outstanding. As a reminder, future share repurchases are not reflected in share count and EPS guidance. With the strong free cash flow results in Q3, and increased outlook for operating income in FY26, we now expect free cash flow to be in the range of $1,860,000,000 to $1,880,000,000 for the full year. Which at the midpoint represents approximately 3.4% year over year growth. As indicated in our press release today, we are also excited to announce our board has authorized an incremental $1,000,000,000 share repurchase. This reinforces our board and management team's confidence in Zoom as we continue to leverage our strong cash flow and balance sheet to drive shareholder returns. In closing, we've made progress improving top-line growth, we've sustained best-in-class profitability, and we've reduced dilution. We're executing on our three priorities, with discipline and momentum, and remain committed to building on this success to deliver lasting value for our shareholders. Thank you to our customers, investors, and, of course, the entire Zoom team. For your trust and support. With that, Megan, please queue up the first question. Operator: Thank you, Michelle. We will now begin the Q&A portion of the call. When I read your name, please turn on your video and unmute. As a reminder, in an effort to hear from everyone, please limit yourself to one question. Our first question will come from Tyler Radke with Citi. Tyler Radke: Alright. Hey, everyone. Thanks for taking the question. So really nice to see stabilization and acceleration in the business as well as the margin expansion. Just a multiparter here on growth. So can you if if we look at Q4, you know, the outlook looks looks very strong. How should we be thinking about that as a jumping off point? Into next year? And I ask because I know there were some price increases that you took on on the online business this year. How do you think about pricing, heading into next year? And then Know, big picture, you're you're kinda near that 5% growth mark. Certainly, it should be by Q4. What do you need? What are sort of the stepping stones to get back to a 10% growth over the long run? Thank you. Michelle Chang: Yeah. I can jump in and take that one. First of all, we're not we're not sort of at our plan plan planning process, to the stage of giving FY27 guidance We're gonna go ahead and do that as per the normal kind of Zoom process in February. With that said, maybe to touch on a couple of your questions and with more specifics. Any pricing kind of element we would we always try and give real clarity to investors. If we choose to do that, you would also get that. In the February time zone. Maybe let me just pause a little bit and and share some thoughts about how we think about kinda long term growth. First, with this latest forecast, you know, enterprise will continue to be the predominant growth driver. With this latest round, you'll see that, we do expect online to be a slight increase on the full year. And, really, the elements that investors should have, top of mind as they think about growth path for '27 or even beyond that, are the same elements that we've been talking about, first and foremost, stability stability stabilization, excuse me, churn. And then product diversification, moving up market, and really those three priorities are gonna be also, you know, the the predominant drivers and focus of growth going forward. Thank you. Operator: Our next question is from Michael Funk with Bank of America. Michael Funk: Yes, great, great. Thank you for the question. Maybe a related question asked slightly different way. So looking at the enterprise, net dollar expansion you reported, still still below 100%. Clearly an opportunity to help drive top line growth if that does improve Several competitors though noted they're continuing to see post COVID seat based contraction. So, you know, this can you peel apart the pressure on ND and if you're also seeing post COVID seat based contraction if you are, you expect that to turn and maybe contribute to more positive top line growth? Michelle Chang: First, thanks for the question. But we're pleased, you know, after six quarters to see the net dollar expansion stabilizing. We're not gonna get sort of guide to to inflection, but certainly inflection, is is the goal. What I would say in terms of how to think about it, maybe just a continued reminder for investors, that when we have products like contact center, work Vivo, they tend to bring in new customers to Zoom. Those will obviously take a little while, to play through the dynamic of the metric. But but, overall, you know, in terms of your maybe more question about seat count, that's not something that we've seen be a huge element to our quarter, certainly always customers here and there will have see pressures, but we've seen overall a very strong macro demand. Michael Funk: Great. Thank you, Michelle. Thank you, Eric. Eric S. Yuan: Thank you. Operator: Our next question is from Rishi Jaluria with RBC Capital Markets. Eric S. Yuan: Rishi, are you there? Rishi Nitya Jaluria: There we go. So my apologies on that. Thanks so much for taking my questions. May maybe just one simple one for me. Coming out of Zoomtopia, there was conversation around m and a, and I know you've done some two small tuck ins right now. Is this just how kind of how we should be thinking about m and a for you going forward in terms of it'll be more technological a little tuck in in nature, obviously, accelerating your AI road map. Or or, you know, is there a potential for maybe more transformational m and a? Thanks. Michelle Chang: Yeah. Thanks, Rishi, for the question. You know, really, I would say our our thoughts on m and a are very consistent to kind of what I've said previously. Really no change, just to update investors. But let me go ahead and recap them, just for everybody's knowledge. First of all, is that we're gonna be very thoughtful and disciplined in both acquisitions and integrations. We're gonna make sure that they're strategically aligned with synergies. And, obviously, coming with sound financials. And for Zoom, that typically will mean small to medium sized investments. Think of the bonsai and BrightHire. M and a as as small in nature. If helpful. So we'll be in Okay. Helpful. Thank you so much. All the way up to medium. Rishi Nitya Jaluria: Alright. Thank you. Operator: Our next question comes from Josh Baer with Morgan Stanley. Josh Baer: Excellent. Thank you. Thank you very much for the question. Congrats on the beat and race. I wanted to double click on on growth enterprise growth, from one more angle. Just really double clicking on Zoom phone, ARR, which is growing mid teens, customer experience. High double digit growth, WorkVivo, you have rapid growth there. Could you walk through each of those growth areas just wondering how you think about the sustainability of those growth vectors? Michelle Chang: Yeah. Maybe I can take that one. And maybe I'll use the opportunity as well and judge just to call out to investors. We made a slight tweak to the three priorities that we've been highlighting to Really two themes of what we were trying to get across. One, AI in all of our priorities, and two, really just sharpening kinda the language with which we talked about our priorities. So let me, introduce them or reintroduce them the same as what Eric talked about in his script and give an update to sort of get at your product specific question. The first one is really about elevating, workplace with AI. And and, broadly, what that means is AI over the entire meeting life cycle And and the things that I would think about in terms of growth and progress that we saw in three there, our continued progress against churn. Is the fifth consecutive quarter on enterprise for year over year declines on churn, and then you obviously heard the call out, in online for record low churns. But not just that. It's it's the Zoom phone And increasingly, how much AI comes up in our win rates You see it in the 10,000,000 seats in the mid teen growth. Second big priority for us is to drive new products with AI. Oh, I should mention on the previous one, also integral to that that sort of sets up the second one is getting that AI usage going. And so that's where you know, we continue to see four times year over year MAO increase in our AI. When it comes to new products in AI, we have sort of the horizontal that builds off that AI usage, and you see the big in Salesforce and Oracle. Still early days, but pleased to see that in our second quarter end building up the names we shared last quarter. And, certainly, then there's vertical. Be it our ZRA product or our new, BrightHire acquisition. And then last, to kinda get at your contact center question, or comment, is really to, you know, scale AI first customer experience, whether that's agent assisted or virtual agent. Really, they're what you're seeing, you know, called out by Eric in his script, is strong, high digit, double digit, excuse me, revenue growth. Customer growth in the 60 plus percent, and then also just in the nature of the deals strong AI preference. Nine of the top 10 deals pulling AI. Many pulling both virtual and our agent assisted. So a lot that we're excited about is we we pivot to growth going forward. Update on our product side. Josh Baer: Great. Thank you. Yep. Operator: Next up, we'll hear from Ryan Williams with Wells Fargo. Hey, guys. Good to see you again. Ryan MacWilliams: Really cool to see the AI avatar in the in the prepared remarks. You know? Maybe one day, I'll be asking AI Michelle about growth next year. Just just kidding. We'll find our bots, Ryan, to talk to one another. Ryan MacWilliams: So Yeah. AI Mac, I don't know if you can recreate the Philly accent, but just historically. one for Eric, actually. So Zoom is a really strong product blog And as product development time lines shrink even further with agent coding, think this offers Zoom the opportunity to build more product density into your existing products with new features or expand into new product categories? Eric S. Yuan: Well, Ryan, that is a great question. I think in the in the AI era, I think every you know, businesses Right? And are facing the the the similar challenge and also the great opportunities. So the the innovation speed is is unprecedented. Look at the way engineer write a code. Look at our marketing team, how they lab the AI to automate the process. You know, we we go to leverage AI to reinvent everything. The good news, you know, I have a engineer background. Right? And I think, you know, I have to. You know? And also I also determined. Right? To spend way more time than any time in my career to double down, triple down on the product side. I think there's a huge opportunity. You know? Meaning, we have to change the company culture. And make sure every engineers. Right? The way they write a code is totally different. The way they they troubleshoot. Right, the test also is very different. They need to make sure every engineer even if the writer that tens of a thousand lines of code before, they have to embrace AI now. Back to your question, I truly believe the innovation speed will be much faster. You know, to build a new features and new services. Right? I think that's the opportunity. And we are much better positioned Right? And, again, I'm figuring out a way really, you know, spend more time on that. That's the reason why I can tell you I couldn't be couldn't be more excited now. You know, finally, I think, you know, we are going going back to the early days of Zoom. On the product, live the AI, build it in a in a video services. You know? And you are so right. So Ryan MacWilliams: Appreciate the color. Thanks, Eric. Eric S. Yuan: Thank you. Our next Operator: question comes from Patrick Walravens with Citizens. Patrick Walravens: Oh, great. Thank you. Let me add my congratulations. I love the accent that you picked, Eric. Don't know what it was, but it was fantastic. Patrick Walravens: Can you go into some detail and help us understand exactly how the, Salesforce win works? Like, Eric, if you're if you're sitting there with Benny off, how do you how do you pitch it? Right? And then, it just gives us some details on how it changes the experience. For people at Salesforce. Eric S. Yuan: Yeah. So, you know, Salesforce is a good company. Market is good friend, also was our investor. Right? Pretty sure he'd think about AI every day as well. Look at it at Salesforce event. Right? The June force is very successful, the agent force event. Very successful. Right? So they have agent force framework. You know, they also have a customer. How to integrate our AI company. I I mean, sorry, customer and AI company. Right? To integrate with the agent force, you know, the framework. Essentially, we drive productivity. Right? Because, you know, they're they have a genetic, you know, the the framework by Aviso. Our customer company. You know, together, for sure, that's a no brainer, right, to to integrate it together. You know, given our customer, why not, right, to enable this feature? That's how know, this con conversation started. That's the reason why you know, they they they decided to, you know, move forward with the customer company. More and more customer realized the the potential of not only for Zoom Air company, but also the customer to Air company. I think that's the reason why, you know, in the next month, you know, we are going to know, and announce our Zoom AI company, GA. Right? So a lot of opportunity ahead of us. Salesforce, again, just one example. Eric S. Yuan: Alright. Thank you. Eric S. Yuan: Thank you. Yeah. I will invite you to test our AI combined in. Next month whenever we reach GA. So I'm pretty excited. So our employee really like that too. Operator: Our next question comes from Alex Zukin with Wolfe Research. Alex Zukin: Hey, guys. Thanks for having me on. And Eric, I'd love to test out that virtual avatar when when it's ready for GA. Maybe just a quick one for you and a and a quick one for Michelle. For you, Eric, when you think about AI monetization, that you're seeing in the business and in in the quarter, and in the coming quarters. Maybe talk about that a little bit. And then, Michelle, for deferred revenue was a little bit light of your high end of your guide this quarter. But it seems like it's actually a pretty strong guide for next quarter. Was there anything that that shifted from one quarter to to the next or pushed out or pulled in that that maybe explains that? Eric S. Yuan: Yeah. So, yeah, Alex, by the way, the virtual Harvard feature already is there. Right? This is the third know, times I'm using my AI avatar for our earning call. Right? As it free up a lot of my time. I really love that. So back to your question, to monetize the AI as a mission. Right? You look at the few priorities. Right? You know, elevate the Zoom work with this with AI. A double down on those the AI centric product. You look at our horizontal collaboration suite. In AI combining as a mission. Right? Is look at the usage year over year only four times more. But customer AI combining, we can monetize. Form a sales team. And, also, we are gonna have introduced the new SKU to monetize AI company as well online. And that is on on one hand. On the other hand, we also have a vertical services. Like, know, Zoom contact center, right, and virtual agent, right, Zoom AI assistant. Right? Also the Zoom running accelerator for each of those department applications in the vertical market solutions like Zoom workplace for for educators. Right? And clinicians and also for the front end workers. You know, a lot of AI features already built in. We can monetize. Not automation, Zoom AI combined in suite. At all will be ready next month. I think almost everywhere And we can leverage AI, improve productivity, improve the the the feature At the same time, we also can monetize as well. It's not a a single thing. Right? We or single product we want to monetize. Or it's almost everywhere across the entire product portfolio. You know, back to the the the broader high, the acquisition. The reason why we acquired that company also is Lever dot AI. To improve the the hiring as well. So, essentially, AI is a foundation for us. You know, we can monetize, we can innovate. So Michelle Chang: Yeah. And if if helpful, Alex, maybe just tag on to Eric, and then I'll hit your deferred revenue question. We we produced Zoomtopia as sort of a framework of AI monetization because it does kind of, monetize indirectly and directly in in different ways. You know, happy to share that with investors after. And and to Eric's point, as you go through that framework that we shared with investors, progress on every single trend in the third quarter. To your deferred revenue question, look, we ended upper end of the range, gave a very consistent guidance in Q4, so nothing really to call out. Know, results were sort of as expected on the deferred revenue. Thank you, Alex. Operator: Thanks, Alex. Our next question comes from Timothy Horan with Oppenheimer. Timothy Horan: Patient with other. Michelle Chang: Other apps that are really important to kind of improve on your overall productivity strategy. Or software? Thank you. Michelle Chang: First part of the question, I'm so sorry. Cut out. Can you would you mind repeating them just so Yeah. Sure. Sorry, Michelle. Timothy Horan: An important part of the strategy, I think, is to integrate with other productivity software apps Can you talk about some of the most critical ones and where you are in that process? Michelle Chang: Yeah. Eric S. Yuan: Eric, you wanna take that? Eric S. Yuan: Sure. I think, first of all, you know, we have we are way beyond video conferencing. Right? So we have so many other services we would like to, you know, integrate it. And at the same time, you know, it's you get the the ecosystem. Right? We do integrate with Google ecosystem well. And Microsoft ecosystem well as well. And plus, you know, ServiceNow, Salesforce, Right? We all work on the integration. and Atlassian, you know, all those popular productivity tools. Again, this is the open ecosystem. And, also, we listen to our customer very carefully. And whenever know, they tell us, hey. Then, you know, more integration, we also work on that as as well. So Timothy Horan: And is AI making that easier or or harder at this point? Eric S. Yuan: Easy and harder. Meaning, the reason why easy for sure, for a execution perspective, for sure easier. The harder part, because of AI, every cost they want to tell us, hey. The AI error, can you integrate more? Right? Can you release the, you know you know, timely manner. Right? So the requirement also is different. Right? So from that perspective, a little bit harder. But it really boils down to execution. So I I have a confidence our team can deliver. So Timothy Horan: Thank you. Eric S. Yuan: Thank you. Operator: Our next question is from Seth Gilbert with UBS. Hey, thanks for the question. Seth Gilbert: Free cash flow is a bit above what we in the street were model and free cash flow margin hit 50%. I'm curious if you call out anything additional here. Were there any one time benefits to free cash flow? Thank you. Michelle Chang: Yeah. Thanks. Thanks for it. Obviously, we're pleased you know, with the Q3 results, and as such, it made sense to update the the full year guidance as well. So I'm pleased with the overall progress, frankly, that we made since the beginning of the year. Kind of guidance. That said, to your questions specifically on the onetime you know, look, there there are very durable, results as part of that. You see that, obviously, in our in our core financials. The one thing that we did put in script that I would make sure I emphasize with investors is we made some changes as part of our collections process, really looking at that more end to end as a a new CFO coming in. And as a result, we were able to make real notable progress on DSO. Those are sustainable. Changes to our DSO, but but, obviously, you won't continue to see that marked progress as we go forward, meaning it won't continue to accelerate off that. So you can kind of think about that as durable but one time a bit in nature. Eric S. Yuan: Got it. Thank you. Yeah. Eric S. Yuan: Yes. That's by the way, our CFO, she did a great job. Really drive her team. Right? You know, dramatically improve our, you know you know, collection collection process. This is very sustainable. So Seth Gilbert: We agree. Eric S. Yuan: Yeah. Eric S. Yuan: Thank you. Operator: Next, we'll hear from James Fish with Piper Sandler. James Fish: Hey, guys. Thanks for the question. Maybe, Eric, for you on BrightHire, Is this the start of expanding into other mission critical business workflows? Or or how should we think about I'm not asking about the m and a strategy, but more about that sort of broader platform expansion. And and, Michelle, how should we think at this point about, the duration of the overall installed base? Thanks. Eric S. Yuan: Well, this is a great question. So and my great friend, Kramer, you know, he made a comment recently. Right? And he wishes Zoom would be Zoom would become more than just Zoom. Right? And that's actually that's our strategy over the past few years. You know? You know, double down on Zoom Phone, you know, launched Zoom contact center, and leverage our technology, right, to focus on those business mission critical use cases. Or we are already doing that already over the past few years. Broader high a Broader high acquisition is just you know, another way for us. To double down on business mission critical applications. We cannot build everything by ourselves. Right? Why not? Right? So we do not have a greater remote hiring solution to target you know, HR remote hiring use case. Right? Broadhire fits very well to our strategy. You will see that more and more, we are going to elaborate AI because data AI and focus on those business mission critical use cases. We more than just video conferencing, and this is all the orchestrated or the possible past few years, and we are gonna continue that strategy. So your comment is right, hon. Michelle Chang: And just so I I get to your your question on install base was in regards to BrightHire? Or No. I it was a separate question around the duration that you're seeing because it seems as though you guys are doing pretty well on on sort of cross sell of existing products, and and you're seeing that show up also on the long term RPO driving some growth here on the on the overall RPO. So just trying to understand where the duration of the of the enterprise contracts has gone. Michelle Chang: Yeah. Look. I think, you know, look. Many quarter to quarter, you're gonna see fluctuations. We've had a very consistent RPO trend in the current I'm very pleased with the current quarter RPO that went up. Which really reflects a couple large contact center and AI deals in particular. And so look, I would say it it varies from quarter to quarter, but we're very pleased with the upsell progress that we have relative to our upsell base as well as kind of what I was referencing earlier, which is bringing in new customers. To the Zoom ecosystem. And, you know, in particular to the duration of deals, I would say sort of a stabilized. There's obviously AI and contact center that brings in sort of longer term nature of contracts, but a relatively stable trend within. Operator: Our next question is from Mark Murphy with JPMorgan. Mark Murphy: Hey. This is Artie on for Mark Murphy. Thanks for taking my question and congrats on the strong quarter. We recently spoke with a Zoom partner who is very positive on Zoom's products. Pricing, just overall, value prop. And they kinda called out particular momentum within the mid market legacy migrations, adoption of contact center AI products. From where you sit, are you seeing this relative strength in in the mid market segment as well? Thanks. Michelle Chang: Yeah. I would say to that end, I think, we are. We're seeing strong uptick of AI usage as well as strong uptick of use in our three plus products. And, certainly, this is, I would say, is a sweet spot for Zoom from small business down to low end enterprise and and something that we're pleased with the results that we're seeing. Then I think you can see play out, in many of our financial metrics. Eric S. Yuan: Yeah. By the way, to add on to what Michelle's side the reason why that middle market of a sweet spot is, number one, know, those middle market customers, they really embrace technology fast than any other segment. Right? Two, you know, middle market customers really truly care about employee experience. Right? And really they really wanna deploy the the best solution is a much better, you know, total cost of ownership. That's the reason why that's our sweetest sport. That's the reason why we're winning. Over there. So Thank you, Mark. Mark Murphy: Great. Thanks, Eric and Michelle. Operator: Our next question is from Citi Panigrahi with Mizuho. Hi. Thanks, guys. This is Chad TVB on here for Citi. Just wondering if you could touch on sort of the broader demand environment. I know there were some moving pieces earlier in the year, sort of how that shaped out during the quarter? And expectations for the rest of the year? Michelle Chang: Yeah. So, look, I think, in the quarter, we saw further improvement. I think we see it in metrics like our customers over a 100,000, you know, growing at 9%. Look. That doesn't mean that we're not gonna see some, you know, seat pressure like we talked about earlier, where that's certainly our business model, and we won't be immune. But we saw broad consistent demand across both enterprise and online. And full abatement, if that was your specific question to what we referenced in our Q1 earnings. So with respect to our forecast, it assumes, similar conditions to what we saw. In the third quarter. And maybe to end with sort of where Eric left us in the last quest You know, at Zoom, what what we're gonna focus on is not know, any conditions from one day to the next, given we are in a dynamic environment. But on providing sustainable TCO and business value our customers. So sort of in the line of in uncertain conditions, you control what you can control. And to Eric's point earlier, we have a fantastic TCO story that we're leaning in on. Our customers. Chad TVB: Awesome. Thank you. Eric S. Yuan: Yeah. Operator: Next, we'll hear from Jackson Adair with KeyBanc. Jackson Adair: Great. Guys. Good to see you. Thanks for taking our question. Michelle, on the know, call it the nonrevenue top line metrics. You've talked about billings. You've talked about RPO. I'm just curious, like, you know, as you shift more of your business toward the enterprise, when should we expect you know, those those nonrevenue metrics to start to outgrow maybe your your overall revenue metrics. On the top line? Michelle Chang: I mean, in terms of the nonrevenue metrics, I would point to things like our AI usage. I would point to, you know, product momentum type stats to which they already are outpacing our revenue growth. So I don't know. Jackson, correct me if I'm I'm sort of missing your question, but I think those are the sorts of nonspecific explicit revenue drivers that I look at I would say they're already outpacing. Jackson Adair: Got it. No. No. No. That's helpful. Yeah. Just curious about the dynamics there. Michelle Chang: Thanks, Michelle. Eric S. Yuan: Yeah. Just to quickly add, Jackson. You're right. And that's your right. Right? AI usage really number one. You know, the metrics about looking. You know, looking at that every day. The same time, it's CSAT. It's it's not a metric. It's also look at that. Right? The customers are pretty happy. Know, not only for online customers, online bars, SMB, and all the way to enterprise customers. We also manage CSAT as well. So Jackson Adair: Got it. Thanks, Eric. Eric S. Yuan: Thank you, Jackson. Appreciate it. Jackson Adair: See you guys. Operator: Our next question is from Peter Levine with Evercore. Peter Levine: Great. Thank you for taking my question. Maybe just to follow-up, I think, on Jim Fish's question. If you think about Eric, you mentioned a lot about employee experience on a call. And I look at BrightHire. I mean, is this like the on ramp in into, like, Zoom getting into the HR stack if it's interviewing, onboarding, you know, engagement. Just curious if you can maybe just talk about how you view you know, is this beyond what happened to HR? And then if you think about other segments that you can get into, like, can you maybe just help us understand, like, where else Zoom can go, with the platform expansion? Eric S. Yuan: Well, Peter, this is a great question. So look at our core competency. Look at our technology, right, in the collaboration and the productivity suite under the AI. Is our core technology. And how to apply those technologies. Right? Into the use case? That that's kind of every you know, quarter, every year we we are looking to. Right? Now the reason why you know, few years ago, we introduced the contact center. Essentially, to targeted support, you know, IT help desk those kind of use cases department. We also have Zoom revenue accelerator. Right, to target a sales department. Right? We also have Zoom webinar webinar also target a marketing department. You look at HR. You know, HR is, you know, is is the I would say it's a huge use case. We are not gonna focus on every use case at all, but we're focused on the remote hiring. Right? Because we can leverage our technology. That's a very different use case. Right? For those easy department, you know, how to leverage our product AI and data, right, to improve the use case. That's our focus. Including the vertical segment as well. You know, like, educators, clinicians as well. So, you know, you know, if if we understand our strategy, you know, expanding strategy, you look at which department, which vertical market, might benefit from our technology AI and and data. Right? That's kind of thing we are going to focus So, you know, remote hiring, broad hire for sure, you know, fits very well. To our strategy for expansion. So Peter Levine: Thank you very much. Eric S. Yuan: Thank you, Peter. Operator: Our next question is from Tom Blakey with Cantor Fitzgerald. Tom Blakey: Eric and Michelle, thank you for taking questions. I have for you, Michelle. Eric, you were couple of quick ones. Really just one for you, Eric, and a clarification you know, key in leading the charge in terms of, the higher pricing tiers in CX. It's great to see the success you've had you're having there. So another Zoom heritage is just disrupting markets and terms of technology and pricing and products. You have some peers CX market. in CX talking about maybe possibly disrupting the CX market with regard to consumption based pricing. I would love to hear your comments in terms of some forward looking possible kind of statements there in terms of, how how Zoom could compete in a consumption led And just, Michelle, from a from a clarification perspective, think you made some comment about online growth kind of up thinking Off of fiscal three q, maybe possibly in fiscal four q. You know, and there was a decel in enterprise. Could you maybe clarify what we Possibly could expect in terms of that mix would be helpful in fiscal four q? Thank you. Eric S. Yuan: Yeah. Yeah. Tom, thank you for a good question. But just curious, your background is your background or real? I'm so jealous. It's so beautiful. That is that is as fake as it can be. Eric S. Yuan: Oh my god. I even do not know how it I cannot work so well. I I did not realize that's real how people buy. So, anyway, let your yeah. Thank you. So back to your question. So you you are so right, Remember, I was Zoom accounting center general manager for a while. Right? Very excited about our contact center workforce management and portal management. Right? You know, those product over the past few years. Guess what? And because of AI, know, we have Lever AI introduced a new product, which is a virtual agent. It's a chat based agent or the voice agent. You know? I feel like it has become more and more important. Right? And because we have a boats, You know? We have, you know, the the traditional contact center solution. We have a virtual agent solution. Terms of consumption of of the business model, I think it it it fit fit very well. To our virtual agent. Right? And because, you know, like, customer deploy technology. Right? How often the user virtual agent how many times use a virtual agent. Right? So, you know, we gotta do, you know, based on, you know, how happy a customer they are right, for every call. Right? If a virtual agent can truly help address the customer issues, you know, customer should pay for us. Otherwise, they should not. Because you fall back to the traditional the the the agent distribution. Right? I think from that perspective, what indeed are thinking about, the consumption based model for the virtual agent or AI based agent technology. And, yeah, we're working on that. This is a great question. So Michelle Chang: Thank you. Just to clarify, the the virtual agent, well, our agent assisted product is a per user model. Our ZVA product that Eric is referencing is already a consumptive business model. And, certainly, then I think many in the industry talk about tying it more to outcome based, and then, you know, we obviously are are looking into that. But I just wanna make sure it was clear that we are already consented based on our ZBA product. To my to my comments, to clarify on the online, was just with one more quarter clarity and the full year guidance out there, full year guidance of 4.1% at the midpoint. All I was trying to do in my comments is is say that we've used consistent forecast methodology And previously to the investors, we've been saying sort of flattish online revenue. And, obviously, with with now most the year playing out and the results realized in the online, We're just adjusting that to a tweak of slightly increasing. That's all. Tom Blakey: Super helpful. Thank you, Michelle. Thank you, Eric S. Yuan: Thank you, Dom. Operator: Our next question is from William Power with Baird. Great. Thanks for taking the question. I William Power: Eric. Maybe let's stick with your contact center GM hat for a moment. Can you maybe remind us and maybe update us where we are on contact center go to market? Where are you in terms of the opportunity in terms of channel partner reach? And and and I guess if you extend that the opportunity outside The US, US versus international, and I assume international is still on the on the earlier front. Eric S. Yuan: Yes. So William, by the way, I I was the current energy. I'm I'm not that anymore likely. So you know, if I do that and maybe focus on the virtual agent, You know? But, anyway, so back to your question, I think know, for for you know, look at our you know, the the the customers, right, you know, suited to our platform. You know, last quarter, you know, many of them are switching from other cloud vendors. To Zoom Contact Center. Right? That's The Reason Why Channel And Partners Are Becoming A Most Important Go To Market Strategy For Our Content Center Solution. We Are Doubling Down Not Only For US market, for international market as well. Because the content center is very different buyers, and the channels become increasingly important. We already invested there now and also we're going to invest more. Right? And for the know, in terms of the virtual agent, and not only do we leverage the the our sales team channel partners, we're also thinking about the product led growth. You know, guess what? Some developers, you know you know, for, like, let's say, take a SMB customers. You know, they can leverage our API. You know, deploy those virtual agent and technology by Right? That's why I think about how to monetize center to leverage our product led growth to target developers as well. So Michelle Chang: And if helpful, maybe just to punctuate Eric's comments to your GTM question. In particular. We look at top 10 deals in contact center as sort of a of the demand and the customer signal that we see. If helpful, nine out of 10 of our largest deals were channel driven. So a very important investment to us and one that we're very pleased with the results. William Power: Great. Thank you. Eric S. Yuan: Thank you. Operator: Next, we'll hear from Arjun Bhatia with William Blair. Thank you. This is Alinda on for Arjun. A question here on like, what type of customers are adopting custom AI companions in particular, and what incremental value are they seeing from the custom AI companions versus customers using the free AI companions? Eric S. Yuan: I think we you know, for sure, we wanted to, you know, SMB medium size all the way to enterprise customers adopt customer companion as quickly as possible. But to start off is, we focus on the relatively large enterprise customers for customer AI company. You know, the reason why the demand and other reasons is because, you know, look at our you know, the value of a customer We can integrate with customer sort of part applications, You can have a framework and for the the the data search as well. And a lot of functionality features is beautiful. Those are little bit complicated enterprise use cases. Right? And that's the reason why we start from there. So for sure, we do have you know, we want to introduce the SKU or online buyers as well. To empower the a small and a medium sized business as well. So Alinda: Thank you. Thank you. Operator: Our next question is from Catherine Trebnick with Rosenblatt Securities. Andrew King: Hey there. This is Andrew King on for Catherine Trebnick. Thanks for taking the Just since Nick Tidd has come in and started revamping your channel partners program, can you just give us any more color to how that channel partner platform is performing? Obviously, that nine out of 10 is great metric to hear. So any further color there? And then also within that, you were one of the earliest to to a partner led, part a professional services, organization. Can you just give us a little bit of color as to how that may be helping you win certain deals? Michelle Chang: Yeah. Maybe I can lay down on that one. So first, you know, for for a company that's gonna focus on phone and experience, you know, having a healthy, vibrant channel ecosystem is just part of the game. Meaning, it's how customers opt and wanna buy, They're certainly part of the deployment and services after. And so Zoom offers both a a deep direct as well as, a three channel. It's also to Eric's comments earlier. I think one of the questions earlier, interval to sort of our international expansion where Zoom has, opportunity to go. In terms of how to think about success, I I shared the earlier contact center. But, also, we're just very pleased with a lot of the forward looking metrics that we see with our channel ecosystem. Pipe up 30%, The majority of contact center deals I talked about are coming from partner over 50% of our large phone deals coming from partner. And the types of partners, that are transacting with us is also growing. So all in all, you know, it's been a very big investment. And to my earlier comments, something that we're very pleased with the results. Andrew King: Great. Thank you. Operator: Our final question comes from Peter Weed with Bernstein. Peter Weed: Hey, thank you very much. Know, I guess the Peters on this call are at similar mind. I was really interested in in BrightHire and I was appreciated your response around kind of the vertical specific focus that you have, which makes a lot of sense, and and I can understand why, you're excited about that. Should we think about that opportunity? Like, when you think of it at, you know, relative to your existing customer base, how much of this is a more of an upsell opportunity to them versus expanding the the TAM to to new customers? And when you kind of think about the monetization, how how does this add to your your stack and and really could expand the TAM or or generate revenue upside for the business? Michelle Chang: Yeah. Maybe I can take that one. And give you sort of the finance version because Eric talked about BrightHire earlier. First of all, you know, it starts a lot at those critical conversations. One one thing Zoom is fantastic at is really nailing those critical conversations with our customers. And, look, there couldn't be a more critical conversation for our customers than who and how they hire. It also offers, you know, Zoom the ability as AI monetization plays out across different markets to have a very tangible scenario customers where the value point, is very clear and so certainly represents you know, one of those vertical AI monetization scenarios. It's a large and unpenetrated market at roughly $3,000,000,000. And so, certainly, allows us to help them scale. And also then gives us sort of an upsell piece beyond it. And and they're a category leader in in sort of a large TAM that is growing. So it's something we're very excited about. Peter Weed: Thank you. Operator: Alright. This concludes the Q&A portion of today's call. I'll turn it back over to Eric for closing remarks. Eric S. Yuan: So yeah. Thank you. Thank you, Megan. Thank you for every investor customer, and partner's greatest support and trust We truly appreciate. Thank you for every Zoom employee's hard work and dedication. Wishing you all have a wonderful holiday season. Thank you. Michelle Chang: Thanks, everyone. Operator: This concludes today's earnings call. Thank you all for attending, and have a happy holiday season.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Woodward, Inc. Fourth Quarter and Fiscal Year 2025 Earnings Call. At this time, I would like to inform you that this call is being recorded for rebroadcast and that all participants are in a listen-only mode. Following the presentation, you are invited to participate in a question and answer session. Joining us today from the company are Charles P. Blankenship, Chairman and Chief Executive Officer, William F. Lacey, Chief Financial Officer, and Daniel Provaznik, Director of Investor Relations. I would now like to turn the call over to Daniel Provaznik. Daniel Provaznik: We would like to welcome all of you to Woodward's Fourth Quarter Fiscal Year 2025 Earnings Call. In today's call, Charles P. Blankenship will comment on our strategies and related markets, William F. Lacey will then discuss our financial results as outlined in our earnings release. At the end of our presentation, we will take questions. For those who have not seen today's earnings release, you can find it on our website at woodward.com. We have included some presentation materials to go along with today's call that are also accessible on our website. Please note that based on changes in market dynamics, the company has refined its industrial end market presentation to better align certain sales within power generation, transportation, and oil and gas. Accordingly, sales for the quarters and years ended September 30, 2025, and 2024 have been reclassified for comparability. The reclassification had no impact on total industrial or the consolidated financial results. A webcast of this call will be available on our website for one year. All references to years in this call are references to the company's fiscal year unless otherwise stated. I would like to highlight our cautionary statement as shown on the slide of the presentation materials. As always, elements of this presentation are forward-looking, including our guidance, and are based on our current outlook and assumptions for the global economy and our businesses more specifically. Those elements can and do frequently change. Our forward-looking statements are subject to a number of risks and uncertainties surrounding those elements, including the risks we identify in our filings with the SEC. These statements are made as of today, and we do not intend to update except as required by law. In addition, we are providing certain non-U.S. GAAP financial measures. We direct your attention to the reconciliations of non-U.S. GAAP financial measures which are included in today's slide presentation and our earnings release. We believe this additional financial information will help in understanding our results. And now I'll turn the call over to Charles P. Blankenship. Charles P. Blankenship: Thank you, Daniel. 2025 was another remarkable year for Woodward. Our team continues to make significant progress motivated by our purpose to design and deliver energy control systems that our partners count on to power a clean future. Our members' dedication to serving our customers and meeting our commitments to all stakeholders drove record performance in a number of areas. Our annual revenue exceeded $3.5 billion for the first time, which was the result of strong performance in both business segments. Aerospace sales increased 14% to record levels with margin expansion of 290 basis points. Industrial delivered healthy sales growth of approximately 10% excluding China, and core industrial margin expansion of 110 basis points. As a result, we delivered all-time high adjusted earnings per share up nearly 13% compared to the prior year. We achieved these results through a keen focus on our strategy, guided by our values, including integrity, respect, and accountability, and showing up as humble yet driven industry leaders as we continue to improve how Woodward serves customers. Next, I'd like to highlight some notable achievements that created value from last year driven by our pillars of growth, operational excellence, and innovation. Starting with growth, our aerospace team delivered strong growth in defense OEM as predicted, and rose to the occasion to deliver on higher than expected commercial services demand. Commercial aircraft delivery rates were lower than originally planned, including impacts of destocking of some Woodward components and systems. In commercial services, our team successfully captured volume growth and pricing opportunities. We experienced more legacy engine MRO volume than planned, coupled with the expected increase in LEAP and GTF demand, which is rising to levels of significant contribution to overall commercial services revenue and earnings. We expect LEAP and GTF repair revenue to surpass legacy repair revenue in late calendar 2026 or early 2027. For this comparison, I'm speaking specifically to the repair activity and excluding spare LRU sales associated with fleet spares provisioning. As these sales can be lumpy over short periods of time, but generally correlate with total aircraft delivered over the long term. For example, this past quarter, we received more orders for spare end items than we anticipated, with trade and tariff uncertainty contributing to the order surge. Our Industrial segment delivered double-digit growth in oil and gas and power generation, and high single-digit growth in marine transportation. Notably, our industrial services portfolio ranging from component MRO to power plant controls upgrade projects achieved substantial growth contributing to top-line sales and improved mix. Overall, our strong performance in the fourth quarter and full year 2025 reflects the strength of our strategy and our team's ability to execute. We have increased content on growing platforms and growing markets. We believe we are well-positioned for future success. Over the past year, we achieved several key milestones supporting our long-term growth strategy. We completed a strategic transaction to add capability and pedigree to our electromechanical actuation business unit. The acquisition included state-of-the-art horizontal stabilizer trim actuator products on Business Jet, regional, and wide-body commercial aircraft including the Airbus A350. This represents our first direct supply contract to Airbus. Integration of the acquired people and products is progressing on plan to capture the full value of the transaction. We won a competitive selection to design and deliver A350 wing spoiler actuators further increasing our Airbus business portfolio and A350 shipset content. This organic growth project proves our position on a very successful widebody program. As well as prepares us for the next single-aisle opportunity by demonstrating our technology, design, and industrialization capabilities. This win, coupled with our recent acquisition of electromechanical actuation capability, including the A350 HSTA, will raise our total A350 shipset value to approximately $550,000 once we start shipping the wing spoiler actuators. Currently scheduled for late calendar 2028. To that end, we broke ground on our Spartanburg, South Carolina facility construction project in November. This facility is intended to be another showcase advanced manufacturing building on our experience with our Rock Cut campus, highly automated and vertically integrated. We will produce the A350 spoiler plus additional aerospace products at this facility. Within industrial, our Gladney expansion is ahead of schedule and on track to become operational by mid-2026. This expansion will provide increased capacity to meet the growing demand for data center backup power, with enhanced levels of automation, improved flow, and higher inventory turns. To support our growth, we're making increased strategic investments in our company with robust returns for projects that increase capacity, and improve productivity with a specific focus on automation. Turning to operational excellence, we continue to make steady progress. We are focused on improving the fundamentals and I expect our teams to pick up the pace to improve flow and unlock more productivity in this coming year. Everything starts with safety at Woodward. We continue to roll out our human and organizational performance program to reduce injury risks and increase levels of protection. We are on track to have HOP in place at all of our sites this calendar year. We're also investing in immersive training for our team leads, and first-level supervisors. We are starting to see the benefits as they apply what they've learned, solving problems within cycle time, rebalancing work to optimize labor and create flow, and coaching their teams more effectively. I'm excited by our progress so far. We're also making strides in stabilizing our supply chain. Although we are still experiencing some supplier performance shortfalls, Woodward has made progress in optimizing our supplier network while helping our strategic suppliers improve their own quality and delivery when required. Industry-wide efforts to stabilize demand signals are benefiting our planning and delivery performance. I'm pleased to see our investments in automation paying off by reducing our demand for labor. We're also realizing the expected benefits in safety, quality, delivery, and cost as we refine our project execution and rebalance value streams. Our automation focus is on jobs with high turnover, repetitive or ergonomically challenged tasks, and high applied force requirements. Our workforce is embracing these projects and understands the benefit in their daily work. We will continue to invest in automation in 2026 and beyond. Innovation is alive and well at Woodward, and we made prudent investments in technology development for new military programs, the next single-aisle, alternative fuels, automation, and services delivery. We continue partnering with our customers to shape how our technology solutions can elevate the value of their next-generation products. As we look ahead, our priorities for 2026 are centered on strong execution, including capturing continued growth in our markets, driving operational excellence, and meeting our customers' evolving expectations. In aerospace, we are prepared for increased OEM orders as the aircraft manufacturers stabilize and increase production rates and as defense customers continue to signal strong demand. In commercial services, we are prepared for MRO growth as legacy aircraft continue to fly longer and more LEAP and GTF engines enter their maintenance cycles. We do expect somewhat muted top-line growth in commercial services compared to 2025 which benefited from outsized demand for spare end items and some advanced buying. In industrial, we are ready to meet sustained demand across our core markets of transportation, power generation, and oil and gas, and continue to expand our capabilities and global presence in industrial regional repair, overhaul, and upgrade offerings. Our guidance for 2026 reflects our continued confidence in the growth trajectory across our segments, and our continued operational discipline. We are on track to deliver the three-year sales and earnings targets we set at December 2023 Investor Day. We do expect a modest adjustment to our cumulative free cash flow target as we make the strategic decision to allocate more capital toward organic high-return, growth investments, including automation at multiple sites and the Spartanburg facility. 2025 was a year of record performance and significant progress, as we executed on our strategy, and delivered on the commitments we've made to shareholders. We intend to build on the strong momentum in 2026 and beyond. And now I'll turn it over to William F. Lacey to share more detail around our financial performance in 2025 and our outlook for 2026. William F. Lacey: Ready, Chip? I'm ready. Thank you, Chip, and good evening, everyone. As a reminder, all references to years are references to the company's fiscal year unless otherwise stated. And all comparisons are year over year unless otherwise stated. Net sales for 2025 totaled $995 million, an increase of 16%. Net sales for 2025 were $3.6 billion, an increase of 7% and the highest on record. Earnings per share for 2025 were $2.23 compared to $1.36. Adjusted earnings per share for 2025 were $2.09 compared to $1.41. For 2025, earnings per share were $7.19 compared to $6.01. And adjusted earnings per share were $6.89 compared to $6.11. At the segment level, our aerospace segment delivered double-digit sales growth and substantial earnings expansion for both the fourth quarter and full year driven by strong performance in commercial services, and defense OEM. Fourth quarter aerospace segment sales were $661 million, up 20%. Commercial services sales increased 40%, while commercial OEM sales were essentially flat. Defense OEM sales increased 27% and defense services were up 8%. Aerospace segment earnings for the fourth quarter were $162 million, with margins expanding 520 basis points to 24.4% of segment sales. The improvement was driven by strong price realization and higher volume partially offset by strategic investments in our aerospace manufacturing capabilities as well as inflation. For the full year, the aerospace segment delivered record annual sales and earnings. Segment sales were $2.3 billion, up 14%. Commercial services sales increased 29% reflecting both favorable pricing and higher volume supported by sustained high utilization of legacy aircraft and improved throughput by the MRO shops. LEAP and GTF activity also continues to increase further contributing to commercial services growth. I do want to note that toward the end of the fiscal year, while underlying commercial services demand remained strong, we believe a portion of the growth was influenced by certain customers making advanced purchases to take advantage of a window of trade stability. Defense OEM sales increased 38%, primarily driven by strong demand for smart defense. In addition, new JDAM pricing took effect during the fourth quarter, which contributed to the strong year-end performance. Aerospace segment sales growth was partially offset by a 6% decrease in commercial OEM sales. The decrease was largely due to the Boeing stoppage earlier in the year and our discipline and measured production ramp that followed along with inventory normalization by airframers that occurred in the second half of the year. Moving into 2026, we expect these headwinds to ease as airframe production rates increase. Defense services sales were down 2%. As a reminder, while the timing of this business can be lumpy, demand signals remain healthy. Aerospace earnings for 2025 were $507 million or 21.9% of segment sales compared to $385 million or 19% of segment sales. The 290 basis point improvement reflects solid price realization and higher sales volumes. Partially offset by strategic investments in manufacturing capabilities, unfavorable mix, and inflation. We're making these strategic investments to enable future growth by expanding manufacturing engineers, to support our ongoing efforts to increase automation. In addition, we have been increasing and developing our production frontline and team leaders to improve supervision, training, and problem-solving to drive productivity, improve cycle times, and increase output. Turning to industrial. As a reminder, my comments reflect the reclassification of certain sales between the end markets that Daniel Provaznik mentioned earlier. Industrial segment sales for the fourth quarter were $334 million, up 11% from $302 million. Our core industrial sales, which excluded the impact of China on highway, grew 15% in the quarter. Transportation sales increased 15% and oil and gas sales grew 13%. While power generation grew only 6% due to the impact of the divestiture of our combustion business in the second quarter of this year which had averaged approximately $15 million of quarterly sales. Excluding the impact of the divestiture, power generation sales grew in the mid-teens on a percentage basis. Industrial segment earnings for the fourth quarter were $49 million or 14.6% of segment sales. Compared to $38 million or 12.6% of segment sales. Within our core industrial business, margins expanded 330 basis points to 15.2% of core industrial sales, driven by price realization partially offset by expected inflation and planned strategic investments in manufacturing capabilities. For 2025, industrial segment sales were $1.25 billion compared to $1.3 billion, a decrease of 3%. Excluding the impact of China on highway sales, core industrial sales increased 10% to $1.2 billion compared to $1.1 billion for the prior year. Marine transportation grew 9% driven by both price and volume. As elevated ship build rates support strong OEM engine demand and lay the groundwork for future services opportunities. Oil and gas sales grew by 14% as volume growth was driven by greater midstream and downstream gas investment. Power generation, excluding the impact from the divestiture of our combustion business, grew 22% driven by our operational improvements that increased output to meet growing demand in various gas turbine systems value stream. Industrial segment earnings for 2025 were $183 million or 14.6% of segment sales compared to $230 million or 17.7% of segment sales. This decrease was largely a result of lower sales volume and unfavorable mix. Both related to reduced China on highway demand partially offset by price realization. Core industrial margins for 2025 were 15.2% of segment sales, an increase of 110 basis points. This expansion reflects strong operational execution, price realization across the portfolio, and our ability to drive incremental margins from higher volumes. Partly offset by expected inflation and planned manufacturing investments further improve productivity. Non-segment expenses were $41 million for 2025, compared to $31 million. Adjusted non-segment expenses were $35 million in the fourth quarter compared to $27 million. Non-segment expenses were $126 million in 2025, compared to $120 million. Adjusted non-segment expenses were $133 million in 2025, compared to $112 million. At the consolidated Woodward level, net cash provided by operating activities for fiscal 2025 was $471 million compared to $439 million. Capital expenditures were $131 million for fiscal 2025 compared to $96 million. The increase in capital expenditure was driven by ongoing investment in automation and production to improve operations and prepare for growth. In addition, in 2025, we purchased the land for our new facility in Spartanburg, South Carolina. And this project is rapidly moving forward. Free cash flow was $340 million for fiscal 2025 compared to $343 million. The decline in free cash flow was primarily due to higher capital expenditures partially offset by higher earnings. As of September 30, 2025, debt leverage was one times EBITDA. During fiscal 2025, as anticipated, we returned over $238 million to stockholders, including $107.73 million in share repurchases and $65 million in dividends. In November 2025, we successfully completed our previous three-year $600 million share repurchase authorization. More than one year ahead of schedule. Reflecting our ongoing commitment to return cash to shareholders. We recently announced a new three-year share repurchase program authorizing the repurchase of up to $1.8 billion of common stock. This significant expansion reflects the board's confidence in Woodward's strategy, long-term growth outlook, and ability to consistently generate strong free cash flow. In fiscal year 2026, our guidance assumes returning between $650 million to $700 million to shareholders in the form of dividends and share repurchases. From a capital allocation perspective, we remain committed to a disciplined and balanced approach that fully leverages our strong balance sheet to drive growth. We are investing organically to advance automation and complete our new Spartanburg South Carolina facility while also actively evaluating selective returns-driven M&A opportunities. Our strong balance sheet positions us to act decisively when the right opportunities arise. Now turning to our 2026 guidance. As we look ahead, we remain focused on our value drivers: growth, operational excellence, and innovation. Our fiscal 2026 guidance assumes a sustained strong demand environment supporting continued sales growth and further margin expansion. At the consolidated level, Woodward net sales growth is expected to be between 7-12%. Aerospace sales growth is expected to be between 9-15% and industrial sales are expected to grow 5% to 9%. In aerospace, we expect sales growth across the segment weighted towards OEM driven by a return to growth in commercial OEM and continued strength in defense OEM. Commercial services growth is expected to moderate as 2025 included high levels of spare LRU purchases as well as the advanced purchases I mentioned earlier. Defense services are expected to show modest growth. Industrial sales are anticipated to grow across all of our primary markets. We expect power generation growth to be muted in the first half due to the divestiture of our combustion product line. We anticipate China on highway sales in 2026 to be up approximately $60 million in line with 2025. Woodward adjusted earnings per share are expected to be between $7.50 and $8.00 based on approximately 61 million fully diluted weighted average shares outstanding. And an expected effective tax rate of approximately 22%. Aerospace segment earnings are expected to be 22% to 23% of segment sales, and industrial segment earnings are expected to be 14.5% to 15.5% of segment sales. Adjusted free cash flow is expected to be between $300 million and $350 million. Capital expenditures are expected to be approximately $290 million, which includes continued investment in automation, and approximately $130 million dedicated to the build-out of our new production facility in Spartanburg, South Carolina. The increased spend also includes investment in MRO readiness, and the start of a multiyear ERP upgrade project. Some additional items to help you with your modeling. We expect year-over-year price realization of approximately 5%. Non-segment expenses should be approximately 3.5% of sales. Consistent with historical trends, we anticipate performance to strengthen across the quarters of fiscal year 2026. Our fiscal 2026 guidance positions us to meet or exceed the long-term sales and earnings commitments for 2024 through 2026, which were established at our last Investor Day. Free cash flow is expected to be below our three-year target, reflecting higher strategic investments to support sustained long-term growth, including our new Spartanburg facility. We plan to introduce our next three-year outlook at our Investor Day in December 2026. This concludes our comments on the business and results for the fourth quarter and fiscal year 2025. Operator, we are now ready to open the call to questions. Operator: Thank you. And the question and answer session will begin at this time. If you are using a speakerphone, please pick up the handset before pressing any numbers. Should you have a question, please press star 1 on your push-button phone. Should you wish to withdraw your question, press star 1 a second time. To be able to take as many questions as possible, we ask that you please limit yourself to one question and one follow-up. Your questions will be taken in the order they are received. Please stand by for your first question. And our first question comes from the line of Scott Stephen Mikus with Melius Research. Your line is open. Scott Stephen Mikus: Chip and Bill, very nice results. Charles P. Blankenship: Howdy, Scott. Thank you. Scott Stephen Mikus: Chip, I had a question kind of on the aftermarket dynamics, particularly in engines. So the Leap MRO network is much more internal relative to the CFM56 network. So when you ship a fuel metering unit, or any component on the LEAP engine, just how are you sure whether it's going to the aftermarket or OE channel? Are you being paid a different price versus both? Just given that GE and CFM more broadly is trying to route as many component sales through the Leap MRO premier network. Charles P. Blankenship: Thanks for the question, Scott. We are sure about the PO status that comes to us, whether it's an install or a spare end item in terms of what customer is ordering it. So we have clear line of sight what type of unit that is. Scott Stephen Mikus: Okay. And then given the investments that you're making in automation, I was at the Rock Cut campus, it was very impressive there. Is there anything structurally that you see that would potentially prevent your LEAP or GTF aftermarket margins to where they couldn't potentially reach CFM56 or V2500 margin levels? Charles P. Blankenship: Well, Scott, there's nothing structurally in the way of that. It's kind of up to us to understand, you know, what the customers are seeing in the field with the units and developing the right repairs and overhaul procedures. And we're learning we've learned a lot with the first units that have come back, whether it be the pump or SCU or FMU on LEAP or it's the GTF fuel nozzles or actuation. So we're pretty confident that we have the right design for repairability and service solutions for our customers that will achieve the right profitability. Thanks, Scott. Operator: And our next question comes from the line of Scott Deuschle with Deutsche Bank. Your line is open. Scott Deuschle: Hi, good evening. Bill, what growth are you assuming for legacy narrow-body engine aftermarket in 2026? William F. Lacey: Scott, for said legacy narrow body? For Yeah. Like, think, narrow body engines. Scott Deuschle: Yes. Yeah. So, we obviously, we saw we saw a really good growth in '25. And based off of that, we would expect sort of single-digit growth rates coming through in 2026. On the legacy narrow body. We expect to see some price, obviously come through and volume at these levels will be tough, but the MRO shops surprised us last year, so we'll see if they get some more productivity. But I would say single digit. Scott Deuschle: Okay. And then, Bill, does the EPS guide include any benefit of the recent share repurchase authorization increase? Or do you not really assume? That authorization or repurchases, excuse me, the guide? William F. Lacey: Thank you. Yes. We do expect put that into our into the guide. Scott Deuschle: Okay. And then last question, Chip. Can you give us any sense as to how much your current power generation revenue is tied to Caterpillar? And I'd be curious if you could talk a little bit about the growth outlook you expect from that customer in the years ahead. Charles P. Blankenship: Well, we've been receiving pretty healthy growth from all of our power gen customers. And Bill and Daniel talked about a little bit of reclass that went on, and it was really by examining where all of our customers and products were being used. Some traditional oil and gas customers have been involved in more power gen type applications, maybe not utility grade but behind the meter type applications. And folks like Caterpillar and INEO and Baker Hughes are all kind of playing in that segment of the market. So it's a very interesting aspect of the power gen growth opportunity that we're capitalizing on. As far as carving out just a single customer like Caterpillar, we don't do that. But I think you can be satisfied that as they grow, we grow. We're on some of their gas engines with SOGAV and valves and actuation, and we're on some of their liquid fuel engines with actuation and governor products. So we've got a good staple of products distributed on their products, and it varies by application. Operator: Thank you. And our next question comes from the line of Sheila Kahyaoglu with Jefferies. Your line is open. Kyle: Hi guys. This is Kyle on for Sheila. Thanks for taking my question and great quarter. I hope that kind of extend question here on the commercial aftermarket because I think you said muted next year. You gave a the prepared remarks are pretty helpful. I think you said LEAP GTF by the end of calendar year '26, the same or larger than legacy. So when I take that in connection with the single-digit comment you just gave to Scott, I mean, I guess it implies that maybe the pull forward that you saw in this quarter and prior quarters is significantly larger than maybe I expected. So maybe if you can just kinda walk through those puts and takes to round out that comment. Are you thinking about LEAP GTF growth next year? In light of what the OEMs are saying? And the magnitude of the pull forward that you saw this year and whether you're sure that's not repeating or whether there's potential that was actually restocking. Thanks. Charles P. Blankenship: Yes. Thanks for the question. We really do believe there will be strong repair growth for LEAP and GTF. We believe, like Bill was saying, there'll be either flat to a little bit of repair growth on V2500 CFM-five. But the big variable is this lumpy order behavior that we saw last quarter on spare end items. A pretty substantial demand there. And those are quite high-priced individual items to be ordered compared to a repair. So when you think about the total top line, it has an outsized effect on that top line as well as the earnings. So we don't forecast that happening again. There could be additional activity. We don't rule that out, and we're prepared to capture that if it shows up. But I don't think it's prudent to forecast that or put that in our plan because we don't have any line of sight to that at this time. Kyle: And if I could just follow-up on the price comment, Bill. Said 5% next year. I assume that's more weighted to aerospace and increasingly weighted to aftermarket. So maybe any additional color by segment and by subsegment within that? Thanks. William F. Lacey: Yeah. Correct. At the total Woodward level 5%, in the comments we talked about, the JDAM price increase in the fourth quarter, including Bob. We'll see that flow through the '26. And so with that, and some catalog growth, we will Arrow will outpace industrial slightly, but we still also will see good price result from our industrial team as well. Thanks a lot for your question. Operator: And our next question comes from the line of Noah Poponak with Goldman Sachs. Your line is open. Noah Poponak: Hey guys. Thanks for the question. Can you quantify in absolute dollars whatever you're deeming to have been lumpy or pulled forward in the aerospace aftermarket in 2025 revenue? William F. Lacey: Yeah. Noah, it's as you can imagine, it's hard to quantify. Because, you know, the customer isn't telling us exactly kind of their thought. But here, I'll give you a few numbers. That will be in the footnotes of the 10-K. Back where we lay out by segment, sales by region. And you'll see that, from 2024 to 2025, sales grew $50 million. So some part of that $50 million is normal growth. Then some part of that is a part of this advanced purchases. It's just hard to quantify exactly. Noah Poponak: Okay. That's helpful. And can you quantify where LEAP and GTF aftermarket came in for the year 2025 versus 2024? Charles P. Blankenship: So the LEAP and GTF are gaining on the legacy, let's put it that way. And like I said before, they're kind of in the same ZIP code, but not equal. And we're just talking repair activity, not including spare end items. So we really do think that that's going to cross over in the late 2026, early 2027 time period. And that may sound like an earlier crossover compared to what we said at Investor Day back in 2023, but that original graph in 2023 legacy items that included some wide body and regional component repair. And then it also in the new included GEnx. We're trying to strip out some of that other information and make it cleaner for you. Like last quarter, I committed that we would clarify that. And when we do run our model out and look at kind of how fourth quarter ended, how inputs are coming in, for both the legacy as well as LEAP GTF. That's how we come up with that sort of crossover period, which I hope clarifies things for you. Noah Poponak: Okay. Great. That's super helpful. And then just on the Aerospace segment margin, the guidance requires a pretty significant slowdown in the incrementals. I guess in the fourth quarter, you're saying the incremental benefits from the items we just discussed and therefore it's sort of a leveling out over the two years or is there more to it? William F. Lacey: Yeah. So the no. I think your question is about the incremental coming down from about 42 and a half for aero and coming down in 26. And it's a few things. It's our OEM mix growing on the aero side which is a mix down. And then yes, the and so that's the main driver is just the amount of OEM that we expect to come through in 2026. Charles P. Blankenship: And just a reminder about that is a good thing. So we're creating the installed base to get the services revenue and earnings on later. Noah Poponak: Okay. Thank you. I appreciate it. Charles P. Blankenship: Thanks, Noah. Operator: And our next question comes from the line of Christopher Glynn with Oppenheimer. Your line is open. Christopher Glynn: Thank you. Good afternoon. Charles P. Blankenship: Good afternoon. Christopher Glynn: So, yes, curious on the defense side. A specific and a general question. You know, where are you with guided weapons clarity longer term, how those programs and what orders are flowing through? Should we anticipate that growth is kinda leveling off on a sequential basis? Or the volume still ramping? I know you have a big price aspect to growth in that category. Charles P. Blankenship: So, you know, our guided weapons programs plural, JDAM, small diameter BOM, STB, and AIM9X are all kind of having a little bit different behavior. JDAM is up substantially. But we feel like that will remain level for a good while. And then we don't have any orders for the other two, but we have indications that customers are asking us to do capacity studies and work with supply chain on capacity studies. So some of these things are leading indicators that these other product lines might experience some growth opportunities, but we don't have anything specific Chris, on that right now. Christopher Glynn: Okay. Great. Thanks. And you mentioned global capacity investment for the industrial aftermarket. I'm guessing that's oriented towards the marine side, but just wondering if we could drill into that investment element there. Charles P. Blankenship: Yeah. So we've been doing a little bit of flag planting here and there on MRO shops. So when you think about a power plant and all of the scope of supply that we could provide to aeroderivative or heavy-duty frame power plant installations. Just like an aircraft engine, they undergo maintenance cycles, and we're finding that have the ability to grow our service content with these customers when we're a little closer to their region. So we've done some of that in the prior couple of years. And we anticipate doing a little bit more of it just to try and closer to the customers. And grow the opportunity to service our fuel metering valves and other types of scope of supply like that that are on our customers' gas turbines. And as well reaching out with the opportunity to do some repair in reciprocating engines. Christopher Glynn: Great. Thanks for that. Charles P. Blankenship: You're welcome. Operator: And our next question comes from the line of Gavin Parsons with UBS. Your line is open. Gavin Parsons: Hey, thank you. Good evening. Charles P. Blankenship: Good evening. Hey, Gavin. Gavin Parsons: Guys, what are you assuming for OE destocking? And it would be helpful if you could that out kind of by airframe and engine. Charles P. Blankenship: Thanks for the question, Gavin. It's a little difficult to parse that out for you. That detail of a way. A customer standpoint. But we feel like, broadly speaking, somewhere in our second quarter sort of time period, if airframe customers and engine customers hit the rates and pull like they've forecast for us. We could be destocked by sometime in that second quarter towards the end of our first half fiscal year. Gavin Parsons: Okay. That's helpful. And then on CapEx going forward, should we kind of assume that normalizes once you finish kind of the A350 build-out or by the end of the decade are we starting to look at build-out for, maybe a new single aisle? William F. Lacey: Yeah. For right now, Gavin, we'll know, we'll say that the Spartanburg investment is causing that peak. Know, we're gonna continue to kinda look through '27, '28, '29, and we'll give you a clear view in December. Of what's out there. We're looking understanding our next single aisle investments. But right now, the Spartanburg is sort of what we see there on the near horizon. Gavin Parsons: Got it. Thank you. Charles P. Blankenship: Welcome. Operator: And our next question comes from the line of Michael Ciarmoli with Truist Securities. Your line is open. Michael Ciarmoli: Hey, good evening, Nice results. Thanks for taking my questions. Maybe just to stay on. Charles P. Blankenship: How are you? Michael Ciarmoli: Just to stay on Gavin's question there, the CapEx for Spartanburg can you support or will that have enough capacity to support programs beyond the A350? I mean, there kind of does it build out contemplate next-gen single aisle? Charles P. Blankenship: Thanks for the question. The investment in Spartanburg, that facility, has additional capacity over and above the A350 for us to put select product lines in there that makes sense and are synergistic. But if we're betting on a successful campaign for next single aisle scope, that facility would not by itself be able to support NSA volumes. We have bought enough land there to build a sister facility for NSA support. So we are thinking ahead. Where it makes sense on small amounts of investment dollars, but we're not putting any big investment dollars on NSA capacity. We'll have to really take a look at what that horizon and life cycle looks like from the design phase through the build and flight test phase and lay that out in comparison to our and what's going on with legacy programs before we decide how much additional capacity we'd need. So that's a thought exercise. Even know, like Bill was saying, we'll share more at Investor Day in December. But some of that NSA thought exercise will mature as we understand from the Airbuses and Boeings of the world about what that time frame looks like. Michael Ciarmoli: Okay. Fair. And then just back to Noah's question, actually. You were talking about incrementals, but I guess just absolute margins looking at the low end of the range, really no margin expansion. You're obviously hitting and exceeding the targets. And you talked about the OEM mix which makes sense. But as you're seeing this ramp on LEAP and GTF, is there margin dilution there on services? I mean, you have to get over some learning curves? I mean, I'm assuming straight spare sales would be highly accretive on those platforms. But is there anything else dilutive with the LEAP in the GTF ramp up there? William F. Lacey: Yeah. I'll jump in and Chip maybe cover me if I miss a part. But, no. No. The LEAP GTF service margins are good. It really is, the impact of the overall OE and how that impacts things. Obviously, on the low end of the range, it contemplates some other headwinds. But to the point about LEAP GTF, margins are good. Again, OE mix is the primary driver of the rate expansion that you're seeing in our guide. Charles P. Blankenship: I'll just follow-up and say that we intend to expand margins, and that's what you see a guide there that allows for some headwinds to get in the way of intent. But we've got plans in place and programs and the automation benefit that we're planning some realization of for 2020 we intend to get productivity. Michael Ciarmoli: Perfect. Thanks, guys. Charles P. Blankenship: Jump back in the queue. Michael Ciarmoli: You bet. Operator: And our next question comes from the line of Gautam Khanna with TD Cowen. Your line is open. Gautam Khanna: Yes, good afternoon guys. Charles P. Blankenship: Afternoon, Gautam. Hey, Gautam. Gautam Khanna: Just to elaborate on the first question, which we've written about before, which is this LTSA versus spot aftermarket dynamic on LEAP versus CFM. Is it do you guys are I'm just curious, like on CFM, 56, when you sell into a spare part into the GE network, I presume that's a lower price than what you would sell into if it's an MRO or airline outside the network. Does that same logic apply for LEAP when it when you're selling a spare part to a direct user, like an airline, versus when you sell it through the GE internal MRO network? And if that's true, why wouldn't there be structural differences in profitability between those two platforms in the aftermarket over time. Charles P. Blankenship: Well, the reason why there's no structural difference is because there's really no structural difference to the contracting Gautam. And when we sell spare end items, it can be to an airline. It can be to an MRO shop that has a variety of people under different agreements. We have some asset management contracts with some of the bigger MROs just like us CFM or GE or CEFRON network. So the whole landscape is similar between the previous generation and this generation. So when you think about repair, it's also the same thing. So whether it's a spare end item, spare parts, or a repair, we have fairly similar contracting principles in the LEAP ecosystem that we do to the CFM dash five. And so I think there's nothing to nothing really there to explore further except that we have a lot more LRUs to take care of. Gautam Khanna: Gotcha. Thank you. And a follow-up on the mix dynamic within the aftermarket. I know you talked about repairs and I think that's distinct from spares. So I just want to get a sense is the overall aftermarket profitability next year a little bit softer than it was in '20 than it will it was in '25? Just based on kind of more repair, less spares? Or is there any nuance there that you're trying to convey? Charles P. Blankenship: Really, no nuance to convey there. We have a good blended service earnings profile for 2026. We're pretty happy with that. We'll see if the spare end item, if more comes through than we forecast, it did last year, I mean, it's really hard to tell. We'll have some upside if that happens. Gautam Khanna: Thank you very much. Charles P. Blankenship: You're welcome. Operator: And our final question comes from the line of Louis Raffetto with Wolfe Research. Your line is open. Louis Raffetto: Hey, good evening, guys. Charles P. Blankenship: Hey, Louis. Hey, Louis. Louis Raffetto: How should we think about the return of capital to shareholders? Is it gonna be balanced across the year? Or is there any reason to think it will be skewed one way or the other? William F. Lacey: Yeah. Louis, our plan is to spread it out evenly through the year. We'll see how things go, but the plan is to stay in the market throughout the year. Louis Raffetto: Alright. Thank you. And then I guess on FSG margins, last several years, the first quarter has been substantially below the rest of the year. Is that something we should sort of expect again here in fiscal 2026? William F. Lacey: So I'm sorry, Louis, the margins in Q1 we missed your first words. Margins. Sorry, FSG margins in Q1 have been below sort of the second quarter, third quarter, fourth quarter? Louis Raffetto: Lose the plan? I'm not quite sure we'd say FSU. I'm sorry. I mean, aerospace. Apologize. Charles P. Blankenship: Oh, okay. Yeah. It's a Florida state. Yeah. Yeah. I'm getting my William F. Lacey: Yeah. Correct. That is the normal trend. In aerospace and in industrial that Q1 is usually our lowest margin quarter and it sort of grows sequentially throughout the rest of the year. Louis Raffetto: And then just last one on tax rate. You've had some benefit from option exercises the last few years. I assume with the 22% rate, not expecting anything like that, but certainly could have that benefit depending on how that plays out. William F. Lacey: That's exactly right, Louis. With the prices that we've seen, over the last couple of years, and as we estimate out, we don't foresee that outsized tax benefit from option exercises. So that is what is behind that 22% effective tax rate. Louis Raffetto: Great. Appreciate it. Charles P. Blankenship: Okay. Thanks, Louis. Operator: And that concludes our question and answer session. Mr. Blankenship, I will now turn the conference back to you. Charles P. Blankenship: Thanks, everyone, for joining today's call. We hope you all have a wonderful Thanksgiving holiday. Operator: Ladies and gentlemen, that concludes our conference call today. A rebroadcast will be available at the company's website, www.woodward.com for one year. We thank you for your participation in today's conference call, and you may now disconnect.
Fabricio Bloisi: [Presentation] Hello partners. How are you? Welcome to our results call. I hope you received and you enjoyed our results today. I'm quite excited to what we shared today. At the same time, we could share you more about our growth not only that we are growing 20%, but even more important that our ecosystem thesis is working. So I enjoyed very much to share the numbers of Despegar. It's not only 5% of Despegar revenue coming from the iFood ecosystem, but we share the data week by week. You can see a very strong growth. I'm quite confident we will get to 10%, 15% in the short term. So this is the base of our thesis, our ecosystem thesis, we are growing very fast in iFood, but we are pushing Despegar to grow together. At the same time, we could share a little of our numbers in terms of results. You saw we grew 70% to $530 million. I think it's great to share this number with you. One year ago, I told you I expect us to be -- have more profit than the dividends, and I expect us to get to multiple billion dollars of profit. And many people said, I can't see Prosus doing that. So I hope you can see Prosus doing that today. We are going to get between $1.1 billion to $1.2 billion in adjusted EBITDA this year, excluding JET and LA CENTRALE. So we can expect I don't know $1.2 billion, $3 billion, $4 billion of EBITDA this year and for a couple of billion dollars of profit in the next few years. So I'm quite excited about our numbers in terms of results. We keep the discipline. We sold $1.2 billion, but we are on track to sell at least $2 billion this year of our assets. We keep our buyback. Now we sold -- we bought back more than $40 billion, generating more than $60 billion in results. So I think we keep the discipline, we keep the growth -- but I want to reinforce all of that is the foundation to how we are going to build a much bigger company. So innovation is growing amazingly [indiscernible]. I wanted to do a bigger session on innovation now, but because of the timing, we decided to focus on numbers today, but in a few weeks by December 15, maybe January 15, we are going to make a much longer presentation on how AI is changing our lives in terms of live commerce models, in terms of assistance. You saw we had 20,000 assistant already. So I could talk a lot about innovation. I hope you make questions about that. It's quite exciting. So our moment now is execution, execution, execution. We had some discipline also in M&A. A few M&As are focusing growth. For example, the Indian ones, [indiscernible] and [indiscernible], they are growing [indiscernible] is growing more than 120% year-over-year. We are very excited about that. A few M&As are increasing our profitability, like La Centrale and Despegar. So I think the company is doing good. I'm excited about the results. I hope you have many exciting questions for us today. And my priority now execute go to those few billion dollars in results. We are just getting started. We really want to build at least $100 billion outside of Tencent and one of the best tech companies in the world. Let's talk more about that today. So let's go for our questions. Mr. Eoin, right, guide us. Eoin Ryan: Speaking of just getting started, let's get started on the Q&A. Catherine, why don't you -- if you could remind the audience how to ask a question, please? And then I'll start off with a quick question. So please, Catherine. Operator: [Operator Instructions]. I will now hand back to your host, Eoin Ryan, to take your questions. Eoin Ryan: That's great, Catherine. Thanks very much. It's great to be here today, and it's good to hear from you guys. As you said, Fabricio, I think we're following through on our commitments. One such commitment was investment in our ecosystems. The biggest investment to date has been Jet, and I think it's on the minds of most of investors. So can you give us a little update? We're a few days in since the delisting of Jet? What's the future look like? Fabricio Bloisi: Let's talk about Jet. First, we closed the Jet transaction completely a few weeks ago. But just last Monday or Tuesday, we changed the management -- the Supervisory Board. So now I and a few other people from Prosus are part of the Supervisory Board of Jet for the last 6 days. So what I can tell you, we are very, very confident. As you saw, we shared lots of data on Despegar, how it's growing, how we are working on the ecosystem. On Jet, we have just 6 days. So it would not be appropriate to share today. What I can tell you, first, we are this week working a lot with Jet on our key set of culture to enable the company to think big, move faster and grow a lot. Jet is not growing over the last few years, as you know, obviously we know that's true. I'm very, very confident that together, we deliver a company that grow faster and is much better. The first big thing is on culture. It's happening right now the replanning of Jet. That's why I couldn't add the numbers because we need a few more weeks to have projections for Jet. At the same time, our focus besides culture. And again, you saw me here last we on [indiscernible], the results we have today is because of the change of culture 1 year ago. Besides of culture, technology and product are the 3 big areas of energy of our efforts. On technology, we need again to move faster and to make sure Jet becomes a more a tech-first company with first-class technology in the world using AI to take all its decisions. On products, we have to make sure that a few areas that Jet is a little say, behind, we get -- we move faster, for example, loyalty program that is core in Latin America, but it's not ready here in Europe. So we are going to push those 3 things. We expect to push it in November and December. Hopefully, in January, we have a few results to share. Today, it is still too soon. But I can tell you that I am -- Jet is not performing well. We all know that, but the level of confidence I have that we will have a company growing again and competing very well is very, very high. And probably you know I like some letters from the CEO, maybe we share a letter from the CEO, but we can share more inform Jet. But you have more specific questions, I can answer today. Eoin Ryan: It's the holiday season for letter writing, so maybe you can [indiscernible] investors there. Okay. Well, thanks. I'm sure there'll be some follow-up questions on that throughout the call. But let's open it up to the audience. And I think the first question is coming from Will Packer of BNP. William Packer: Two from me, please. Firstly, Fabricio, you talked to optimizing the buyback in your prepared remarks video. Could you help us think through the implications of that optimizing? Is it the current buyback run rate of $6 billion to $7 billion as the new normal for FY '26, '27 and beyond? Or should we think of you cutting the buyback? And then it sounds like it's fair to assume that there's going to be some flexibility of funding perhaps away from Tencent towards Meituan and free cash flow. In terms of my second question, the global online classified share prices have sold off sharply in recent weeks following the OpenAI Developer Day and Rightmove's AI profit warning. Fabricio specifically, Gen AI is central to your vision for the group. How are you thinking about the risk and opportunity for classifieds in terms of Gen AI? Does this recent sell-off make the sector an increasingly attractive potential use of your M&A firepower? Or would you rather see the dust settle first? Fabricio Bloisi: Thank you. Thank you for the questions. First, you asked about optimizing the buyback. You have lots of good numbers there. I don't need to repeat all of them. But in general, as we said, the buyback is more or less $6 billion to $7 billion this year. We have an open buyback. We are going to keep an open buyback the way it is. I like buybacks because I think we are if our company is cheap, we should be investing in our own company and increasing the value of the shareholders that want to stay. So we are going to keep doing that. On the other side, I think the company we have today is a very different process than it was 2, 3 years ago. Remember, again, 1 year ago, I said we are going to get to multiple billion dollars of profit. Many shareholders didn't see it coming. It is coming. But hopefully, you can see that in the numbers that we are sharing today. So Prosus is on a different moment. The discount is on a different moment. Tencent is on a different moment. I'm a big fan of Tencent. I think Tencent is going to be a big winner in the AI race. Tencent is positioned for that in China. And if you compare the multiples of Tencent versus everything else in U.S. There is a lot of space to Tencent keep growing. So it's exactly what I said, optimizing the buyback. We are going to keep the buyback as we have, but I'm not going to say names of other companies. People ask me not to name other companies. I can tell you that there is other companies in our portfolio that we believe has smaller growth potential than Tencent, growth and strategic potential than Tencent. And yes, we are going to sell these companies and use this money also to keep a buyback. So what we are going to see is optimize exactly that. Eventually, the buyback is, I don't know, $1 billion, maybe $0.5 billion is from Tencent, $0.5 billion is for other companies that we can sell and use the cash to -- I think the right word to use to make a better capital allocation, with the #1 company in China, growing fast, well positioned to win in the AI race. Not the best decision to me to sell Tencent even if we increase the value per share. So if we can optimize selling other things and increasing our participation, that's what we intend to do. We expect to sell at least $2 billion this year. And how can I say, you can expect that we are going to do buybacks using other source that is not Tencent. Unknown Executive: Just to remind shareholders, although we're selling our Tencent stake on a per share basis, we actually increased our exposure in Tencent by the share buyback with the other proceeds from other divestments. And I will further enhance on a per share basis the exposure to Tencent compared to continuing on the current path. So I think that is a critical way of how we can further enhance the share buyback. Eoin Ryan: For example, there's other company that we believe has less focus today than they should. We could sell that we believe has less focus and invest more or sell less of that we believe are performing well, has less focus and we believe are going to the Chinese market. So that's what I mean by optimizing. Unknown Executive: Those companies are the companies you're talking about as the additional EUR 2 billion, right? That's just to be clear. Fabricio Bloisi: At least 2 billion we already sold 1.2 billion, so at least -- and can we use this money to offset, let's say, sell 1 billion from other companies are true. Yes. Unknown Executive: That's something we've seen from the group in many years, a more active portfolio management. Fabricio Bloisi: Yes. The buyback was 100% automatically. That's what I don't mind. We should say we should sell more or less and we should select better what to sell to buy. Eoin Ryan: Great-- and to the second question. Fabricio Bloisi: Yes. The second question was on AI and classifieds, you said. Many people sometimes ask me, if I think -- I'm not the first one this week, if I think AI could have an impact on classifieds. My answer is it's much bigger than that. I think AI is going to have impact in classifieds on e-commerce and food delivery, in investing in analyst reports from banks, AI is going to have impact everywhere. Obviously, as you know, the market today is a little too heavy. So everyone looks like AI winner. But there will be AI wins that will create trillions of dollars of value, not only trillions of dollars of cost, but trillions of dollars of value, and it is going to happen. How I see that on classifieds. The point here is not if AI is going to hit your industry or not? Because if you think AI is not going to hit your industry, you are wrong. It will hit our industry. The point is how we play our game on that industry. And I think what we are doing here in [indiscernible] is very, very good. We are not like -- you said some other company or you said some classifieds went down [indiscernible]. Other -- the again, other classifieds companies, they have been much more conservative in technology, and they invested much less to be classified people were, how can I say, surfing the high profitability without investing a lot in technology. That's not our approach. [indiscernible] as a group is investing in large commerce model to understand the customers better than itself and use data to improve our companies. We're investing a lot on agents. We have more than 20,000 agents doing everything, including many things on classifieds. We're investing a lot in ventures and the only focus of ventures from now is not to be a venture capital that invest in everything, to invest in companies that can make our ecosystem run better or that can run better because our ecosystem. So these 3 areas has profound impact in our classified business. We are using the large commerce model to run better classified business and ads. On agents, we are running a lot of our services to agents, for example, taking care of customers, taking care of retailers. Remember our classifieds less horizontal, more focused in real estate and jobs and -- so we are taking care of the auto retailers and our partners. And third, we are investing in early-stage AI companies that can are betting in growing in classified. So we can make these companies grow faster. And we can also make our classifieds not only keep growing, but disrupt other classifieds. So yes, AI will have impact. I think Prosus is very well positioned about that because everything we are doing. We could talk about that for 1 hour. But part of our positive results, not because we are lucky or because our markets just grow is because we are selling better. We are reducing the cost of ads. We are increasing the efficiency of the company. We have -- we are reducing the requirement for hiring people because our agents expand our working capacity. So we are doing a lot of classifieds. For example, [indiscernible]. We just invested in one company that are automating through agents, the relationship between real estate and their customers. We are doing that by ourselves, and we invest in a company that is growing like 300%, doing the same thing. Our classifieds is very well positioned to use AI as a competitive advantage. So that's how I see growth. Operator: And the next question is going to come from [indiscernible]. Andrew Ross: I've got 2, please. First one is to follow up on Will's question on optimization of the buyback and to understand how it relates to where the discount is at a given period in time. It's been observable that the cadence of buybacks has slowed down in the last few months as the discount has stayed in that kind of high 20s to 30-ish percent zone depending on your definition of the NAV. So should we kind of see that as a signal that the company feels there's less attractive opportunities in buying its own shares relative to the rest of the NAV at these levels? And should we expect the buyback to move up or down depending on where the discount is? That's the first question. The second one is to follow up on the opening remarks on Jet. I appreciate it's going to be hard to give guidance today. But if you could give us a flavor like the level of investment that you'd like to put into Jet, that would be very helpful.. Fabricio Bloisi: Thank you, Andrew. On the buyback, I was concentrating the Jet. You want more information on... Unknown Executive: Whether it's a function of the discount coming down, the buyback. Fabricio Bloisi: What I said is what I don't like is to have a completely automatic thing. So it's a function of many things, how well we are doing, how fast we are growing, how profitable we are, how our discount is. You said that was around 26, 27 over the last 1 month, 2 months. I am an optimistic founder. So you can discount my optimistic opinion. But I will also 1.5 years later, remind you that we are delivering everything that we promised 1 year ago. We are delivering the growth, profitability, the discipline, the complete reset on culture and the innovation. So my optimistic vision is discount will go down more because if the business is very valuable and we have $1 billion, $3 billion, $4 billion in profits in our core that is playing well [indiscernible], et cetera, I will call you later to ask why is the reason to have this level of discount at $26 or $7 or $8 that it was. So considering all of that, the buyback is going to be more aggressive or less aggressive. My point on optimization now specifically is if we can keep buying back, but not only from Tencent, but from Tencent and other assets that we are selling, this is much better for us all. So that's what we are trying to implement now. I [indiscernible] another question. Unknown Executive: Yes, it was on the level of investment for Jet. Fabricio Bloisi: Yes, the level of investment for Jet. It's not the problem, to be honest, Andrew, not the problem today. So how I see that? First, would I invest more in Jet? Yes. My problem today is not invest more in jet that we became operators of the company 6 days ago. We are having the full week of meeting to plan the next 3 or 4 months. The government doesn't even have a plan for the next 3 or 4 months because their budget stops in December. So we are doing today to tomorrow, the planning for the next 3 or 4 months. So we had a discussion last week, should be doing like in 1 day a proposal. The answer is no, you have our guidance without Jet. We will give more information on the guidance with Jet as soon as we have it. But I want to reinforce first, the problem is not the level of investment to me. The problem is the efficiency, 2 things. First, Jet is under delivering what they promise their current guidance, what they are delivering is less than the current guidance. But second, the efficiency of the investment in Jet has to improve before any other movement. So I'm not going to increase investment directly in Jet, if I don't think we are making the I could put $100 million in Jet. It's not very well invested, it's not worthwhile. So right now, we are trying to rebalance return on investments on investments and help technology improve return on investments. That's why the guidance for the next 2, 3, 4 months, they are not very valuable because if we think we can improve a lot in 45 days, I have to run it first and see the results, then a new guidance. So that's why we need 45 days to have a better view on Jet numbers. But I just want to reinforce, Nico want to complement, but to reinforce our level of confidence that we can run Jet better in terms of growth and profitability is very, very high. And we will share in details more about that when we share more data on Jet. Unknown Executive: And Andrew, maybe just to comment on Fabricio said that Jet did not perform well. It was a listed company until last week. Last time it came to the market, you would have seen that order growth was negative 7%. Company guided at that stage given their own internal metrics in euro terms, they reported in euros EBITDA of about EUR 360 million for the calendar year FY '25, which is December '25. Now what I can say to you that some of those trends have continued during Q3, where we've seen further reduction in some of the order growth -- and that will cause and have an impact in terms of the original guidance. Our expectations measure against that is that I will materially invest EUR 360 million. Anyway, my confidence on Jet growing faster and improving result is very high. But since we have 6 days, you need to update the numbers on Jet in the next call. Unknown Executive: I think the important thing to point out here is that the acquisition was not made on the results of this year. The acquisition was made on the expectations for turnover multiyears, which is what you're talking about as planning has just begun on that. Fabricio Bloisi: Yes. So as I said, on these 6 days, we think the numbers are bad because of this reduction of 6% I believe that in 45 days with a strong reset and culture and moving faster in tech, we have good news to share, but we can do that today because it's too early. Eoin Ryan: Thank you, Andrew. And the next question we'll take from Cesar at Bank of America. Cesar Tiron: I just want to focus on M&A. So I have a couple of questions on it. The first one, do I understand correctly that the available firepower for M&A is still around $8 billion? That's the first one. The second one, should we expect you to pose a little bit M&A as you focus on integrating all these assets and focusing on the ecosystems? Or should we expect any large transactions in the next couple of months? And then the third one, it seems to me that you've been talking a lot more about India recently. Should we understand that this is back as a focus area for you? So I felt you talked a little bit more about it than at the Capital Markets Day, for example. Nico Marais: Let me take the first one. So Cesar, thanks for the question. So at the end of September, from a total group perspective, we had $20 billion of cash on the balance sheet, about $18 billion of that related to our central corporate cost, corporate cash position. And subsequent to September, we have settled, of course, the Jet acquisition as well as LA CENTRALE. So that was about $7 billion that were spent on that. So on a pro forma basis, it leaves us with about $11 billion of cash at the center. And obviously, we need some liquidity buffer against that. So what is available for M&A is, I would say, at least $8 billion and more from a balance sheet perspective. Fabricio Bloisi: That said, our priority is not to spend $8 billion or more or [indiscernible] on big acquisitions right now, big priority by far. I think I want to highlight one thing. First, our execution has been very, very good. We talk more about on those meetings, but [indiscernible] is doing very good, very profitable, growing well. So we have good expectations with LA CENTRALE synergies. And second, again, when we announced the -- just acquisition, many people said, but it's expensive. We really don't believe. I think we are paying -- we paid $4 billion to $5 billion in something that should have $15 billion. That's what we have to build. So my biggest priority by far is how we make sure get back growing with the best technology and products in the world and really win in Europe. That's our biggest priority by now. So as [indiscernible] read in the newspapers on the 2 or 3 rumors intends to expand $5 billion to $10 billion things. I can tell you that we read on the newspapers, the rumors, we are quite much focused in delivering right now. And again, I think now I have some reputation inside Prosus. We deliver the numbers we promised. And also, I always talk about transparency. We will give transparency just after a few more weeks or months or quarter. Unknown Executive: So like you said in your opening remarks, it's focused on execution, execution, execution, right? And then the other question that Cesar had was on India and whether it's a bigger focus right now. Fabricio Bloisi: Yes. We talked a lot about the last few days. I met Prime Minister 3 days ago. So it was all in the news that we are talking about. It was really great, to be honest. I'm always complaining Europe has to move faster and talk about creating big tech companies and meeting Prime Minister was how we move faster. He asked me, let's do more. So it was a very inspiring conversation. I think what we've done in India is very good. We are the biggest FTI, international investor in India. Many of our companies has more value to unlock. So we promised you a few IPOs in the last 12 months. Most of them happened. We still have an expectation that there will be another very big IPO and that's going to be big and good of our amazing company. So our returns on investment in India are quite positive. We invested in the last 1 month, I think, in 2 companies that are growing very fast, is growing 120% #1 company mobility [indiscernible] is growing very fast. I don't know now, maybe 70%, something around that. And they are very good online travel agents and travel and mobility, too. So I think we are keeping the consistency in the areas we want to invest. We are keeping the idea of ecosystem synergies and I expect a lot more good news from India, not only like spending a lot of money, but we put that in the presentations. PayU for years, including you, our analysts complaining that PayU has to perform better. PayU is profitable. Finally, after many years, the profitability of PayU is growing quarter-by-quarter quite well, month by month, even better. PayU is helping other companies to grow faster and other companies are helping Pay to grow faster. So and [indiscernible] Ixigo getting closer to our ecosystem will create another positive impact. We are excited that we are going to build more many billions dollars in value in [indiscernible]. Unknown Executive: I think -- and it's clear you can see the operational improvement in the owned and operated PU, but you're also seeing that increasing connectiveness of all of the individual pieces within the ecosystem working together a little bit more. Fabricio Bloisi: So you see this time we shared lots of data in Latin America. Probably you saw that Shark rev in the loyalty in the center and many business around benefit from these customers, and we even shared some data. We are doing the same thing in India. The results are good. We are going to share more data with that in the next few months. So we don't expect to spend $8 billion in India right now, but to keep having good results in terms of ecosystem building in India. And I think the latest investments are very good [indiscernible]. Unknown Executive: And with au now profitable, we can say that all of our main businesses are indeed profitable, which is something we've never been able to say. And when you think about millions to 1 billion and then to multiple billions, that's certainly a necessary thing. Fabricio Bloisi: All the business runs. Eoin Ryan: All right Cesar. So thanks very much for the questions, and we'll move to Michael. Unknown Analyst: Yes. First of all, thank you for letting us ask the questions and for the presentation. So the first one is actually in iFood. So with [indiscernible] now ramping up their presence in the Brazilian food delivery market, what are your thoughts? And what have you seen since October? And then how do you think this is going to impact iFood's growth trajectory over the next year to 2 years? And then maybe just touching on India. So you mentioned that there's a lot more collaboration between yourselves and the different companies that you have minority stakes in. How do you think about monetizing that going forward? Is that largely given from yourselves? Or are they providing data back at a higher rate? Unknown Executive: I understand the name of the question [indiscernible] yourself -- it's a connection of between the companies in India and particularly the minority trust companies and whether there's -- how do we facilitate data sharing to improve the [indiscernible]. Fabricio Bloisi: So first on iFood, I think many of you were in Brazil and visiting Brazil 1 or 2 months ago. The people that were there, they could see iFood is more than one business that they're doing the same thing for the last 5, 7 years. The reason iFood is growing so fast. We just got through including all the business, 160 million orders -- just to remind you, last time we met, celebrated $100 million $160 million orders is because it's a company innovating and rethinking how we offer business and offer the best technology for our customers. So obviously, we have competition now, more competition that is DT and [indiscernible] is also entering Brazil just entered. Those 2 companies entering a few cities, 2 or 3, spending a lot of money per order, like they have discounts of 20%, 50%, 60%, sometimes 70% in an order. So my advice to you, just check later how much they are paying to be there competing. And look, if you give a free meal to someone people, we eat for free. It will have it. But is it sustainable to have the best service, best offer over time. And remember, this is in the core, that is the food delivery. iFood today have besides the core, a big loyalty program that gives free delivery plus discount on Despegar, plus discount, I think, 1,000 other companies. We have fintech. We have dine-in. We have POS machines in the restaurants where we take transactions. We have [indiscernible] where we put orders in the restaurants. We have a credit card voucher credit card with 1 million people buying food with a credit card, paying to iFood. We have the business of ads that is going super well. We invest in 2. We bought one company we invested in [indiscernible], great company in terms of loyalty. We have classified the integration with Despegar is a big success. So everything that buys in iFood, they get 3 points to use on Despegar. We have a company for entertainment that is. We have -- we are launching now -- just now launching one city today this week, iFood plus Uber. So Uber has tens of millions of customers that are not iFood customers, and iFood has tens of millions of customers that are not Uber customers. I guarantee you that we are going to see a lot of cross-sell in the 2 best companies in the region. So some companies are investing a lot to have the offer that we had 6 years ago, and we welcome competition. This make everyone runs faster, but it's much more than let's make the next sale of a business and cash call this business. It is, can we be the best creating new business, innovating, moving faster, iFood is doing that. So if you study around the core food delivery, you see many business. Interesting thing for you because I know you like the numbers and more my things on innovation. Fintech, we spent 2, 3 years saying fintech is the future for iFood. Fintech numbers are growing very fast and profitability in fintech is growing very fast. So our profitability keeps growing because a few business we were investing 1, 2 years ago. I'll tell you true, fintech, groceries and selling to Whatsapp. We were losing money in the last 2, 3 years, now we are making money. So my point is a good business and there will be competition and let's fight for offering the best service for our customers. And I want to remind you, we are very focused in iFood chewing there. Some of our competitors are distracted all around the world. Even in their home markets, there is a lot of, I say, pressure to compete against other players. So we are confident, but we compete. Unknown Executive: And Michael, you also asked in terms of given the competitive environment, how do we see in terms of what the impact of that might be. And look, in terms of the high growth rates that we're very confident that for the second half of this year, we will continue to sort of stay at those levels. And we also reiterated our confidence in our overall guidance. iFood is also investing in new product, but also against some of the competitors, but we built a lot of that into our existing processes. And we are sort of reevaluating various other projects and elements to utilize and free up funding so that we can actually fight against the competitors without changing the sort of trajectory that iFood is on for this financial year. Unknown Executive: I think another important point though is the concept of competition for iFood is certainly not new. And over the years where they've actually had the most competition are the periods where we see the most growth. And one of the things that Diego often says is you focus on price, it's the race to the bottom, but you build a real moat through product. And what you've just described there is an ecosystem that is iFood within an ecosystem that is LatAm -- and I think you've highlighted, I think there's tremendous hidden value in that Pago business that we should and will have more to bring to you guys in the future. Now how about -- we touched on the India ecosystem. And the question there was whether -- how the business -- how you can really build the LCM and the connectivity between those businesses with them connecting data. Unknown Executive: And you asked about minority companies. Unknown Executive: Yes, exactly. Fabricio Bloisi: Look, my mind doesn't work like that. I remember the last results call, someone made the same question. If you are a minority, then you can't cooperate between the companies. I disagree. I absolutely disagree. I think we can cooperate with minority companies. We do it -- we don't do it because I call that and say, I'm boss doing what I'm saying. We do it because we call and say that's how we run fine-tuning our AI models. That's how we run customer support using AI. That's our KPIs on optimizing the partner -- our partners' relationship with agents. When we show off that to a good company, the company say, I want it. I'm going to get this data. I want to run my open just like that. With other companies, another story, we show off that to like, but [indiscernible] showed how they are doing, I think, was multi-language customer support and said, okay, this is very good. We want to use. We want to learn more from that. So the point is not being majority or minority. And if you need to be majority to do something good because there's something wrong or you are not selling well or the guy that is not the right guy. We can work with the minorities because we're saying this company can grow faster. These are the data and the technology that gets there. And we are cooperating well on that. One example, PayU is giving credit and working with customer profiles with users that we are minority investors, but the companies are growing faster because of PayU. That's why we are here. Eoin Ryan: And the other thing to take into account is the LLM so the LC that we're testing now in LatAm, and we're getting some of the results already in the deck. That's something that we can also bring to bear in the other ecosystems. Fabricio Bloisi: So today, we have an event with 80 people from all around the world being trained. We launched [indiscernible] AI house 2 weeks ago, where we have now a center of learning and knowledge of AI that everyone is traveling there to participate in the event. We are running today with 80 people inside process on fine-tuning large language models to optimize e-commerce transactions. So everything that we did in Latin America is now like now really today going to India and Europe. So we don't need to be my to do that. And we are quite confident we have a lot of growth. curiosity, I didn't use a lot of the time of the meeting today morning to talk only about tech and innovation, but it was too much information. So we said, let's focus on numbers today. We will get back soon as soon as all want to talk to me because I want to do it in 2 weeks. But we are going to share why we are more confident than ever that we are one of the best players in AI ecommerce in the world. So we'll talk more about that. Unknown Executive: You brought up the AI and I'll get to your questions again. But I think this is an important thing to pause out because this is something that is kind of inherent in the new culture. It's not something you would expect 1, 2 years ago. Can you talk a little bit about the AI has, why you opened it, what you're hoping to achieve because it is certainly no different. Fabricio Bloisi: I want to make Amsterdam the center of AI in Europe has a lot of knowledge but not vibrant community [indiscernible] every day there. So create a big space in Amsterdam, where every day we have a hackathon meeting of course. And it's open for 2 weeks. We are having every day a big event with hundreds of people, and we are helping the ecosystem and we are helping ourselves to, but we are contributing to make Netherlands a center in Europe AI. We also hosted last week, the House of opening was last week, 2 weeks ago, we hosted the Luminate an event in Europe talking about putting regulators and founders together to reinforce that [indiscernible] was one of the speakers there and President [indiscernible]. We are talking about Europe needs to move faster. Europe needs to play to win. There are many things in Europe regulation, including the AI, congratulations in Europe because we did a big change this week, including the [indiscernible] that we think should be taking more risk to create leaders. So is taking a much more aggressive or premanent position to say, let's lead technology and regulator to create a big European tech leader, and we are very confident on our actions. Unknown Executive: I would tell more time. That's great. Please. Are so we think don't kill my e-mail now. We'd love to have some of our investors and analysts at the AIS so we can match up certain events with your travel. So please reach out to IR. So let's move on. Thank you, Michael. We'll move on to Luke at Morgan Stanley. So let's move on. Thank you, Michael. We'll move on to Luke at Morgan Stanley. Luke Holbrook: I just wondered if I could pick up on this thread of more competition in food delivery. So you signaled more investment in Jet. Obviously, we heard from Delivery Hero and Talabat also pointed to more investment Dash as well being a big theme over the last month. But if we just map that through then for iFood, how can we see that progressing into FY '27? Is that kind of the trajectory that you see there? And just particularly in the context that you may need to -- do you feel like there needs to be more investment into dark stores or more 1P logistics? I'd just be interested to hear your thoughts there. And then just finally, I appreciate you might not be able to say anything, but the Delivery Hero situation. Obviously, you've got until mid-August to sell down to single digits. Is there anything that you can comment on in regards to that? Fabricio Bloisi: Okay. So on competition on Talabat, we have no access [indiscernible] Talabat. iFood made a projection for the year that included competitors, and we are going to deliver on our projection and our growth and everything else. So we are doing quite good. I can't talk today on the numbers for the next year. But as I told you, many of the business that we started 1 year or 2 years ago or 3 years or 4 years ago, they have become mature now. So iFood is more than the food delivery. One example is the iFood Pago. You remember me about that. Remember that Mercado Libre has half of its profit for Mercado Pago. iFood Pago is an important part of iFood already and it's growing. So I don't have any number today to share on the next year. I can tell you that what better for this year, we are delivering, we are happy with that. And we have to do the next year in 1 or 2 months. On the [indiscernible] Hero, I'm sorry, I don't have any update on that. We have an agreement. The agreement is for 12 months. We are going to deliver in the agreement that we made. Sometimes I talk in the press that I believe that this agreement is not the best thing for Europe. Europe would be better as a content if we have global tax champions that said we have an agreement. We are going to do the agreement according to the terms of the agreement, nothing to share. However, we are selling assets of Compass that has lower -- we are selling assets of companies. When I say we are going to sell $2 billion this year, it doesn't include delivery. So maybe we're going to sell more than $2 billion, maybe you're going to sell next year. We just don't have any update on that. Unknown Executive: Maybe just to add to that, a lot of the investments that we're making in iFood to drive the business forward regardless of the competition are exactly in the same areas that we now need to do even better because of the competition. For instance, optimizing the delivery aspect of the business cheaper food elements, the loyalty program. All of those things we have been doing. We're just accelerating and improving even more in those spaces. And now we have the AI elements that we can add to enhance that efficiency. Fabricio Bloisi: And to complement Nico's point on some of the investments we did on iFood over the last 5 years that are quite big, we can replicate that in Jet starting this week because only now we are in the management of Jet. So there is lots of upside inside the ecosystem. That's what I'm selling for 1 year to you. I think Google and Microsoft and Meta and Tencent are winning not only because they have one key product, but because they have a scale in an ecosystem that enable cross-sell AI technology. We have that, and we will have benefit on that on Jet and on [indiscernible]. Unknown Executive: I think one of the things that I think has done a fantastic job of in the past is areas that required investments to scale, then don't need all of that investment going forward. You take some of that from Area A and deploy it into Area B. So it's not incremental investment always in the asset. And I think one of the questions that we get underneath this perhaps is, what does this mean for kind of your future year guidance? And what -- is this a kind of a retrenchment or a return to kind of an investment cycle. But I think you were very clear at the beginning of the call that you expect to go from the 1-point-something billion today, even 3, you said more than that. And that includes investment in the other parts of the business and food. Fabricio Bloisi: So I ask you the credibility to think that first time we talk about $2 billion, everyone said, oh my God, I don't see how they can do it. You get to $2 billion. And -- so we are confident we are going to keep increasing our margins. Eoin Ryan: And I think they've probably said the same thing on 160 orders as I -- so thanks very much for that , and we will go to Robert Calabretta. Robert Calabretta: Yes, first question on the impact of agentic consumer applications on marketplaces. If you look at these agentic applications, people are using it for more and more tasks. In the case of process, I think you saw the first impact at stack overflow where people found coding suggestions of agentic applications better than browsing on the forum. But increasingly, it could be the case that purchasing decisions could also move towards these consumer-aggentic applications like ChatGPT. So I'm wondering, how do you plan to integrate your marketplaces inside of these applications and as user behavior shifts towards consumer agentic applications, yes, could some of marketplaces like Classifieds lose distribution leverage and the data advantage. So how will you address this to stay ahead? Yes. Maybe a second question on the IRRs. I think in the past, you targeted a 20% IRR target with a higher hurdle for start-ups and lower for high-quality, more mature businesses. If I look at, for example, La Centrale, which you're buying for around EUR 1 billion, clearly a high-quality business. it's growing at a CAGR of 13% EBITDA, and you expect that market growth to continue. So I think it's challenging maybe to get the 20% IRR. So I'm wondering what is kind of your lower hurdle in terms of larger investments in terms of IRR. So what is your minimum hurdle to make these deals? Fabricio Bloisi: I'll try to quickly just because of the time. But on the first one, what you just asked, life agents are going to compete against us, Yes. I told you in the beginning, I want to talk 1 hour about our strategy there. It's exactly about that. So what we are going to tell you soon is we are doing large commerce model. We are doing agents focusing our internal and partners, and we are doing life agents -- sorry, life assistance where we deliver this kind of service to our customers. And I think we will be very well positioned because of our ecosystem and how to offer there better than any other player outside. So I could talk about that for 1 hour, but I need you to read a little more. But I agree with you, Robert, it's a risk. Yes, it's an opportunity, too. We are moving fast to lead on that, including on many investments we made exactly on this area. So we are bullish and excited about what we can do in what we call life assistance. Next chapter to know more about that. The second is on IRR. We expect, yes, 20% IRR on La Centrale. Remember, La Centrale is a small company operating more isolated. We think that putting it together with everything we are doing outside, we are going to get good levels of growth, increasing profitability, and we expect it to get more than 20% La Centrale. Eoin Ryan: Great. Thanks. And it looks like will you're back in the line, you want to [indiscernible] I was very stressed. Operator: If you have more time and get back to Rogelio. Will, are you there? William Packer: Sorry, I was. Just wanted to come back. So thank you for your comments earlier, very useful. So it's pretty clear the $6 billion to $7 billion is the right kind of framing for the FY '26 buyback. When we think about FY '27 and beyond, is that the kind of level we should be thinking? Or is it just you're going to have optionality and decide depending on the relative appeal of different uses of capital? Fabricio Bloisi: Companies, they do a buyback very specific. I'm going to buy back $5 billion. We are doing an open buyback. So we are not exactly not saying this is the number for the next 1, 2, 3 years. So we don't have any number for next year. But as I told you before, what I don't like is to have an automatic thing. We have to analyze what we have opportunities, what we have, what's happening in the world. I'll give you one thing to think. I think [indiscernible] is ridiculous ship. But again, oh my God, we can have a company that's creating $1.5 billion close to that in profit and still have a discount. The world is not like that today. We have many companies valued at 100x revenues. having our cash position, maybe the world is going to change. That's my point. There's a lot of change ahead. I think Prosus is very well positioned. If the world change, we are going to become even a more attractive company because we are doing innovation, AI, we are generating cash and we have investment capacity. So for sure, since I have an open buyback, I don't need to think how it's going to work next year, 1 year in advance. I have to keep playing well with discipline, with good capital allocation. That's what you asked me 1 year ago. What I'm telling you now, 1 year after, we delivered the discipline. One year after, selling less Tencent and more other companies is good capital allocation because we believe much more in the growth of Tencent. But what I commit to you is we are going to keep executing well, but we don't have a guidance for next year yet. We don't have it. So in 6 months, maybe we can share it more. Again, I'm confident we are going to keep executing well what we have in terms of innovation delivery to me. I think next year is much more a year of opportunity for us than a year of, oh my God, how we are going to handle not delivering what we promise. Eoin Ryan: Okay. Thank you. Will 4 minutes left. So let's Thanks, Will. We'll try to get 2 in Nadim from SBG. Nadim Mohamed: Just 2 very quick ones from me. So we noticed that the likes of Rightmove and others are investing at quite a high rate in AI. This has the impact of weighing down on their profitability. I'd just like to understand how process have done it so that you have -- because we haven't really seen that impact on profitability with these substantial investments in AI and LCM. And then just on top of that, just how much of a differentiator is it when you're looking to acquire a business like La Centrale, the ability to bring these capabilities to the acquisition post deal? Unknown Executive: So the first question was how has OLX been able to do so well and expand margins meaningfully while investing in AI, whereas other companies, I won't repeat their name, have now had to kind of reset expectations because they're investing. And it's been a long journey of OLX investing in AI. Fabricio Bloisi: Yes. So I think it all started 1 year ago on culture, focusing results, innovating more. I think OLX is really delivering and operating well, but also it has the support of an ecosystem. So many of the things OLX is setting up right now, they are also learning and sharing from inside the ecosystem. Large commerce model, for example, the investment was in the holding and iPhone. And now that it is ready, we are pushing it through [indiscernible]. So I think -- look, that's the central story or thesis of Prosus. We can have one classified company operating in La Centrale region by itself or -- and that's my thesis together a bigger group that knows to operate classified and AI, we can make their performance better. The first big company we are operating at is Despegar. The number of Despegar doesn't look that big because April, May and June were bad were bad. I look to Despegar month by month, it is increasing every month for 6 months. So that's the difference. OLX benefits from that. And I think I'm quite sure is going to benefit from that too. Eoin Ryan: So the overall benefit of being part of the group. Nadim, thanks very much. We have to move to the last question. I think we're going to land this. Maddy take us home, please. Madhvendra Singh: Yes. Just 2 quick ones from my side. The -- your recent positive trip to India and the meeting with the Prime Minister Modi, would you say your CMD ambitions for India were too conservative in hindsight, I mean, with just about 1.3x revenues from FY '25 to FY '28 and just above 5% margins, that's what your CMD guidance was. So wondering whether that changes at all post the meeting with the Prime Minister. And then the second one, on the asset monetization opportunities outside of Tencent and [indiscernible], is there any major opportunities you can talk about? Fabricio Bloisi: So first, it was inspiring Prime Minister was really expiring -- but then you said many numbers, 13, 14, 15. I didn't connect those numbers super well. for you. Unknown Executive: Yes. So look, I think the numbers you is referring to related to essentially the long-term ambition that we shared at the CMD for India. But essentially, at that point, those are the control businesses at this stage in India. And obviously, we -- the ecosystem around that is much bigger. So it really depends how the control positions evolve over the next few years. So it could be substantially different depending on how we [indiscernible]. Fabricio Bloisi: Yes, makes total sense. That's why we didn't recognize the number because we are looking just to pay you. Our expectations are bigger than that. But that's the way it is. We have report on that. after talking with Prime Minister, if something changes. I'll tell you, yes, I'll tell you one thing. We did all the -- we moved faster in innovation within Brazil and Europe. That's the true thing that we're really running on AI. I think we are this big thinking. India has to lead. India cannot be one day behind Brazil and Europe. So expect more moves from us, making sure we have the best AI possible in India. Then another question? Unknown Executive: I forgot the other question. We've got 2 billion for this financial year. There are other assets that we can consider, but we're not going to sort of preannounce any at this stage. Fabricio Bloisi: Yes. There is some recommendation. We don't say we are selling this company. We probably can understand why. But our portfolio is much more than. So there is many others. Some of the others we talked about it here today, but there is many others, other 5 or 10, and there's many more billions we could sell, but we're not going to say exactly what. I can guarantee you this year, we sell $2 billion, probably in the next 6 months, we are going to announce how many billions we are going to sell the next year, at least a few more billions. Eoin Ryan: All right. Well, thank you for that, Maddy, and thank you very much, everybody, for joining us. there are a couple of words you want to leave us with? Fabricio Bloisi: Do you want to say a few final words? I have to say -- so a few final words. Today, the focus on numbers. And I'm happy. I think we are moving on the right direction on numbers. We will get to a few billion dollars in profit. There's much more to talk on execution of Jet, not for today and much more to talk on innovation, specifically the question that someone asked me today, I will talk exactly about that. So I am always unsure that we should be doing more and moving faster. I think we are moving well. Just getting started, but our thesis year ago is we are going to be a strong tech-focused operating company. We are going -- we are getting there. So I'm excited with the results. I hope you enjoy them too. And I hope we're going to keep sharing good news with you in the future. Thanks for coming, and thanks for being partners. Let's keep building the future together. Thank you. Eoin Ryan: Thank you very much, everyone. Thank you, guys. And there are a couple of questions here that I will follow up. And always, if you have follow-ups, please reach out directly to your friendly IR team, and we will see you very soon. Thank you very much. Bye-bye.
Matias Cardarelli: Good morning, everyone. It is a pleasure to share PPC's progress at the halfway point of our FY '26. Results to date reflect not only continued progress, but also building on the foundations cemented last year, driving sustainable growth and operational improvement. I want to extend a warm welcome to all of our investors, our Board, employees and members of the media as well as other stakeholders who have joined us today. Your ongoing support and confidence in PPC remain critical as we advance our turnaround journey. Brenda Berlin, our CFO, and I will share the first half FY '26 financial results, key highlights of the year and progress on our strategy implementation. I will start with the business highlight, followed by Brenda's review of the financials. Then I will return for the business review and outlook. We will have time for your questions at the end of the presentation. Last year, we presented a new direction for PPC, a fundamental shift in the group's strategy, culture and focus areas. Steadily and consistently, we have been rebuilding PPC. FY '25 marked the beginning of this pivotal chapter for PPC in which we implemented structural improvements and delivered a strong recovery in our financial performance. This strong momentum has continued into FY '26. Central to this transformation is our turnaround strategy, Awaken the Giant. It is ambitious by design and grounded in the confidence that our success would come from internal drivers regardless of macroeconomic or competitive pressures. By unlocking internal value and sharpening our competitiveness, we have laid the foundations for growth and sustainable value creation, which is reflected in the numbers over the last 18 months. I believe our message might have been difficult to grab at first, but we believe it has led to a better understanding of our industry and business drivers. Clarity matters to both understand what is driving our current results, but also the PPC potential. PPC was struggling for relevance and stuck in a negative and confusing narrative. This remains, to some extent, in the sector today. Our results are becoming a reference point in the sector as a consequence of our focus on profitability and value to shareholders. We got off to a strong start in FY '25. And now in the first month of FY '26, we continue to deliver ahead of our FY '25, FY '30 strategic plan. This progress is evident in profitability, margin and cash flow generation. It is also clear in the significant increase in return on invested capital, reflecting a clear shift towards shareholder return and growth. Importantly, the quality of our earnings. This means that our performance is underpinned by solid fundamentals, sustainable margins and prudent capital allocation. This guarantees that the growth is achieved responsibly and maintained over the long term. This is PPC today, delivering ahead of plan with quality earnings and definitely more to come. Let me make a moment to highlight what truly sets PPC apart in our markets. Why is PPC delivering the best in sector results? From the beginning, we stated that our focus was on the quality of revenue, ensuring margins that they are both leading and sustainable. A purely revenue-driven approach might deliver short-term gains. But in a competitive context, it becomes a race to the bottom that erodes margins, value and risk the sustainability of the sector. Instead, we leverage our competitive advantages to deliver value to customers through high-quality products rather than only competing on price. We can also leverage our unique footprint, capacity availability and asset flexibility to allow access to key regions and markets. On top of this advantage, our focus has been on optimizing our production and distribution model. This enables us to plan and realize more effective contribution margins, ensuring that every sale brings the most value. Continued capital investment in our assets is another clear differentiator, one that sets us apart now and will have an even greater impact in the future. In a competitive market, we know that technology, asset age and maintenance are critical for margin enhancement. We continue to invest in and maintain our assets to enhance capacity and efficiency. Well-maintained assets and the newest technology position us strongly for growth and further competitive advantage. When it comes to product offering, I want to address an important aspect of our business related to our competitive position in our markets. Firstly, PPC operates in all cement segments across most regions. This allows us to stand out in the marketplace and attract a full range of customers. We are a premium brand because we are a premium quality. Our premium quality is matched by our ability to scale, guaranteeing supply and consistency to meet the diverse needs of our customers across all segments. Finally, our management team brings over 100 years of combined cement industry experience, both locally and internationally. This depth of expertise in our first and second line of management allow us to execute effectively on our strategy. Looking at the results for the 6 months ended in September 2025. You can clearly see the positive impact of the turnaround in all key metrics. When we launched the Awake in the Giant strategy, we set out clear metrics to define sustainable success and unlock future growth. Those were EBITDA, EBITDA margin, free cash flow and ROIC. The combination of these indicators determines quality earnings and shareholders' returns. We keep progressing in all of them. EBITDA has grown 24% to ZAR 983 million. EBITDA margin expanded by 2.6 percentage points to 18.3%. Free cash flow from operations surged 32% to ZAR 661 million. Record dividends declared for Zimbabwe, reaching USD 20 million from USD 4 million last period. And lastly, ROIC improved significantly to 13.4% from 7.1% last period. What is driving these results is the cumulative effect of multiple initiatives, building on the momentum established over the past 18 months. These continuous improvement efforts are already delivering and importantly, are expected to have an even greater impact going forward. The growth in the first half results is especially noteworthy because it was largely driven by our South African cement business, which expanded EBITDA by over 30% with an EBITDA margin of 17.5% -- in Zimbabwe, a very high demand boosted volumes, revenues and EBITDA. However, the planned kiln maintenance shutdown in Q1 increased our reliance on imported clinker, which temporarily impacted our margins. Overall, the business generated record cash flows, driving higher dividends. In summary, we delivered quality earnings growth, strong cash generation and improved returns. I will hand over to Brenda now to cover the financial review. After that, I will deal with the business review and outlook. Brenda Berlin: Thank you, Matias, and good morning, ladies and gentlemen. Matias has already touched on some of the key metrics. But as usual, I will start with reemphasizing some of the key features of the consolidated group, followed by some more detail on the SA & Botswana Group and then Zimbabwe. I will then close on capital allocation, capital expenditure and returns to shareholders. Moving to the consolidated group key features. Group revenue increased by 6.2% to ZAR 5.4 billion. I will go into a little bit more detail later as to the split of this increase across the SA & Botswana cement, materials and Zimbabwe. The increase in revenue, combined with continued cost control resulted in the expansion of the EBITDA margin by 2.6 percentage points to 18.3%. The increase in EBITDA by 23.5% to ZAR 983 million is also reflected in the 32% increase in adjusted headline earnings per share. The pro forma adjustment relates to adding back the unrealized foreign exchange losses on hedging instruments taken out to derisk PPC's balance sheet from rand weakness in constructing RK3. The group continued investing in equipment and spent ZAR 225 million on CapEx during the 6 months, almost all of which was maintenance expenditure. No expenditure was capitalized for RK3, but there were advanced payments totaling ZAR 317 million in the period, which are reflected in working capital. Adding back the ZAR 317 million paid to RK3, net cash inflows from operations increased significantly from ZAR 500 million in the comparable period to ZAR 661 million in the current period, an increase of some 32%. The ROIC of the group expanded by 6.3 percentage points to 13.4%, which is well ahead of the plan. Before going into the income statements of the respective businesses, this slide just sets out some key points to contextualize the results. The SA operations had a strong performance with EBITDA increasing by 36%. The Zimbabwean operations had an extended planned shutdown of the kiln in Q1 of the current period. Matias will go into more detail on these 2 points in the business review. Notwithstanding the Q1 shutdown, PPC Zimbabwe generated strong cash flows and declared $20 million in dividends during the 6 months. This compares to ZAR 4 million in the prior period. As mentioned already, we paid ZAR 317 million in advanced payments for RK3. The unrealized foreign exchange losses that are adjusted for in the pro forma HEPS amounts to ZAR 54 million after tax. The SA & Botswana Group ended the period at a gearing ratio of net debt to EBITDA of 0.1x, well below the target range of 1.3 to 1.5x. This slide sets out the key line items on the consolidated group income statement. Before going through the numbers, an overall point is that it is worth noting how clear and simple the income statement is now. It is significantly less confusing to go from EBITDA to profit after tax. A few years ago, there were no less than 9 line items below trading profit compared to the current 4. It is much easier to manage and understand a clean income statement. As mentioned, I'll cover both the SA & Botswana Group and Zimbabwe in a bit at the EBITDA level. The absolute increase in EBITDA of ZAR 187 million is reflected in an increase in trading profit as depreciation was almost flat over the 2 periods. Moving on to some relevant items below the trading profit line. The fair value and foreign exchange losses in the current period include ZAR 74 billion pretax unrealized foreign exchange losses that I've already talked about regarding the pro forma HEPS adjustments, ZAR 34 billion in realized FX losses on the advanced payments made for RK3 and ZAR 15 million loss on translation of foreign currency-denominated monetary items for PPC Zimbabwe and PPC Botswana. Net finance costs reduced by ZAR 15 million. Finance costs themselves reduced as we had both lower borrowings and lower interest rates compared to the prior period. Investment income or interest received also reduced due to lower average cash balances. The cash proceeds received on the sale of the Rwandan operation were held for almost the entire period before a special dividend was paid out in September 2024. Closing this slide with the effective cash tax rate of 33%. This is in line with the prior period and previous guidance. The single biggest item in the current period that increased the effective rate from the statutory rate of 27% is withholding taxes paid on dividends declared by PPC Zimbabwe. This is the final slide of the consolidated group. As usual, it depicts the contribution to both revenue and EBITDA by the SA & Botswana Group and PPC Zimbabwe, respectively. The numbers inside the wheel depict the current half year percentages with the prior period shown on the outside. As can be seen, the relative contribution from the SA & Bots Group at a revenue level declined by 5% from 70% to 65% and increased by 6% at the EBITDA level. I will now move on to give an overview of the SA & Botswana Group, followed by Zimbabwe. The SA & Botswana Group is an aggregation of 3 components, with the main driver being SA & Bots Cement. The materials businesses comprise ready-mix, ash and aggregates with PPC Limited and other being essentially listed company overhead. Matias will go deeper in the business review, so I will just touch on a few key features on this slide. Regarding South Africa and Botswana Cement, strong growth in Q2 followed a weather disrupted Q1. The focus remained on contribution margin and cost efficiencies, resulting in a very sound 31% EBITDA growth. The Materials segment shows a significant but not material decline in EBITDA. The EBITDA for the aggregates and ready-mix businesses were more or less flat compared to the prior period with the ash business responsible for the overall decline. Volumes in the ash business declined by 42% compared to the prior period. Dealing with PPC Limited and other, in the prior period, all of the centralized group services costs were in the segment. As of 1 October 2024, all group services staff were transferred to SA Cement being the main reason for the improvement in cost in the segment. On the next slide, I will deal with the cash flow bridge for the SA & Bots Bo Group, but the gearing being net debt to EBITDA remains very low at 0.1x. To remind you, it is expected to peak for 1 year in FY '27 when the construction of RK3 is largely completed. In this peak funding year, we expect to be below 2x when the required net debt-to-EBITDA covenant is 2.5x. Dealing now with the SA & Botswana Group cash flow. What is shown on the slide is the waterfall for the current period up to in the first instance, net cash generated by the core business of ZAR 256 million. Dealing with this section first. What you can see is strong operating cash flow before working capital changes of ZAR 584 million, a small working capital release of ZAR 11 million, bearing in mind the ZAR 410 million reduction in working capital for the year ended 31 March 2025. Taxes, CapEx and other core operational business activities are then depicted to arrive at the net cash generated. What is shown after net cash generated are nonoperational items with the material items being essentially, the investment in RK3 is showed at ZAR 351 million, being both the advanced payments and realized ForEx losses. Dividends received from PPC Zimbabwe of ZAR 211 million versus PPC share of the USD 12 million paid in the current period with a further $8 million being declared, but only paid subsequent to 30 September. Distributions to shareholders in the current period of ZAR 274 million being the ZAR 0.176 per share declared in June 2025. Overall, net cash decreased by ZAR 193 million in the current period, leaving gross cash at ZAR 543 million at 30 September 2025. Drawn long-term facilities remain at ZAR 500 million, plus ZAR 2 million in accrued interest, which leaves net cash at ZAR 41 million at half year-end. The reason for the small gearing ratio on the previous slide is that capitalized leases have to be deducted as debt for the gearing covenant. Set out on this slide are the key metrics for Zimbabwe. We keep this slide in U.S. dollars so that you can see the numbers in PPC Zimbabwe's functional currency. There was a strong increase in sales revenue of some 25%, which is in line with volume increases as demand remained high. Q1 margins were affected by the need to import clinker during the planned shutdown, but exceeded the prior period margin in Q2. CapEx increased by $2.3 million due to the extended Q1 shutdown compared to a much shorter stop in the comparable period. Record dividends declared of $20 million. As I mentioned on the previous slide, $12 million was actually paid in the current period with PPC share of the remaining $8 million received in November 2025. Repatriation of dividends remains consistent. Cash balances at the end of the period was strong at $14.4 million, 96% of which is in hard currencies. We are progressing steadily on the conditions precedent to the sale of the Arlington property transaction. Moving on to the last slide on capital allocation now. On the left-hand side of the slide, you can see the actual CapEx spend for the group over the last 2 years. The forecast spend for FY '26 is also shown. The budgeted ZAR 450 million for the group in FY '26 includes some catch-up on value accretive and reprioritized projects deferred from FY '25. This increase on the actual FY '25 spend is almost all attributable to the SA & Bots Bulks Group. The spend on RK3 has commenced. The previous forecast spend for this FY '26 was ZAR 1.18 billion. And as you can see, this has reduced to ZAR 920 million due to timing adjustments. Return on invested capital, or ROIC, remains a key focus, and all expansion capital has to meet stringent criteria. The ROIC for H1 FY '26 is set out on the top right and has consistently improved since 30 September 2024 when it was 7.1% and 10.6% at 31 March 2025. We expect ROIC to weaken in the short term being H2 FY '26 and FY '27 as CapEx is spent on RK3 with no associated return. Thank you. I will now hand you back to Matias for the business review. Matias Cardarelli: Thank you, Brenda. Before we dive into the business review of the period, I want to take a moment to reflect on what has enabled us to deliver these results. From the very beginning, our top priority was to build a strong foundation for PPC. This meant a fundamental change to the core of the organization. I was very frank about the scale and gaps we found from the organizational culture to governance, controls, management information, people skills and importantly, leadership from the top to the various level in the company. Difficult decisions were necessary and were indeed taken. It was the only way to turn around PPC. In my view of leadership, bridging the gap between words and actions is essential. Authenticity and accountability are not buzzwords. They underpin trust. PPC's leadership team is committed to transparency and delivery. In this context, we act quickly and decisively. We address long-standing issues, brought in critical expertise, strengthened processes and controls and realign priorities to ensure a focus where it matters most. These actions had an immediate impact in all areas of the organization and meaningfully improved the financials. While this process is far from being completed, we have made good progress. This year, we conducted a pulse survey on employee engagement. The survey was designed to capture the voice of employees, providing a clear understanding on how the turnaround is being experienced across the organization. In the context of change, it was vital to understand the general sentiment. Participation was very high at 93% and feedback was extremely positive regarding the need for the turnaround, belief in the strategy and confidence in leadership. This alignment between management and our teams ensures the sustainability of the turnaround process. On the back of the positive trajectory established in the last financial year, in FY '26, we needed to deliver consistent and sustainable progress across the business. I am pleased to report that our group results reflect this. As I mentioned before, the key highlights of the current results is the sustained growth trajectory with expansion across all the key financial indicators. In the first half of FY '26, the main driver was the solid performance of our South African cement business. The second leg of our performance was in Zimbabwe, with EBITDA increasing and EBITDA margin recovering strongly in Q2. As we presented before, the Awaken the Giant turnaround is anchored by 4 key pillars and 8 supporting commitments. We track performance of these initiatives, both at operational level and at [ESCO] level to embed these priorities into our company DNA. While we have made progress across all 4 areas, there is still room for improvement. Two areas have developed faster and continue to gain traction. Regarding the Less is More pillar, simplification and standardization are delivering value and a new wave of initiatives will bring additional gains as we further optimize our production and sales mix. The cost mindset pillar has had a radical impact from the beginning with strict control over noncore expenses, overheads reduction and supply contracts renegotiation. Importantly, this cost discipline is expanding and will have a compound effect in the periods ahead. The operational turnaround, even with a well-maintained asset base takes more time. We are progressing and taking firm steps. We are now in the first year of our 3-years plant performance improvement plan, which has established benchmark metrics, clear targets and robust actions plans. The supply chain area is more advanced and continues to drive results. The in-source new logistics area continues to deliver material savings. The centralization of procurement last year, coupled with streamlined processes is transforming procurement from a reactive function to a proactive driver of cost savings and working capital efficiency. On the commercial pillar, as I mentioned before, the progress will go hand-in-hand with our competitiveness evolution. As our competitiveness improves, we are increasingly able to roll out our commercial strategy. We have started to combine higher revenue with growing margins. Market share at all costs has never been and will never be our strategy. The giant is moving, powered by productivity and efficiency gains, disciplined product mix with savings being realized throughout our cost base. Let me take you through the results per segment and introduce the operational metrics driving our business performance. Turning now to the South African cement business that delivered remarkable positive numbers. In the context of a low growth market and intense competition, our performance marks a material improvement driven by consistent execution and clear focus. EBITDA growth of 31% period-on-period and EBITDA margin expansion to 17.5% are particularly noteworthy. When it comes to revenue, we must clearly separate the 2 quarters of the period. In Q1, the abnormal and persistent rainfall affected both sales and production in our Slurry and Dwaalboom plants. In the second quarter, we saw a strong rebound of our sales across key regions, such as Mpumalanga, Limpopo and the Western Cape. Overall, cement sales grew by 2% due to a strong 10% increase in the second quarter. This growth not only reflects pockets of higher demand, but also demonstrates our improved competitive position and ability to recover market share profitability. Our operational discipline is evident in the 5% reduction in cash cost per ton. To secure contribution margin per ton and gross margin growth, the cost management in place was critical and marked by tight control of variable and fixed costs, outperforming inflation, significant logistics savings after in-sourcing the function and continued overhead savings. Following the quick wins achieved in outbound logistics with a rand per ton per kilometer cost reduction of 14% in FY '25, in H1 FY '26, we delivered a further reduction of 13% comparing to the previous period. It is noteworthy that we have more logistic initiatives planned to benefit FY '27. On the operational front, we have seen real progress, driving both lower variable cost and carbon emissions, including higher production levels of clinker and cement in our integrated plants, lower clinker incorporation and a 3 percentage point improvement in the kilns OEE. In short, a very positive performance and trajectory in South Africa. Turning to our South African material business. Overall, revenue declined by 7% to ZAR 494 million. EBITDA was ZAR 14 million down from ZAR 28 million in the same period last year. The reduction in EBITDA was driven by the ash segment. The ash segment with volumes down by 42% period-on-period continues being impacted by some of our customers moving to low-quality unclassified ash. In ready-mix, period-on-period, volumes fell by 8%, mainly due to adverse weather condition in Q1. We are seeing projects ramping up towards the end of the second quarter. Aggregates, on the other hand, delivered positively with volumes up 11% period-on-period. However, the cost improvement were offset by an increase in a noncash rehabilitation provision, leaving EBITDA flat comparing to the prior period. Turning to Zimbabwe. In the first half of the year, we continue to deliver EBITDA growth and record level of cash generation, underscoring the strength of our business and the potential of the market. Revenue for the first half surged by 25% to USD 106 million, reflecting a robust market demand. The demand for cement is high, and PPC is uniquely positioned to supply into this growing market. With our premium brand, national footprint and the full range of product, we are able to deliver consistently to our growing customer base. EBITDA grew by 13.6% to USD 25 million with an EBITDA margin of 23.6%. EBITDA and EBITDA margin strengthened considerably in Q2 and have remained strong. The previous year assessment of root causes of the operational inefficiency and unplanned stoppages led to a target 3 years plan to improve equipment reliability at our Colleen Bawn plant. These root causes do not need to be addressed only with CapEx, but with planned maintenance and the right expertise. To this point, PPC Zimbabwe has entered into a technical agreement with Sinoma overseas to strengthen our local capabilities. The Q1 Colleen Bawn plant stoppage was the commencement of this 3 years plan. This stoppage in a context of a very high demand lead to a higher consumption of imported clinker and consequently, higher cash cost per ton of cement. Since then, operations have normalized, and we are operating at our expected margins. The recent introduction of slag-based product is also already having a positive impact. The reduction of clinker content by 5% to 10%, depending on the product support cost efficiency, brings additional cement production capacity and reduce CO2 emission. In summary, Zimbabwe remains a strong contributor to the group, and we are well positioned to continue benefiting from a high demand context. Again, I will share my confidence in our turnaround process. This early delivery in FY '25, combined with compound momentum in H1 FY '26 has only strengthened that confidence. As we look ahead of FY '26, our message remains unchanged. We started this year with a strong foundation, and we are determined to build on that success. The Awaken the Giant strategy remains solid. In South Africa, relative to the prior period, we expect EBITDA to maintain a growth trajectory in the second half of FY '26. This is particularly significant given that we will compare against an outstanding H2 in FY '25, which we saw over 80% growth period-on-period. Our commitment to cost discipline and quality revenue growth will sustain this positive trend. In Zimbabwe, we anticipate another record year with EBITDA expected to surpass last year's high and additional dividends are projected in the second half of FY '26. As I mentioned, the market is very active, and we are focused on capturing this demand. Importantly, certain key projects will also go live in FY '26 and further progress will be made on our strategic initiatives. These investments are designed to unlock new value, drive efficiency and position us for both short-term gains and sustainable growth well into the future. As Brenda highlighted, the discipline in capital allocation will remain, ensuring a solid balance sheet and financial resilience. In summary, both group EBITDA and EBITDA margins are expected to increase in FY '26 from FY '25 levels. The giant is not just a wake, it's moving with a clear direction. As I mentioned, we are also getting real traction on strategic projects. These are not longer just plans for the future. They are becoming the reality of a more efficient, environmental-friendly and sustainable PPC. Alongside our turnaround initiatives, we have been diligently implementing structural projects that are reshaping PPC. Let me start with our new solar project, which perfectly align returns and environmental sustainability. In South Africa, we have rolled out the installation of solar facilities at our 2 main plants, Dwaalboom and Slurry. Each site has a peak capacity of 10 megawatts. Both plants are already generating electricity. And once fully operational, this solar installation will supply approximately 30% of each plant annual electricity needs. The financial impact in FY '27 will be substantial. In Zimbabwe, the solar project is advancing with our partners to install a 20-megawatt solar plant with battery backup at our Colleen Bawn. Since currently after logistics, electricity is our main cost there, the impact is expected to be significant. This project is planned to go live in FY '28 as defined in our strategic plan and will be a step change for PPC. This investment will not only improve our cost base and strengthen our energy security, but also demonstrates our commitment to environmentally sustainable operations. In the middle section, we have the new Western Cape plant. I am pleased to report an update on the RK3 project, a game changer for PPC and the South African cement industry. The project remains on schedule and within the approved budget. We have made progress in several fronts. Engineering and design are nearly complete. Manufacturing of key equipment has started with the first delivery already on site and civil works are advancing as planned. Importantly, our project governance, cost control and reporting structures remain robust and effective. Overall, the RK3 project is progressing, and we remain confident in our ability to deliver this critical investment on time and within budget. Turning to the last image, the calcined clay testing. We are proud to have conducted industrial trials of calcined clay in the Western Cape. Calcined clay, a new extender could be a true innovation in the cement space in Southern Africa. As we align our carbon emission targets with our business performance targets, this innovative technology is a sustainable cementitious product alternative, potentially at a considerably lower cement production cost. We are in early stages of the trial, but we are excited about its potential. This slide has not changed since we presented in our last Capital Market Day. The plan and goals for FY '30 remain in place. This image tells a simple but powerful story. We set out a clear and ambitious plan, and we are already ahead. We started by rebuilding PPC's foundations and driving significant improvement step by step. The Awaken the Giant strategy is our guide, and the results are visible. Stronger EBITDA and EBITDA margin, rising ROIC and consistent growth in cash generation. We are delivering. And as we look ahead, our plan remains unchanged. We will consolidate the gains in FY '26 and FY '27 to set the stage for the next step change in FY '28 with the RK3 plant fully operational. Our targets are ambitious and achievable, sustainable EBITDA margins above 21% and ROIC well ahead of our cost of capital by FY '28. This is not about short-term wins or changing direction with every headwind. It's about building for the long term, staying the course and proving that we do what we say. The foundations are now strong. The momentum is real, and we have a track record of delivery. The present and future of PPC are exciting, not just because of the results we have delivered this past 18 months, but because we have proven what is possible when an aligned and experienced team execute the right strategy with discipline and a clear understanding of our business. Our strategy remains to continue making PPC a stronger and more competitive business on that, consistently delivering improved financial performance and generating real cash back profits. This journey has already begun, and the results are concrete and tangible. Yet, as proud as I am of these achievements, the future holds even more exciting chapters for PPC. Thank you for your support and for being part of this Awaken the Giant journey. Now we will have time for some Q&A. Unknown Executive: Good morning. We have a number of questions here, and I'll just take them in order as they've come in. Matias Cardarelli: Okay. That's good. Unknown Executive: The first 3 questions are all from Titanium Capital, Charles Boles. On Slide 5, you talk about the importance of a strong asset base. Is there an issue in Zimbabwe with the age/efficiency of the plant? Is PPC at risk if Dangote proceeds to build capacity in Zim as speculated in the press? Matias Cardarelli: Okay. First of all, Charles, thank you very much for your question. I don't know exactly when you made that question, but probably that address the main things about your question about Zimbabwe. Yes. Of course, we are updating the technology in Zimbabwe, and we are improving our maintenance there. That is why we commented today that we have put in place a 3 years plan that started this year with the first shutdown in Q1 of FY '26 in our Colleen Bawn plant. The second thing that we are doing in Zimbabwe, as you have seen in the presentation, is we are starting our solar project, which is going to bring a significant savings and also is going to improve significantly our CO2 emissions. The third thing that we commented today is that we have signed an agreement with Sinoma Overseas recently to be able to have the support of the biggest and most important engineering cement company in the world to upskill our talent in Zimbabwe to make all this process faster and more sustainable. On the other hand, please remember that we have the newest plant in Zimbabwe in Harare. And overall, we have good assets there. But yes, it's very important to update and to well maintain our assets to run there. In the case of Dangote, allow me to say this respectfully. I think it's very important to differentiate between announcement and reality. We all read that announcement when Aliko Dangote visited the President in Zimbabwe last week. We don't have any indication that, that project is going to materialize anytime soon. We monitor all of those news. So we don't see that something that is at least for the moment, real. I think I will take advantage of this question also to comment something also in the direction of trying to differentiate between announcement and reality. It's probably that in the following weeks, we are going to see an important announcement in the South African cement industry with probably the arrival or the change in some shareholders of one of the cement companies. I'm sure that, that situation when it's going to be announced, is going to come with a lot of announcement of a big investment, et cetera. I think it's very important for investors nowadays to be able to clearly differentiate between what people say and what people really do. This will help, I think, investors to take the right investment decisions. The second one... Unknown Executive: The second question also from Charles. We understand there is a dispute with Cashbuild. Could you give us some understanding what this dispute relates to? Matias Cardarelli: Well, Charles, I'm not aware of any dispute with Cashbuild. Honestly, Cashbuild is an important customer for us. We have a proactive working relationship with them. Yes, what is true is that Cashbuild approach, generally speaking, is mostly about price. They are looking for the lowest price cement price that they can get. And for us, it's very clear, our driver is contribution margin. We are not in the game of dropping prices to protect volumes or to gain market share like many other cement producers do in South Africa. So we don't have any dispute that really as far as I know, with Cashbuild. We have good working relationship with them. And Cashbuild and any other customer have the right to decide if they would like to buy our product or they prefer to buy product for another cement company. We believe that PPC put in place the best value proposition, which is not only price but also quality and services. So this is our proposal. No, I'm not aware of any dispute with Cashbuild that we have. Unknown Executive: Thanks, Matias. Last question from Charles. Afrimat has increased output from the Lafarge facilities. There is also more capacity coming online in Mozambique plus growing imports. Do you expect this will put cement pricing under pressure going forward? Matias Cardarelli: Well, it's a strange question because that Afrimat is bringing more capacity to the market. That is the question? Unknown Executive: From the Lafarge facilities. Matias Cardarelli: Because this is the public information. Afrimat had 2 major breakdowns in the past 6 months in both kilns, particularly one of them, a very serious one that prevented them for supplying cement to the market. Actually, there was a kind of shortage of cement at the moment and some Afrimat customers were looking for other supply sources. And Afrimat also needed to go to buy clinker that was also not easy for them because there is not a lot of extra capacity clinker in the market. So I'm not sure what do you mean by Afrimat increasing output. What we have read and listened from Afrimat is that Afrimat is saying that it's going to increase their presence in the 32.5% market in the inland region, meaning South Thimphu, Malanga and Limpopo, which is important to clarify that, that is a market that is the red ocean of the red ocean in the country. It is the low-strength market where operates all the blenders, all the importers, all the integrated plants. So that announcement from Afrimat probably indicates that, yes, there is going to be an increased price pressure on that particular segment, which is a segment that -- for us is not very relevant. We don't -- that is just a small percentage of our sales, it's not a market that for us is relevant. So probably, if AfriSam tried to get some market share in that red ocean market, we might see some price pressure, but in that particular market, the low strength 32.5 market in the inland region. Unknown Executive: Thank you. Moving on to [Marco Rus from OIG Invest]. Given the material USD exposure from RK3 and your current [FEC] position, what is management's outlook for the ZAR USD over the next 12 to 24 months? And how do you plan to manage or hedge your ongoing dollar exposure going forward? And Brenda, before you answer that question, there is a second question, which is related from [Clifford Wrye], which is also asking what are the expected future exchange losses if the rand to the USD remains as is? And what was the hedge price on the USD and what considerations were taken to come up with the hedge option? So perhaps you can answer all of those, I think, at the same time. Brenda Berlin: Of course. So just to break it up into maybe bite-sized chunks. So first of all, we took a decision to hedge the full U.S. dollar exposure for RK3. We averaged at a rate at $18.50. It was the rate that the Board -- when the Board contemplated the business case, it was based on that exchange rate for the CapEx. So the full U.S. dollar exposure is hedged. On the unrealized losses, it's a little bit -- it's a question of timing. So we've realized -- we've got unrealized losses now as we mark-to-market of the hedges. Had we raised the creditor, there would have been matching gains. So what's going to happen in our income statement over the next 18 months is there will be a match. There will just be timing differences. So overall, gains on the creditors will offset losses on the hedge. In terms of hedging instruments, I think that was the last one. We looked at a range, a big range and ultimately decided on sort of quite clean, simple forward exchange contracts taken out over the period in which we expect to spend the CapEx. Unknown Executive: I have a few questions here from Warren Riley of Bateleur Capital. I'm going to take them one at a time, just I think it's easier to ask. Can you talk to outlook for fixed capital investment in South Africa? Have you begun to see any larger projects coming to tender? And is this majority private sector investment? Matias Cardarelli: Paulo can take this one. Paulo Marques: Thank you for the question. Well, at the moment, we are still seeing fixed gross capital formation at a depressed level. But on a more positive note, we see some movement on those tenders process. We know that those tenders process are long given that are public entities. And in terms of the dynamics and the movement, it's positive. In terms of works on the ground, no, we haven't still started seeing some of -- all of those projects coming to a start. Unknown Executive: Thanks, Paulo. The second question from [Warren] is what are the SA Botswana cement volumes growing at in Q3 to date? Matias Cardarelli: Sorry, we don't share that information. About. Unknown Executive: Sorry, Warren, well, can't give you an update on that. The third question is, can you provide the exit run rate for Zimbabwe EBITDA margin in Q2? And can this be sustained into the second half of FY '26? And then I think combined because I also talked to Zimbabwe, what impact is the 30% import surcharge having on demand and domestic pricing? Matias Cardarelli: The run rate for EBITDA margins in the second half of FY '26, that is the question, is it? Unknown Executive: Yes. So basically... Matias Cardarelli: We expect a range between 25% to 30% EBITDA margin there and definitely could be sustained. I mean this year probably has been -- not probably as we shared, has been impacted because when we were in the long shutdown of our kiln in Colleen Bawn was when the demand started to surge. So we needed to import more clinker, and that is why that EBITDA growth, cash flow growth, dividend growth, but EBITDA margin was temporarily impacted. So the run rate for the second half would be an EBITDA margin between 25% to 30% and sustainable. Unknown Executive: And the other question, is that what the impact of the 30% import surcharge, so that's irrespective of... Matias Cardarelli: Yes. I mean it has been important. But I mean, not because we have particularly gained a lot of market share because our position there is very solid. And actually, we sell everything we produce. So I think it's important in terms of giving the industry, the support you expect from government to make big investment. As you all know, we are a capital-intensive industry, which requires big investment. And this kind of decision from government in Zimbabwe gives the industry the encouragement to invest in the long term. That is... Unknown Executive: Thanks Matias. And expecting there are no further questions. Matias Cardarelli: Okay. Thank you very much. Have a nice day.
Operator: Good day, ladies and gentlemen, and welcome to the Old Mutual Q3 Voluntary Update [Operator Instructions] Please note that this event is being recorded. I will now hand you over to the Head of Investor Relations, Langa. Please go ahead. Langa Manqele: Thank you very much, and good afternoon to everyone who's joining us, and good morning to those who may be dialing in from the space. My name is Langa Manqele, as introduced. I head up Investor Relations. On the call with me is Jurie, our CEO. He will be leading the call, and Jurie will be assisted during the Q&A and comment session by Casparus, our CFO; as well as Ranen Thakurdin, who is presently our Chief Accounting Officer. I will now turn over the call over to Jurie. Thank you. Johann Strydom: Thanks, Langa. Good afternoon, everybody, or good morning [indiscernible] good to be with you. I think I'm sure you have in front of you the operating update that we put out on the 18th of November. So maybe just by intro from my side, it's been -- I think we had our Capital Markets Day towards the end of October, where we put out the important metrics that we're measuring ourselves on and be reporting on going forward in our medium-term targets. We're not reporting on those metrics in this operating update. But as we put -- as we made clearly the update that from next year onwards, from sort of Q1 numbers onwards, we will be reporting on those. I think internally, since the Capital Markets Day and as we head towards the end of the year, the focus has moved, I think, about as we spoke around taking those targets and operationalizing them into the business planning process. We've managed to catch the planning cycle to be able to do that as well as the scorecarding process. So very much moving from sort of strategy into execution. And so that's the focus, internally, as we ahead towards end of the year. I think just a couple of comments on the operating update we put out. And I think you will have noticed that there's not major changes from the trends that we reported at the half year. So the Life APE sales continuing to, fall by 1% and gross flows flat. A decline in net planned client cash flow for, again the reasons that we reported half year, particularly in the low margin outflows and investments and single big outflow had an impact there. Gross written premiums on the noncovered side are at 5% on the P&C side. And loans and advances also 1% down impacted, there of course, there was a sale of underperforming loan book impact on that. So those are the metrics that we put out there. I think Langa, I'm happy to go to questions for the conversation. Langa Manqele: Thank you very much, Jurie. Judith, kindly open up the call. I do not see yet the queues on the Q&A. Please confirm on your side if you do. But otherwise, if you could just remind the participants on how to put in their questions through. Operator: [Operator Instructions] Our first question comes from Baron Nkomo of JPMorgan. Baron Nkomo: Just 2 questions. Firstly, are you able to give some color on the evolution of your CSM since June 2025? And then secondly, can you comment on Old Mutual Insure's underwriting performance so far in H2 relative to the strong first half performance we saw. Langa Manqele: Thanks. Thank you. Over to you. Casper Troskie: So on the CSM, unfortunately, I'm not able to give you more color on the evolution of CSM since the half year. We'll obviously be able to give you full reconciliation at the year-end. I was trying to assure underwriting margin, we haven't seen any material impacts that still show positive margin, but we obviously reported a very high number at the half year. So I would expect that to normalize more to within our updated range or at the top end of our updated range. Operator: The next question comes from Harry Botha of Bank of America Securities. Harry Botha: Can you comment on the Life APE sales that you're seeing in Personal Finance, excluding guaranteed annuity sales? And you also noted strong growth in retail gross written premium in Old Mutual Insure, if I understood correctly. H1 was up 5%. So it sounds like growth has increased. Can you comment on what's driving that increase? Casper Troskie: Well, your comments specific to -- I'll just deal with it. I guess if do you look at the Personal Finance sales, guaranteed annuities were down close to 40%. So it's the majority of the reduction -- overall reduction [ in 9% ] that you're seeing period-on-period. So that's what's driving that. We are seeing -- we saw a slight uptick in the recurring premium sales. So the biggest move there is guaranteed annuities [indiscernible] pulling the piece of [indiscernible] your second question? Harry Botha: Just regarding the gross written premium in retail segment within Old Mutual Insure, it sounded like it was up more than 5% at June. Casper Troskie: I'll just check on that and come back to you. We can go to the next questions. Operator: Our next question comes from Bradley Moorcroft of Peregrine Capital [Operator Instructions] Our next question comes from Francois Du Toit of Anchor Stockbrokers. Francois Du Toit: Can you hear me? Johann Strydom: Yes. We can. Francois Du Toit: Can you maybe comment on your solvency level, maybe just directionality in the quarter and maybe factoring in buybacks as well. I know you don't like telling us whether you're buying back or not and whether you like the price to buy back or not. But maybe if you can just give a sense of how much you executed in the last quarter on your buybacks? That's the first question. Obviously, that's the solvency level will be a function of that, I guess, as well. Your -- second question, your gross flows, I think, was quite a bit stronger at the half year in terms of percentage growth. Maybe just comment on the reasons for the slowdown. I think you've mentioned the annuity sales, but it seems like there's a further slowdown there since the half year. But nonetheless, the net flows improved from the half year to outflows, but it's not as big outflows level as we had at the half year. So maybe can you just comment on your persistency or client retention in the light of better net flows and whether you're seeing positive lapse experience variances or improved levels compared with the half year. Just a sense of what's behind the improved net flows and weaker gross flows. Casper Troskie: Okay. Let me go to solvency levels first. So Francois, what we -- last I looked, we had done just over 10% of the buyback, and we are obliged to on a regular basis publish what we've done. So that's in the market. So if you just look out for those, you'll see that. And then in the quarter, in terms of solvency ratios, I would expect most insurers have seen a decline in their solvency ratios given the fact that the pre-strike equity shock increased in that quarter. I think it is increased by about 4%, 5%, which means your capital requirements for any equities that you are holding on -- whether they will have gone up. So -- and at an all-time high, I think that the 1% away from the top level of stress that there can be. So I would have expected and we correspondingly, we've seen a reduction in [indiscernible]. Ranen Thakurdin: Just to add to Casper's comments, the share buyback was fully allowed for in the -- as a reduction to funds in our interim numbers. So as we execute the buyback, it won't affect our solvency ratios. Casper Troskie: Okay. On the second -- on gross flows, the second point actually you're right. So the -- the Old Mutual investments had a higher base in quarter 3, 2024. So this year, we are -- so comparing against the higher base that's impacted from the current year growth. And then as we said earlier, we had much lower fee from inflows to the points earlier we made. But we also had muted inflows in wealth, whereas wealth was a really strong performer last year. So we've seen muted inflows in wealth. Hopefully that helps. So overall, [indiscernible] savings were down 1% from a gross flow perspective, and that's the main reason in Old's Mutual investments down 18% from the prior year. Unknown Executive: And just to confirm earlier question, the 5% gross written premium growth of Old Insurance the retail growth rate was quite similar to the total. Operator: Next question comes from Marius Strydom of Austin Lawrence Gidon. Marius Strydom: My question is about OM Bank. At the open day or the Capital Markets Day, you mentioned you had 145,000 clients and you were adding 5,000 a day. So could you please give us some indication of whether you've seen that kind of daily addition maintained since the Capital Markets Day or whether it slowed markedly or any other information you could provide us around your traction? Casper Troskie: So Marius, I think on the weekend, I think to note that we were about 200,000 and that run rate is going at about 300 accounts a day. Operator: Our next question comes from Bradley Moorcroft of Peregrine Capital. Bradley Moorcroft: Can you hear me now? Casper Troskie: Yes.We can. Bradley Moorcroft: Sorry about the issue earlier. Also a question on Old Mutual Insure top line. I noticed that the growth has slowed from 9% at interims to 7%. I mean any further color you can give there in terms of the slowdown, persistency challenges, increased competition would be very helpful. Langa Manqele: Over to you, Casparus. Casper Troskie: I'm trying get a performance [indiscernible] . Langa Manqele: I will come back to you with that detail. Judith, may I check are there still any questions? I can see anyone who is on the queue at the moment. Operator: No, sir. At this point, there are no further questions in the question queue. Langa Manqele: Okay. Thank you very much. I will hand back over to you, Jurie, just to -- I think there's one question that I see. Judith, please check, I think it's right. Operator: Yes, correct [indiscernible] of HSBC. Unknown Analyst: I just had a question probably not related to Q3, but are you planning to take any restructuring charges in relation to your cost program? And will any of that be allocated to full year '25? Casper Troskie: Just to understand correctly. You asked whether we are going to be adding any further restructuring provisions. Is that the question? Unknown Analyst: Correct. Casper Troskie: To the extent that you have to meet quite a lot of conditions to have a restructuring provision. So if you've met all the conditions that are required at year-end for a restructure, i.e. you've identified people, you've made the announcements, then it can be accrued for the year-end. If you're not in that position, you have to incur the cost when you actually do that restructure. So there will be additional costs in the second half relating to headcount reduction, but those have largely been dealt with. So I'm not expecting a large provision outstanding at 31 December, i.e., a restructuring provision for future costs. We'll see the one-off costs coming through in the second half. I hope that helps. Langa Manqele: Thanks, Casper. Could you please just do a final round and check if we have any questions left and let's take those. Operator: [Operator Instructions] We have a follow-up question from Harry Botha of Bank of America Securities. Harry Botha: Just a follow-up around the loan growth issue. I think you noted the sale that had an impact on growth. What is your outlook for growth? How quickly do you see loan growth in Old Mutual Finance improving? Langa Manqele: Than you. Over to you Casper. Ranen Thakurdin: Yes. So Harry, as we mentioned earlier, part of the reason that the loan balances are flat as we were exiting specific pieces of the book. We are expecting to see better growth rates coming out of our loan book as we still very responsibly improve our lending. So we are maintaining tight credit criteria, but we do expect that book to grow going forward. Langa Manqele: Operator, kindly check if we have any outstanding questions. Operator: Our next question comes from Jarred Houston of All Weather. Jarred Houston: Just checking you can hear me? Casper Troskie: Loud and clear [indiscernible]. Jarred Houston: Thanks for the update. Just a question on your investment result, your shareholder investment return. Obviously, in the first half saw a very strong number. Is it fair to assume just given what's happened with markets both locally and in the rest of Africa as well as bond yields, it's fair to assume current run rate is a continuation of that strong trend. Casper Troskie: Yes. I think it's fair to assume. Investors should just recall that we do have collars around -- so we have a protected equity structure. So upside is limited, but we do try and roll those collars on a regular basis in tranches to manage the position over time. But, yes, you should still see strong investment performance coming through in line with the markets... Langa Manqele: [indiscernible] it sounded like you're going to ask a follow-up? Jarred Houston: Yes. Langa, just the comment earlier about the progress on the buyback. I just want to clarify did Casper say only 10% of the buyback has been completed. And then just a question mark on -- we've obviously seen quite a big step-up in market volume as a result of an index outflow. Is the group participating in the higher level of market volume? Or is it just slowly ticking away over time. Langa Manqele: Casper, would like to comment? Casper Troskie: Yes. So obviously, we would participate in the higher market volume, if that's consistently happening. We set -- we have to work within the limits. As an issuer, there are limits around -- so we can't move the market [indiscernible]. So we have to work within those limits. And then we have -- we're doing this buyback with this mandate with 1 or 2 of the large banks. So they have specific parameters to work with them. The 10% was a few weeks ago that might have gone up in the last week or 2. Ranen Thakurdin: Just over ZAR 400 million at the moment. Langa Manqele: Thank you, Casper and Ranen. Operator, I'm comfortable that we round up and maybe take 1 last question. Operator: Final question comes from Marius Strydom of ALG. Marius Strydom: Firstly, your South African Asset Management performance in the third quarter versus the first half. Considering higher AUMs at 30 June and continuing strong market performance, should we expect a decent acceleration in your earnings run rate since the half year? And then the second question, considering the lapse assumption changes that you made and the management actions that you've taken, have you seen some improvements in your lapse experience at MFC? Johann Strydom: Marius, just to remember, very small part of that base is equity half. So really, you're looking at sort of a balanced mandate. The assets that you have, for example, like, we're seeing pressure on credit spreads. So the origination targets are quite there might but on the flows. And then the alternatives, you're looking at much longer valuation cycle. So I would expect the force to increase in the third quarter, but there are quite a few moving parts. Ranen Thakurdin: So Marius, just remember that most of our IFRS 17 products on BFA, we get value in the equity market that goes to the CSM that, it doesn't drop through to earnings. So you will see that largely coming through in the CSM. Marius Strydom: My question is really related to the asset management businesses. So those that are not -- don't form part of the CSM. Langa Manqele: Thank you, Casper. And thank you, Ranen. Marius Strydom: Sorry, Langa, there was 1 more question. Johann Strydom: Sorry, Langa, there was a question from Marius, on MFC persistency. I mean we obviously are progressing with the management actions, but I think it's too early to call a material improvement yet. Langa Manqele: Operator, I don't see any questions I'm comfortable to wrap up here and hand back to you, just to wrap up the call for us. Thank you. Johann Strydom: Okay. Well, thanks for being with us, everybody. Yes, I think there were 1 or 2 questions which we're happy Langa to get back to the individual. But for the rest, thanks for the conversation. Yes, I suspect our next conversation will be in the new year. Langa Manqele: Thank you very much. Operator: Thank you. Ladies and gentlemen, that concludes today's event. Thank you for joining us, and you may now disconnect your lines.
Operator: Good afternoon, and welcome to the Manolete Partners Plc Investor Presentation. [Operator Instructions] Before we begin, I would like to submit the following poll. And I would now like to hand you over to CEO, Mena Halton. Good afternoon to you. Philomena Halton: Thank you. Good afternoon. I'm Mena Halton, CEO. I was appointed as CEO in August of this year, but I'm not new to the company. I joined Manolete in 2014, and I've always been and remain very close to the operation of the business. I'm joined today by our Head of Finance with Rachel Lindley-Janes. In terms of agenda, Rachel will take you through our financial highlights for the half year. I will then go through a company overview, KPIs and some case studies. Following that, Rachel will take you through our financial results in more detail, and we will finish with current trading strategy and investment case, followed by Q&A. Over to you, Rachel. Rachel Janes: Thank you, and thank you all for joining us today. We're just going to have a brief look at the financial highlights of this interim results presentation. So total revenue is down at 12.7%. So that is down 12% year-on-year -- year on half year on half year. Realized revenue is up GBP 14 million, which is down 7% on the same period last year. Gross profit of GBP 4 million, down 10% on the same period for the prior financial year. Gross profit margin is up at 31%, fairly stable at 30% from the last half year. Overheads has stayed generally flat, but we will go into those in more detail at GBP 3.9 million versus GBP 3.7 million. EBIT is at GBP 0.1 million profit. Same period last year was GBP 0.7 million profit, and there is some one-off effects in there, which you need to take into account, which will be considered later on as well. Net cash generated from completed cases is actually up 3% at GBP 7.8 million. Our cash balance was up 67% at GBP 1.1 million, and our net debt has decreased by 9% to GBP 10.8 million. As Mena mentioned, we'll talk about the financials in more detail later on in this presentation. But for now, back to Mena. Philomena Halton: Thanks, Rachel. So starting with the basics. What is Manolete and what do we do? So we're the U.K.'s leading insolvency litigation financing company. We're often referred to as a litigation funder, but that actually is a misnomer as we purchase claims for the most part. And we have a unique business model, which is not offered by competitors. So we purchase claims from insolvent U.K. companies, taking assignments from the liquidator or the administrator. And those liquidators or administrators are office holders and they are insolvency practitioners and they are licensed. So purchasing the claim gives us full control over the conduct of the claim, settlement, costs and management. And insolvency is the only area of law where this is possible. Outside of insolvency, it's not possible to assign a course of action. So on assignment, we are the claimant. So we are in the driving seat. We fully control litigation. And importantly, we can draw a line if needed. And this contrasts with litigation funding where the funder is effectively a checkbook only and cannot control the litigation. So in terms of our track record, we financed over 1,700 claims. We've completed more than 1,300, and we've delivered in excess of GBP 175 million. And we have a consistently high return achieved across the 16-year trading history, as you'll see from a later slide. So we provide a solution to a problem faced by the insolvency market. Office holders routinely uncover actionable claims in insolvency, such as breach of duty against the former directors, antecedent transaction claims, overdrawn director loan accounts and claims against advisers or banks. But the insolvent estate will typically lack funds to pursue litigation. And if there are funds in the estate, the office holder may be reluctant to risk those funds on litigation. If it's a company claim, it will be immediately met with a security for cost challenge. If it's an officeholder claim, the IP is personally liable with an adverse cost. So he really is between a rock and a hard place. So we provide the solution to that problem. We purchased the claims by way of assignment. That gives the insolvent estate immediate value with an upfront payment, so that helps the IP with his WIP. We assume all risk, cost and management of litigation, and we provide the IP and the estate with an indemnity in respect of adverse costs. So we completely derisk the estate and we derisk the IP. On realization, the net award is divided between Manolete and the estate and agreed shares. And the rising volume of U.K. insolvencies continues to expand the pool of claims available to us. So the market, there are 3 types of corporate insolvency, which give rise to claims that we can take assignment of. So the first is the creditors voluntary liquidation. This is the bulk of the insolvency market. The word creditors in the title is slightly misleading because a resolution for winding up an appointment of a liquidator is actually passed by the members of the company. And in most SMEs, the members and the directors are one and the same. So actually, these are director to instigated liquidations. And these typically give rise to lower and mid-value claims such as overdrawn directors loan account, breach of duty and antecedent transactions. As you see from the graph, there is a steady rise in the number of CVLs. So that is a really good source of claim referrals for us. And then we come on to compulsory liquidations. This involves a winding up petition issued in the court and is usually presented by a creditor. And post-COVID, compulsory liquidations have increased year-on-year, as you can see from the chart. And what's particularly interesting about compulsory liquidations is that HMRC is a major petitioning creditor. And that's good for Manolete because claims arising in compulsory liquidations on HMRC petitions can frequently give rise to high-value claims against directors and connected parties in relation to areas such as tax avoidance, VAT fraud and payroll fraud. And we have particular expertise and good track record in these areas, and these claims tend to be high value. And then the third form of insolvency, which gives rise to claims within purchase is administrations. Now this is the more common insolvency path for larger U.K. companies and administrations have taken longer to return to pre-pandemic levels of activity. Primarily in administration, the focus is restructuring and rescue, perhaps a trading administration or a sale of the business is a going concern. But in addition to those aspects, there will be claims. An administrator is under a duty to investigate and realize claims just as a liquidator is. And these claims tend to be higher value. So the administrations tend to give rise to higher value breach of duty and antecedent transaction claims. And also claims against banks and claims in professional negligence, such as claims as against auditors and solicitors. And again, these tend to be high-value claims and more importantly, they are insured claims. Moving on to the next slide. We are the dominant third-party funder in the insolvency market. We are the 5-time winner of the industry's TRI award for litigation funding, and we're the only firm to be ranked band 1 for insolvency litigation funding in the Chambers guide every year from '21 to '25. I know there are a lot of awards and lots of talk about awards, but this award is very much a recognized badge of honor in the legal and insolvency world. The category for insolvency litigation funding as opposed to mainstream funding was introduced in 2021, and Manolete has been ranked band 1 every year. So no other funder has ever been ranked band 1, and we hope that, that continues. In terms of top market positioning, we have full U.K. nationwide coverage, ensuring engagement with insolvency practitioners and insolvency solicitors across the country. So sometimes claims come to us direct from the IP. Sometimes claim is referred by solicitor on the IP's behalf. So it's really important that we maintain good relationships with both the IPs and external insolvency lawyers. We have a fantastic in-house legal team, and they are the engine room of the business. They source the work, they generate the cash realizations and they grow the business. So as the legal team grows, the business grows. When I joined Manolete in 2014, there was a legal team of 1, and that was me. It is now 18 very experienced and very talented insolvency litigation experts. We maintain good relationships with these key stakeholders in the insolvency business. So that's [ R3, ] ICAEW and the IPA. And these partnerships confirm our position at the center of the insolvency profession and support our exceptional referral network. We regularly present insolvency industry events, and we also produce our own series of webinars, podcasts and presentations. We are very visible and very active in the market. So the next slide is business mix. And insolvency claims fall into 2 categories. There's the company claims so their claims that existed before they went into an insolvency process, the claims vest in the company. And then there are the office holder claims which arise on the insolvency. But importantly, both categories of claim can be assigned. So typical company claims include breach of duty and overdrawn director loan account. Office holder claims include claims such as transactions undervalue and preference. To give you an example, a director gifts GBP 100,000 to his wife 6 months prior to CVL at the time when the company is insolvent. That's a transaction at undervalue and the wife must repay. If the GBP 100,000 was repayment of the loan, that's a preference. And again, the wife must repay. And there is an overlap between claims. So in the example, there is a completing claim against the director in damages for breach of duty because he's the party who caused the company to make the payment, which was either a transaction at undervalue or a preference. There's a pie chart there showing the percentages of case types we deal with. As you'll see, we do a lot of directors' loan accounts, which I've referred to previously. Most SMEs will operate a DLA, nothing wrong with that. But of course, it's a debt and it must be repaid. In certain circumstances, the DLA may also be breach of duty. A director may be liable for the overdrawn DLA of his co-director in breach of duty and a Co-Director may also be liable under Section 213 of the Companies Act if the DLA hasn't been approved under Section 197 of the Companies Act. Then we have unlawful dividends. If the company declares a dividend without sufficient distributable reserves or without complying with Part 23 of the Companies Act, and that dividend is unlawful and it's repayable by the shareholder. Again, there's a corresponding breach of duty claim against the director because he's the party that's procured the company to pay to declare the unlawful dividend. Breach of duty, there's a lot of overlap with the other claims, but you can have stand-alone breach of duty. A good example of that would be the director who files full VAT returns that incurs the company in a large penalty imposed by HMRC. The director is then liable in damages to the extent of the penalty imposed as a result of his making the false filings. Preference transaction at undervalue already covered. Wrongful trading, this is where a director continues to trade beyond the point where he knew or ought to have known there was no reasonable prospect of the company avoiding insolvent liquidation. And in those circumstances is liable to contribute to the assets of the company. And then we have miscellaneous other. So this can be claims such as professional negligence or claims against banks. Just to give you an example of a bank claim, one we've got ongoing at the moment. The director was regularly withdrawing very large sums of cash from the bank. This quite properly raised a red flag with the bank. So the cashier asked the director to explain why he was extracting these extremely large sums of cash and taking them home in a carrier bag to which the director applied, well, it's to pay the wages, and the cashier said, okay, that's fine off you go. But having asked the correct question, the cashier then took the wrong action because this is a company that did maintain a proper payroll and the employees were paid by bank transfer from that bank account. So obviously, his answer that the cash was to pay wages was completely wrong. So that gives a rise to the claim against the bank in negligence or breach of duty. And so hopefully, that gives you some flavor of the sort of cases that we regularly deal with. Next slide is our route to market. So first of all, the company enters into the insolvency process, which can be one of the three types which we've just looked at. The IP is appointed. He then has a duty to investigate the dealings and affairs of the company and to identify assets. And of course, the claim is an asset of the company, just as the stock or the plant and machinery and the IP has a duty to realize that asset to realize that claim for value. Where there are insufficient monies in the estate to pursue the claim, the IP refers the claim to us and we take it forward. We have a very rigorous selection process, and that's based on ability to pay and merits. And actually, ability to pay is the matter we look at first because you could have the best claim in the world, but if the guy isn't good for the money, there is absolutely no point. So when we reject a claim, it tends to be for lack of assets concerns on recoverability rather than lack of legal merit. And the next slide is an overview of the funnel. So it's the life cycle of Manolete's cases. So we're getting a new case inquiry that can be from the IP or from his solicitor and that comes into the legal team. We then make an offer if we like the case and the net worth stacks up, we make an offer, it's signed. And 29% of inquiries are progressed signed cases. As I mentioned, our most frequent reason for rejection of a case is concerns on recoverability. When we do make an offer, they tend to be accepted. It's quite unusual for an offer of ours not to be accepted. Then we complete the case, and that's usually by settlement. And then the cash is collected, and when the cash comes in, we are reimbursed our upfront payment, our initial consideration to the IP, and we are reimbursed our legal costs. This takes us to the net realization, which is divided between Manolete and the estate in the agreed shares. And those agreed shares are usually 50-50. But on larger cases, there is a ratchet in favor of the estate. So as the numbers get into the higher echelons, then the estate share increases. So to try and bring all that to life, there's a couple of case studies. So the first one is a case study of the completed case. So here, the company was wound up. IPs were appointed liquidators. The liquidators carried out investigations and they identified that very significant amounts of company money have been applied towards the building and refurbishment of a property owned by the wife of the director. So that clearly gave rise to claims against the director and breach of duty, but he had been made bankrupt on the petition of HMRC, so he couldn't be pursued. So we then -- well, the liquidator then looked at claims against the director's wife, who was the owner of the property. His solicitors advanced those claims in pre-action correspondence, but the claims were denied. He was met with a brick wall and he had no funds in the estate to take the claim further. So at that point, the claim was assigned to us. We paid an initial consideration of GBP 10,000 and agreed a split of net realization. So we purchased the claim in May 2024. We settled it in January 2025 at GBP 850,000 and that GBP 850,000 cash settlement was paid to us in full in October 2025. So from that GBP 850,000, we repaid our initial consideration of GBP 10,000. We repaid our legal costs of GBP 42,905. And I think that's a good illustration of the very tight control we exercise over costs. Costs of GBP 42,000-odd and a recovery of GBP 850,000 is very good cost control. So our share of the net realization was GBP 393,837. So good cash result in a short period of time, and we took assignment of claim in May 2024, all cash received just over -- just over 1.5 years later. The next case study is an example of an ongoing case, and it's an example of a high-value case arising in a compulsory liquidation on an HMRC petition. So here, the company was wound up on petition of HMRC, IP's appointed liquidators. And they carried out an investigation and identified claims against the former directors in relation to a very large-scale VAT fraud. Now urgent action was needed to prevent dissipation of assets. An application was needed for a freezing order, which is a very expensive procedure, but there were no monies in the estate. So the liquidators referred the claim to Manolete. We took assignment for initial consideration of GBP 10,000 in an agreed split of net realization. We purchased the claims in September 2025, and we very swiftly obtained freezing orders to preserve the assets and issued proceedings. So that's a good example of a case which needed expensive but urgent action. The IP just didn't have the funds. So we step in, we provide the solution. We take assignment of the claim. We issue proceedings and we obtain a freezing order all very, very quickly. Now we come on to KPIs. So the first chart shows you our new case inquiries for this half year. As you'll see, there have been a steady rise in the number of cases referred to us. 505 cases were referred in the first half of the current financial year, and that's the highest half year number ever. The next graph shows new signed cases. Again, strong case signings. More cases have been signed in the first 6 months of the current financial year than in H1 2025. Then we come on to expected gross settlement values. Now there's been a lot of emphasis on the numbers of cases signed. And of course, that is very important, but the values of those signed cases is perhaps even more important. And I'm very pleased to say that the gross settlement values are on an upward trajectory, as you can see from the graph. Then we come on to our completed cases. The numbers of cases completed is on an upward trend. And there is a pattern that realized revenue is better in the second half of the financial year, and we expect that to be repeated in FY '26. Then we come on to net cash receipts from completed cases. And again, you can see a pattern of receipts being better in the second half of the financial year. And again, we hope that pattern to be repeated in FY '26. Then we come on to the detailed graph, which I mentioned earlier, and I hope this is particularly helpful as it tracks our performance since 2010. There's a lot of information here, and it will be put on our website. So I will leave you to look at that. But I would just like to highlight the key points, which are that 1,335 cases have been completed, generating a total aggregate value of GBP 175 million. Only one small case from 2020 remains in progress, and that demonstrates the highly efficient and effective Manolete model in the world of litigation. Litigation can obviously be very -- often be very lengthy. We get through litigation quickly. Of the 1,335 completed cases, we have recovered GBP 129 million of net retained proceeds. IRR, 130%; ROI, 111% and a consistent performance over 16 years across many hundreds of granular cases. Next slide is cartel cases. And these arise from the 2016 European Commission decision as to the involvement of various truck manufacturers in a price fixing cartel. We've purchased 22 antitrust claims from insolvent companies impacted by that 2016 decision. And the 2016 European Commission decision resulted in a cartel record-breaking fine. These antitrust claims are very different to our core insolvency business and are unlikely to be repeated. And in this litigation, liability is usually not the main issue, and the focus shifts to causation and loss, along with the truck manufacturers actively relying on the pass on defense, i.e., we may have -- you may have been overcharged, but you pass that on to your customer. In early 2023, the Competition Appeal Tribunal in the U.K. delivered a landmark judgment in the BT Royal Mail claim, establishing key principles for damages in these cases. A broad approach was adopted for the overcharge caused by the cartel at 5%, which supports our current net book value. And because this is such a specialist area, we have retained Fideres LLP who are retained -- who are specialist valuation experts, and they have provided input into the total claim value to support our net book value. As to the current position, the trial window for the second wave of truck cartel proceedings in the competition appeal tribunal is scheduled to commence in September 2026. Our claims are currently stayed pending the outcome of the second wave truck proceedings. We have settled one claim and we are in ongoing settlement negotiations with a view to hopefully settling the remaining claims. Now back to Rachel for some more detail on the financial results. Rachel Janes: Thank you, Mena. So you've already had a brief look at our financial results in the opening slide, but this is just going to give you some more detail and some more idea of what has been happening in the 6 months of this year so far. So as mentioned, our gross total revenue was down to 12.7%. This is from GBP 14 million of realized revenue, a decrease from GBP 15 million, which is down to part of the cartel claim being settled. And we have had a lower-than-average completion -- lower-than-average realized revenue of completed cases in the year. We don't know why this is. It's just to litigation, unfortunately, just the timing of items, but it is something that we are looking into for the second half of the year. Unrealized revenue was negative GBP 1.3 million versus negative GBP 0.6 million for the same period last year. This does, however, include the conversion of the first part of the settlement with the Cartel from unrealized revenue to realized revenue. It also then has the GBP 0.8 million fair value write-off of the first settlement and the GBP 1.1 million negative impact of the fair value write-down of the remaining portfolio following the settlement with a singular manufacturer. Gross margin stayed relatively steady at 31%, same period last year at 30%. But as we expect to see larger cases complete, then hopefully, our gross margins will continue to increase as the amount of work and costs associated with large cases are often mirroring those of the smaller cases, but with a higher return. Overheads of GBP 3.9 million have increased by GBP 132,000. So this is mainly due to the increase in bad debt charge. There is another slide that I will talk through in a moment, specifically around admin and overhead costs. All our overheads have remained relatively flat with a small decrease in staff costs, offsetting minor increases in professional fees. EBIT of GBP 0.1 million compared to GBP 0.7 million for the same period last year. But if you exclude the adjustment to the first cartel settlement and subsequent revaluation of the remaining portfolio of GBP 1.9 million, which was communicated in July to the market, the adjusted EBIT would be GBP 2 million, which is a significant improvement on last year when you remove the one-off trading updates that have happened this year in terms of cartel. EBIT margin has decreased to 1% from 5%. But again, if you exclude that GBP 1.9 million of the cartel revaluation and write-off, the EBIT margin will be at 14%, which highlights the good cost control on completed cases and our steady overheads, endorsing management's year-end comments on the scalability of the business. Loss before tax was GBP 0.7 million. Same period last year was GBP 0.2 million loss. Net of finance charges of GBP 0.7 million versus GBP 0.8 million last year. We benefited slightly in interest and finance charges from the improved rate of SONIA which was negotiated with the RCF that was signed in March 2025. As mentioned, we've gone into a bit more flavor on admin expenses this year, just so people can see where the value of our flat structure really is. So as mentioned, overheads have increased by GBP 132,000 or 4% from the same half year last year. This clearly -- this table clearly highlights that staff costs have remained stable. They have decreased year-on-year, but we have seen 2 new hires in the last few months of the financial -- of the half year. We've hired a new legal head who starts in October, and we do have the incoming CEO (sic) [ CFO ] In December 2025, which then should normalize the staff costs. Bad debt has increased by 43%. As already mentioned at our trading statement for the AGM, we have seen a small number of larger debtors default recently. Although action is being taken by the legal team, there is unfortunately going to be some fallout from some of those, and therefore, the company has provided for them as needed. This is a key area of control and review by the Board and everyone within Manolete at the moment who has an ongoing kind of role within that individual debtor. Professional fees increased by 14% compared to the same period last year. This is due to an increased use of advisers due to everything that has happened in the company and on the Board in the last 6 months as well as some inflationary measures as well in there. Marketing costs have stayed fairly flat, and these are closely monitored by our [ Andrew Cockerill, ] who prepares the budget and monitors everything along these lines on a regular monthly basis. If you exclude bad debt from our admin expenses, they're actually 2% lower than last year. So you have 3,184 versus 3,256, which then, like I said, it just shows that the business structure is moving forward. And hopefully, in the future, that will help to bring in more revenue going forward. So then we go to our balance sheet. So our investment in live cases stood at GBP 40 million at the 30th of September 2025, compared to GBP 39.5 million at the same period prior. This is net of the conversion of the singular cartel, and this helps to show that the case that we have signed in these 6 months really bring future value to the business because although we have had a large settlement for the cartel, our value of our investments has not decreased year-on-year. We have trade receivables of GBP 30 million as of the 30th September 2025 compared to GBP 29.3 million at the same period prior, including a GBP 6.6 million concentration in a singular large debtor who will be paying over the next 7 years. Debtors after -- as we've already discussed and communicated, there has been some more defaults. And so this is a key monitor for the Board in the future months. Cash was held at GBP 1.1 million. Our debt drawdown on our RCF remained the same at GBP 12.5 million. It's worth noting that the long-term loans in the balance sheet for 30th September 2025 includes the capitalization of fees that will be amortized over the life of the loan in relation to obtaining the new RCF. We were hoping that some of the money from the cartel settlement would help to reduce our overall loan drawdown; however, because of the small number of debtors that have defaulted, we have used this money instead to continue investing in live cases. Just to give you a bit of an idea of our trade receivables, yes, we have had some large defaults come through. But as you can see, 58% of our trade debtors are not yet due. So this is future cash in the business that has not yet hit the terms of the settlement agreement. On top of that, 9% is due within 6 months overdue. And those that are more than 6 months overdue mainly relate to judgments. So with judgments, we try to settle with debtors in mediation, and it's a signed settlement agreement where the debtor will agree to pay a certain amount over a certain period of time. When mediation can't -- when a settlement can't be reached, we will then take it to the court and obtain judgment. So judgments are the court ordering a debtor to pay us a certain amount of money rather than them agreeing to do it. And therefore, it takes longer for us to enforce these judgments as it sometimes means that we need to take out charge in orders over assets and therefore, the rest of the chain to try and realize the actual cash in total. On the cash flow statement, we are at GBP 14.5 million of first cash receipts up from GBP 14.3 million in the same period last year. This does include the receipt from a singular cartel case. I will provide some more detail on the cartel case in a couple of slides; however, we cannot, for confidentiality reasons, disclose the number of the gross settlement. Net cash generated from completed cases was up 4% at GBP 7.9 million, and our cash flow from operating activity was 1% (sic) [ GBP 1 million ] versus GBP 1.2 million. So it shows that during the half year, the company has managed to generate enough cash to fund all its overheads, investment in new cases and investment in ongoing live cases. Sorry, just to note as well, the overheads have gone up slightly on this because we did have a one-off payment earlier in this 6-month period in relation to the RCF fees. So cartel settlement. Unfortunately, I know there was a lot that people would want to ask, but we cannot go above what has been mentioned already in our July RNS. It's under strict confidentiality agreement, and therefore, I can't share anything further than what's already in the market. But just to remind you, we said we're a single manufacturer on our cartel portfolio. It resulted in a fairly quick cash turnaround with cash being paid at the end of July and Manolete retaining approximately GBP 3.2 million of that cash, which represented full reimbursement of any costs associated with that manufacturer of the cartel and our share of the profits. So as mentioned, the settlement resulted in a noncash write-down of GBP 0.8 million as a write-off with a singular manufacturer. And then when reviewing our cartel -- remaining cartel portfolio in light of this, we then took a GBP 1.1 million further write-down on the remaining portfolio. Therefore, combined with the above-mentioned cash write-down of GBP 0.8 million, the GBP 1.1 million, the total effect on unrealized revenue is GBP 1.9 million, as you've seen how it affects our numbers when we talk through the P&L. The net asset value of the remaining unsettled cartel portfolio as of the 30th of September 2025 was GBP 10.1 million. And then thank you for listening, and I will hand you back over to Mena to talk about current trading strategy and investment case. Philomena Halton: Thank you, Rachel. So current trading, we've had a strong start to the second half of the financial year. As of the 10th of November, we had already signed 38 new case investments. During the same period, we completed 23 cases. Therefore, the number of live cases in progress as of the 10th of November was 469. New case referrals remain buoyant at close to record levels, and we have a new CFO joining in December. So overall, the Board remains confident in the prospects for the business, expecting a return to higher average settlement values in the second half of the year and total realized revenues, excluding the cartel settlement being weighted towards the second half as it has been in previous years. In terms of strategy, no big changes here. Our focus remains firmly centered on U.K. insolvency claims. That's our area of expertise, and it's the largest and most established market for assignments. Opportunities in other jurisdictions arise, and we do consider them, but these will be exceptional rather than core. We have financed some litigation in the Channel Islands we're often offered litigation in places such as the Cayman Islands and BVI. But so far, we haven't financed anything there. Really, we like to stick to U.K. insolvency claims. That's where we have our expertise, where we control what's happening. And we are experts in the law and the practice and the procedure of that litigation. In terms of portfolio construction and capital allocation, we aim to increase the volume of high-quality new case investments while maintaining a balanced risk-adjusted portfolio. And that's across small claims, which are up to GBP 100,000, mid-market claims which are between GBP 100,000 and GBP 1 million and large claims which are GBP 1 million plus. And as I've mentioned previously, we have seen an increase in higher value claims, which is good news because whilst we can make smaller claims work, obviously, the capacity to make higher profits is better with higher value claims. So this balanced portfolio approach enables disciplined deployment of capital while preserving liquidity, diversification and market resilience. Looking at market dynamics and strategic positioning, since the withdrawal of the COVID era restrictions, which ended in April 2022, the U.K. insolvency landscape has normalized with a steady resurgence of larger -- arising particularly from administrations and compulsory liquidations in particular, where they are -- where HMRC is the petitioning creditor. So these market conditions continue to support our strategy of targeting a robust pipeline of higher value, higher impact claims, strengthening long-term returns and market leadership. So our investment case, as set out at the beginning, we are -- we remain the U.K.'s leading insolvency litigation financing company. We're the only listed funder whose model is based on buying the claims rather than simply funding them, and that is a key differential. This structure is unique to the U.K. insolvency regime enabled by the Insolvency Act 1986, as amended by the Small Business Enterprise Employment Act 2015. And it's this legislation that enables us to purchase both the company claims and the office holder claims. We have a strong expertise and nationwide reach. We have national coverage supported by a highly experienced in-house legal team drawn from partner and senior associate level across leading insolvency practices. Strong market drivers, a record number of U.K. insolvencies, rising CVLs and HMRC petition activity create sustained opportunity. We're the dominant third-party funder in the sector, and we take on only cases meeting strict quality and recovery criteria. Compelling economics, short case duration, average time to completion is 13.7 months. Highly cash generative, demonstrating consistent growth in operating cash flow, high operational leverage, profitability scales materially as average case values continue to arise, proven returns. Long-term performance includes ROI 111%, IRR 130% and a 2.1x MoM. So that concludes our presentation, but we have had some questions. Philomena Halton: So thank you very much for your questions. So to start with, we have received a couple of questions regarding capital allocation with the main question being whether we should consider the time is right to commence a share buyback program, i.e., obviously, the share price is low. So in answer to that, our priority continues to be investment in cases where we can see very strong returns. Whilst we wouldn't rule out considering a share buyback when the time is right, that course of action is not a priority at the current time. And the Board agrees that cash is much better spent on investing in new cases and growing the company. And it's important to emphasize that capital has been reinvested in claims with higher values than last year. So we think that is the best deployment of our capital. The next question is, you have recently taken over as CEO from the company's founder, Steven Cooklin. As the new CEO, do you intend to do things differently? And what is the strategy going forward? Well, I should say I was delighted to be appointed CEO of Manolete in August of this year to build on the work of Steven. And during this first -- in the first half saw the settlement of our first cartel claim that saw a record number of completions, albeit at a lower-than-normal average value. So going forward, the strategy is to continue our focus on adding and completing more higher-value claims, realizing revenues and expanding our talent pool for the future. So we will be recruiting more lawyers into the in-house legal team. The next question is, do you plan to make any changes to the company's approach to fair value accounting and the satisfaction of IFRS 9? I think that's probably best answered by Rachel. Rachel Janes: Yes. It's a question we get a lot. We've looked into it many times as a company. We have looked into detail in various different approaches to satisfying IFRS 9 -- IFRS 9 even, sorry, while complying with the accounting standards. And the approach is currently working well, and it's agreed with the auditors. Separately, I should point out that we do have a new CFO, Will Sawyer, he will be joining on the 15th of December. So I'm sure it will be something that he can look into on a separate note as well when he wants to come in and have a look at under the skin of how Manolete runs. Thank you, Mena. Philomena Halton: Thank you for answering that one, Rachel. Next question, the change of CEO came almost immediately after U.S. private equity firm, Brightlight Capital acquired a 10% stake in the company, a clear signal that it sees significant value to be unlocked relative to the current share price. Are these 2 events connected in any way? Well, there was a very short answer to quite a long question. And the very short answer is that these 2 events are entirely unrelated. Then the next question asks if we can give a little more color around current trading, what we are seeing in the market and the outlook for Manolete? So the most significant factors in the first half of the financial year was the first truck cartel settlement. But that has been combined with a lower-than-average case settlement during a quiet summer. Trading in September showed a marked improvement, and I'm pleased to say this has continued in October. New case referrals remain buoyant at close to record levels, in fact. And we expect a return to higher average settlement values in the second half of the year and total realized revenues, excluding cartel, being weighted towards the second half. There's another question here. Could you explain why there was a sudden spate of low-value settlements in the first 6 months of the year? I wish I did have an answer for this, but actually, there is no specific explanation. It's simply the nature of the business that we're in. The process is not linear. As we've mentioned, most cases settle at mediation, and that requires consensus where there are opponent on the timing of that mediation. For example, I'm dealing with a large claim against the bank. This isn't the cash in the carrier bag one, this is another one. And in this case, the bank indicated earlier in the year that it would mediate yet, we'll come and talk to you. But then the bank pulled back and said it wanted to mediate at a later point. It now wants to defer the mediation until after the next directions hearing. So I'm as confident as I can be that the bank will mediate, but I can't say precisely when. Another example, a colleague has been running a large breach of duty claim and the other side did mediate. But on the day, they weren't prepared to settle at a sensible level. So we can't settle cases at any cost. So I told my colleague to withdraw from negotiations and issue the claim. So I suspect there will be a second mediation in the future. But again, I don't know when. But we have to make the right litigation decisions to maximize realizations. Then we've also been asked about the bounce back loan opportunity, which is something that has been mentioned previously. So we are continuing to pursue breach of duty claims in relation to director misuse of bounce back monies as part of our ordinary business. Nearly every case refers includes a claim relating to bounce back loans. There was widespread misuse of this scheme, as you know, a lot of directors just viewed it as free company money to spend on cars or holidays or on a house. In fact, anything apart from proper purposes of the company. We also worked on a pilot with Barclays Bank, and we achieved very good results. We're currently, again, achieving good results on a second pilot with the official receiver, but it's not on a large scale. So although we have achieved very good results and we've been given the opportunity to take on this work, so far, there has been no wider take-up on our offering on bounce back loans. So no further progress at the moment. There are some more questions here. Yes. What progress is Manolete making in increasing the share of the insolvency market that it handles? Yes, we're making a lot of progress. It's hard to measure it in exact terms, but the case numbers -- the numbers of cases referred is going up and up and up since you've seen from the charts. We do have competitors, but they haven't been able to get anything like the grip on the market that we have. And of course, they don't offer the same model that we do. What we offer is unique to us. So again, it comes back to the legal team. As the legal team grows, they bring with them their contact books and they get out in the market flying the flag from Manolete amongst those contacts and making new contacts. So that's how we grow the business and grow our market share of the insolvency market. Rachel Janes: Are you seeing an uptick in large company administration? Philomena Halton: Yes. Sorry, I can't see the question or just finding the question. Yes. Thank you, John, for your question, which I've now managed to read. Are you seeing an uptick in large company administrations? Yes, they are recovering slowly post-COVID, and we are seeing more large value claims and administrations are a good source of those large value claims. But this is very much a market that we are targeting and aiming to get more of moving forward. That is a real focus for the legal team. So in a nutshell, yes. And then there's a question from Richard. Thank you, Richard. Are you considering entering adjacent litigation finance segments? I'm not sure if that mean is -- question is whether we are considering venturing into areas beyond insolvency litigation. If that is the question, then the answer is no. And a nutshell, we'll stick to what we know and what we're good at. And of course, where we can buy the claims as opposed to simply funding them. If that wasn't the question, then I'm sorry, and perhaps do please follow up afterwards. And if, in fact, it's a different question, I'll give you a different answer. What else have we got? Rachel Janes: I've got one about corporation tax, which I can cover what you have... Philomena Halton: Yes, please, Rachel. Rachel Janes: Thank you. So there's a question saying when we expect to restart paying corporation tax. So as most of you know, we made a loss a few years ago. And therefore, we converted that into a deferred tax asset to offset against future profits. This is now second year, third year of that. So once that's now, I think we have about [ GBP 0.2 million ] in relation to corporation tax, our deferred tax asset at the moment. So maybe this year, who knows? That's the forward-looking plan, hopeful. So yes, thank you. Operator: Perfect. That's great. Mena, Rachel, if I may just jump back in there. Thank you for addressing those questions from investors today. And of course, the company can view all questions submitted today, and we'll publish those responses on the Investor Meet Company platform. But Mena, before I redirect investors to provide you with their feedback, which is particularly important to the company, could I please ask you for a few closing comments? Philomena Halton: Yes. I'd just like to thank those who are listening this afternoon and those who may be listening at a later time, thank you for your interest in the company, and thank you for your questions. I hope we've answered some of them. If there are any questions outstanding that we haven't answered, then do please follow up. But thank you for your interest in the company. Operator: Fantastic. Mena, Rachel, thank you once again for updating investors today. Could I please ask investors not to close this session as you will now be automatically redirected to provide your feedback in order that the management team can better understand your views and expectations. This will only take a few moments to complete, and I'm sure will be greatly valued by the company. On behalf of the management team of Manolete Partners Plc, we would like to thank you for attending today's presentation, and good afternoon.
Operator: Thank you for standing by, and welcome to the Phoenix Education Partners Fourth Quarter and Full Year Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Beth Coronelli, Vice President of -- Investor Relations. You may begin. Elizabeth Coronelli: Good afternoon, and welcome to Phoenix Education Partners Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. Speaking today on the call will be Chris Lynne, Chief Executive Officer; and Blair Westblom, Chief Financial Officer. Before I hand you over to Chris, please keep in mind that certain statements and projections of future results made in this presentation constitute forward-looking statements, that are based on current market, competitive and regulatory expectations and are subject to risks and uncertainties that could cause actual results to vary materially. Listeners should not place undue reliance on such statements. We undertake no obligation to update publicly any forward-looking statement after this presentation, whether a result of new information, future events, changes in assumptions or otherwise. Please see our public filings, including our latest Form 10-K and earnings press release filed today and available on our website for a discussion of risk factors that relate to forward-looking statements. In today's presentation, we use certain non-GAAP financial measures. You should consider our non-GAAP results as supplements to and not in lieu of our GAAP results. We refer you to Form 10-K and earnings press release for reconciliations to the most directly comparable GAAP financial measures and related information. I'll now turn the call over to Chris. Christopher Lynne: Thank you, Beth, and good afternoon, everyone. Welcome to Phoenix Education Partners' first earnings call following our IPO in early October. We appreciate you joining us today as we share our results of the fourth quarter and full year ended August 31, 2025. Today, Blair and I will discuss performance highlights, recent developments and our outlook for fiscal year 2026. We appreciate your continued support and interest as we begin this next chapter as a public company. At the University of Phoenix, our mission is to expand access to higher education that helps students gain the knowledge and skills to achieve their professional goals, enhance the performance of their organizations and contribute to their communities. Serving working adults has been at the heart of our mission since our founding nearly 50 years ago. Our student body consists primarily of working adults who are seeking opportunities for career advancement, a growing segment of higher education. 75% are currently employed while pursuing a degree. The average age of our student is 38 years old. Over 50% of our students are first-generation college and almost 2/3 are caring for a family while pursuing their degree. We serve this underserved population by putting the needs of our students first, offering flexible career-relevant programs that empower working adults to grow professionally with programs tailored to the realities of balancing work and life. We operate a mission-driven culture built on modern technology, strong academic programs and a data-informed student experience, all centered on student success. Today, the university currently offers 72 degree granting programs and 33 nondegree certificate programs, each aligned to career relevant skills valued by employers. As part of this skills-aligned curriculum, our students have earned more than 900,000 skill badges, which serve as microcredentials, demonstrating mastery of specific competencies applicable in the workplace. Our transformative journey as a private company allowed us to focus on and deliver significant improvements in student retention, completion and satisfaction rates, demonstrating the strength and scalability of our model. As we begin our next chapter, we're continuing to focus on delivering strong student outcomes through personalized, career relevant and affordable solutions, positioning the university for continued momentum and profitable growth in the years ahead. In fiscal 2025, we delivered solid financial performance in line with expectations outlined during the IPO process, which reflects the strength of our mission-driven model and focus on student outcomes. Average total degrees enrollment grew to nearly 82,000 in fiscal 2025, up from approximately 79,000 in fiscal 2024, supported by strong student retention throughout the year. Expansion of enrollment affiliated with our employer relationships remained a key growth driver this year. Enrollment through these employer relationships grew to 32% of average total degreed enrollment, up from 30% in fiscal 2024, demonstrating strong sustained demand from working adults through this channel. As the U.S. workforce evolves due to advancements in technology and the half-life of skills continues to shorten, employers are increasingly prioritizing relationships with education providers that align with retention and upskilling strategies. We believe our affordable, adaptable and skills aligned programs remain attractive to employers that are focused on building and retaining talent. We continue to focus on improving student outcomes and increasing operating efficiencies through the use of AI and automation. We are leveraging machine learning and AI across the student journey to enhance marketing, retention and student-facing effectiveness and efficiency. Our technology platform supports long-standing models such as student engagement monitoring and AI-assisted enrollment support. And we are expanding into a wide range of AI capabilities that enhance personalization, streamline operating workflows and improve both student and staff experiences. As an update on accreditation, earlier this month, our College of Nursing received a 10-year accreditation from the Master of Science and Nursing Program from the Commission on Collegiate Nursing Education, a testament to our faculty and staff's commitment to academic excellence and professional quality. From a regulatory standpoint, we have a strong foundation and ongoing practices to promote compliance across all key metrics. In August of 2025, the Department of Education renewed our Title IV program participation agreement and approved recertification through June 30, 2031, reaffirming our continued eligibility for federal aid programs. Following the recent resolution of the federal government shutdown under a short-term funding measure last week, we note that the shutdown had no material impact on our business or our fiscal '26 outlook. During the temporary lapse in federal tuition assistance funding for active duty military students, we provided short-term financial relief to ensure their studies could continue uninterrupted, demonstrating our ongoing commitment to supporting students through periods of uncertainty and helping them stay on track towards their educational goals. In Q4, we continued to experience strong applicant demand and sustained improvements in enrollment productivity. We moved certain processes that deter and identify unusual enrollment activity to the top of the enrollment funnel at the application process. As expected, this stopped unusual enrollment activity earlier in the process and enabled our enrollment representatives to better serve our prospective students, resulting in increases in enrollment productivity. We continue to streamline this process, which is leading to continued improvements in productivity. We're continuing to enhance efficiency across the enrollment process by using advanced analytics, automation and artificial intelligence to better identify prospective students and personalized engagement efforts that are designed to lower acquisition costs and support improved conversion over time. Combined with automation and AI-assisted tools and enrollment, counseling and financial aid, these initiatives are designed to improve the overall student experience while driving continued efficiencies in our cost structure. These factors as well as continued improvements in retention supported the 5.7% year-over-year increase in average total degreed enrollment for the fourth quarter and support our outlook for fiscal 2026. As we look ahead to fiscal year 2026, we're encouraged by strong retention trends and steady demand across our programs. Our continued focus on student success and the learner experience is intended to support sustainable performance and position us for long-term growth. Becoming a public company marks an important milestone in our transformation, and we believe that we have built a strong foundation to deliver accessible skills-aligned education that empowers working adults to build job-relevant skills and pursue their professional goals. We'll continue to advance our mission through innovation, technology and a deep commitment to helping more adults achieve their educational and professional goals. With that, I'll turn it over to Blair to walk through our financial results and outlook for fiscal year 2026. Blair Westblom: Thank you, Chris, and good afternoon, everyone. Before reviewing the numbers, I'd like to note that unless otherwise stated, all comparisons are year-over-year. My comments today will cover our financial results for the fourth quarter and fiscal year 2025, key operating drivers and our outlook for fiscal 2026. In the fourth quarter, we delivered strong results as we finished the fiscal year. Net revenue grew 7.2% year-over-year to $257 million, supported by a 5.7% increase in average total degree enrollment to 79,300 students. Adjusted EBITDA rose 36% to $56.6 million, reflecting improved retention and related flow-through of increased net revenue, which underscores the strength of our operating model. Net income was $17.6 million compared with $10 million a year ago, mainly due to higher revenue and improved operating leverage, partially offset by strategic alternative expense in Q4 2025 associated with our IPO and the termination of a strategic deal we were pursuing prior to the IPO. Fiscal 2025 was a year of steady top line growth, expanding profitability and disciplined financial management. For the full year, net revenue increased 6% to $1.01 billion compared with $950 million in fiscal 2024. The increase is primarily driven by growth and average total degree enrollment, which increased 3.7% to 81,900, up from 78,900 the prior year and driven by strong retention. Net income for fiscal 2025 was $135.4 million compared with $115.1 million in the prior year. The increase reflects strong operating performance and continued margin expansion, along with a reduction in lease restructuring expense, partially offset by an increase in expenses associated with our strategic alternatives. Adjusted EBITDA was up 6.5% to $243.9 million compared with $229.1 million in fiscal 2024, reflecting top line growth and continued efficiency across our operating platform. Adjusted EBITDA margin expanded from 24.1% to 24.2% Instructional and support expenses increased from 42.5% of revenue in fiscal 2024 to 43.3% in fiscal 2025, due in part to an increase in financial aid processing costs as we adjust changes in financial aid processing associated with the new financial aid application and transition to disbursing financial aid funds to students one course at a time, which supports improved retention and responsible borrowing. General and administrative expenses declined approximately 120 basis points, reflecting natural operating leverage inherent in the business model. We have a strong balance sheet with no debt and meaningful cash flow that supports continued investment in our students and long-term growth opportunities. As of August 31, 2025, total cash, cash equivalents, restricted cash and marketable securities were $195 million compared with $383 million a year earlier. The decrease primarily reflects $251 million in distributions. Capital expenditures were $22.5 million or 2.2% of revenue, supporting initiatives that we believe will drive growth and further enhance our platform to support the student journey and operational efficiencies. Subsequent to the end of the fiscal year, we entered into a $100 million senior secured revolving credit facility, which was undrawn at close and currently remains undrawn. The revolver provides additional financial flexibility to support operations and liquidity needs if required. On October 10, 2025, we completed our initial public offering of 4.9 million shares of common stock at $32 per share, including the full exercise of the underwriter's option to purchase additional shares. All shares were sold by existing shareholders, and as a result, the company did not receive any proceeds from the sale. Following our IPO, our capital allocation priorities remain consistent, maintaining flexibility, driving sustainable enrollment growth and investing in initiatives that support student outcomes and enhance operational efficiency. We continue to focus on organic investments in technology and data capabilities and remain open to selective mission-aligned acquisitions that extend our reach into career-relevant learning. Our strong financial position allows for continued investment in the business while maintaining liquidity and returning capital to shareholders. Consistent with what we stated during the IPO process, we expect to pay quarterly dividends in the annual amount of $0.84 per share, commencing in the second quarter of fiscal 2026 and subject to, in each case, Board approval. Turning to our outlook for fiscal 2026. We are providing guidance for both revenue and adjusted EBITDA. We expect revenue in the range of $1.025 billion to $1.035 billion and adjusted EBITDA between $244 million and $249 million. These expectations reflect consistent top line growth and disciplined expense management, balanced with ongoing investment to support student outcomes. In summary, fiscal year 2025 reflected continued progress in strengthening the company's operating and financial foundation. We enter fiscal 2026 with a strong balance sheet, solid cash generation and clear priorities for investment and disciplined capital management. With that, I'll turn it over to the operator to open the line for questions. Operator: [Operator Instructions] Your first question comes from the line of Greg Parrish with Morgan Stanley. Gregory Parrish: Congrats on the strong finish to the year here. I thought maybe just to start with, unpack your expectations for FY '26. You're exiting at 7% growth, 6% enrollment growth, it's been accelerating and a lot of momentum. So what's driving the implied guidance for revenue of 2% to 3%, maybe sort of unpack that? And then what could potentially drive that figure higher or lower? Christopher Lynne: Greg, this is Chris. Thanks for the question. So yes, I'll give you a little bit of a backdrop on the revenue trends. If you look at fiscal '25 versus fiscal '24, you'll notice that we had healthy revenue growth at 6%, grew faster than our average total degree of enrollment. When you reflect on what drove that difference, we had stronger progression and retention in fiscal '25. We also had a scholarship a little over $5 million that we offered to support students in fiscal '24 in June that was not offered similarly in fiscal '25. And then we have the normal sort of timing differences that we will have year-to-year, just given on the academic calendar, for example, for undergrad programs, there's several tracks, 10 starts a year. But depending on where they fall quarter-to-quarter, you'll have a different number of calendar days, different size of cohorts on a year-to-year basis. The other driver was we did see a higher volume of students that went through our risk-free period in fiscal '25. The risk-free period is something long standing that we've had that has been developed for students that have attributes that correlate with lower success. So we want to give them a try before you buy opportunity. They have 4 weeks where they can get used to the online course environment and the course materials and a lot of the attributes -- some examples are no previous college credit or interestingly, if they maximize financial aid and they have high Pell grant, those tend to be attributes that put them through that risk-free period cohort. We saw larger volumes, as we've talked about at length during the IPO process and disclosed in our S-1, we also saw a spike in unusual enrollment activity last year. These are just -- I know we've talked about this a lot with the -- at least the analysts on this call. But we saw a spike in the summer of '24. We've since reflected and recognized that this was related to breakdowns and controls in the Department of Ed's financial aid from the FAFSA process. So what was happening in some cases is students with complete the financial aid form with the Department of Ed, sometimes with false identification and then they seek to enroll in institutions in order to be able to receive disbursements against those funds. We've always had long-standing processes here, and we were able to see this early and develop very robust controls that we talked about and feel very confident about where we stand with those currently. And we saw really strong results at the end of the year in terms of some of the productivity challenges from that. But as it relates to the trajectory, we did see large volumes in '25 versus '24 in students that went through that risk-free period. And the unusual enrollment activity and the students with the attributes like I described, they have very similar attributes. So many of the students that ended up being flagged with unusual enrollment, they also maximize financial aid. They also had no college prior credit. So that's the path at which we were able to control that activity. We did have a higher percentage of students that did end up persisting beyond the risk-free period into the initial courses and stopped out in their earlier courses. So despite the fact that our retention improved healthily in fiscal '25, we did have a higher percentage of students that didn't persist beyond the initial courses. And that did increase that revenue per average total degreed enrollment in fiscal '25 versus '24. So when you look forward to fiscal '26, part of what you're seeing in our outlook is, I mean, one is we're a new public company, and we want to put an outlook out there as a new company that we feel very comfortable with achieving, of course. But two, is related to the fact that currently, the students that we're bringing in are showing the attributes that we focus on in our enrollment process. We have a higher volume of students that have a higher propensity to succeed. For example, those are transfer credits. We're growing our B2B channel. And so we're not expecting to have the same experience in fiscal '26, but that revenue trajectory will sort of reverse in '26 and that's reflected in the trends that you're seeing in our outlook. I think what's important to mention in addition to all of that, just to provide color, is -- we talked a lot in the IPO process, but it's worth mentioning again that when we were putting the controls in place, an unusual enrollment activity, which we think we've handled very well. We noticed that -- or we actually made a decision in Q4 to move those controls, the detection and verification to the top of the enrollment funnel at the application process. We did this to better deferred the volume from even getting into our enrollment funnel and interacting with our people. That was effective. And so we saw a significant improvement in enrollment productivity because they were better able to sell -- serve well-intended students. So that's helped us return to healthier growth in new students. That's continued. We've continued to refine them. We continue to see improvements in productivity there. So it's important to note that the underlying applicant demand in fiscal '25 was strong. But we were challenged by having to put the proper controls in place for this sort of existential issue that we dealt with for the first part of the year with unusual enrollment activity which really, in our -- I guess, the best way to articulate is we lost opportunities in the earlier part of the year. And now that we have that under control, we're seeing that healthier growth from new students again. That, coupled with continuing retention, which we're seeing really at all-time highs as we continue to improve in '25 versus 24, are really carrying the underlying business drivers for fiscal '26. Operator: And the next question comes from Jeff Silber with BMO Capital Markets. Jeffrey Silber: I was wondering if you could just drill down into your total degree enrollment by different verticals. And I'm specifically interested in health care and nursing, I know some of the other companies have talked about some of the RN to BSN programs have gotten more competitive. Do you play there? Can you give us any color on that vertical specifically? That would be great. Christopher Lynne: Sure. We're seeing healthy growth in our nursing programs. It's a smaller portion of our overall total degreed enrollment. That is definitely an area where we continue to see opportunity, and we continue to see higher growth trends. Now we're growing across most of our programs right now. We're also seeing healthy growth associated with B2B, which is driving growth in business, IT, health care and also nursing. And so I think that's about like -- you've seen our breakdown of our degree programs. The majority are in business and IT. We're seeing growth there. But to your point, health care is a nice opportunity for us, and we continue to see healthy growth trends in that area. Jeffrey Silber: I'm sorry, just to reconfirm, you think you're seeing growth in all your programs? Is that correct? Christopher Lynne: The majority of them, if we go across the board, -- if I look at all of them, I mean just full disclosure, the one program that we saw really more flatness in last year was education, but we don't believe that was related to any kind of underlying demand trends. They have a lot more to do with some of the productivity challenges that we were wrestling through as we were getting our control framework in place for that unusual enrollment activity. And is that affected productivity, we think it had an impact on our education vertical. Operator: And the next question comes from Jasper Bibb with Truist Securities. Jasper Bibb: I was just hoping you could give a bit more detail on what you're assuming for enrollment growth and revenue per student underpinning that '26 revenue outlook? Christopher Lynne: Yes. The -- well, the revenue growth -- I mean, the guidance we're providing, Jasper, right now at the revenue growth level, which is in the outlook that Blair provided I do expect some reversing of the really higher revenue per student trends comparatively to say previous fiscal years that I mentioned in fiscal '25, we saw some of the growth in revenue per student due to students that persisted only into their initial courses. That reversal will bring -- if you do the math on revenue per average total degreed enrollment that will bring down that sort of formulaic metric in fiscal '26. We expect that to normalize at the end of the year. So at the later part of the year, likely primarily in Q4, you're going to begin to see trends that are more consistent to expectation in terms of average total degreed enrollment growth and revenue. And then when we look at the out years, we provided the guidance during the IPO process that we're expecting mid-single digits in revenue growth, and we continue to be confident in those -- in that outlook. Jasper Bibb: If I could just ask a quick follow-up. So about the kind of quarterly cadence of revenue in your outlook. I guess, as you kind of lap some of these headwinds you talked about in fiscal '25, it sounds like some of the back half of the year, the growth will be a little bit stronger than the first half. Just any more I guess is that accurate? And then any more detail you can provide on the quarterly cadence would be helpful. Christopher Lynne: Yes. I appreciate you asking that question because, yes, we have these sort of headwinds as you refer to them in terms of working through some of the challenges associated with getting the infrastructure in place and unusual enrollment activity. That did -- in one way that did actually lose us opportunity. We saw productivity challenges in terms of lower marketing efficiency, lower productivity enrollment. We're seeing that reverse already. We saw a reversal in both of those in Q4 and expect that to continue in fiscal '26. But we did have some of that revenue of those students that didn't persist beyond the initial courses. So arguably you could argue that's a headwind. I think it's the right type of headwind because we're attracting higher-quality student mix into the institution. So if I think about it, we're not providing quarterly guidance, but I will tell you that this was concentrated through Q2 and Q3 of last year. And so that's why we're expecting to reverse back to trends that you would expect based on our underlying sort of fundamentals in Q4. I do want to reinforce something because I know this is a lot as we kind of talk about these trajectory shifts year-to-year as we're seeing healthy new student demand, and we are seeing new student growth. We are seeing very healthy retention. So the fundamentals driving this year are healthy, which is why we're confident in the outlook that we provided. Operator: And the next question comes from George Tong with Goldman Sachs. Keen Fai Tong: I wanted to go back to the impact of suspicious activity controls enrollments. Can you quantify how much of the slower enrollment growth in fiscal '26 is due to less suspicious activity compared to, say, friction and legitimate enrollments? And then maybe talk about what gives you confidence that unusual enrollment activity won't spike again the following year and then force you to put some more controls in place that could impact enrollment? Christopher Lynne: Yes. George, thanks. Yes, great question. So it's hard to quantify specifically. But just to step back and so you understand what we're doing in our controls. We have advanced algorithms that have proven to be very effective. We have collected a lot of data and have expanded these algorithms where we have a high level of accuracy in identifying any risk of what you refer to as suspicious activity. And so when we hit thresholds, we'll stop matriculating that student or that prospective student immediately. Now whether or not that is actually a student that is exhibiting this bad actor behavior or not, we don't always know that. But we wanted to make sure we put controls in place to ensure that we had this issue managed. And I think as you've gotten to know us, like that is always going to be our first priority. So the early part of the year, a lot of the cost of that was we were -- these controls were further into the enrollment process. So we still had these students interacting with our people. And that created productivity challenges where you had lower conversion, which meant your marketing spend was less efficient. And our enrollment representatives weren't able to manage well intended students as well for obvious reasons. So that was a big driver. When we moved those controls up to the top of the application process going into Q4, we saw significant productivity improvements in the enrollment funnel because we had very little of this activity in the funnel. So we saw enrollment representatives, conversions went up. They were doing a better job serving well-intended students. We did have a little bit of friction. I know we talked about in the IPO process in that -- and we could literally measure it and see it and that we were creating controls. We were sending a lot of students to a verification loop in the application process, and that did catch some of the well-intended students. So we had some friction there. And that friction, we've been continuing to calibrate and we've been more effective in removing as we go forward. So today, we feel a lot better about that even than we did in Q4. And to your question about how do we know about whether or not we're going to deal with this again in the future. What I'd say is this activity is out there, like it's pretty well documented now that there's a lot of unusual enrollment activity in this space. So this is just a capability we've built that we feel is necessary that we feel really good about, but we're constantly looking at this. Not only do we have the controls to detect, verify and deter, but we're constantly looking at the data and updating the algorithms so that we can catch the activity early in the process, advance our algorithms and continue to deter it. So we feel good about our process. It's demonstrated consistency since we've put it in place at the end of Q3 when we completed that process. It's consistently been effective at keeping the matter under control. The last thing I'd like to mention, George, is just as a reminder, this -- the root of this issue was a breakdown in controls and the identity verification process with the Department of Ed. And they have publicly acknowledged that in the early summer. We met with the department in September, and we were confident that they've got a good handle on this and that they're going to put good processes in place with their new FAFSA in the near future here. And so that really should tamp down this issue for the entire higher education sector, which will be great. And that process of meeting with the department also reinforced the confidence in our control structure as well. Operator: And the next question comes from the line of Griffin Boss with B. Riley Securities. Griffin Boss: My question is regarding technology investment. So you talked about during the IPO process, the $500 million investment that was made into the technology platform. I'm curious what sort of capacity you have under the current platform? You've grown average enrollments from 70,000 to 80,000 over the last 2 to 3 years. Curious if you have the capability to expand enrollment another 10,000 just as a placeholder number without significant tech investment or what the expectation for investment is in the future to get that next 10,000? Christopher Lynne: Yes. Thank you for that question. Yes, we have plenty of scale on our platform to manage growth well beyond 10,000 incremental students. I would say that the investments we've made, we have that scale. We have a cloud-first, digital-first platform, very data-driven. What we're excited about is really the evolution of our investments in AI. Part of what we shared with you in the IPO process is that we've been doing AI and machine learning for several years. And so we have a lot of scale in terms of a lot of traffic coming to our website generated from our brand and marketing and then a lot of opportunities, one, to help those prospective students become new students as well as once they become students, we have thousands of opportunities to personalize that experience, leveraging data. And what we're seeing right now in this sort of AI moment with generative AI and Agentic AI are some really powerful use cases where we can really expand that capacity. So we're not -- we're early days in this, but from a technology investment perspective, yes, we have the scale and capacity. But what we're excited about is we've got a lot of use cases in production right now that we think are going to really elevate the value through an efficiency perspective, a student outcome perspective as well as our ability to expand growth. And so I added a little bit there, but I just wanted to emphasize that, that is an area of focus for us that we're excited about. Operator: The next question comes from Rob Sanderson with Loop Capital Markets. Robert Sanderson: My question is related to policy. Could you speak maybe to some of the announcements on priorities from the Department of Ed earlier this month and anything that investors should understand whether it's called for accreditation reform or anything else. And -- and just maybe up level a little, are there been any surprises on how changes outlined in the One Big Beautiful Bill Act are moving into implementation and what changes under new laws might mean for the university? Christopher Lynne: Thanks, Rob. Great question. Nothing has changed in terms of the updates in this area. I mean, obviously, there were some -- maybe not obvious to everyone, but there were some announcements this week that I'll speak to in terms of maybe where the Department of Education may end up potentially in other agencies and the like. But that was even sort of out there as a possibility back when we were going public. So nothing's really changed is really the punchline. But let me just give you a little bit of color. In terms of the One Big Beautiful Bill, we -- at a high level, there were a lot of things in that bill that we talked about, the [ Grad ] loan limits, the PLUS loan was eliminated. There were limitations on various types of Pell grants. All of those we didn't expect and still don't expect to have an impact on our students. There is the earnings threshold that we shared that could have an impact on some of our programs. But based on the knowledge we have today, we don't expect any material adverse impact, and we feel like we're in a good position to manage through anything that may come our way on that. So nothing's really changed there. What's left is the negotiated rule-making process with the Department of Ed. They did have their first phase of it, and some of the loan limits were discussed, and that all sort of fell in line with our expectations. So nothing new. They are going to take up the earnings threshold and some other matters in the next two sessions in December and January. And so there's a lot to learn there. But we feel really good about the interactions we're having with the department and with the process. And so there's nothing new that is concerning us. We feel generally pretty good about everything that we understand as it relates to the Department of Ed and to the Big Beautiful Bill. On the latest discussion, and it's pretty recent, there was, I think, the letter from Secretary McMahon about creating partnerships across agencies. So I think the headline is that this administration is looking to reduce the footprint of the official Department of Ed. And this may be done by moving aspects of the Department of Ed into other agencies. From what we know, we've had a very responsive department. So the post-secondary unit, it's been a two-way relationship. We've got our 6-year program participation agreement. They were very responsive and helpful in that process. So that's been our experience. If it's a lift and shift or a partnership, we don't anticipate any of the discussion that's going on in the press to impact us there. We feel the same about loans and grants. In fact, that's an area where we've actually seen this department, we believe, we can't see on the inside, but it looks like they've invested in enhancements in technology and the process. We met with them to talk about some of these changes around the FAFSA. So we feel good about that process. And if those resources move somewhere else, we wouldn't expect that to have any implications on our university. So A little color there, but the punchline really, Rob, is nothing's changed. Operator: And I'm showing no further questions at this time. I would like to turn it back to Chris Lynne for closing remarks. Christopher Lynne: Okay. Thank you, everyone. Fiscal year 2025 marked another year of meaningful progress across the university. We're excited about the next chapter of our journey as we continue to transform lives through accessible, high-quality education I want to close by thanking our faculty and our entire team for their unwavering commitment to our mission and for keeping our students at the center of everything we do, and thank you all for joining us today. Operator: Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Richard Friedland: Good morning, everyone, and a very warm welcome to Netcare Limited's presentation of the audited group results for the year ended 30th of September 2025. A special word of welcome to our Chair, Alex Maditse, members of the Netcare Board, our ExCo, and our senior management teams. Let me, at the outset, also express my sincere thanks to all of our management teams and Netcare staff across all of our divisions for their incredibly hard work, collective efforts and commitment over the past year. And also my personal thanks to our Board members for their support and sage guidance. I will begin with an overview of the group performance as well as that of the operating divisions, before handing over to our Chief Financial Officer, Keith Gibson, who will unpack our financial results in more detail. I will then conclude by providing more detail on the progress we have made on rolling out our strategy and also present our outlook and guidance for the 2026 financial year. Just a quick reminder of the comprehensive and growing array of facilities and services we provide within the Netcare ecosystem across 10 unique divisions. Of course, the most important aspect and most valuable asset there are our people within the Netcare family, more than 18,000 full-time employed health care professionals and health care workers, and that excludes or should also exclude our contracted workers, more than 7,000 caterers, cleaners and security staff. Looking now at our overall performance. Despite a very challenging macroeconomic environment, Netcare has produced a strong financial performance, achieving excellent traction on our strategic projects. This performance was characterized by a robust financial performance with all in-year strategic objectives achieved, strong operating leverage supported by what we have defined as the group's growing digital dividend and also reduced strategic costs. We maintained a strong financial position with an improved ROIC of 12.6% and a cash conversion of 111.3%. In line with our capital allocation policies, we have returned ZAR 1.8 billion to shareholders through ordinary dividends and share buybacks in this past financial year. Our digital data and AI strategy continues to gain momentum and is truly transforming our delivery of quality care with now 92 publicly reported quality outcomes and 29 peer-reviewed publications this past year. Our advanced digital and analytic capabilities continue to unlock value with ZAR 587 million of cumulative CareOn savings and cost avoidance achieved since 2022. Phase 2 of our environmental sustainability strategy is on track to meet our 2030 targets and pleasingly, potentially ahead of schedule. And this solid operational performance translated into our strong financial metrics and ongoing operating leverage. And so turning to the numbers. The strong financial performance can be seen across all our key metrics when compared to last year. Revenue for the full year rose by 4.5% to ZAR 26.3 billion, and we continue to achieve good operating leverage as evidenced by the 8.4% increase in EBITDA to ZAR 4.9 billion. Our EBITDA margin increased by 60 basis points to 18.6%. Adjusted headline earnings per share rose by 20.7% to ZAR 1.372. Despite the significant share buyback program, our net debt-to-EBITDA ratio strengthened to 1.1x versus 1.2x last year. And finally, as a result of the improved performance, we are pleased to declare a final dividend of ZAR 0.49 per share, which, together with the interim dividend, amounts to a total distribution of ZAR 0.85 for the year, which is 21.4% higher than last year and represents 62% of adjusted headline earnings per share. Let's now unpack the operational performance of our respective divisions in more detail. This slide demonstrates our activity and occupancy in the hospitals and emergency services. Total patient days grew by 0.7% year-on-year with the Hospital division growing by 0.8% and Akeso by 0.5%. Average full week occupancies improved to 65% in the acute hospitals and remained steady at 70.3% in our mental health facilities. Let's now examine the financial results of the Hospital and Emergency Services in more detail. Revenue grew by 4.9% to ZAR 25.7 billion and EBITDA by 8.8% to ZAR 4.8 billion. Operating profit rose by 11.5% to ZAR 3.5 billion, demonstrating an outstanding operating leverage of more than 2.3x. Acute hospital revenue per paid patient day increased by 4%, reflecting higher volume growth from lower cost network options and data-driven clinical cost efficiencies passed on to medical schemes. Surgical cases continued to contribute more than 70% of revenue despite the out-migration of lower-margin surgical cases. Pleasingly, we also experienced a 4% increase in births, supported by a recently launched Birthwise offering, as well as an increased number of specialists. Overall EBITDA margin for the segment rose by 70 basis points to 18.5% versus 17.8% in the 2024 financial year. As outlined on this slide, this expansion was underpinned by digital efficiencies, stringent cost management and lower strategic costs. EBITDA margin for the Hospital and Pharmacy subsegment was up 20 basis points to 18.8% versus an 18.6% margin in the 2024 financial year. We've grown our specialist base by granting admitting privileges in acute and mental health facilities to a net 117 new specialists. This can largely be attributed to our fully integrated, digitized and data and AI-driven ecosystem, clinical centers of excellence furnished with outstanding equipment and technology, including 4 Level 1 Trauma Society of South Africa accredited trauma facilities and 2 World Stroke Organization accredited stroke centers, a first in Africa and 2 of only 34 such accredited facilities worldwide. Finally, turning to our Primary Care division. Revenue declined by 7% to ZAR 662 million. This was impacted by lower activity and the nonrenewal of a large occupational health contract. However, if normalized for the nonrenewal of this contract, the division experienced an underlying 2.8% growth in revenue. EBITDA margin increased by 150 basis points to 24.5% versus 23% in the 2024 financial year, driven by ongoing operational efficiencies. Our occupational health client base has now been diversified through the addition of several new contracts. And despite the loss of a major contract, we remain optimistic that by leveraging Netcare's digital capability, the division is favorably poised to secure further growth and opportunities. I will now hand over to Keith to unpack our financial performance in more detail. Keith Gibson: Thank you, Richard, and good morning, ladies and gentlemen. I'll be stepping you through Netcare's financial performance for the year ended 30 September 2025. By way of overview, the business delivered an excellent trading result and maintained its strong financial position during the 2025 financial year. The business was able to expand its EBITDA margin and demonstrate pleasing operational leverage by keeping a tight rein on costs, aided by digitization benefits and lower strategic costs. At the bottom line, the business delivered growth in its adjusted headline earnings per share in excess of 20% from strong operational performance, combined with a lower weighted average number of shares in issue. Netcare's statement of financial position remains in a healthy state with return on invested capital or ROIC demonstrating a 90 basis point improvement to 12.6%, along with an exceptional cash conversion of 111.3% for the year. In line with our capital allocation practices, we continued our share buyback program, which commenced in September 2023. And to date, we have invested ZAR 1.9 billion to repurchase 149 million shares in the market, which represents 10.4% of the total ordinary shares in issue at the end of September 2023. This next slide demonstrates Netcare's consistent track record in delivering meaningful operating leverage while still maintaining a conservative level of gearing. And despite the challenging backdrop of the past 5 years, the graphs illustrate that during FY 2025, the business has converted a 4.5% growth in revenue into 8.4% EBITDA growth and 11.3% growth in operating profits, achieving 2.5x operating leverage. And the graph on the bottom right reflects the group's net debt of just under ZAR 5.5 billion at 30 September 2025. And even after funding the substantial share buybacks in the past 2 years, the group's gearing levels, as measured by the net debt-to-EBITDA metric, remain conservative, improving from 1.2x at the previous year-end to 1.1x at September 2025. Moving on to the group statement of profit or loss for the year ended 30 September 2025. And first, I should point out that to aid comparability, the numbers reflected in this slide exclude the impact of exceptional items, unless otherwise indicated. Revenue for the year amounted to ZAR 26.3 billion compared to ZAR 25.2 billion in the prior year, growing by 4.5%. EBITDA for FY 2025 grew by 8.4% to ZAR 4.9 billion against ZAR 4.5 billion in FY 2024, with EBITDA margin improving by 60 basis points from 18% to 18.6%. Strategic costs for the year amounted to ZAR 60 million, reducing notably from the prior year's ZAR 131 million. The lower incidence of load shedding in the current year required less use of generators and consequently, expenditure on diesel reduced from ZAR 47 million to ZAR 13 million. However, this benefit was mostly offset by further increases in electricity tariffs. And in addition, the business spent ZAR 12 million on emergency water purchases during periods of municipal outage. Operating profit increased by 11.3% to almost ZAR 3.6 billion compared to ZAR 3.2 billion in the prior year. Other net financial expenses of ZAR 555 million were marginally lower than the prior year's ZAR 561 million, reflecting the combination of a lower cost of debt on higher average debt balances over the course of the year. The IFRS 16 interest charge attributable to lease liabilities of ZAR 541 million increased from ZAR 511 million in the prior year. Earnings from associates and joint ventures showed pleasing improvement to ZAR 70 million, driven by the performance of National Renal Care, who experienced strong growth in Renal Dialysis Services. Profit before tax increased by 15.9% to ZAR 2.5 billion. The group's tax charge amounted to ZAR 695 million at an effective rate of 27.5%, which is slightly lower than the prior year. Profit after tax before exceptional items amounted to ZAR 1.8 billion, representing a 16.1% improvement from ZAR 1.6 billion in FY 2024. In the current year, exceptional net costs of ZAR 19 million after tax were recognized as compared to a net ZAR 28 million in FY 2024. The exceptional items relate to impairments of properties and an investment in an associate, offset by a gain on an insurance claim from the fire at the Netcare Pretoria East Hospital. Profit for the year, inclusive of exceptional items, amounted to ZAR 1.8 billion, being 17% higher than the prior year's profit of ZAR 1.5 billion. Next, we'll analyze earnings and returns to shareholders in the form of headline earnings per share, dividends and share buybacks. And as can be seen in the table on the top left of the slide, HEPS amounted to ZAR 1.337 for the year, which is an 18.3% improvement on the ZAR 1.13 reported in FY 2024. Adjusted HEPS, which is the primary measure used by management to assess performance, and strips out exceptional and unsustainable items, amounted to ZAR 1.372 for FY 2025, increasing by 20.7% from the prior year's ZAR 1.137. The Board has resolved to pay a final dividend of ZAR 0.49 per share, which, along with the interim dividend of ZAR 0.36 brings the total dividend for the year to ZAR 0.85 per share. This is an increase of 21.4% year-on-year and equates to 62% of adjusted HEPS. In addition, we continued with our share buyback program, which commenced in September 2023, and the details of this are set out in the table on the top right-hand side of the slide. During the current year, 64.2 million shares were acquired at an average price of ZAR 13.24 per share, amounting to ZAR 855 million. Collectively, since commencement of the share buyback program, the group has repurchased 149 million shares on the market for ZAR 1.9 billion, equating to an average price of ZAR 12.69 per share. And lastly, turning to the table in the bottom right section, we see that between the 2024 final dividend, the 2025 interim dividend and the shares bought back in FY 2025, ZAR 1.8 billion was returned to ordinary shareholders in the current year. And if we add the ZAR 595 million in respect of the 2025 final dividend that is to be paid on the 26th of January 2026, a grand total of ZAR 2.4 billion will have been returned to shareholders. Moving on to the group's statement of financial position. I'll begin with the usual reminder of our capital structure policy, which is to maintain a strong statement of financial position and to retain an investment-grade credit rating, while reducing the cost of capital with a safe level of debt. As at 30 September 2025, total assets amounted to ZAR 29.2 billion, increasing from ZAR 28.4 billion at September 2024. CapEx spend during the year amounted to ZAR 1.6 billion, of which ZAR 288 million relates to expansionary projects and the balance of ZAR 1.3 billion relates to replacement CapEx. Total shareholders' equity remained flat at just under the ZAR 11 billion mark with the benefits of an improved operating performance being offset by ordinary dividend distributions and share buybacks of ZAR 1.8 billion during the year. And finally, since September 2024, the group has experienced an increase of 90 basis points in ROIC to 12.6%. Next, we'll review the group's debt position. Gross debt amounted to ZAR 7.4 billion at 30 September 2025, offset by cash balances of ZAR 1.9 billion. Therefore, net debt totaled ZAR 5.5 billion at the year-end, increasing by ZAR 172 million from September 2024, and remembering that ZAR 1.8 billion was outlaid in the current year in ordinary dividends and share buybacks, along with CapEx of ZAR 1.6 billion. Net debt-to-EBITDA improved slightly to a comfortable 1.1x coverage at September 2025 against 1.2x coverage at September 2024. And for clarity, this metric is calculated on EBITDA measured after the adoption of IFRS 16 against bank debt only. Inclusive of lease liabilities recognized under IFRS 16, net debt-to-EBITDA coverage is 2.3x, improving marginally from 2.4x at September 2024. In line with our policy, we retained our credit rating of AA- for long term and A1+ for short term as published by GCR in February 2025. The cost of debt at the year-end of 8.4% reduced by 70 basis points from 9.1% at September 2024. However, the average cost of debt over the course of the year only reflected a 10 basis point improvement from 9.3% to 9.2%, indicating that the full benefits of the reduction in rates during FY 2025 will reflect in the 2026 results. Currently, approximately 30% of the group's debt is at fixed interest rates, which is achieved with the aid of interest rate swaps. The growing EBITDA resulted in further strengthening of the EBITDA to net interest cover to 4.5x against a comparative cover of 4.3x, while the interest cover metric improved from 3x cover last year to 3.3x cover in FY 2025. And the business continues to generate strong cash flows, which is aided by disciplined working capital management. And lastly, we'll consider our debt facilities. At the year-end, Netcare had cash balances of ZAR 1.9 billion on hand, and we also had committed but undrawn debt facilities of just over ZAR 1 billion, and this gives the group access to collective resources of ZAR 2.9 billion from which to fund our future needs. Our debt tenure reflects a manageable and appropriately staggered maturity profile, noting that there are minimal maturities in FY 2026, and the group, therefore, has sufficient capacity to manage its future operating and capital requirements. And finally, I'd like to convey my appreciation to our finance staff for their considerable efforts in compiling the financial results and related materials. And I'll now hand back to Richard, who will update you on the progress of our key strategic projects and our guidance for the 2026 financial year. Richard Friedland: Thank you, Keith. Let's now take a closer look at progress across our key strategic initiatives. In this section, I will give a brief recap of Netcare's strategy and then discuss the launch of the next phases, followed by updates on our other strategic initiatives. Just a quick recap of Netcare's strategy. We are 6 years into our 10-year journey, which is aimed at transforming the way we deliver health and care. Our intention is to empower people to become equal and active participants in their own health care, allowing them to take co-responsibility for their health and wellness. To achieve this, we are leveraging off our unique ecosystem of assets and services and utilizing the benefit of digitization, data and AI to the benefit of all of our stakeholders to create what we have termed person-centered health and care that is digitally enabled and data and AI-driven. And through this, we are intentionally committed to creating a sustainable competitive advantage for the group. Just to recap, our strategy has 3 fundamental phases as demonstrated on this slide. As previously indicated, we have largely completed the first phase. There are still elements of this phase which will yield significant additional efficiencies, and I'll elaborate on these later. This has enabled us to embark on the very exciting second and third phases, which are being rolled out coterminously. All of this is also underpinned by adopting a human AI collaborative approach as we embrace all that AI has to offer. Our strategy has enabled us to widen the digital divide between ourselves and our competitors, and importantly, to expand the benefits we derive. And as I mentioned earlier, what we call our expanding digital dividend. So what exactly do we mean by widening the so-called digital divide and expanding our digital dividend. Essentially, we have broken this down into 4 distinct categories: ongoing operational efficiencies, improving consistency and quality of patient care outcomes, increasing person-centered patient, clinician and funder centricity, and increasing our ability to understand and proactively manage risk. And importantly, in this fully digitized environment, we will retain our human touch and adopt automation with a human heart. In terms of ongoing operational efficiencies, since 2022, we've achieved over ZAR 587 million of cash savings and cost avoidance. This has been achieved in the various categories highlighted on this slide. We're currently in the process of digitizing our HR platform and streamlining our administrative and financial processes through robotic process applications and AI agents across all Netcare divisions. This is expected to begin yielding structural efficiencies from H2 of next year and will contribute fully to our overall efficiencies in the 2027 financial year. The table on this slide unpacks the overall costs and benefits of this first phase. We have invested CapEx of ZAR 320 million and incurred ZAR 350 million in implementation costs to make the business digitally enabled. Cash savings and cost avoidance of ZAR 587 million have been achieved since 2022, of which ZAR 256 million was achieved this past financial year. The IRR continues to improve, now producing an IRR of greater than 25% compared to that of 23% we had reported on last year. And as you can see from the graph on the right-hand side, the gray bars represent the implementation costs, which were previously classified as strategic costs, and the blue bars represent the ongoing operational and licensing costs associated with the digital platforms. The solid black line represents the benefits or operational efficiencies we've achieved to date and the dotted gray line plots our original forecast as per our original business plan. As one can clearly see, we've exceeded our own forecasts again this year. We had forecast benefits of ZAR 178 million, but achieved efficiencies of ZAR 256 million. And what is important to emphasize is that these benefits or operational efficiencies represent both actual cash savings and cost avoidance benefits. Turning now to the second element of benefits derived from our digital dividend, that of improving the consistency and quality of patient care outcomes. And just to highlight a few examples, what is so critically important is our ability to audit and accurately measure and manage quality of care versus relying on manually input so-called reported outcomes and adverse incidents. I say that because there is so much noise and debate around the quality of care and outcome metrics, both within the public and private sector. However, we have realized that relying on nurses or doctors to manually record drug administration times or report adverse events and complications most often leads to underreporting and inaccurate representation of the true quantum of these metrics and is hence often more flattering than reality. Only digital reporting, ladies and gentlemen, with a clear audit and time trail is a truly objective assessment of the reality at the bedside. As a result of this, we've significantly reduced adverse drug interactions and prescribing errors through electronic prescribing and accurate recording of the drug administration times. Through AI-driven machine learning, we continue to enhance our ability to detect life-threatening conditions such as sepsis and other conditions several hours prior to onset and therefore, reduce potential morbidity and mortality. And through the analysis of clinical outcomes, we're able to assist clinicians in their rational choice of medications based on both statistically valid outcomes and price. I'm delighted and excited to announce that we will be introducing unique medical-grade wearable devices for all our patients in general wards, maternity, psychiatry and rehabilitation wards. This transformational development commences with an extensive pilot at a flagship facility. The Corsano device made in Geneva, Switzerland by the founders of Frederique Constant brand of watches is FDA certified and has also achieved the European Union CE certification for a full range of clinical parameters. This includes blood pressure, heart rate, oxygen saturation, respiratory rate, skin and core temperature, sleep hygiene, cardiac arrhythmias and atrial fibrillation. The advantages of this wearable device are numerous and include: most importantly, it offers accurate, noninvasive, continuous and proactive patient management rather than the historic intermittent and reactive observation. It will provide our nurses with the ability to identify patient deterioration earlier and intervene and escalate care before the need becomes apparent. It will integrate with our CareOn EMR and be augmented by our AI-driven early warning systems and predictive algorithms, providing clinical decision support and assisting nurses and clinicians with real-time monitoring to provide better and safer care. In terms of increasing person-centered patient centricity and empowering patients to become equal and active partners in their own health, we launched the Netcare app. As you can see from the list of features on this slide, the app is aimed at improving ease of access before treatment whilst in one of our facilities and everywhere in between. Importantly, we've developed, with Microsoft, a large language model AI assistant to help de-jargonize medical records and the summary of the care they received within our facilities. Since the launch of our app more than 2 years ago, over 850,000 people have downloaded it, of which more than 332,000 are active users. Our experience across 45 hospitals over the past 6 years is that our EMRs offer enormous benefits to clinicians. They encourage a multidisciplinary approach and enhanced collaboration between clinicians, allied health professionals, pharmacists and nurses. Our EMRs are mobile and portable and can be accessed away from the bedside and outside the hospital. As a result, they have significantly improved clinicians' work-life balance. With the introduction of our analytics database and AI, we can now work in partnership with our clinicians to further improve patient safety outcomes and reduce the cost of care. And we continue to introduce data and AI-driven digital clinical decision support tools to assist our clinicians on best practice to achieve better outcomes. This slide demonstrates some of the AI, data and analytical tools we are making available to our clinicians to further improve patient care, safety and outcomes. The qSOFA score for early detection of bloodstream infections or sepsis allows for the identification of clinical deterioration using an artificial neural network. It does this by using real-time heart rate, blood pressure, respiration and oxygenation, and is live in CareOn across all ICUs. It was improved in May of this year by the South African Health Regulatory Authority or SAHPRA. We've developed an emergency department conversion rate tool to ensure appropriate admissions into our hospital out of our emergency departments. The model uses age, route of admission and clinical severity to predict admission risk, and we're hoping for SAHPRA approval early in 2026. Acute kidney or renal failure is a very common in-hospital complication and is associated with a high morbidity and high mortality. Therefore, being able to predict and detect this early will substantially improve patient outcomes. We've developed a core machine learning model to predict renal failure and the deep learning artificial neural network will be developed in 2026. I'm delighted to announce that we will also be introducing an AI-driven ambient listening and dictation tool for all our clinicians, allied health professionals, pharmacists and nurses in 2026. This has been developed in-house. AI-enabled transcription captures dictation and conversations to create structured clinical notes. This allows clinicians and nurses to be fully engaged with patients rather than having to focus on typing notes. We are evolving the tool into a full AI clinical assistant that can prepare referral letters, coding, orders and prescriptions. And most importantly, it will substantially reduce admin time, while also improving the quality and completeness of clinical records. Finally, digitization has allowed us to substantially enhance our partnership with funders. Our digital funder portal allows medical schemes 24/7 seamless access to patient records and information needed to approve both the level of care and the length of stay. And importantly, the funder portal reduces the need for on-site funder case managers. Big data enables a structured approach to align clinical outcomes, patient experience and cost efficiency. It allows us to deliver sustainable, high-value care, which underpins alternative reimbursement models, clinical products and value-based contracts in partnership with funders. Turning now briefly to 2 other strategic initiatives. South Africa's private health care sector serves fewer than 1 in 6 citizens, leaving a large unmet need, particularly within the middle market, which comprises 1/3 of all households and over half of total consumer spend. To address this gap, Netcare made a strategic move some years ago to build a financial services platform from scratch, launching Netcare Plus in mid-2021. By integrating multiple financial services licenses, Netcare Plus enables greater access to affordable private health care. Momentum has accelerated meaningfully in the past financial year. Insured lives have grown by 49%, supported by strong corporate and retail channel growth. Netcare Plus' contribution to the broader Netcare ecosystem increased by 87%, demonstrating its ability to influence customer behavior and drive sustained long-term value for the group. In terms of our environmental sustainability program, in Phase 1, we achieved a 39% reduction in energy intensity per bed and ZAR 1.5 billion in cumulative savings and cost avoidance. In terms of our 2025 targets, we've achieved a 14% reduction in water usage compared to the 2024 financial year and an overall reduction of 40% since 2013. We have increased general waste and health care risk waste diverted from landfill to 80% and 31%, respectively, in the past financial year. Our wind power renewable energy initiative remains on track. Our first power purchase agreement covers 6 Eskom supplied facilities. These hospitals are expected to receive up to 100% renewable electricity by September 2026. Negotiations are underway to add 12 municipal-supplied facilities to this agreement. In parallel, we've initiated the deployment of battery storage and advanced energy management systems to enhance grid independence and resilience. For Phase 2 to 2030, our strategy is aligned with the JET IP, and our goals for 2030 remain to reduce Scope 2 emissions to 0, reduce Scope 1 and 2 emissions by a combined 84% to achieve 100% renewable energy utilization and 0 waste to landfill and a 20% reduction in water utilization. Pleasingly, a 28% reduction has already been achieved by 2025 and therefore, having already exceeded this target, it will be revised. Given the significant progress we've made on this important strategic initiative, we may be in a position to achieve our overall 2030 targets as early as 2028. And we're also finally delighted to announce that we've won further global awards for environmental sustainability this year, taking our total to 51 awards. Alongside our commitment to operational quality patient care and financial excellence, we remain equally committed to broadening access to health care and economic participation. This slide demonstrates a few areas of our involvement ranging from supporting health care education and supporting the most vulnerable in our society and broader communities. In terms of health care education, to date, 27 black PhD scholars have been awarded the Professor Bongani Mayosi Netcare Clinical Scholarship. And of these, 17 have already graduated. Ladies and gentlemen, the knock-on multiply effect of this is extraordinary. Nine of these PhD graduates have attained professorships in various clinical specialization fields. The graduates themselves have authored a remarkable 993 peer-reviewed journal publications and 64 book chapters, which have garnered over 92,000 citations. They, in turn, have supervised 193 Masters students and 122 of these have since graduated and a further 46 PhD candidates have been supervised, of which 11 have graduated. In terms of the most vulnerable in our society, who often face the scourge of gender-based violence, we supported more than 16,000 survivors through our network of 37 rape crisis centers. Through the Ncelisa Milk Bank established by Netcare, 269 babies benefited from the breast milk bank at Rahima Moosa Mother and Child Hospital with 47 donors. And in terms of community involvement, the Netcare Foundation broadens access to life-saving procedures for indigent patients, including cataract, cochlear implants and craniofacial procedures. These results would not be possible without our people within the Netcare family, and we are pleased to have gained recognition as a top employee and the health care company that students most want to work for. Finally, turning to our outlook and guidance for the new financial year. We are guiding to patient day growth of between 0.8% to 1.5% for our acute hospitals, and in total, an overall 1.8% to 2.4% growth compared to this past financial year. Our guidance for revenue growth is between 4% and 5% versus that of 2025. The EBITDA margin is expected to benefit from operational efficiencies of a high 2025 base of 18.6%. And finally, we expect to spend ZAR 1.9 billion on CapEx in financial year 2026, including ZAR 566 million on expansionary CapEx. And that colleagues, ladies and gentlemen, concludes the formal presentation of our results. We're now happy to open the webcast to questions. Thank you. Unknown Executive: Thank you, Richard. Our first question comes from Wealthvest. Well done on the results. Could you provide some color on the Curo acquisition and strategy? Do you see this becoming a meaningful part of the business? And is this margin accretive? Richard Friedland: Sorry, could you just repeat that? Unknown Executive: Sure. Well done on the results. Could you provide some color on the Curo acquisition and strategy? And do you see this becoming a meaningful part of the business? Is this margin accretive? Richard Friedland: Yes. Thank you very much for that question. We're delighted that we've taken a 47% stake in Curo. We're busy bedding down that acquisition and so didn't make an announcement officially, but we'll certainly do so in the coming months. Curo is a leading home care provider -- or provider of home care health, and we are embracing that out-migration towards home care, and we see it as a critical element in our broader strategy. And yes, absolutely will ultimately be accretive to our earnings. Unknown Executive: Thank you, Richard. We have a question from Bateleur. The 2.5x operating leverage was impressive. As you look ahead to next year, with further margin expansion guided, how is management thinking about what can be achieved, especially given strategic investment benefits continue to exceed expectations? Keith Gibson: Yes. Thanks for the question. Yes, the operating leverage, looking backwards, is something we're very proud of achieving in a very difficult environment. I think from a forward-looking perspective, as we have indicated, we believe that we will be able to expand our margins next year. But I think, we just have to bear in mind that there are positive and negative factors within the environment, and we do have to absorb factors such as the growing proportion of cases that we see coming from discounted network options as an example. But yes, we do see further legs on our strategic projects. And yes, we're very grateful to have them. Unknown Executive: Thank you, Keith. Another question for you from Truffle. Please can you elaborate on the ZAR 566 million expansion CapEx? And why was your depreciation so low, especially in the second half? Keith Gibson: Yes. Thanks for the question. So we have quite a number of projects in the 2026 financial year. Just to call out a few of those, we have the new Akeso facility in Montana. We are putting in quite a number of hospital new beds and conversion beds. And we're also replacing a LINAC machine at one of our cancer care centers as well as investing further in the Akeso Alberlito and Polokwane facilities and building out a new sub-acute within primary care. Unknown Executive: Thank you, Keith. Another one for you from Truffle. Why do you indicate that the FY '25 base is high? Any abnormal benefits in 2025, or any changes expected in 2026? I think you did cover some of those in the first question. Keith Gibson: Thanks. Yes. I think I did touch on that briefly in the previous question. I guess it's really just to indicate that the market remains extremely difficult and that there are a number of headwinds that we battle each year. Notwithstanding that, we're grateful for the benefits that we have from our strategic investments. Unknown Executive: Thank you. There are no further questions. I'll hand over to Richard just for some closing comments. Richard Friedland: Thank you very, very much, colleagues, ladies and gentlemen, for affording us your time this morning, and we remain available to take any questions, clarifications or queries you might have. Thank you very much.
Operator: Good day, and thank you for standing by. Welcome to Kiwi Property FY '26 Interim Results. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Clive Mackenzie, Chief Executive Officer; and Steve Penney, CFO from Kiwi Property. Please go ahead. Clive Mackenzie: Thank you, Maggie. Kia ora, and good morning, everyone. Thank you for joining us for Kiwi Property's interim results announcement for the 6 months ended 30 September 2025. I'm Clive Mackenzie, the CEO of Kiwi Property. And today, I'm joined by Steve Penney, our CFO; and Fraser Gunn, our Head of Investor Relations. I assume you have a copy of our presentation in front of you. If not, you can access one from the Investors section of our website at kp.co.nz. A quick reminder that as usual, we have included detailed financial and property information in appendices to the interim financial presentation. Turning now to Slide 4 to look at our progress on key priorities over the last 6 months. Kiwi Property is focused on increasing long-term returns for its investors. We do this through the ownership, development and management of a portfolio of high-quality real estate. At the core of our strategy is an ambition to be New Zealand's leading creator and curator of retail-led mixed-use communities. We believe our strategic mixed-use assets located in metropolitan areas with great transport access such as Sylvia Park, LynnMall, Drury and The Base will continue to grow and that by prioritizing them, we will create the greatest value for our shareholders in the years ahead. We are pleased with our achievements in the first half of FY '26, making strong progress against each of our strategic priorities. The first priority we identified at our annual results earlier this year was to efficiently manage the balance sheet and free up additional investment capacity. As at the 30th of September, gearing remained relatively flat at 38.5% with the operation of the dividend reinvestment plan funding our CapEx requirements. Since balance date, we have agreed the sale of Sylvia Park Lifestyle to a large-format retail fund managed by Mackersy Property. The proceeds from this sale is approximately $53 million, with some of the proceeds to be reinvested into growth opportunities. The pro forma impact of the sale reduces gearing to 37.5%. The second priority was to continue to drive rent growth. Despite a weak economy and a challenging leasing market, during the first half of the financial year, we have delivered strong leasing outcomes across the portfolio with total rental movements, including new leasing and rent reviews up 3.5%. Office leasing spreads were up 3.4%, supported by the ASB lease extension and encouraging tenant demand for premium office space within the Vero Centre. Mixed-use leasing spreads were up 3.2%. Now turning to Slide 5. The third priority was to maintain strong discipline on costs. Through controlled management and a culture of continuous improvement, our employment and administrative expenses were down by 5% when compared to the same period last year and adjusted for one-off costs. The fourth priority was to progress the sell-down of Drury large-format retail sites. Around 77% of the large-format retail land intended to be sold at the development is now under contract with settlement and profit recognition expected from FY '27 to FY '29. I'll talk through the conditional sales of land in further detail later in this presentation. Drury land sales will help to fund the project's capital expenditure with minimal net gearing impact on the Kiwi Property balance sheet expected from the development. Now turning to Slide 6. As well as strong progress on our key priorities, a number of other business highlights over the last 6 months are worth noting. Strong leasing momentum was seen in a number of our assets. ASB's lease at their North Wharf headquarters was extended through to 2040, which was a significant milestone and provides long-term certainty of tenure at the asset. Resido, our build-to-rent asset adjacent to Sylvia Park, was 99% leased at the end of the period, and Vero Centre's leasing is progressing well with occupancy now at 94.3%, up from 92.4%. Sales and foot traffic were marginally up at our mixed-use centers over the last 12 months. Positively, sales are showing signs of improvement, up 1% in the last 6 months compared to the prior 6 months. Catalysts for further sales growth are expected through improving customer spend conditions following interest rate cuts and IKEA's first New Zealand store opening adjacent to Sylvia Park in early December. In November last year, we provided a convertible loan to Mackersy Property with the intention that this would convert to equity. With the earnings milestone in the loan agreement now met, we can confirm that this loan will convert to a 50% equity stake in early December, unlocking an additional source of capital and potential earnings growth over time. Mackersy has launched a new large-format retail fund with Sylvia Park Lifestyle as a cornerstone asset and is currently seeking investor interest. I'll talk through the new LFR proposition in further detail later in the presentation. Over now to Slide 7. With New Zealand's first IKEA opening next week adjacent to Sylvia Park, it would be remiss not to mention its significance for the Sylvia Park Precinct today. IKEA is one of the most highly anticipated retail openings in recent years. And once open, it is expected to act as a significant draw card to the Precinct. To ensure the seamless integration of the 2 sites, we have completed a pedestrian walkway between IKEA and Sylvia Park to encourage cross-shopping. This walkway entry point on Level 1 will be beneficial in driving foot traffic to Sylvia Park's upper floor retail. We anticipate that the opening of IKEA will drive additional customer activity and reinforce the long-term value proposition of Sylvia Park. Now turning to Slide 8. Among others in the property industry, Kiwi Property discussed the country's seismic regulations with government ministers and raised whether the mitigation costs associated with appropriately sized compared to the risk. We are pleased to see the proposed changes announced in September by Minister Chris Penk, which are expected to provide greater clarity regarding seismic strengthening obligations. Proposed legislation will remove the new building standards ratings. Instead, the legislation will target buildings posing substantive risk to life in medium or higher seismic zones. Auckland is set to be removed from the earthquake-prone building regime altogether due to low seismic risk, meaning seismic strengthening would not be mandatory for Auckland buildings. Kiwi Property's portfolio is predominantly Auckland-based with 86% of our assets based there when excluding held-for-sale assets. In the valuations of Kiwi Property's Auckland's assets, we currently have a combined present value of $83 million in seismic CapEx assumed to be spent over time. Across our portfolio, including held-for-sale assets, the total seismic CapEx provision have a present value of $116 million, which could significantly reduce once this legislation is passed and implemented. Kiwi Property's valuations currently remain unchanged and any potential CapEx savings from the reduced seismic upgrade requirements will depend on a variety of factors, including market reaction, tenant commitments and lender expectations. Over now to Slide 9. We're pleased to have continued to maximize the day-to-day operational performance of our assets. Despite the challenging leasing market, we have continued to grow rents and increased both our weighted average lease term and occupancy. As you can see on this slide, total rental growth from mixed-use office and retail leasing activity was up 3.5% for the half year. Driven by the renewal of ASB's lease at North Wharf, over 28% of our office space was re-leased or renewed with a spread of 3.4%. At the half year, 68% of our total portfolio of our income was subject to either a fixed or CPI-based review, allowing for future rental growth. Overall portfolio occupancy has increased 96.9% to 97.9% over the period. This increase was primarily due to the lease-up of Resido, which had 293 of 295 apartments leased as at 30 September and positive leasing momentum in the Vero Centre and Sylvia Park adjoining properties. Our weighted average lease expiry increased from 3.8 years to 4.3 years over the period, primarily due to the lease extension at North Wharf for a further 9 years. Turning now to Slide 10. Sales across our total portfolio were margin lower, down by 0.6% over the last 12 months. However, sales and foot traffic at our mixed-use assets were marginally up by 0.2% and 1.1%, respectively, compared to the previous period. Stronger mixed-use sales in the second half, up by 1%, shows there's momentum heading into the Christmas shopping period. Total occupancy costs were up to 15.5% from 14.5% across the mixed-use assets with a target TOC of 17% to 18%. This provides further scope for rental growth. Overall, sales appear to be recovering, and our hope is that this theme continues over the coming months. On now to Slide 11. Kiwi Property's asset values were marginally lower over the year with a fair value movement for the total portfolio down by 0.9% or $30.3 million over the last 6 months. Values look to have stabilized as interest rates continue to decrease with the investment portfolio capitalization rate broadly flat versus the prior year. The base valuation increased by 1.9%, thanks to continued strong leasing activity with a spread of 5.8% and occupancy at more than 99%. On the other hand, our Drury landholding valuation has seen a small decrease of $4.3 million or down 2.6%. This is primarily due to ongoing development investment. These capital works are expected to enhance the site's long-term value with short-term valuation movements expected during active project phases. I'll now pass over to Steve to talk through our FY '26 interim financial results on Slide 13. Steve Penney: Thanks, Clive, and good morning, everyone. Kiwi Property has delivered a strong overall rental performance in the last 6 months with net operating income up 5.7% across our portfolio compared to the prior period. Our focus on mixed-use assets has delivered through cycle net operating income growth of 6.9%. At Sylvia Park, the lease up of Resido has contributed to an additional $3.8 million in income compared with September 2024, while the ASB lease deal at Geneva House added $900,000. The Base continues to perform well with Te Awa's new medical and entertainment tenancies in Level 1 driving higher income up $0.5 million. These results reflect our ongoing commitment to optimizing portfolio performance even when market conditions are challenging. Turning now to Slide 14. Adjusted funds from operations, or AFFO, increased by $3.5 million or 7.2%. This was driven by higher net rental income and stable finance expenses over the period. Employment and administration expenses when normalized for one-off costs associated with the ASB lease extension and other transaction costs were lower by $600,000 or 5.1%, reflecting our continued focus on controlling costs and delivering operational efficiency. Although our half year dividend of $0.028 per share reflects an 88% AFFO payout ratio, we expect the final FY '26 dividend payout ratio to be at the lower end of our 90% to 100% AFFO target range. Turning over to Slide 15. Our total property assets, including our investment properties and Drury land classified under inventories was $3.3 billion as at 30 September 2025. Gearing remains relatively flat at 38.5% with proactive capital spend reduction and the dividend reinvestment plan supporting the stability. Pro forma gearing is expected to reduce to 37.5% following the completion of the LFR fund transaction. Net tangible assets per share were marginally lower at $1.12, down by 2% from $1.14. The interest cover ratio was 3.1x, up from 2.9x in March. Now over to Slide 16. Kiwi Property continues to be well supported by our banking group. In August, we increased our bank facilities by $35 million with headroom of $248 million as at 30 September. Our weighted average term to debt maturity was flat at 3.1 years. During the period, Kiwi Property took advantage of lower cost facilities during the refinance while still ensuring a healthy term to maturity was retained. To take advantage of lower relative interest costs after balance date, we refinanced the recently matured $100 million KPG040 green bond series with bank debt. Moving now to Slide 17. As a result of declining interest rates and lower cost bank facilities in our recent refinance, our weighted average cost of debt reduced by 41 basis points to 4.89% over the last 6 months. In this half year period, we entered into $95 million of new interest rate swaps. The proportion of fixed rate debt has decreased from 88% to 76% with an anticipated reduction in debt levels after completing proposed asset sales. We will continue to actively manage our hedging profile to provide greater certainty around interest costs. I'll now hand back to Clive who will resume on Slide 19. Clive Mackenzie: Thanks, Steve. We're pleased that our investment in Mackersy Property is progressing to the next phase, creating value for KPG shareholders. The strategy behind our investment in Mackersy was to support the growth of Kiwi Property by providing us with a potential new source of capital and delivering earnings growth from a scalable business. The original loan arrangement supported the growth of Mackersy's business before our investor converted from debt to equity. Mackersy has made strong progress over the last 12 months, and the equity criteria for conversion of loan has been met as expected. This will result in the conversion of our original $6.5 million loan to equity in early December. We look forward to becoming a 50% shareholder in the Mackersy Investment Management business, which currently has over $2.2 billion in assets under management. Over now to Slide 20. We are pleased to announce that Mackersy launched a new large-format retail fund, also known as the Mackersy LFR Fund in early November. The new LFR seed asset will be Sylvia Park Lifestyle, which is our LFR property adjacent to Sylvia Park. The fund will be managed by Mackersy with Kiwi Property retaining property management and leasing of its contributed assets. Kiwi Property intends to maintain a long-term interest of between 25% and 50% in the fund with the fund intended to grow over time. This transaction highlights the benefit of our investment in Mackersy, which can provide us with new sources of capital to support our strategic objectives. The LFR fund structure will enable us to release approximately $53 million in capital upfront, maintain control of key land holdings within the Sylvia Park precinct and partner on any future potential LFR developments at existing Kiwi Property sites. Turning now to Slide 21. With asset sales providing some capital for reinvestment, we expect to commence several key development projects in the near term, subject to Board approvals and final designs. These projects include an Asian supermarket, a new pedestrian plaza at Sylvia Park as well as an expansion of available retail space at The Base. These initiatives will diversify our tenant mix, revitalize key precincts and create additional retail space to meet growing demand. The estimated spend for these projects is approximately $32 million. Moving now to Slide 22. At Drury, we are pleased to be able to announce 3 further sales of large-format retail land following the unconditional sale of 1.2 hectares to Foodstuffs in April. Earlier this month, we confirmed the conditional sale of 6.4 hectares to Costco Wholesale, a major international retailer. This significant agreement will serve as a catalyst for further development and growth at the site. This sale, along with conditional sales to the Briscoes Group and Harvey Norman, will provide capital for reinvestment. Together with the recent Stage 2 Fast-track approval, this validates the strategic vision for Drury as Auckland's next major metropolitan center. Proceeds from all sales to date totaled $115 million with settlement and profit recognition expected in FY '27 to FY '29. Stage 1 civil works and power connections for the large-format retail sections are underway, and Stage 2 has now been granted consent under the Fast-track Approvals Act 2024, increasing the consented developable area to around 140,000 square meters. Turning now to Slide 23. Our Drury development covers a gross land area of 53.3 hectares with total acquisition and development costs to date of $141.4 million. The current market value at September 2025 is $162 million with a salable land area of 39 hectares. CapEx remaining post 30 September is estimated around $161 million with an estimated completed value of around $387 million. And our capital allocation framework, the Drury project, is classified as opportunistic with a target IRR of 15% to 20%, supporting our long-term value creation strategy. And finally, over to Slide 25 for our priorities and guidance for the remainder of the financial year. Kiwi Property delivered a robust operating result in the first 6 months of FY '26 and delivered on our key strategic priorities. Heading into the remainder of FY '26, we will continue to focus on our 4 key priorities, which we know will make an impact. First, we will continue to efficiently manage the balance sheet. Asset sale proceeds will allow us to enhance our existing high-quality assets and progress other investment opportunities as market conditions allow, in line with our capital allocation framework. Secondly, we will continue to drive rental growth with a focus on maximizing the operational performance of our high-quality assets. Thirdly, we look to maintain strong discipline on costs and great progress made to date in this area. And finally, we will look to progress the Drury Stage 1 civil works, which will bring land sales closer to settlement. This follows the 4 large-format retail land sales we have achieved at Drury over the last few months. As a business, our goal is to deliver sustainable earnings and dividend growth for our shareholders. I'm pleased to reconfirm the FY '26 full year dividend guidance of $0.056 per share. This represents a 3.7% increase on the prior year, in line with our intention to continue to deliver dividend growth over time. Kiwi Property has made great strategic progress over the last 6 months, and we will continue to look for ways to add shareholder value over the rest of the financial year. Thank you for joining us today. That concludes our overview of Kiwi Property's interim financial results for the 6 months to 30 September 2025. Today's presentation, along with our FY '26 interim report, is available on the Kiwi Property website. I'll now pass over to the moderator who will open the phone lines for questions. Operator: [Operator Instructions] First question comes from Nicholas Hill from Craigs Investment Partners. Nicholas Hill: I'd like to kick things off with a couple of questions on the performance of your retail and mixed-use assets. Would it be possible to talk to what was behind the decrease in specialty sales per square meter? Clive Mackenzie: Yes, there's probably a couple of things that are driving that. The first one, obviously, the economic climate would be the obvious one. But the other thing is we've seen, especially at Sylvia Park and The Base, a lot of our previously categorized specialty stores go up to many majors as they've increased their store size. And so those sales have gone out of the specialty store sales numbers. Nicholas Hill: Okay. And then just looking at Centre Place North, I believe, was the Kmart lease renewal the main driver increasing income? Or has there also been a change in occupancy? Clive Mackenzie: Sorry. Are you talking about The Plaza or Centre Place? Nicholas Hill: Sorry, I got my wires crossed. What's the one with the Kmart renewal? Clive Mackenzie: We did the Kmart renewal at The Plaza. Sorry, what was the question? Nicholas Hill: Was that the main driver in the increase in rental income? Or has there been a change in occupancy? Clive Mackenzie: That was the main driver, yes. Nicholas Hill: Okay. And then I guess just to clarify something for me. You've announced that you're selling effectively a 50% interest in the Sylvia Park lifestyle asset to Mackersy Fund for $90 million. That equates to about $45 million, but you say that it will release $53 million from capital. Where does the other $8 million come from? Steve Penney: So the gearing in the fund is slightly higher. So that's -- we get proceeds from the sell-down, and then we [indiscernible] gearing [indiscernible]. Nicholas Hill: Okay. And then last one for me before I let someone else have a go. How is the inquiry going for the last 2,000 square meters of the Vero Centre? Clive Mackenzie: Great question. In fact, we're very close to securing another 1,200 square meters of space. We're just getting the lease signed at the moment, which will take us down to effectively just under a floor. Operator: Next, we have Bianca Murphy from UBS. Bianca Fledderus: First question for me is just on Drury. So given the conditional nature of the land sales, are you able to share what specific conditions remain outstanding and what the key risks are to settlement timing there? Clive Mackenzie: Thanks, Bianca. Obviously, with [ fall ] sales, there's a number of conditions that need to play out. Firstly, we obviously have to do all the earthworks in terms of putting in the roads and the infrastructure so we can get a title. And for some of the international tenants, they require OIO as well. So those will be the main conditions across those tenants here -- or buyer, sorry. Bianca Fledderus: Yes. Yes. Okay. That's helpful. And then just on the Mackersy Fund, could you talk about which other assets in your portfolio you see as suitable to be transferred to the LFR funds at some point? Clive Mackenzie: In terms of the assets that we have in our portfolio, there's probably potential new developments. So for example, at Drury, there is still some LFR land that we haven't sold that could potentially end up in the Mackersy LFR fund. Also, there's an LFR site adjacent to the IKEA development, which also -- one develop could also be sold into that fund as well. So those are some of the more immediate ones, yes. Operator: Next, we have Nick Mar from Macquarie. Nick Mar: Just in terms of valuations, sort of intriguing you've executed the lease renewal at ASB, but the valuation is sort of flat despite cap rates. Can you just talk what else has sort of gone on there? What it would [ imply ] is what you're spending is in line or more than what the value of the issued [indiscernible]. Clive Mackenzie: I'll kick off, and then I'll hand over to Steve. Effectively, the valuers haven't moved the valuation. They've looked at market evidence out in the market. And I don't believe that the current market evidence justifies movement in the valuation. So that's probably the first point. I don't know, Steve, if there's anything else you want to add to that? Steve Penney: It's probably market reads as well, Nick. Sort of a soft listing office market in the moment. Nick Mar: But I guess you've just reset the rent on -- and the value [ has moved ] the cap rate, which would suggest that they have viewed it as a more attractive asset than it was prior to the lease renewal, so it's just a little bit intriguing, but no, that's fine. And then with the sort of where you've kind of cut up the portfolio between core and noncore. What is the sort of process around the balance of the noncore assets and how you want to sort of exit these over time? Clive Mackenzie: Yes. So for some time now, we've obviously called out which assets we regard as noncore. Obviously, our intention is -- and again, as we have called out before, we want to focus on mixed-use assets in the Golden Triangle, which is obviously part of the [ capital ] sort of area where we see there's the most opportunity for growth. And so that will mean, over time, we'll move out of those regional retail assets and CBD retail, which is -- sorry, CBD office, which is not [ over ] core to our strategy. So we'll continue that process. Obviously, we've got [ The Base ] held for sale so that sort of signals our intent in that direction as well. Nick Mar: Okay. And the office assets, is that something that might be likely to help you with? Or those sort of [ outweigh ] sales? And particularly with ASB following the lease renewal, have you had much sort of unsourced interest in that? And are you going to progress that? Clive Mackenzie: In answer to the first part of your question, yes, obviously, Mackersy is open to office assets as well as they have a number of office assets within their portfolio. Given the size of our offices, it's most likely they will be to the broader market. And yes, we have had some initial interest in ASB, but still early days in terms of progressing that. Nick Mar: No, that's great. And then just on sort of the rent was down or the total rent went down. Can you just talk through that and talk to what the leasing spreads [indiscernible]? Clive Mackenzie: Okay. Our leasing spreads at Sylvia Park were actually slightly up. So I'm not sure which number you're looking at in terms of that. I'll just turn to the right number. So our overall rent reviews were sort of 4.1%, and leasing spreads were sitting at around 3.2%. Steve Penney: You're looking at Slide 27 at the rental income? Nick Mar: Yes, yes. There's a $1.9 million surrender fee last year, so you've got to adjust it and normalize it for that. Operator: Next, we have Rohan Smit from Forsyth Barr. Rohan Koreman-Smit: Can I ask a couple of quick ones? Just on the second half guidance, it implies a bit of a weaker half. I believe there's a bunch of maintenance CapEx that kind of looks pretty seasonal and incentives. I think last time we spoke, you said there was going to be a reasonable number this year, and it's obviously not in the first half. Can you just give us some color on those 2 lines? Steve Penney: Yes. Maintenance CapEx will probably tick up a little bit. And the challenge for the second half of the year from a leasing perspective is you lose 2 months to do deals. So kind of running out of time to put those deals and to do the debt upside. So that's probably what we're seeing at the moment. In terms of debtor things like that, that's really stable. The provision for debt review slightly what -- [indiscernible] slightly but everything else looks [indiscernible] So it's more about it's a timing issue with leasing. Rohan Koreman-Smit: Sorry. You're saying the whole movement is a timing issue with leasing? Is that how I should read that because you typically... Steve Penney: [indiscernible] Rohan Koreman-Smit: Do you have some color on that? And also the incentives as well? I get -- I feel like maybe there's something that you provided ASB given earlier comments on the building valuation that -- are you capitalizing incentives there? Or are you running them through your P&L? Steve Penney: Capitalized [indiscernible]. Rohan Koreman-Smit: And sorry, maintenance CapEx? Steve Penney: Sorry, maintenance CapEx. That's generally second half of the year as soon we expect to do that and spend a bit more. So it will be pretty consistent with last year, maintenance CapEx. Rohan Koreman-Smit: Okay. And then just on the seismic disclosures, looking at your financial reports, when you go to last year's one, you had $42.8 million as a net present value of the provisions in the valuations. But today, you're telling us it's $116 million. What happened between FY '25 and now in terms of more than doubling your seismic provisions? Steve Penney: You're talking about different numbers. One is the movements last year, and then we reported the total number. We've never reported the total number before. Rohan Koreman-Smit: Okay. So these movements for the last -- so '25, you added $40 million, and then '24, you added another 40-ish. So that's a cumulative number, not the total? Steve Penney: It's the change in the period -- over the period. Rohan Koreman-Smit: Yes. Yes. Okay. And then just thinking about gearing because you've got a bunch of asset sales and it's going to take a while for you to sell down this Drury land. Where is your kind of target for gearing? Are we still kind of in that 25% to 35% range? Is that where we should think about you're gearing long term? Steve Penney: Yes. So we can see with the CapEx we've got in front of us and the asset sales that we were targeting at the moment, we can see it [indiscernible] pro forma gearing [indiscernible]. Keeping in mind that the expenditure Drury is over quite a long period of time. Clive Mackenzie: Yes. And any additional asset sales over time would reduce that amount down for the year. Rohan Koreman-Smit: Yes, cool. And then just last one, and I know we probably agree and disagree on this all the time, but you comment multiple times that the Drury land sales will be used to fund project CapEx, yet you're running the profit through AFFO. Are you going to be running a lower payout ratio in the medium term to retain those earnings, so to speak? Otherwise, whilst the Drury land sales will fund the project CapEx, your dividend will be part funded by debt. Steve Penney: Yes, we expect the payout ratio to be lower if you included the jury earnings in that. Yes, that's correct. Closer to the time, we'll provide the market an update. Operator: [Operator Instructions] Next question comes from Arie Dekker from Jarden. Arie Dekker: Just starting with Resido, net rental income was $3.6 million for the half, and your effective occupancy was pretty high given starting point was, I think, 82%. Can you just give an update on where your sort of outlook is now that it's fully leased and the starting rents have come in for year 3 stabilized income, which, I think, last year, you sort of sized at about $11.2 million. Steve Penney: Yes, it's probably a little bit over double what it is now, closer to $8 million, I'd say. Arie Dekker: And in terms of year [ 3 ]? Clive Mackenzie: Well, that's in terms of this financial year, yes. This financial year. Yes. Arie Dekker: Yes. Yes. So in terms of like with the rental growth that you'd sort of be expecting, does that mean sort of your outlook now, say, in 18 months or so time at the 3-year point would be sort of closer to $10 million? Steve Penney: Yes. It's come back a bit. Yes, rental is a softer market, but we expect it to pick up again [indiscernible] [ the market cycle. ] Arie Dekker: Okay. And then just in terms of the ASB, which has sort of come up in a couple of other threads of questions. I see in the commitments that there's a $22 million commitment -- future commitment for ASB North Wharf. Can you just sort of talk a little bit about the nature of that and over what time period that $22 million will be incurred? Clive Mackenzie: It's over the next couple of years, and it's -- there's some tenant fit out in there. There's some baseball works as well for additional space. There's a little bit of spend on green. Yes, there's bathrooms. Yes, it's basically -- it's a refresh of the tenancy for the next lease term, yes. Arie Dekker: Okay. And then just in terms of Vero, which is also going, I guess, through a bit of a partial renewal cycle, commitments there, $12 million. Is that sort of over a similar period as well, sort of next 12, 18 months and sort of associated with CapEx and also some incentives or CapEx only? Clive Mackenzie: That's sort of over the next 12 to 18 months, as you call out. And that's -- there's a combination of upgrading works as well sort of the entry lobbies in the trip and some CapEx as well. There's no incentives in that number. Arie Dekker: Great. And then just the last one for me. I mean I know it's a relatively small asset. I think you sort of paid $27.5 million for it 4 years or so ago. But the site that the city Impact Church used to occupy, what's sort of the future for that site now that you've sort of sold down an interest in the lifestyle asset? Clive Mackenzie: We're actually very close -- we're very close to finalizing a lease for the office space in that tenancy. So that vacant space will come out. But it's an asset which, over time, we may look to down weight our ownership of with regards to Mackersy into the LFR fund potentially as well, yes. Arie Dekker: All right. Kind of go down the way of the lifestyle asset. That's good. Operator: Thank you. Thank you for all the questions. This concludes today's Q&A session and the conference call. Thank you for participating. You may now disconnect. Have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the BioLineRx Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn over the call to Irina Koffler, Investor Relations. Irina, please go ahead. Irina Koffler: Thank you, operator, and welcome, everyone. Thank you for joining us on our quarterly results conference call. Earlier today, we issued a press release, a copy of which is available in the Investor Relations section of our website. It was also filed as a 6-K. I'd like to remind you that certain statements we make during the call will be forward-looking. Because such statements deal with future events and are subject to many risks and uncertainties, actual results may differ materially from those in the forward-looking statements. For a full discussion of these risks and uncertainties, please review our annual report on Form 20-F and our quarterly reports on Form 6-K that are filed with the U.S. Securities and Exchange Commission. At this time, it is now my pleasure to turn the call over to Mr. Phil Serlin, Chief Executive Officer of BioLineRx. Philip Serlin: Thank you, Irina, and good morning, everyone, and thank you for joining us on today's call. As has been our practice, I will begin with a few prepared remarks before turning the call over to Mali Zeevi, our Chief Financial Officer, to briefly recap our financials. Afterwards, we will take your questions. Ella Sorani, our Chief Development Officer, is also available for Q&A. I would like to begin this morning with a recap of our very significant and transformational announcement that we established a JV with Hemispherian, a Norwegian privately held biotech company to develop GLIX1, a highly innovative molecule for the treatment of glioblastoma and other cancers. The JV combines our proven track record of clinical and regulatory success, having advanced APHEXDA through clinical development and FDA approval with Hemispherian's expertise in small molecule cancer drug discovery, specifically in the area of DNA damage response research that leverages a unique mechanism of action and targets cancer cells. With these complementary capabilities, I believe we are very well positioned to bring much needed innovation to the most challenging cancer types while creating long-term value for our respective shareholders. GLIX1 is a first-in-class oral small molecule. As mentioned, GLIX1 is a very innovative molecule with a unique mechanism of action that targets DNA damage response in cancer cells while sparing healthy cells. Based on this unique MOA, the fact that it crosses the blood-brain barrier as well as highly impressive preclinical results, the first indication to be investigated will be glioblastoma or GBM, both newly diagnosed and recurrent. The FDA cleared Hemispherian's IND in August. And with the JV now up and running, we are planning to initiate a first-in-human Phase I/IIa glioblastoma trial in the first quarter of next year. At the same time, GLIX1 is a versatile molecule that has shown compelling antitumor activity in a large variety of cancer cell lines and other cancer models as well, and we will continue to advance preclinical activities in support of potential trials in other high unmet need cancer indications. Briefly recapping the terms of the JV agreement, Hemispherian contributed the global rights of GLIX1 to the JV, and we are responsible for managing, performing and funding all JV clinical development activities. In consideration for our respective contributions as of the JV's inception, Hemispherian holds 60% of the JV's share and BioLine holds 40%. We will continue to increase our stake over time up to a 70% stake as we continue to invest additional capital into the program. The unmet need in glioblastoma is significant. It is the most common and aggressive form of primary brain cancer. The current standard of care treatment was established more than 20 years ago with only limited improvements since that time. Treatment includes surgical resection followed by radiotherapy and concomitant and adjuvant chemotherapy, but the prognosis for patients is poor with median survival of approximately 12 to 18 months following diagnosis. GBM occurs at all ages, but peaks with individuals in their 50s and 60s with an increasing incidence driven by an aging global population. New and better treatments are desperately needed that can improve survival, maintain quality of life and delay tumor progression. By 2030, the annual incidence of GBM is expected to be approximately 18,500 patients in the U.S. and approximately 13,400 across the EU 4+1, France, Germany, Italy, Spain and the U.K. This translates into total addressable markets across both the newly diagnosed and recurrent settings of more than $3.7 billion in the U.S. and Europe alone. We view this as a wide open market with few competitors. In terms of next steps, as mentioned, GLIX1's IND was cleared by the FDA this past August, and we are planning to initiate a Phase I/IIa study in the first quarter of next year. Data from the Phase I part of the trial is anticipated in the first half of 2027, but we may provide periodic updates earlier. Notably, 2 renowned experts in the area of glioblastoma, Dr. Roger Stupp and Dr. Ditte Primdahl of the Malnati Brain Tumor Institute at Northwestern University will serve as principal investigators for the study. We already talked about GLIX1's unique mechanism of action as well as the fact that we believe this novel molecule has potential clinical utility across a range of cancers. To that end, we were very pleased to announce just a few days ago that we received a notice of allowance from the USPTO for a key patent covering the use of GLIX1 for the treatment of all cancers in which cytidine deaminase or CDA is not overexpressed beyond a specific threshold. It is estimated that as many as 90% of all cancers, both solid tumor and hematological cancers fall into this category, and we have already seen potent antitumor activity in other cancer models in which GLIX1 has been evaluated. So while glioblastoma is our lead indication, as previously mentioned, we are planning to expand the development of GLIX1 into additional cancer indications once safety and dosing are successfully established. In this regard, we will continue to advance preclinical work in other cancers in parallel with our glioblastoma study. We believe the versatility of GLIX1 provides us with multiple opportunities to advance cancer patient care while creating value for our company. Importantly, this new patent broadens and strengthens GLIX1's patent protection until 2040 with a possible patent term extension of up to 5 years. In addition to the recently allowed U.S. patent just referenced, GLIX1 is covered by 2 additional key patent families covering its use alone and in combination with established anticancer agents. GLIX1 for use in treating cancer in the central nervous system, such as glioblastoma is covered by patents issued in the U.S., Europe and 13 other countries. The patents are valid until at least 2040 with a possible patent term extension of up to 5 years. And then GLIX1 in combination with PARP inhibitors for use in treating homologous recombination proficient cancers, which represent the majority of cancers is covered by a pending international patent application. Corresponding national-based patents if granted will be valid until at least 2044 with a possible patent term extension of up to 5 years. So we are very pleased to have brought this highly innovative molecule into our pipeline, and we look forward to keeping you apprised of our progress as we pursue its development in a range of very challenging cancers. Turning now to pancreatic cancer, or PDAC. Recall that we retained the rights to develop motixafortide in PDAC as part of the Ayrmid out-licensing agreement, and we continue to support its ongoing development in this indication. A randomized Phase IIb clinical trial sponsored by Columbia University and supported by both Regeneron and BioLineRx, known as CheMo4METPANC continues to enroll patients. The CheMo4METPANC trial is evaluating motixafortide in combination with the PD-1 inhibitor, cemiplimab and standard chemotherapies, gemcitabine and nab-paclitaxel. A prespecified interim analysis is planned for when 40% of progression-free survival events are observed. Results for this trial, if positive, could be a significant value inflection point for our company and signal new hope for patients suffering from this very challenging tumor type. We look forward to keeping you up to date on our progress with this important program. In terms of cash, our balance sheet remains strong. We ended the third quarter with cash and equivalents of approximately $25.2 million, which is sufficient to fund our operating plan as currently contemplated into the first half of 2027. We also have the potential benefit of royalties and milestone-driven revenue from our license agreements with both Ayrmid and Gloria Biosciences. Our goal continues to be to help as many patients as possible while creating enduring value for our shareholders. Before turning the call over to Mali to review our financials in more detail, I'd like to briefly touch on APHEXDA's performance in the third quarter. The Ayrmid team continues to make progress driving APHEXDA adoption, generating sales of $2.4 million in Q3 2025, which resulted in $0.4 million of royalty revenue to BioLineRx. We remain optimistic about the role that APHEXDA can play in the new multiple myeloma treatment paradigm and look forward to meaningful growth from this next-generation stem cell mobilization agent. Recall that when we executed the Ayrmid out-licensing agreement last year, we obtained not only the rights to commercialize APHEXDA in stem cell mobilization for multiple myeloma, but also the rights to develop motixafortide across all other indications, excluding solid tumor indications and in all territories other than Asia. This includes the evaluation of motixafortide in sickle cell disease. A Phase I investigator-initiated trial sponsored by Washington University School of Medicine recently concluded, and we are very pleased to announce that an abstract detailing final positive results for this proof-of-concept study has been accepted for presentation at this year's ASH Annual Meeting, which is taking place December 6 to December 9. Hitting a few of the highlights, the trial, which enrolled 10 subjects evaluated motixafortide both as monotherapy and in combination with natalizumab for the mobilization of hematopoietic stem cells for gene therapies in sickle cell disease. The study demonstrated that motixafortide alone and in combination with natalizumab was safe and well tolerated. In addition, motixafortide alone and in combination with natalizumab demonstrated robust hematopoietic stem cell mobilization in the peripheral blood, resulting in high collection yields. Furthermore, in 2 subjects who had previously undergone mobilization with plerixafor, motixafortide alone and in combination with natalizumab resulted in nearly 3x greater mobilization and subsequent collection yield of stem cells as compared to plerixafor. In conclusion, this trial demonstrated the potential of motixafortide alone and in combination with natalizumab as a novel G-CSF-free regimen to safely optimize hematopoietic stem cell mobilization in sickle cell disease. These results strongly support continued development in this indication. The current standard of care mobilization agent, G-CSF is contraindicated in patients with sickle cell disease. So there is an urgent need for an agent that can reliably produce the very large quantities of stem cells that manufacturing and transplantation require in this indication, around 20 million CD34+ cells per kilogram without further burdening already constrained apheresis capacity. We believe motixafortide has the potential to expand access to stem cell mobilization and transplantation in sickle cell disease, which is potentially curative for these patients. Now let me turn the call over to Mali to provide a financial update. Mali, please go ahead. Mali Zeevi: Thank you, Phil. As is our practice, I will only go over the most significant items in our financial statements, revenues, cost of revenues, research and development expenses, sales and marketing expenses, net loss and cash. I invite you to review the 6-K that we filed this morning, which contains our financials and press release. Total revenues for the third quarter of 2025 were $0.4 million, reflecting the royalties paid by Ayrmid from the commercialization of APHEXDA in stem cell mobilization in the U.S. Cost of revenues for the third quarter of 2025 was immaterial. Both revenues and cost of revenues in 2025 are not comparable to the same period in 2024, which primarily reflect a portion of the upfront payments received by us under the Gloria license agreement as well as direct commercial sales of APHEXDA by BioLineRx prior to the Ayrmid transaction in November 2024. Research and development expenses for the third quarter of 2025 were $1.7 million compared to $2.6 million for the third quarter of 2024. The decrease resulted primarily from lower expenses related to motixafortide following the out-licensing of U.S. rights to Ayrmid as well as a decrease in payroll and share-based compensation, primarily due to a decrease in headcount. There were no sales and marketing expenses for the third quarter of 2025 compared to $5.5 million for the third quarter of 2024. The decrease resulted primarily from the shutdown of our U.S. commercial operations in the fourth quarter of 2024 following the Ayrmid out-licensing transaction. General and administrative expenses for the third quarter of 2025 were $0.8 million compared to $1.4 million for the third quarter of 2024. The decrease resulted primarily from lower payroll and share-based compensation, primarily due to a decrease in headcount as well as small decreases in a number of general and administrative expenses. Net loss for the third quarter of 2025 was $1 million compared to net loss of $5.8 million for the third quarter of 2024. As of September 30, 2025, the company had cash, cash equivalents and short-term bank deposits of $25.2 million, sufficient to fund operations as currently planned into the first half of 2027. And with that, I'll turn the call back over to Phil. Philip Serlin: Thank you, Mali, and thank you to everyone joining this call. Operator, we will now open the call to questions. Operator: [Operator Instructions] The first question is from Joe Pantginis of H.C. Wainwright. Joseph Pantginis: If you don't mind, I'm going to ask all 3 of my questions at the same time because there is some background noise. So please bear with me. So first, I wanted to get a sense as we look towards the upcoming clinical study for GLIX1, as you look early on for PK and PD markers, are there any potential PD markers that you look to release that might be correlated with clinical activity as people look to tease out any additional information from the study, number one. Number two, what would you say your intermediate or longer-term needs are for manufacturing capacity for GLIX1? And number three, thank you for taking these as you look towards additional tumor indications, when do you think we might see some preclinical data readouts and what those indications might be? Philip Serlin: Thanks, Joe. So first of all, thanks for joining the call. Ella, do you want to take the question? Ella Sorani: Yes, sure. Joe, thanks for your question. So the first question with regards to PK and PD markers during the clinical trial of GLIX. PK is an easy one. Of course, we are planning to take extensive PK data during this trial. With regards to pharmacodynamic markers, we do have pharmacodynamic markers for GLIX1. However, they are from biopsies. And since we are talking in the first part at least of the study, about recurrent GBM -- biopsies during or following treatment will not be easy to be obtained. Having said that, if there are going to be surgeries along the trial, then we are planning to use those in order to get some input with regards to these biomarkers. I hope this answers the question. Joseph Pantginis: Yes. Philip Serlin: And as far as the immediate needs for manufacturing, I can say that we're manufacturing at a world-class CDMO. We don't anticipate any need to change manufacturers or whatever. I think the current manufacturer has more than enough capacity and the batch size is correct for us to move forward all the way to Phase IIa. Ella Sorani: And regarding your third question on results of preclinical models. So we are performing then with regards to when we will be able to present results probably in -- well, the plan would be in one of the conferences next year. Operator: The next question is from John Vandermosten of Zacks. John Vandermosten: So why the activities to commercialize APHEXDA are responsible at Ayrmid, I wanted to see if you can help me think about like a medium-term target for market penetration based on today's vantage point. Is that something you can help me with, Phil? Philip Serlin: We can't really help you with it. We're not -- we're no longer the owner, so to speak, of the asset in the territories that Ayrmid holds. And so we're not really giving guidance at this time since it's no longer our product. I wish I could give you a better answer than that, but I'm really not able to. John Vandermosten: Okay. And then shifting on to GBM. What would be a reasonable target for an improvement in overall survival for GBM that would get established pharma interested and get the FDA to be on board with approval? I know, again, that's well down the road, but I was wondering what you had in mind in terms of what would be material enough to get all parties, all stakeholders interested? Ella Sorani: Yes. So with regards to that, I think it depends, of course, if you're talking recurrent GBM or newly diagnosed GBM. I think for the newly diagnosed, the benchmark would be -- I mean, temozolomide was approved based on improvement of median overall survival of approximately 2.5 months. So that would probably be sufficient for -- in terms of improvement of overall survival for newly diagnosed GBM. For recurrent GBM, I think the bar would even be lower in terms of improved efficacy. John Vandermosten: Okay. That's very helpful. And then just a question on the financial statements. So your investments in the JV, how will they appear on your financial statements? Is that considered R&D expense? Or will it end up somewhere else? And I know there's a few different components there, like a periodic piece and then the investments in the JV itself. Philip Serlin: Yes. So we ultimately control the JV. We have control of the Board of Directors, and we also have control of the joint development committees, et cetera. So we're actually consolidating the JV in our financial statements. And so therefore, all of the expenses in the JV will be reflected in the specific financial statement line items as if we were -- as if it was just being done directly at BioLine. John Vandermosten: Okay. So those are all considered R&D expense, including that, I think that $80,000 amount. Philip Serlin: Yes, of course. Yes. That $80,000 amount is actually -- is for specific services, transition services and what have you. So it will all be reflected in R&D expenses, I believe you're correct. Operator: [Operator Instructions] There are no further questions at this time. Mr. Serlin, would you like to make your concluding statement? Philip Serlin: Yes, I would. Thank you, operator. In closing, we remain very excited about this new vision for BioLineRx and believe we have the expertise and resources to drive meaningful innovation for patients with some of the most challenging cancer types. I am very excited about what the future holds for BioLineRx in 2026 and beyond. Thank you all very much for your continued interest in BioLineRx. Be safe, and have a great day.
Operator: Good day, and thank you for standing by. Welcome to the Lexin Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised, today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Will Tan. Please go ahead. Will Tan: Thank you, operator. Hello, everyone. Welcome to our third quarter 2025 earnings conference call. Our results were released earlier today and are currently available on our IR website. Today, you will hear from our Chairman and CEO, Mr. Jay Wenjie Xiao, who will provide an update on our overall performance and strategies of our business. Our CRO, Mr. Arvin Zhanwen Qiao, will then provide more details on our risk management initiatives and updates. Lastly, our CFO, Mr. James Zheng, will discuss our financial performance. Before we continue, I would like to refer you to our safe harbor statement in our earnings press release, which also applies today's call as we will be making forward-looking statements. Last, please note that all figures are presented in renminbi terms, and all comparisons are made on a quarter-over-quarter basis, unless otherwise stated. Please kindly note, Jay and Arvin will give their whole remarks in Chinese first, then the English version will be delivered by Jay's and Arvin's AI-based voices. With that, I'm now pleased to turn over the call to Mr. Jay Wenjie Xiao, Chairman and CEO of Lexin. Please. Jay Xiao: [Interpreted] Hi, everyone. Thanks for joining us today for our third quarter 2025 earnings call. In the third quarter, we efficiently completed our business adjustments to comply with the new regulation. The smooth transition was mainly attributed to the company's strong risk management capabilities that we've been enhancing over recent years and the resilience of our business ecosystem. This demonstrates our long-term oriented development philosophy and our strong resilience in navigating business cycles, effectively mitigating the impact of industry fluctuations on the company. Against the backdrop of industry fluctuations, we delivered solid performance in the third quarter. Loan volume reached RMB 50.89 billion, revenue reached RMB 3.42 billion. Net profit was RMB 521 million, up 2% quarter-over-quarter and 68% year-over-year. Net profit take rate stood at 2.01%, increasing by 9 basis points quarter-over-quarter and 92 basis points year-over-year. We believe that the implementation of the new regulations will further raise industry entry barriers and drive the industry toward a healthier and more orderly development. Our unique advantages in business ecosystem synergy and customer-centric operation system will position us more favorably in the future. We are confident that our long-term investment in the fundamental capabilities and the ecosystem businesses will gradually turn into our distinctive and powerful advantages. We have always placed great emphasis on shareholder returns. As we announced previously, the dividend payout ratio was increased from 25% to 30% of the net profit starting from the second half of this year. In addition to the cash dividend, the company's share repurchase plan and my personal share purchase plan are progressing well with each initiative, now more than halfway completed. Next, I will walk you through the key initiatives we have made in the third quarter. First, we strengthened user categorization and risk identification and took early actions to address the industry risks. In light of the industry risk trends in the third quarter, we enhanced user categorization and risk identification and took proactive measures to manage risk, effectively balancing business volume and asset risk. During the quarter, leveraging our historical cycle models, we systematically phased out users highly sensitive to cyclical impacts and exhibiting instability and adjusted our risk management strategy accordingly. We further refined our customer segmentation and implemented tailored pricing strategies accordingly. As a result, new assets in the third quarter maintained a balanced risk return profile. Second, we enhanced user experience by adopting a customer-centric approach. In the third quarter, we upgraded our products and management capabilities, and the development of our customer care system has yielded positive results. This allowed us to fulfill the financial and service needs of different customer segments. During the quarter, we collaborated with financial institutions to optimize funding supply and expanded the coverage of flexible repayment solutions, such as flexible borrowing and repayment and bullet loans. In addition, we provided customized reoffer to improve customer satisfaction and loyalty, effectively enhancing user retention. As a result, the proportion and contribution of high-quality customer continued to grow. Third, we accelerated our AI technology deployment leveraged integrated AI agents to drive digital transformation. In the third quarter, we further advanced our AI initiatives. Our self-developed large model, Lexin GPT, has incorporated multidimensional data providing AI agents with stronger decision-making capabilities under different scenarios. This has improved the accuracy of user request identification by over 20% and significantly enhanced request solution efficiency. During the quarter, AI agent has been applied in multiple areas such as risk management, credit granting and repayment, and we'll continue to expand to other areas. [indiscernible] to the industrial integrated AI agent has facilitated data connectivity and task coordination in different scenarios, thereby creating stronger business synergies. We have laid a solid foundation for AI-driven digital transformation, providing robust technological support for improving efficiency, revenue growth and user experience optimization. In the third quarter, different business units within our ecosystem work together to create synergies and collectively reinforce the resilience of our ecosystem. Online consumer finance business targets at high-quality customers and focused on optimizing service experience, significantly enhancing user engagement and retention. Installment e-commerce business targets at young customers in key consumption scenarios. We continue to refine the supply chain system of our e-commerce platform, GMV, for essential daily consumer goods, grew 58.5% quarter-over-quarter and 133.8% year-over-year during the recent Singles' Day Shopping Festival. The total GMV of e-commerce platform increased by 38% year-over-year, with transaction volume for essential daily consumer goods surging by 237% year-over-year. Offline inclusive finance focuses on small and micro business owners in lower-tier markets. The asset quality of inclusive finance business remained stable in the quarter, validating the value of the lower-tier markets. We will continue to increase investments in off-line markets and further improve its operations. Both tech empowerment business and overseas business achieved steady growth in volume during the quarter. The company has always adhered to a user-centric service philosophy, positioning consumer rights protection as a core competitive advantage. In the third quarter, we comprehensively strengthened our consumer rights protection system across multiple dimensions, including policies, products and services. In terms of policies, we integrated consumer rights protection into our sustainable development strategy, implementing measures across all business processes through various mechanisms. In terms of products and services, we actively responded to user needs by leveraging technological means, such as online customer service center and AI-empowered customer support to improve service efficiency and quality. We also proactively gathered user feedback for data analytics aiming to enhance user satisfaction at the sorts. In response to frequent violations of consumer rights by illegal activities, we actively followed regulatory requirements and collaborated with the industry to combat such activities, which has achieved positive results. With the new regulations taking effect in the fourth quarter, the industry is now on a healthier and more sustainable path. Having completed our business adjustments, we are well positioned to capture opportunities arising from the industry adjustments by increasing investments in ecosystem businesses and drive steady growth. Looking ahead, we are confident in achieving stable performance growth. Next, I'll hand over the floor to our CRO, Arvin. Thanks. Zhanwen Qiao: [Interpreted] Thanks, Jay. Next, I will provide a review of our key initiatives and achievements in risk management for the third quarter. In the third quarter, industry uncertainty remained elevated. With the new regulations officially took effect in October, industry-wide liquidity tightened further on a month-over-month basis in the fourth quarter. Impacted by the broader industry trends, our day 1 delinquency ratio and the collection rate of loan balance saw a minor increase. Thanks to the proactive measures we've taken to enhance risk control and mitigate risk starting from the second quarter. The overall risk volatility remains manageable. In response to the complex industry environment, we have further tightened risk controls over high-risk customers by phasing out risky accounts and reducing credit lines. These measures have helped keep new loan risks manageable and ensure full compliance with regulatory requirements.Meanwhile, we doubled down on serving prime customers to promote the growth of high-quality assets. Let me introduce the key initiatives we've taken in the third quarter. First, during the third quarter, we further enhanced risk control measures for high-risk customers. From a credit model perspective, we enhanced data mining on key variables, such as multiple borrowing, pricing preference and income verification to enhance identification of customers sensitive to industry fluctuations. In the meantime, by integrating the latest risk trends and optimizing our customer credit behavior time series model, we were able to identify anomalous signals accurately and swiftly, further enhancing the identification of high-risk customers. From risk strategies perspective, we continue to intensify management of high-risk assets. We systematically phase out customers with excessive share debt exposure, multiple borrowings and high-risk profiles, and reduced credit line of borrowers with weak repayment capacity or those vulnerable to liquidity tightening. Second, in the third quarter, we continued to enhance our operational capabilities tailored to prime customers. In terms of model and enhancement, we operated multidimensional models, including demand, response and churn models and made targeted investments in our outreach approach, credit line granting and pricing alignment to ensure service quality. Also, we have reinforced our customer-centric approach to enhance the customer experience for prime customers. In terms of credit line, we continue to maintain our offer competitiveness. In terms of pricing, we implemented product-based pricing to reactivate dormant and churned customers. In terms of repayment methods, we introduced tailored solutions like flexible borrowing and repayment and bullet loans for prime customers. Furthermore, we enhanced one-on-one services for prime customers by providing customized re-offers, further boosting customer satisfaction and loyalty. Thanks to these initiatives, loan volumes from prime customer segments achieved month-on-month growth in the third quarter. Third, in the installment e-commerce business, our risk management system has been gradually refined with further strengthened risk identification capabilities. In the third quarter, in light of external uncertainties, we proactively adjusted the growth pace of our installment e-commerce business to strike a balance between scale and risk and to achieve sustainable business development. We've strengthened the risk criteria of our installment e-commerce business, proactively scaling back exposure to high-risk and sensitive customers. At the same time, we selectively provided support for categories such as high-quality consumer electronics by allocating dedicated credit lines, which help drive e-commerce GMV growth. Looking ahead to the fourth quarter, we will dynamically adjust our strategies based on the industry risk trends to ensure steady, healthy and sustainable business growth. Last but not the least, in the development of intelligent risk control tools, we've achieved remarkable progress in building the next-generation smart risk control system. The risk control intelligent agent for credit decision-making empowered by larger scale models has been launched. It enables full process automation and intelligence from customer targeting, segmentation and strategy formulation to results evaluation, marking a paradigm shift from quantitative driven to AI-driven risk management. This has significantly enhanced the efficiency and effectiveness of credit decision-making. In the fourth quarter, the impact of the new regulation is expected to persist, characterized by industry-wide liquidity tightening and risk fluctuations. As such, business volume and risk performance are expected to remain under pressure in the first half of the fourth quarter and may gradually stabilize and improve in the second half. In response, we will continue to strengthen risk identification and enhanced management of high-risk assets in order to ensure risk fluctuations under control, laying a solid foundation for steady and sustainable business operations. Xigui Zheng: Thanks, Arvin. I will now provide a detailed overview of our third quarter financial results. Please note that all figures are presented in renminbi terms, and all comparisons are made on the quarter-over-quarter basis, unless otherwise stated. As Jay mentioned earlier, to proactively adapt to the evolving regulatory environment, we initiated a business adjustment in the third quarter. While this adaptation temporarily led to declines in loan volumes and overall pricing, we leveraged our business ecosystem to effectively mitigate these impacts. Despite ongoing business adjustments and industry credit risk volatility related to the new policy, we delivered steady net profit growth in the third quarter. Our net income grew by 2% quarter-over-quarter and 68% year-over-year to reach RMB 521 million, a record high in the last 15 quarters. Our net income margin increased to 15% from 14% last quarter. Our net income take rate increased 9 basis points to reach 2.01%. We have realized the net income take rate goal of achieving over 2% by year-end ahead of the original schedule as we communicated earlier this year. This underscores the company's results and improved ability to execute on our business objectives. Now let's take a holistic review of our third quarter financial results. First, net revenue of the credit business, which is derived by adding up credit facilitation service income and tech empowerment service income, net of credit cost, including provisions and fair value changes and the funding cost reached RMB 1.9 billion, a 3% or RMB 59 million decrease quarter-over-quarter. The decrease was primarily attributable to an increase in credit costs of approximately RMB 40 million, reflecting continuously strengthened provisioning. Second, net revenue of the e-commerce business, defined by e-commerce revenue. Net of cost of inventory sold increased by 14% or RMB 14 million to RMB 111 million. So the total net revenue summing the credit and e-commerce business added up to RMB 2.1 billion, a 2% or RMB 46 million decrease quarter-over-quarter. Operating expenses, including sales and marketing, R&D, G&A, processing and serving costs decreased by 4% or RMB 57 million to RMB 1.4 billion. Tax and others increased by 1% or RMB 1.8 million to RMB 162 million. The total expenses added up to RMB 1.5 billion, decreased by 3% or RMB 56 million. By deducting total expenses of RMB 1.5 billion from the total net revenue of RMB 2.1 billion, we get net income of RMB 521 million, an increase of 2% or RMB 10 million quarter-over-quarter. Given the backdrop of the pending regulation and the associated industry credit risk volatility, it was not an easy task to achieve this record high profit in the third quarter. During the net profit growth, driving this is the resilience of our business model and the 3 key factors: one, our operational agility demonstrated by smooth transitioning between the capital light and capital heavy models; two, our installment e-commerce steady growth and the profit contribution; three, our solid financial position underpinned by the adequate and prudent provisioning. Next, I'm going to elaborate a little bit more on these 3 highlights. First, our operational agility demonstrated by smooth transitions between the capital-light and the capital-heavy model. In the third quarter, in order to meet the new regulatory requirements, we started to transition our business by gradually reducing capital light business volume. By October 1, we have completely stopped facilitating loans with APRs above 24% and were fully compliant with the new rules. As a result, in Q3, the mix of capital light loan volume further reduced from 20% to 13%, while the ICP business only accounted for 8.5% of the new loans. As the new regulatory framework, we continue to serve a select group of long-tail clients using the capital-heavy model. As such, the mix of capital-heavy loan volume increased from 80% to 87% of the total new loan volume, largely offsetting the decline of ICP volume. Thanks to the smooth transitions between the 2 models, total loan volume only saw a modest decrease of 3.7% compared to the second quarter. As ICP business primarily serves long-tail customers, it naturally bears higher pricing, therefore, the wind-down of ICP business had a negative impact on our overall pricing, which was partially offset by the lower funding costs associated with the capital-heavy model. Driven by the above factors, our tech empowerment service income, which represents income from capital-light model and value-added services, decreased by 45% or RMB 374 million. While our credit facilitation service income, which mainly consists of income from capital-heavy model, increased by 15.3% or RMB 347 million. As a result, revenue from credit business only decreased by 1% or RMB 27 million despite a loan volume decrease of 3.7% in the third quarter, demonstrating our operational agility to navigate regulatory changes. Second, steady growth of e-commerce business and its growing contribution in the third quarter. Despite strong demand driven by limited credit availability for long-tail customer segments since the second quarter, we observed an industry-wide risk volatility in the third and fourth quarter. In response, we prudently slowed down the growth of e-commerce loan volume as we prioritize quality rather than volume of the assets. As a result, our e-commerce loan volume grew by 50% sequentially to RMB 2.3 billion. For the upcoming fourth quarter, we'll continue to keep a close eye on the asset risk performance and strike a balance between the volume growth and asset quality. As a reminder, if you look at the e-commerce revenue in our P&L, it recorded a decline of 29% to RMB 345 million despite the e-commerce GMV growth of 15%. This is caused by the accounting treatment difference due to the continued volume shift to third-party sellers from company direct sourcing model. For third-party sellers, only platform service fee is recognized as revenue, rather than the entire transaction amount and the direct sourcing model. In the third quarter, third-party seller model accounted for 85% of e-commerce GMV compared to 75% from last quarter. As mentioned earlier, our e-commerce business generates 2 profit streams, mainly the gross profit from selling merchandise and interest income from loan installment services. In the third quarter, gross profit reached RMB 111 million, representing an increase of 14%. The growth in our e-commerce business gross profit has not only enhanced our overall profitability, but also expanded our targeted long-tail user segments, thereby further mitigating the impact of our business model transition. Going forward, we will continue to grow our e-commerce operations prudently and fully leverage its unique advantages and the new regulatory environment. Third, we continue to maintain a robust financial position, characterized by adequate and prudent provisioning. Our total provisions saw an increase, while the overall asset quality remained healthy, evidenced by a 15-basis-point improvement of 90-day delinquency ratio to 3.0%. However, as the industry transitions towards the new regulatory framework, we observed an increased volatility in early risk indicators starting from September. While we consider the fluctuations to be temporary, the whole industry may need some time to fully absorb the impact, and we expect the industry-wide risk volatility to continue into the fourth quarter. In response, we have sustained our strategy of setting aside ample provisions to ensure a strong buffer during the transition period. In the third quarter, our credit cost, including 3 provision line items and fair value changes on financial guarantee derivatives, rose 4% or RMB 40 million to RMB 1.1 billion. Due to the net accounting policy we've adopted for the item change in fair value of financial guarantee derivatives and loans and fair value, the actual full provision we set was partially offset by the guaranteed income and recorded as a net amount in our P&L. As such, the reported item only represents part of the actual full provision. If excluding the impact of the net accounting policy and the recovering the growth provision, the full provision ratio of new assets calculated by dividing gross provision by capital-heavy loan volume, increased 6 basis points from the second quarter to 6.97%, well above the historical highs of vintage charge-offs. As Arvin mentioned, we continue to closely monitor asset performance and utilize various post-lending management tools to strengthen collections, while maintaining ample financial buffer to navigate through the credit cycle. As a summary, the above 3 highlights impacted net revenue side of the income statement. In short, total revenue reached RMB 3.4 billion, representing a decrease of 5% quarter-over-quarter. This was mainly due to a 29% decrease in e-commerce platform service income, which was caused by ongoing shift in the e-commerce business model and the corresponding net versus growth adjustment in the accounting treatment. On the cost and expenses side, total operating expenses, which include processing and servicing costs, sales and marketing expenses, R&D and G&A expenses, reduced by 4% to RMB 1.4 billion, reflecting reprioritization of user acquisition costs during the uncertain times of business transition. For balance sheet items, as of September 30, our cash position, which includes cash, cash equivalents and restricted cash, was approximately RMB 4.3 billion. Shareholders' equity remained solid at about RMB 11.8 billion. Looking ahead, as Q4 marks the first quarter after the new regulation framework came into force, we expect industry-wide risk fluctuations to remain for some time before the industry enters into a new normal stage. In light of this, we'll continue to adopt a prudent operational approach, prioritizing regulatory compliance and asset quality over business expansion. For the fourth quarter, we expect to see moderate quarter-over-quarter decline in loan volume. Impacted by the ongoing credit risk volatility, net income and net income take rate will see a sequential decrease. We expect to see more clarity and certainty of credit risks and the profit outlook may be at the close of the fourth quarter. To conclude, I'd like to reaffirm our commitment to enhancing shareholder value. In addition to our semi-annual dividend, we'll continue to execute our share buyback program. As of October, we have repurchased $25 million worth of ADS, alongside the CEO's personal purchase of over USD 5 million worth of shares. On the foundation of current shareholders' return policy, we will continue to evaluate opportunities and explore different ways to ensure we deliver optimal value to our shareholders. That's all our prepared remarks for today. Operator, we are now ready to take questions. Operator: [Operator Instructions] First question today is from Alex Ye from UBS. Xiaoxiong Ye: [Interpreted] First one is regarding the new regulation on the loan facilitation industry, which has come into effect in October 1. Could you share us more color on what impact does it have on the business operations? Second question is on maybe you can share more color on the development strategy and outlook of the e-commerce business? Jay Xiao: [Interpreted] This is a translation for Jay's remarks. In the third quarter, we proactively made business adjustments to comply with the new regulation. On October 1, we have stopped underwriting loans with APR above 24% and ensure the business compliance. All new loans issued by the company carry an APR at or below 24%. After shifting to business with pricing below 24%, we gave up higher risk customers, which have some impact on both business volume and average loan pricing. Following the implementation of the new regulation, industry-wide risks have increased due to tighter funding. Starting in September and October, most platforms stopped offering products with APR above 24%, leading to significant short-term volatilities in risk. Although the overall impact remain manageable, the industry [ needs ] some time to fully digest the associated credit risk. For Lexin, as we have taken effective measures, our risk performance for new loans or existing loan portfolio have shown signs of stabilization and improvement now, validating the effectiveness of our risk management system. In the long run, the new regulation will pave the way for a more compliant, healthy and sustainable stage of high-quality development in industry. When the regulatory framework becomes clearer, market resources will be increasingly concentrated towards leading compliance platform with strong risk control capabilities and stable operations. Lexin has always adhered to a customer-centric business philosophy, prioritizing compliance operations, asset quality and prudent development. Furthermore, it's worth noting that Lexin's diversified business ecosystem has demonstrated strong resilience in adapting to the new regulation. More specifically, our online consumer finance business is progressing steadily and has been included in the wide list of all major financial partners, paving the way for future development. Our offline inclusive finance business focuses on small and micro business owners in lower-tier markets. This asset quality remained stable in the quarter, validating the value of the lower-tier markets. Installment e-commerce business targets at young segments in key consumption scenarios for building the consumption and financing demand of long-tail customer segments through innovative model. Both tech empowerment and overseas businesses achieved stable volume growth in the quarter. Under the new regulatory environment, Lexin will gradually unlock the unique competitive advantages of its business ecosystem. As a crucial component of Lexin's ecosystem, our installment e-commerce business will continue to play a key role in consumer -- in customer acquisition, engagement and expanding our operational values. In terms of business development strategy, over the past year, we have comprehensively upgraded the e-commerce platform supply chain, introduced branded merchants from various industries and expanded lifestyle product categories to meet users' essential daily consumption. In the third quarter, the transaction volume of essential lifestyle product categories increased by 58.5% quarter-over-quarter and 133.8% year-over-year. During the recent Double 11 Shopping Festival, the e-commerce GMV also experienced significant growth. Meanwhile, leveraging the e-commerce platform's independent risk management system, we are able to balance business quality with scale. Looking ahead, we will continue to optimize and expand our product categories on our platform to meet users' consumption and financial needs while effectively managing risk, further expanding our operational model. In terms of development pace, we have consistently adhered to the principle of prudent operation and prioritized asset quality. The third and fourth quarters, as we observed increased industry-wide rate fluctuation, we proactively moderated the growth pace of our installment e-commerce business. In the near term, given the industry rate do require time to stabilize, we will continue to exercise caution in growing our installment e-commerce business. When industry-wide credit rate show size of stabilization, we will gradually resume the growth pace in order to capture the next phase of rapid expansion opportunities. Operator: We will now take the next question. And this is from Judy Zhang from Citi. Judy Zhang: [Interpreted] So during the transitional period before and after the implementation of the new regulation, the industry credit risk has already fluctuated significantly. And the company upgraded the risk control system, how are we managing this round of risk cycle? And what improvements have been made in the risk the management system? Jay Xiao: [Interpreted] After the rollout of the new regulation, we anticipated that it will affect the industry's liquidity supply. This is based on the experience that we accumulated across multiple cycles. This would, in turn, weigh on the industry's credit rate. Therefore, starting from the second quarter, we made an adjustment in our risk management re-identification strategy and also made business adjustments. We proactively identified customers who were vulnerable to tighten industry liquidity based on factors such as high multi-borrowing, high debt exposure, loan income, unstable employment and high exposure to high pricing credit. Based on this re-identification, we utilized automated rescanning robot, clearance robots and credit line robots to improve efficiency and effectiveness of account clearing and credit line reduction. This allowed us to respond early in the risk cycle and control the risk fluctuations to both new loans and existing loan portfolio. At the same time, by enhancing pricing competitiveness, optimizing loan tenor and repayment experiences, we've strengthened engagement with prime customers, promoted the growth of quality assets, adjusted asset structure and improved resilience against recycles. So in summary, we not only controlled the formation of delinquent assets, but also tried to increase the volume and mix of high-quality assets. Thanks to the proactive measures that we have taken, the overall risk fluctuation for both new and existing loans remain under control in the third quarter. For the overall loan book, day 1 delinquency ratio increased by around 5 basis points compared to the second quarter. For new loans, the magnitude of FPD30 -- 30 interest is expected to be 5%. Q4 is the first full quarter after the implementation of the new regulation. So it's expected to be more challenging, not only in risk performance, but also in loan volume and also profit. For the existing loan portfolio based on the latest performance, day 1 delinquency ratio peaked in October due to the combined impact of the new regulation implementation and the long National Day holiday and then exhibited month-on-month improvement in November, showing signs of stabilization. For new loans, as we further tightened credit criteria in October, we expect FPD30 of loans in October to improve compared to the peak in September. So overall, moving into the month of October, the risk performance of existing loans and new loans, both show signs of stabilization. Operator: We will now take the next question. This is from [ Dong Peng Chu ] from CICC. Unknown Analyst: [Interpreted] And let me translate my questions, and I have 2 questions. First, what is the outlook and guidance for the fourth quarter and full year 2026 performance? And second question is, as the company has utilized over half of share repurchase quarter, what are the plans for future shareholders' return? Xigui Zheng: Okay. I guess I will take the first question and ask Jay to take the second. The first one, the fourth quarter is really the first full quarter following the implementation of the new regulation, and our results will be negatively impacted to the similar extent as other leading players in the industry. On the one hand, we ceased facilitated loans with APR above 24% starting October 1. On the other hand, in response to the rising industry-wide risk volatility, we have been proactively controlling the pace of low volume growth. As a result, we expect moderate loan volume decline in the fourth quarter. At the same time, we expect industry-wide risk fluctuation to gradually stabilize towards the end of the quarter. Therefore, along with the industry, our risk indicators will also fluctuate in the fourth quarter, which will push up the credit cost. Affected by these factors, the Q4 net profit will see a sequential decline. To put things in perspective, it is worth mentioning that in the first 9 months of this year, we have achieved a net profit of RMB 1.5 billion, representing a year-over-year growth of 98%, in line with our previous guidance. Although the fourth quarter net profit will see some decline related to the regulation, the company's full year 2025 net profit is still expected to achieve significant year-over-year growth. Looking ahead to 2026. Due to the industry and regulatory uncertainties, it is really hard to pin down a clear guidance at this stage. We are under the same pressure as other leading players. For the same reason, the performance in Q4 cannot be simply taken as a base for predicting 2026 profitability. However, I'd like to discuss several key factors that may impact the net profit of 2026, for your reference. One, the overall pricing impact. After the implementation of the new regulations, the interest rate on new loans are all below 24%. As this portion of the new loans accumulate over time, the average pricing on the outstanding loan book will gradually drop below 24%. So the decline in pricing will put some pressure on the net profit. Two, risk stabilization. When the credit risk in this cycle bottoms out -- when this bottoms out, we're really determining when the volume growth and the profitability pick up. So customers with interest rate within 24% exhibit more stable credit risk profile. Therefore, their credit costs will be lower, which will help offset the declines in pricing to some extent. Three, funding costs trending down. The temporary tightness in the funding supply in Q3, Q4 were gradually eased as the regulations settle in. Therefore, funding costs are expected to follow a downward trend. And at the same time, with a better quality customers who carry lower risks, funding costs will also be lower. Four, the synergies from ecosystem business, i.e., e-commerce. During this period, our e-commerce business has achieved steady growth, enhancing the company's profitability. Our off-line inclusive finance and the tech empowerment businesses have maintained stable risk performance despite challenging market conditions, enhancing the company's operational resilience. So the continued growth of the company's ecosystem business will further strengthen our operational resilience and boost the overall profitability. So in conclusion, Q4 will be a temporary dip in our business and financial numbers due to the regulation. When the recovery will resume depends on the industry risk stabilization and further regulatory certainty. However, given the unique ecosystem business and the past 3 years turnaround effort, we are confident that we are better positioned than many other players. And we will be the first ones to recover when things are more settled, maybe in the early part of next year or so. That's first question. Jay? Jay Xiao: [Interpreted] We have been actively executing repurchase program in [indiscernible]. Both the company's share repurchase program and our personal share repurchase plan have been more than halfway, which is well ahead of the original 1-year schedule. This fully demonstrates the management's strong confidence in the company's outlook, and reaffirms our commitment and capability to enhance shareholders [indiscernible]. Company's repurchase program is fully executed, alongside a dividend payout ratio of 30%. Our total shareholder returns rise above the industry average. The company has always attached high importance on shareholder return. Once the current share repurchase program is fully executed, we will explore more initiatives to further enhance value for shareholders. Operator: [indiscernible] back to management for closing comments. Will Tan: Thank you. This conference is now concluded. Thank you for joining today's call. If you have any more questions, please do not hesitate to contact us. Thanks again. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Olivia Garfield: Good morning, and welcome to the Severn Trent Results Presentation Half Year Q&A session. We've got myself, Helen and the entire senior team here. And of course, the new Chief Executive of Severn Trent, James Jesic, is also with us. And obviously, this is my final results presentation. So we'll be trying to get lots of questions on the business topics and on the results. We're pleased with our performance over the last 6 months, and we look forward to taking questions on them. So Sarah, over to you first. Sarah Lester: Good morning. Well, we knew the day would come Liv. To simply say thank you feels way too small given everything you've done. But until I think of something better, I'll just leave it with thank you. James, a much deserving successor, super thrilled, super excited for you for the team and for everything that lies ahead. But I guess it is on with the show. So a couple of questions from me, please, on the results today. Firstly, on that ODI guidance upgrade, I mean, you could have waited until deeper into winter to upgrade, but you didn't. Wondering what gives you conviction to upgrade that guidance today? Then a cheeky half question, please, on the AMP8 total ODI guide. Do we get to increase that by GBP 15 million today, too? I suspect the answer is no on that. And then the final one, please, and while we're on the outperformance topic, about parking ODIs, wondering what other tools are in the Severn Trent toolkit that can contribute to sustained strong total outperformance in the next few years. And I promise I'm not asking numbers, just more initiatives and areas of opportunity. Olivia Garfield: Brilliant. Okay. So first of all, thank you very much. There are 11,000 Severn Trent's that work their stocks off every day to land out performance, and they will be really pleased that we started strongly. So let's go for the half question first. We're not giving you more of an upgrade than the at least GBP 300 million. So it is a strong first 6 months, and we still got 4.5 years to go, but we will keep that under review, and we'll share more news at the right point in time. In terms of why we're so confident, I'm going to answer that. But I mean, fundamentally, you'll have seen -- we're saying 3 things. The first thing we're saying is that about 90% of measures are green, and that means we're doing very well across the entire basket of ODIs, and that's what gives us confidence because you will always have some ups and downs over the winter period, as you said. The second thing is quite a lot of measures, they do close off at the calendar year-end. So there are, remember, a number of measures where we're actually 10.5 months through the performance and that gives us a chance to give some indication of those. So that's also helpful. Pollution, spills are good examples there, where they're almost complete for the year, which helps us give clearer guidance now at this stage and maybe later in the year. And the third thing is that we're just really getting into our mojo operationally. It's a brand-new 5-year period. We felt confident that now that the measures were against the sector, they're like-for-like, against everybody else, we always saw that our overwhelming strong performance would come through, and that's beginning to come through. So Steph, which are the measures you're excited about on the ODIs? Stephanie Cawley: Yes. So we're doing really well across the piece, but it's the big 3 that we're really excited about, so it's spills, pollutions and leakage. I've just talked briefly about leakage. You know it's a 3-year roll-in measure. So we've got 2 strong years in the bag already. We're on track to deliver our eighth year hitting the leakage target. We're finding and fixing more leaks than ever. We recovered really quickly after the summer despite the fact that we had 1/3 more burst than we'd normally see during that period. doing some great work with Pegasus units to reduce pressure, which also means we see less leakage. So we think we're set up really well for the rest of the AMP. Olivia Garfield: Now going on to your second question, which is just wider, what gives us confidence for the future over the next 5 to 10 years? I think there's a couple of areas I'll go to. So I'm going to hand to Helen first of all, because financing is important in the sector. We do own that financing outperformance. And we've had a very strong last couple of years actually on financing. So I'll get to Helen talk about financing. I don't think it's worth getting into totex and I'll get to James to talk about partly why the PCDs are an upside for us. Remember, we're guiding to up to GBP 50 million on PCDs, but also on totex overall and give some sense of it. And the part of it there, I think he'll talk through is some of the innovation we're putting in place and some of the kind of the strategic decisions we've made on in-sourcing and plug and play. And then I think I'll just get Shane to mention, when you look at the future, there is going to be more opportunity for RCV growth. That stores it locks in long-term stored value. I'll get Shane maybe to talk through what we think is going to come next in the RCV growth opportunity above and beyond the current locked in pricing. So Helen? Helen Miles: Yes. So Sarah, thanks for the question. I think we talked about in the results about our financial strength. And I believe that underpins our ability to continue to outperform on financing. We've -- I'm really pleased we've been able to guide today to 60% to 65% gearing by the end of the AMP. And I think that demonstrates our commitment to maintaining that financial strength as we go into the next AMP. But if you look at our financing specifically, our structure has worked for us in terms of we've got one of the lowest index-linked financing in the proportion in the sector. That's really worked for us certainly over the last 5 years and is continuing to now. But we've also had a very specific program about diversification. And we've -- over the last 6 months, we've hugely diversified our sources of finance in terms of geographic. And we've recently welcomed another 5 banks into our into our financing as well. So there's so much positivity out there in the market, so much demand for our financing with the tighter spreads in the sector, I'm extremely confident that as we go out to the market, we'll continue to raise financing significantly lower than the cost that the regulator allows. Olivia Garfield: Very good, James. James Jesic: Sarah, first of all, thank you for your kind words, hugely appreciated. I guess when you look at the size of the plan that we've got for AMP8, gives us loads of opportunities to actually deliver more for our customers, more for the environment and, of course, more for our shareholders. I think what we're really focused on and what I've been focused on is how do we innovate, how do we create more efficiency into our program to not only deliver a bigger bang for our book, but also ensure that we have plenty of choices. Now some things that I've shared with you previously are around things like innovation we're doing around AI and how we improve our design. So that will create a lot more efficiency in that space, but also our plug-and-play program where we're using far more modular solutions to increase efficiency in our capital delivery. So there's lots of things that we're doing. And of course, we're always happy to share. Olivia Garfield: Very good. And I guess what's going to come next year in terms of that performance, plus performance on totex and RCV growth? Unknown Executive: Yes. And we focus on RCV growth at the moment. So whilst we have 60% nominal RCV growth, there's an opportunity to get -- put forward additional cases to Ofwat. These are called the reopeners. It's quite similar to green recovery, where we got GBP 500 million. That was additional LCV growth. And there is a high bar though for this. I should just be clear. It's not super easy. So you've got to be on track with your capital program. You're going to be able to demonstrate that your supply chain has capacity and you've got capacity to deliver more. And they are a large business cases. As you've seen in PR19, green recovery, PR24, you're going to submit quite a lot of evidence to Ofwat to get these approved, and you've got to have strength in the balance sheet. So there is a high bar, but Ofwat will be publishing further guidance in December, and we'll be responding to that. So you probably have 2 -- we think there's 2 streams. There's a fast track route, which will be funding next year or there's a slow track route, which runs over 2 years. So I guess you can work out which one we're going to go for Sarah. But in terms of the quantum, until we have the final methodology from Ofwat in December, we probably can't comment any more on that. Olivia Garfield: Very good. Fantastic. You can come back later with any more questions. I'm going to hand to Dominic now. Dominic? Dominic Nash: I think you're going to be getting quite a lot of recurring comments this morning, Liv. So first of all, clearly, congratulations on your next adventure and also your decision and also clearly, I think that will continue to be a poor place in your absence. I look forward to hearing what you're going to be getting up to next, maybe I don't know, sumo wrestling training might be something we can hear about. And James, clearly, you're also going to be sitting there thinking, oh my word, I've got big shoes to fill. So I'm sure you'd be reiterating, so sure it will be fine. A couple of questions for me, please, actually. 1 actually, Liv, on your decision to step down. Could you give us some words as to -- in your experience, what do you think has happened to the role of CEO in the water sector? And do you think the special measures bill that came through has had any impact in your decision to step down? And do you think that it's having a decision -- having an impact on the ability to attract, retain sort of senior staff? The second question I've got is on your 13% RoRE that you're guiding for '25 -- '26. You're basically saying, look, it's going to be 13% because we've got higher inflation. But on the normalization, the ODIs look like they're going to be nothing out of the ordinary this year versus the 5-year guidance. The totex looks like you're guiding to potentially more outperformance to come or efficiency, which I guess might be reinvested. And financing is financing. So if we normalize for inflation, is it fair to say that 13% ROE isn't going to be materially different to what we now expect for the full AMP. And third question, apologies on something that I've been sort of thinking about, which is on your low rainfall I think the Met office is suggesting we're going to have a very dry winter as well following the dry summer, where it doesn't look like it today. Are you concerned at all about your water resources in your region? And what can you do to give sort of long-term resilience? Olivia Garfield: Really, what a full range of questions. There's nothing left, I think, after Dominic's done those 3. So the first thing is, no, the special measures is totally fine. So let's be really clear on that. And the record there were thousands of people that internally that would love to be Chief Executive Severn Trent, never mind you get externally. So we are an absolutely lovely company that employs beautifully cheerful people that does an amazing mission based in the fab part of the country. So no, I fundamentally disagree that the special measures would have any impact on the Seven Trent will being anything other than highly, highly attractive and it's totally unrelated. I've been here nearly 12 years. And I used to believe that chief execs, I guess, you kind of like you go through the first wave 5, 6 years, and then you got to unravel your first wave of bad decisions. And then you go through another wave of it, you've got to unravel your second wave of bad decisions. And then eventually, you wake up and you realize you've got amazing successes internally. And the job actually at a certain point in time is you've got to hand over to the next generation. They're going to be the perfect answer to the next wave, and that's what we've got. I know James is going to be a rock star. I know the senior team are fab, and I think this is the right time. So I'm not going for another job. I always said I'd never apply for another job whilst was at Severn Trent. So I will eventually take another job. I'm not going to sit in my like of walk the dog every day. But there is no plan. The plan is for the next few months to be sat on James' shoulder, helping him out as he picks up the role. So that's the first one is that it's a brilliant job and company lucky to have James and James is lucky to have the job. Now on the second, I don't actually quite make the same math as you on the RoRE. So I hear your point on the 13% for this year that a whole chunk of it is either financing or inflation. Yes. But if we add up for the 5 years, not the same. So we've got GBP 300 million worth of outperformance. That's chunky. That's decent in anybody's percentage RoRE number. We've got the outstanding status as well, which is 30 basis points. That's chunky in anybody's number. And we've always said that there will be more outperformance across other areas, right? We'll be looking to land that. Financing is part of it. We've guided to at least 0 on totex. We said that there are some areas like Bioresources where we are a sector leader. It's likely that outperformance might come down the line, just not ready to call it yet. And then, of course, we're having a very strong start. So we're calling at least 300 now. Every single member of the Severn Trent family will be looking to try and improve that over the next couple of years. So for others, they might need to rely solely on financing and on inflation. The Seven Trent, not true. And if you look at our history, what you tend to find is when you look at the bars over a 5-year period, all of them begin to look good and you begin to see some really good performance in a whole range of areas. So that was that one. Now low rainfall again. So I hear it because the EA have published a whole lot of drought situation messages, and they're right to do that across the country. But if you actually look at our reservoirs, and that's what's interesting, is we have -- I'm going to pass to Bob now to give an update and he's going to take you through 3 things. 1 is don't forget the sources of water we have. 2 is we're going to give you some news in terms of latest levels. And the third thing is just to remind you of our track record of the last time we did actually have a host-pipe ban. So Bob, on to those 3. Bob Stear: Yes, great. So 1995 was the last time we had a host-pipe ban, of course. And as you know, Dominic, we've got -- our water comes from 3 main sources: underground in our boreholes from rivers and from reservoirs. So I guess the thing that people really noticed, of course, over the summer is the low reservoir levels. And this summer was a hard summer for us. We work really, really hard to avoid having to put a temporary use ban on again, which we managed brilliantly, a combination of asset-related interventions and great customer comms. But the great news is actually, we've actually had a really wet autumn so far. So we're in good shape. In fact, our biggest reservoirs around the Derwent area and Elan Valley, each went up by more than 10% over this last weekend. So they're all in really good shape as it happens. So I understand the question, but we're in good order. Thank you. Olivia Garfield: You always send the interesting question is to go back to what was the performance in 2022, which was the last dry year, and we're like 15%, 17% ahead of where we were on exactly the same day in 2022. So we feel confident and in good shape. Okay. And then we go to Julius, next. Julius Nickelsen: Congratulations to the strong results. And obviously, very sad to see you Liv. So thank you also from my side and all the best to you, James. Just 2 questions from me. The first one on the 60% and 65% gearing. Just wondering, does that hold also if that additional topics through the reopeners comes in? Or do you need to wait to assess how big that potentially could be? And then the second one on CEO succession, maybe to give you a little bit of an off [indiscernible] here, but what makes you think or like what convinces you that Severn Trent even without you Liv, can continue to be like the highest quality company in the sector and continue to outperform on the ODIs like it has done in the past would be interesting to hear your thoughts. Olivia Garfield: I'll do the first -- the second one first, and then I'll hand to Helen and probably Shane just to talk through the gearing and the reopeners. I mean, so I am just one person. So I know I'm a big personality, and I know I'm noisy, but I am literally just one person. And I don't actually deliver any individual ODI, do I? So I guess we could argue I'm not the person who's going to fix the leaks, I'm not the person who's going to fix the fills. And I'm definitely not the person who's going to stop pollution over the course of the next few hours. So that is the team. And what we've done this whole team and also the 50 [ FT ] is created a culture, where our people love performance and every single in our body culturally loves the fact that we are a leader in our sector, and that will make absolutely no difference that I'm not going to be here. It is ingrained in our DNA is the desire to do brilliant for our customers and to make sure that we perform every day. And if you go to any communication cell or any depot or any team meeting, then you'll see that, that's how we're set up, how we thrive is on that level of personal competition between teams, county place county, the ability to kind of add value and find new ideas, and I know I will continue. And don't forget as well, James was part of all that success. He did run operations in the transformational areas where we went from not doing so well in ops to doing brilliantly. So I guess you could argue James might have been involved in that. And then he's run capital during the era that we've gone from kind of like GBP 0.5 billion up to a GBP 2 billion. You could argue we probably added some value in that space as well. So James has been a core part of that entire journey. So the only difference now is he's going to be in a different chair, but he'll still be bringing that same value and that same value add. So I've got no qualms at all this performance will continue. Helen? Helen Miles: Yes. Julius, thanks for the question. Yes, really pleased we've been able to give gearing guidance today. 60% to 65% at the end of the AMP. And from my perspective, that's our path what we're committing to. We've said repeatedly, we're fully equity financed for the AMP, and that obviously remains true with that gearing. And we've also said we're committed to our stable credit ratings. So there's plenty of headroom in there for that. In terms of reopeners, still lots of unknowns, but my expectation is even with reopeners, we intend to meet that gearing level. So it shouldn't make any difference. But obviously, as Shane said earlier, we're waiting to see the financing rules to determine what that allows us to do. I think the other thing to note is I talked about in the presentation about GBP 500 million capital efficiencies. And obviously, one of the things that, that will allow us to do is invest more. We want to invest as much as we can. And that's why we're constantly driving for those capital efficiencies. Olivia Garfield: Brilliant. I think that answers the question, because effectively, as Helen said, we've got the GBP 500 million of targeted efficiencies. That gives us the chance to invest in the open. And Ofwat we're also very clear that in the rules for the reopeners, there's a lot of companies in the sector that will need to make sure that wherever the rules are set, they can afford to do it. A lot of companies are heavily geared. They'll need to make sure there's some kind of like in-period revenue and also some level of shadow RCV, I would imagine. So we'll expect to see those come through. Very good. Thank you, Julius. Over to Pat. Unknown Analyst: And before I start, I'd like to echo congratulations on your successful leadership at Severn Trent and wish you all the best, James, in your role as CEO. Sorry, I'm getting choked up. Olivia Garfield: I love it. Feel free to cry. I'm okay. If you want to cry, you need tissues. Unknown Analyst: I'm good. I'm good. I think I'll be able to get through it. My 2 questions, please. Firstly, it would be great to hear the team's thoughts on the CMA provisional determinations. I appreciate you haven't appealed, and I'm sure you don't regret that, but would be good to hear what your thoughts on the determinations were and what you'd be feeding back to the CMA here? And finally, on that topic, how you think we should be reading these decisions into what will feed into eventually AMP9? And then my second question is your conversations with the government and the new Secretary of State. I guess, I think our conversations with investors, what they want to see from the government is almost a pivot from, "hey, we're holding the sector to account to actually saying we're working with the sector to deliver better outcomes." I guess my question is, are you seeing that change in the government? Do you foresee a change in that messaging coming? Or do we need to see more delivery before we can start seeing the government sort of maybe being more cheerleading the sector as opposed to the current messaging? Unknown Executive: So I'll start with the second one first. I mean I'd rather you saw Emma Hardy's speech from the British Water Conference, but it is available on public record from last week. And I think that actually gives really good evidence that the message is changing. I though it was a very adult speech, I though it was very engaging, and it did highlight that actually there was shared desire to see the sector succeed. So I think there is absolute desire by both Emma Hardy and Emma Reynolds for the sector to do well. Now equally, though, your second point is true, the sector does need to deliver. So -- and we're really conscious of that. It's why we did the transition spend. It's why we're going early with our capital is that customers have seen pretty reasonably high bill increases after a period of clearly underinvestment, you could argue across the entire sector and then we've played catch-up. And I think what's come out of that, though is that there is clearly -- you have to evidence to customers that by the time they pay that bill, they're getting really, really great value, and we're very conscious that's an imperative. So I think the government is definitely changing its style and manner, but it has got to hold us to account and every company has got to step up and make sure they deliver their capital program and deliver their performance targets. So I think it's a 2-way contract, and we're confident of our part of it, and we think that will be -- that will come across. The other thing to note, I think, for investors is that I think government has been fair on calling out amazing performance. So we've seen quite a few clauses where government has called out the fact that we've had 6 years of 4-star status. No one have mentioned it yet, so I can't get it in. Since we have had 6 years of 4-star status, government has gone record and praised that excellent performance. That wouldn't have happened prior to this. We had 3, 4, 5 years of 4-star status, and it never got mentioned as a public record. We have seen that change as well. So I believe the moment has come when the rhetoric is moving. Now Shane, CMA please. Shane Anderson: So I guess from an investor or non-impellent company perspective, there's probably 2 positives to call out. So the first is the cost of capital is 30 basis points higher. So that is helpful given I think it was a Recommendation 23 government said the CMA should be setting a methodology for cost of capital. So that's good, which is also equivalent to our 30 basis points for outstanding that no one has mentioned yet, so I'll just keep bringing that up. And the other one is the frontier shift. So this has been a big debate amongst the regulators is what's the ongoing efficiency challenge each company should be delivering. Regulators have been saying it's 1%. The economy has been delivering much less and the CMA came out at 0.7%. So that's a useful precedent going forward. I think the other interesting thing from the CMA case is base costs. So none of the appellant companies raised base costs, but the CMA does a whole redetermination. So they've created their own models, which actually gives the sector less funding. So I wouldn't be worried about this in terms of the precedent setting because it goes against everything [indiscernible] has said, everything against the NAO has said because it's statistics led rather than engineering led. But it's still an interesting point, which is the companies are getting less money generally on base spending. But from an investor perspective, I think it's good for the PR29, higher WACC and a lower frontier shift. Olivia Garfield: Mark over to you. Mark Freshney: Wishing you all the best for the future Liv and looking forward to seeing what you're going to do next. Just 2 questions. Firstly, if there's 1 regret that you've got over the last 12 years at Severn Trent Liv, what would it be? And secondly, if there's one piece of advice that you would give James as you hand over the reins to him, what would that be? Olivia Garfield: All good questions. So there's one thing I've never done that I would have loved to have done. We've got the most amazing asset that brings water gravity fed from right up in the beautiful Welsh mid pop of Wales down into Birmingham. And it's the called Dee and [indiscernible] it's absolutely gorgeous. And back in the day, if I've been the Chief Exec 40 years ago, I could have just popped down it, gone and seen it. We closed it once or twice a year to do cleans, and I could have walked along it and seen it, and it's got beautiful, beautiful tiling right the way throughout it. I mean no one ever sees it. Unfortunately, health and safety means I've got to do a 2-week confined space course to actually be able to go down it. So I would have loved to have gone down it, but I've never found 2 weeks to just confined space training to go down it. So I guess that is my one physical asset regret that I've never seen. Other than that, the one unfinished business is clearly our performance on customer. So none of us remain happy that our CMEC scores are only mid-table. We'd like them still to be podium. So we've got good plotting plans to get there. And I know James will see those through, and he'll be able to then say, I knew I'd fix it now that Garfield is out of the way. So yes, so that is, I guess, the thing that we as a team still look at ourselves and say, how can we not be podium on that metric. So that will be that one. In terms of piece of advice, I get the same piece of advice to every new Chief Exec. So I'll give the same to James, which is never go to bed without having done every single piece of work that is in your to-do list because you've no idea what tomorrow brings. And sometimes you think tomorrow might be easier, might be lighter, there might be no issues. And it's amazing how often the next day has something totally different that you couldn't have foreseen. So never go to bed without a clean inbox, never go to bed all your documents marks up, you can sleep less, but you can't make up time again. So that is my piece of advice to every Chief Exec. Thank you, Mark. Good thoughtful questions. Alex, over to you. Alexander Wheeler: Echoing previous comments, congrats, Liv, on a successful tenure at Severn Trent and all the best in future endeavors. Many congrats to you as well, James. 2 from me, please. Just firstly, on the at least GBP 500 million capital efficiency. Just interested in how much of this is visible now? I'd assume buckets like procurement, I guess, you'd have pretty strong visibility on already. And then also, which of those 4 areas you noted in the presentation give the most upside opportunity given the at least GBP 500 million guidance point? And then just on spills, where does the 27% year-on-year weather-adjusted reduction compared to your planned run rate? And does this bring the target forward for when you expect to hit the 2030 number? Olivia Garfield: Very good. So Helen, do you want to talk first about at least GBP 500 million... Helen Miles: Yes. As I say in the presentation, Alex, we are always driving for efficiency. So -- and you know plug and play, we talked about that first in 2023. So we've been on this road for a long, long time. So we're really confident about the GBP 500 million. We've been planning it for a while. We're well advanced on most of it. And so we're in really good shape on it. And that's why we're sharing it with you today because we are really confident about it. In terms of the split, obviously, plug and play is a big part of it. But actually, it's quite evenly balanced across all of those areas, which is good. But with any of these things, as the program moves through, things become more prominent than others. So -- but it's pretty even split, and we're well advanced with all of those areas that I talked about. And I guess if there's any upside opportunity, I guess it would come from stuff like, if we did get capital reopeners and we could do more of that plug and play, that would yield an upside. So I think at the moment, we think about GBP 500 million is the right number. But I guess for it to increase, then you'd have to believe other growth was happening. So at the moment, that's the right number based on 60% RCV growth nominal. If we ended up with more capital reopeners, we'd, of course, look to deliver more efficiently. In terms of spills, good point. So just to remind you, I guess, of our spills ambitions, always good to rebase the target. So we said we wanted to get to around 14 by the end of the AMP, so under 14 by the end of the AMP, and we're expecting to do that this year, which would be excellent. Now that's one of our conditions for outstanding status. So that will be quite neat to tick that off in the first year of the AMP as well. In terms of what we said we were going to do this year is we said we'd do about a 25% year-on-year reduction. So that would have taken us down to 18.8%. So we are ahead of that. Now we are clear though that if weather was equalized for last year's abnormally biblically wet year, then we'd be about a couple of percent ahead of our run rate. And last year was particularly wet. It's not a normal year last year. This year it looks like it will end up normal. So I've had people say to me it's going to end up dry year. We don't believe that. We think it will end up about normal. So we think this year's performance will end up in about a normal year, and that means we're kind of like 40% ahead of a wet year, 27% ahead of a normal year. So marginally ahead of track. We've got a lot of solutions that go live in the next few months. So that will give us a very strong start again to next year's number. So next year's number we'll have the benefit of all the solutions now in the next few months, and they'll get a full year benefit. Obviously, we didn't get a full year benefit for lots of solutions this year. Hopefully, that all makes sense. Olivia Garfield: Very good. Okay. A.J., over to you. Unknown Analyst: I'd like to echo the thoughts. Thank you Liv for everything you've done for the sector and I wish you the best in your next endeavors. And congratulations, James. I guess my question is more around the infrastructure services, the doubling of EBITDA. And just to maybe get a little bit more understanding of the components that drive the growth and any sharing arrangements that we need to think about and maybe if possible, the profile of the step-up? Olivia Garfield: So we're definitely not going to give you the profile of the step-up, but nice try. And thank you for the nice comments at the start. So I guess -- and do you want to bring to life a bit of that, I guess, Helen, do you want to start? And maybe James might jump in. Helen Miles: Yes, I'll start. Yes. I love it, A.J. It doesn't matter what we give you, you always want more. You're insatiable. But yes, really pleased today to be able to share that we're expecting to double the EBITDA in Infrastructure Services. And it's a combination of all of the businesses within that. So obviously, we're -- in Green Power, we've continued to grow Green Power. We've got a big solar scheme that's just in progress at the moment. In services, we've got opportunities to win new contracts. So that's a key focus for us as well. And of course, property, we committed by 2032 to deliver GBP 150 million of profit, and we've got some great stuff coming through. It's been tough in property over the last couple of years, as I'm sure you'll know, but we're starting to see that turn a corner now. So that's in there as well. And we're really pleased to share today the 2 acquisitions we've made, one in water and one in waste. And the opportunity we see here is for Infrastructure Services to really benefit from the growth that's happening in the water sector, specifically Severn Trent Water, but it also helps us secure that supply chain as well. So the opportunity is there, and we're really, really excited about it. Olivia Garfield: And I guess it's worth bringing out how we think this actually underpins and helps to deliver the capital program because one of the other key parts is it's very nice to have an upside, isn't it, nice dividend cover, nice growth. But actually, it also helps lock in and secure our supply chain. James Jesic: Absolutely. I mean, Helen has covered the bulk of the business really well there. But this was a strategic play on our part. We identified across the sector there were definitely going to be pinch points in certain aspects of the delivery. So for instance, if you look at the major renewal program, most companies have doubled what they did in AMP7. We see that as a particular pinch point. So identifying that early allowed us to get on the front foot and hence, create and acquire these businesses. So in the first instance, we really see this as an opportunity to really help ensure that Severn Trent from a water perspective, really delivers its capital program and not only delivers it, but delivers it efficiently. Of course, then in the future, we can look at how we expand those particular businesses. Olivia Garfield: Ahmed? Ahmed Farman: Liv thank you from my side as well. And Congratulations to James. I just have sort of a couple of sort of questions. I wanted to go back to the reopener. Could you just sort of tell us a little bit about -- more about the process as to where we are? What are the next milestones and when you expect to get clarity on it? And then secondly, again, can you talk about the areas of focus within sort of this program? Because obviously, you have a huge capital delivery program already underway. So that's already a huge amount of work, et cetera. So I'm just trying to understand what areas could be of focus that could come through the reopeners. Olivia Garfield: Very good. So I'll get Shane to take you through the process. I mean, in terms of delivery, we've definitely got capacity later in the AMP. So let's be really clear on that. So if you look at our current run rate, we're calling GBP 1.7 billion to GBP 1.9 billion this year. But if you look at the in-sourcing we've done on some big areas, let's take mainslay. So we've in-sourced the workforce now of mainslay. We do minimal volumes this year internally, but that really grows in year 2 and year 3. So again, we have the capacity to do more with that workforce later in the AMP. So -- and I guess when you look at some of the acquisitions we just brought in as well, all of that just bolsters the fact that we've got a very, very large setup internally. And don't forget as well that the delay often for others on their capital spend is the design part. They haven't got the time to design it because we've got an in-house design team, and that means we were doing a lot of our design actually as part of transition spend in the latter part of the last AMP, we've actually fully -- we have fully designed by the end of year 3, this AMP. Again, that gives us the capacity for that team to move on to preplanning for AMP9 or to do more work on reopeners. So I think that's where the capacity comes from in our mind for the reopeners. Shane, how is the process work? Shane Anderson: So in December, we expect the update to the methodology. Then for the fast track process, you'd submit your business cases in May, you'd have a draft determination in July and then the final determination in December, so you can then flow the numbers through the charge setting process. And then in terms of the areas, so Ofwat's identified 10 priority asset classes from an asset health perspective, the big one being on gravity sewers and then there's also assets at the water and wastewater treatment works and various tanks. You've also got assets relating to growth. So whether that's building more water resource capacity, for example, boreholes or whether you're expanding wastewater treatment capacity to support new and faster growth in your regions. And then you've also got any new risk. So for example, if new legislation comes in relation to cyber or PFAS, then there's an opportunity there. So that will exist all AMP around. Olivia Garfield: Very good. Dominic, come back in for seconds. Dominic Nash: A couple of questions from me, please. Firstly, on the EPA. So congratulations getting your 4 star again. The environment agency is clearly going through consultation at the moment, I think it completed consultation with a 5 star. I just wanted to know that if we're going to run under the new regime, would you be a 5-star company or a 4-star company? Secondly, I was actually a follow-up on the PFAS question actually. You mentioned that the new regulations coming potentially or the new risk on PFAS. I think your area is one of the PFAS heavy areas of the U.K. I don't think you've got much in your totex for AMP8. Is it possible to sort of like give us sort of some color on the quantum of the potential PFAS expectation and how much we might be able to see in AMP8, please. Olivia Garfield: Very good. So 3 questions there. I mean, so annoyingly, as 5 star doesn't come in for a few years yet. So the consultation is out there, but it doesn't arrive until 2028. So we'll all have to satisfy ourselves with 4 stars for the next few years, I'm afraid. Dominic Nash: Sorry, does that mean that James might actually be a 5-star CEO. Olivia Garfield: You know what, I've had the same thought. And Dominic, it breaks my soul more than it breaks yours. So equally, as a top 100 shareholder in Severn Trent, you better be a 5-star company CEO. Otherwise, I'm going to be coming and having more conversations. So yes, so we only have only have 4 stars in the next 2 years. We're 10.5 months into the financial year at this stage and we're looking in good shape. Obviously, a long way to go, 6 weeks to go. It's never done until it's done, but we're working our socks off to try and cross the line on 4-star for this year. Then I think next year is a 4-star and another 4-star and then you get to a 5-star. So it is actually quite a while away until we get to 5 star. And we've been looking at all the metrics possible for a long period of time. We've been shadowing them. We've been getting ready and every around this table has every intention of moving to be a 5-star company when that goes live. Now that's the first question. But yes, you're right, James, will be the first 5-star Chief Exec and I won't be. On PFAS, I guess, just on the budgets, Shane, do you want to mention how much money we had to put aside. We actually have quite a nice bit of money actually, Dominic. Shane Anderson: It was over $100 million in relation to PFAS, plus additional $300 million in water quality. Olivia Garfield: Exactly. So we've got a few best GBP 0.5 billion in that water arena, just, I guess, to bring that to life. And typically, you're talking about tens of million pounds, tens of millions of pounds for a PFAS solution, not hundreds of millions of pounds per site, again, just to contextualize it, that was that. And then Bob, do you want to bring to life. I think sometimes it's interesting to context ourselves against us versus France, say, when you listen to PFAS, do you want to bring to life any thoughts on? Bob Stear: Well, perhaps one of the key things is Marcus Rink, the Chief Inspector from the drinking water inspector, actually gave a speech at the British Water Conference the other week. And he was talking about compare and contrast to Europe and the U.K. and he put the U.K. quite a way ahead in terms of -- we've been looking at PFAS for a long while, actually since Bruntsfield in 2005, when we had obviously the firefighting phones going to that system. So we're in really good shape. And for us, in our region, we've got our Witches Oak site up in Nottingham this year that we know exactly the process we're going to put in place to take out the PFAS. So it's actually -- it's all good news. Lots of research going into clever ways because it's easy to take it out. It's not so easy to deal with the stuff that you then do end up with. And there's a lot of research going on to make sure we find really efficient ways of dealing with that. So we're in good shape. Olivia Garfield: Very good. Bartek, over to you. Bartlomiej Kubicki: Thank you very much. And I would like to join all the congratulations, and thank you for all the great work. Just 3 questions, if I may ask, please. First of all, if we think about ODIs in AMP8 and you compare it to ODIs in AMP7 in terms of how much does it cost to earn additional GBP 10 million of ODIs. I just wonder, is AMP8 from this perspective much more challenging, meaning do you need to invest more to get the same result as in AMP7 in terms of ODIs? That will be the first question. Second question on this GBP 500 million of capital efficiencies. Maybe it was already discussed, maybe I didn't capture it, sorry for that. But what are you going to do with those efficiencies? Is it going to be reinvested into your network? And consequently, could it boost your ODI guidance or ODIs achievements in AMP8? And the last question on leakage as you spent some time on your presentation on leakage. I can imagine it's becoming more and more expensive to get additional 1 percentage point of leakage reduction. And I just -- I would like to ask you whether you think Ofwat is ready to pay more for reducing leakage by additional percentage points, meaning in AMP8, in AMP9, when it periodically should become much more challenging to reduce leakage, whether they are happy to grant you higher allowances to do so? Olivia Garfield: Very good. 3 very thoughtful questions. So I mean, you can't really work out like GBP 1 of ODI cost you X because it's very different per ODI. So each individual ODI is quite a different metric. And it depends on the weather conditions that happen in that particular year because that makes it harder or easier. And it depends on your start point on the targets. So it's not as easy to kind of say in AMP7 used to cost us X and AMP8 it cost us Y. That's not true. What we can say, though, is that if you look at AMP7 versus AMP8, we've got less measures to go after. That's better for us. We have 21 metrics now. We used to have 43 back in the day. Keeping 43 metrics green is harder than keeping 21 metrics green. That's one thing. And the second thing is we have a much larger base budget. So when you look across the piece, we're growing our RCV by 60%, aren't we this time around, and it was about 11% last time around. So we do have more generic investment. And so what you can do is invest more in capital solutions. So rather than investing in OpEx heavy solutions every year, you can actually fix the source of the problem. And so if you look at some of the big earners, like, for example, leakage or like, for example, spills, if you can fix that site permanently, you're going to earn reward on that site every year for the next number of years. So it is a very different dynamic, this AMP versus last AMP, I would say, on ODIs. So that's one. On the efficiencies, so what we've said is that we're going to make the efficiencies and then you should assume we're investing them as it currently stands. And whether we're investing them to land additional performance, like, for example, the EPA metrics, there are now more metrics and that will require more investment to hit those. It might be we're putting some of the metrics in to land force our status. It might be that we're saving some money for the capital reopeners, and we might do that, put some money aside because those reopeners are really good, so we might save some money on that, but that keeps the guidance on gearing 60% to 65% in shape. And it might be that you have a long hot dry summer, or like this one, and you have to spend a bit more money on moving the water around and creating more water. So it's just good prudent management to identify efficiencies early on. So you shouldn't currently assume more totex than plus 0. We've said that at the time, but you should feel very confident in our ability even in an inflation-heavy environment to still deliver our totex budgets. That's what we're currently saying. But we haven't been as clear as that. So I guess that's what we're saying is at least 0. And then on leakage, it's an interesting question. I'm not sure I'm in quite the same place. I think Ofwat does accept that leakage is more expensive to deliver, and that's why they've given us all the money for mainslay. So if you look at the money they have funded, they have funded GBP 0.5 billion worth of mainslay investment. That's new. That's fair. And then I guess for us, interest to talk about stuff we're doing on pressure management because that is funded by ourselves. There's just a better way to run the company. Helen Miles: Yes. So I think we've got to innovate on both find and fixed to keep the costs down. So from a fixed point of view, I've talked about Pegasus, so pressure control in valves across the network that we can automate, which reduce burst and leakage. But we're also -- we've gone really big in the last 6 months on Origin, which is a solution which we push into the pipes to seal the leaks, which means that we don't have to pay for expensive road closures or use our crews for 2 days when they can do a job in 20 minutes. So I think it's about innovation as well. Olivia Garfield: Very good. Thank you very much. So I think we have no further questions. I can't see any on the screen either. So in which case, I'm going to call it. So a massive thank you for anyone that dialed in for the half year subject Q&A. Much appreciate it. And thank you once again for all the support for the many questions, the guidance, the counsel over the years and well done to the team for a very strong first half to the year.
Operator: Good afternoon, and welcome to the Innovative Food Holdings Third Quarter 2025 Earnings Conference Call. On today's call for Innovative Food Holdings is Gary Schubert, our CEO; and Brady Smallwood, our COO. Throughout the conference, we will be presenting both GAAP and non-GAAP financial measures, including, among others, historical and estimated EPS, adjusted earnings before interest, taxes and depreciation, which is net income before costs associated with amortization, depreciation, interest and taxes and excluding certain onetime expenses and adjusted fully diluted earnings per share using the weighted average shares outstanding for the quarter ended 9.30.25. These measures are not calculated in accordance with GAAP. Quantitative reconciliation of certain of our non-GAAP financial measures to their most directly comparable GAAP financial measures appear in today's press release. I would also like to remind everyone that today's call will contain forward-looking statements from our management made within the meaning of Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities and Exchange Act of 1934 as amended, concerning future events. Words such as aim, may, could, should, projects, expects, intends, plans, believes, anticipates, hopes, estimates, goal and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve significant known and unknown risks and are based upon a number of assumptions and estimates, which are inherently subject to significant risks, uncertainties and contingencies and many of which are beyond the company's control. Actual results, including, without limitation, the results of our company's growth strategies, operational plans as well as future potential results of operations or operating metrics and other matters to be addressed by our management in this conference call may differ materially and adversely from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, the risk factors described and other disclosures contained in our filings with the Securities and Exchange Commission, including the risk factors and other disclosures in our Form 10-K and our other filings with the SEC, all of which are accessible on www.sec.gov. Except to the extent required by law, we assume no obligation to update statements as circumstances change. With that, I would like to turn the call over to Mr. Gary Schubert. Please go ahead. Gary Schubert: Thank you, and good afternoon, everyone. Before we get into the results, I want to take a moment to acknowledge the leadership transition that took place since our last call. Earlier this quarter, we made a leadership transition at the CEO level. The Board and I want to acknowledge Bill's contributions to the organization over the past 2 years and that we both wish him continued success in his future endeavors. Given that this is my first earnings call as Chief Executive Officer, I want to ensure that I outline how I view the state of the company today, what has changed since I stepped into the CEO role on October 3 and how we are going to get where we need to be as an organization. While reported Q3 results largely reflect performance prior to this transition, it is important to highlight that we've already taken decisive action to clarify leadership accountability, tighten execution and begin addressing the structural and technological issues that have slowed this company's ability to operate with consistency. I will start by grounding us in the numbers, and then I'll share how we've already begun aggressively working to improve them in a sustainable manner. In Q3 2025, revenue from continuing operations increased 3.5% year-over-year to $16.4 million, driven primarily by contributions from Golden Organics and LoCo Food Distributions, which were not part of the organization in the prior comparable period. The underlying performance across our core channels, while containing a few areas of clear optimism revealed 3 material pressure points that are central to our turnaround. First, local distribution declined materially on a like-for-like basis. This decline was not demand driven. It was a result of service inconsistency, fulfillment inaccuracy and operational strain within our Chicago and recently acquired Denver businesses. The top line growth displayed in local was acquisition-driven, but these underlying core businesses contracted, which affected margin quality, labor efficiency and overall operating leverage. The swift and decisive actions recently taken since the management transition to remedy these issues will be discussed shortly. Second, digital channels declined 4.5% due to continued softness with our largest partner. The root cause of softness with our largest partner is not demand driven. This continued softness has been almost entirely rooted in the transition of our products from our partners' legacy marketplace platform to its new marketplace platform. This transition has been ongoing since January of 2023 and is set to be complete by December 31, 2025. However, diversification is taking hold within our digital segment. Our newer digital partners delivered strong growth in the quarter and item expansion, supported by early AI-enabled onboarding, which is helping broaden reach and stabilize overall digital channels run rate performance. Third, national distribution remained a relative strength. But while it added stability to the quarter, the operational transition into Chicago was not as smooth as anticipated. Workflow transfers, system alignments and process shifts created friction that extended cycle times and affected inventory stability. Our gross margin held at 23.5%, consistent with last year. Our GAAP net income from continuing operations was $651,000 or $0.012 per fully diluted share compared with $861,000 in the prior year. Adjusted EBITDA was $321,000 versus $1 million last year. The year-over-year decline reflects operational inconsistencies across local, digital and Chicago-based national operations as well as transitional expenses tied to facility operations and integration. Taken together, these results highlight a simple reality. The business has underlying strength, but operational inconsistency and a lack of focus on key business functions has eroded profitability. These issues are fully within our control, and we are already taking both broad and specific targeted corrective actions and are continuing to do so in Q4. While we are encouraged by preliminary indicators that have seemed to come from corrective actions already underway, work remains to stabilize certain areas of the business and ensure the organization is in a position for sustainable growth across the board. Our focus going forward is on building conditions for consistent performance, and we expect clear indicators to emerge as we progress throughout the next several quarters. Since taking on the CEO role, my first step was to realign the leadership structure to remove layers, improve accountability and accelerate decision-making. One of the first things I did was reinstate [ RG Liorakis ] as Head of Chicago and other physical distribution operations. His reinstatement was the first corrective step to restore operational discipline, strengthen execution reliability and build the commercial foundation for the business. He brings deep food service distribution expertise and a proven track record of building reliable operations. He is now overseeing our commercial, airline and vendor operations, a move designed to bring cohesion to our selling, fulfillment and supply chain functions. We also reorganized the company into 5 core operating domains, commercial operations and execution, digital enablement and technology, people and process transformation, finance and accountability and business insights and financial planning. Separating the company into these 5 core operating domains is intentional and essential to how we'll operate going forward. Each domain has a clear ownership and measurable accountability, ensuring every function understands its responsibilities, how success is measured and where the decision-making authority sits. This structure reduces complexity by eliminating overlap, streamlining communications and clarifying decision rights. It aligns our leadership team around a single operating rhythm rooted in disciplined execution, emphasize speed without sacrificing quality and efficiency without compromising accuracy or customer experience. The purpose of this realignment is straightforward, build a cohesive organization that operates with clarity, consistency and precision. By simplifying how the business is structured, we strengthen our operational backbone, drive accountability deeper into the organization and create a platform that can scale without adding unnecessary complexity. Our focus is on doing fewer things exceptionally well, stabilizing the core, modernizing our systems, strengthening vendor and customer relations and building the execution discipline required for sustainable, profitable growth. With leadership aligned around these principles, we can move faster and more deliberately, ensuring reliable service, operational excellence and strong financial performance. To fully unlock the value of this operating realignment, we must and are actively addressing one of the most consequential enablers of execution, our technology. Technology is not a stand-alone initiative for us. It is the connective tissue that ties these operating domains together. Improvements here will enable faster and more effective decision-making and allow disciplined process to scale without adding complexity. Our systems were largely built before 2020 and rely on multiple on-premise platforms. That architecture limits speed, visibility and automation, and it is not suited for efficient AI enablement. Since October, we have begun a full audit of our technology stack with a goal to clean and standardize our data first because reliable data is the foundation of every improvement that follows. With these operational and technological priorities defined, it's important to connect them directly to how we are operating our business day-to-day. Brady has been leading the execution of our airlines transition into Chicago, the exit of our Pennsylvania building and the modernization of our technology stack. His team is translating our strategic priorities into practical operational reality across the network. With that, I'll turn it over to Brady to walk through our progress relocating the airlines business, the Pennsylvania facility transition and our digital enablement and technology initiatives. Brady Smallwood: Thanks, Gary, and good afternoon, everyone. Q3 has been a quarter of transition, transitioning more of the business to Chicago, moving out of our Pennsylvania facility and modernizing our technology to support a more focused business. My comments today will cover each of those 3 topics. First of all, airlines relocation. Earlier this year, we made the strategic decision to relocate our airline catering operations from Pennsylvania to our Artisan facility in Chicago. That transition is now substantially complete. All sellable inventory and operational responsibilities have been transferred to Artisan, which now serves as our single national hub for airline fulfillment. As you'd expect, consolidating warehouse operations while continuing to serve customers is a messy process. The past several weeks have been focused on resolving the challenges that come with combining systems, people and inventory under one roof. We've worked through the most difficult parts of that transition, and the operation is now running on a more stable footing. Having the business team and the operation in the same location provides better day-to-day alignment and more flexibility to reduce freight and drive additional efficiencies going forward. In the long run, this move positions the airline business for tighter integration with our foodservice platform. It also puts a program on our core technology stack, improving visibility and eliminate the need to maintain separate systems. That will make it easier to manage growth and improve service levels over time. Second is the Pennsylvania facility sale. We remain under the sale agreement with the buyer signed on July 28. The due diligence period expired without resolution on October 6 due to a roof repair issue, which required additional inspection time. Last week, both parties executed a third amendment to the agreement. As part of that amendment, the purchase price was reduced by $500,000 to offset required roof repairs and the buyer was granted additional time to close, now scheduled for mid-January. We currently have nonrefundable deposits totaling $500,000 with an additional $250,000 in nonrefundable deposits if another extension is requested. Additionally, any future delays would carry an extension fee roughly equivalent to our monthly facility costs. If the sale closes as planned, it will eliminate about $9 million of debt and remove a high-cost noncore asset from our balance sheet. If it does not close, the nonrefundable deposits and extension fees protect our downside, and we will move quickly to remarket the property. Regardless of the building transaction time line, all sellable inventory has already been moved to Artisan. Markdowns on nonsellable inventory were taken in Q3 and remaining machinery and conveyor equipment are being evaluated for final disposition. All sourcing, production and sales activities tied to the Pennsylvania business have wound down, and we've also completed the move-out of our other major tenant. Staffing at the site has been fully reduced with only a single warehouse leader remaining to support final transition activities. When it comes to technology, this quarter marks a different phase for IVFH. In prior years, much of our focus was on transforming, selling or ramping up businesses. With much of that work now behind us, we have a clearer view of the core activities that drive performance and where technology can best support them. Our digital enablement and technology team has been focused on ensuring those core processes are stable, scalable and supported by accurate data. We've made meaningful progress on our new vendor and item setup platform codeveloped with a third-party AI partner. The system can now ingest virtually any vendor catalog or spec sheet, parse the data automatically and generate a structured vendor profile with minimal manual input. The same platform facilitates ongoing vendor communication, allowing both sides to maintain and update information seamlessly. In recent weeks, we transitioned entirely to this platform for all new vendor builds and pilot programs for item setup automation are showing strong accuracy, which gives us confidence to continue expanding its use. The AI now scans and structures hundreds of data fields per SKU across units of measure, pack sizes and pricing directly from vendor documents and public databases. Accuracy at the item level underpins everything in foodservice. If the unit to measure or cost data is wrong, every downstream process from pricing to invoicing to fulfillment becomes more complex and costly. Getting the data right the first time reduces friction, eliminates rework and creates a smoother experience for both customers and vendors. In the near term, our focus is straightforward: operate with excellence, ensure reliability for existing customers and confirm that our systems and processes can scale before taking on additional complexity. We're building a platform designed to grow profitably and sustainably. Over the past 2.5 years, much of the critical turnaround work has centered on simplifying a complex operating model. We've exited multiple noncore businesses that added cost and distraction and the Pennsylvania exit was by far the most complicated given its importance to certain customers and vendors and the number of people and assets tied to that site. With most of that difficult transition work now behind us, we finally have the organization aligned around a smaller set of value-driving priorities. As we enter this next stage, distractions are fewer, opportunities remain significant and the mandate is clear, operate with extreme discipline and deliver consistent execution. I'm confident in where the company is headed and in the refined clarity Gary has brought to the organization. The structure is in place, the focus is right and the team is capable. Our job now is to execute every day with precision and accountability to turn the foundation we've built into lasting results. Thank you. Gary Schubert: Thanks, Brady. All actions IVFH takes going forward will be aimed to directly tie back to the execution priorities I outlined earlier. With that, let me shift to the questions submitted by investors in advance. We received a total of roughly 59 questions via e-mail. And we have accordingly grouped and combined questions and answers by topic to avoid answering different variations of the same question. Some of the questions we received asked for forward-looking projections. As a policy, we do not provide projections or quantitative outlooks, so we've excluded those from today's call. I'll let Brady address the first few questions, mainly those focused on Pennsylvania and the digital channels. Brady? Brady Smallwood: Thanks, Gary. We did receive some questions regarding the sale of the Pennsylvania warehouse. I think we've covered all those in my earlier remarks and some other public details that would be in the 8-K. The biggest positive, though, with this latest amendment is that we've structured the agreement now so that if it doesn't go through, we're financially protected and compensated appropriately for the delay before we remarket the property. But we'll update you as we have material events related to this transaction in the coming months. Next, I wanted to hit on a few questions around digital channels. There's a question about how many items we've been adding to the broadline marketplace and whether that trend of 100 items per week has continued. Over the past 4 months, we have averaged essentially right at 100 items per week. That said, we do expect normal variability in those weekly numbers. Some of that's driven by our tech road map and the internal resources and customer resources really that are required to support the setup process. So because of this, we've intentionally structured our tech sprints for the rest of this quarter around those slower holiday periods when fewer items are flowing through the system because it does give us an opportunity to actually focus more on the platform to identify edge cases, performance issues, uncover any usability gaps, et cetera, before we move it into full production. And that's sort of the time period that we're at right now where we're going from that MVP stage or beta stage into the V1, which will be put into full production. There's also a question about lag time between item creation and discovery customer discovery. There is definitely a lag, and it varies by customer. So some customer platforms, they move more quickly, getting the items listed and selling. Other customers need different approvals or they have capacity constraints that occasionally arise. With our largest customer, what we typically see is that the items start selling within about a month of publishing. That's the time it takes for them to complete their internal setup, make item live and for their customers to begin finding it on the platform. And just to be clear, not every item sells within a month, right? This is more like a cohort curve where a percentage of items begin selling in the first few weeks. and then we monitor it from there. There are also some pointed questions on trends in the digital channels space and whether we're seeing stabilization. Gary and I covered some of those, I believe, in the earlier remarks, but I'll add just a few more points here. As you know, our largest broadline customer continues to go through a multiyear transition to their new platform, and they steadily added more capabilities and vendors over the last few years. That transition has been a major driver of declines that we've seen. But the good news is that we're now much further along in that process. Some of the risk is behind us, some isn't. We do see encouraging percentage growth with several other customers in the digital channel space. And even though the dollars aren't yet enough to offset the other declines that we see, but the mix shift in the growth rates in those channels are positive signals for the long run. Finally, I just wanted to hit on the question about whether we're exploring additional channels or customer groups. There are always conversations happening, strategic discussions, research, sourcing initiatives, et cetera. But the priority right now is exactly what Gary has emphasized, and that's building the stable operational foundation. Adding new channels or beginning integration work with a new large customer at this moment would just increase complexity before the system is fully ready to absorb it. We've made a lot of changes in recent years, in recent months, and we feel like we do have the right focus right now. And we really want to, again, focus to drive that stable foundation, and that's what we're going to be doing and what you'll be hearing from us. Our current partners customers really collectively represent hundreds of billions of dollars in sales. So our penetration is still extremely low. And the clearest path to upside is continuing to improve the service levels and offerings for the partners we already have. Sustainable growth with them is actually the proof point that we would need to see before we start expanding elsewhere. That doesn't mean we don't have opportunities in the pipeline. We do, but they need to fit the operating model that we already have and are building and not require a rethink of how we go to market because it's so different. With that, Gary, I'll turn it back to you. Gary Schubert: Thanks, Brady. We received a few questions on the decline of the local distribution business, causes, leadership fixes and Golden Organics issues. After acquiring Golden Organics and LoCo Food Distributions, we incurred double-digit declines. Recently, the local distribution performance, excluding acquisitions, declined 21.5% in Q3. As stated, this was driven primarily by controllable factors, including inconsistent service levels, fulfillment accuracy and leadership gaps that affected customer trust and repeat ordering. These issues were most acute within Golden Organics and echoed inside the Chicago operations. We addressed it immediately by hiring and reinstating experienced operators and tightening process controls across procurement, receiving, picking, fulfillment, last mile delivery. Early signs of stabilization are emerging, but we expect several quarters before results fully reflect those operational corrections. Additionally, we had some questions regarding national distribution, specifically around the airlines business, their penetration, flight mix, Chicago integration. The airlines business is fully transitioned from Pennsylvania to Chicago. Operationally, the move is complete with all inventories, processes and day-to-day responsibilities consolidated underneath the Chicago hub. We are still completing the technology transition to ensure speed, visibility and reliability that we expect from these operations. We remain open to serving a mix of domestic and international flights based on partner needs and Chicago positions us to support that mix more efficiently over time. While the physical transition is complete, we continue to refine workflows and system integrations to ensure the airline programs operate with the speed and accuracy our customers require. Additional questions on cash flows and capital needs. Our near-term focus is disciplined cash management. We are reducing nonessential spending and investing only in the initiatives that strengthen our foundation. The PA sale meaningfully improves liquidity by reducing debt, freeing operating cash. Based on what we see today, we believe we can self-fund the turnaround, but we will continue to evaluate capital needs pragmatically and opportunistically. We also had some questions related to the NASDAQ and the uplisting. The NASDAQ uplisting remains paused. Our priority is on stabilization and strengthening our business foundation. We will revisit the uplisting only when operational consistency and financial performance justify it. There were also some questions related to KPIs, accountability and organizational structure. Every functional domain now operates under measurable KPIs aligned to speed, accuracy, cost, efficiency and reliability. These metrics are part of our weekly operating rhythm and leadership dashboards. Examples include OTIF, which is on time in full percent also includes inventory accuracy, vendor setup cycle times, digital catalog quality scores, so transactability. We've got customer credit resolution timing and working capital discipline. So a lot of metrics that drive or more behaviors and making sure that we're focused on the right things to be able to deliver long-term performance and value to the shareholders. Our growth strategy, we had a few questions around that growth strategy, vendor expansion, technology modernization. Our growth priorities are grounded in discipline. We're going to pursue stabilization and growth concurrently, not sequentially, but at different paces depending upon where the business is operational readiness. Our first priority from a growth perspective is low to no capital initiatives, particularly within our drop ship and digital marketplaces, where we can expand reach without incremental facility, labor or infrastructure investment. We'll continue to pursue selective growth opportunities, but only where they can be supported by reliable execution, accurate data and available resources. As we strengthen operational consistency across the network, we will evaluate opportunities to expand our distribution footprint and broaden customer access. Growth remains important, but it must be sustainable, efficient and aligned to our capacity to execute. Our focus remains on execution and reliability, platform modernization and clean structured vendor and item expansion, creating the foundation needed for scalable, profitable growth. This concludes our prepared remarks and theme's Q&A. As we move forward, our mandate remains clear: stabilize the core, modernize the platform and build a disciplined, scalable operating model. With stronger leadership, a clear structure and a sharpened focus, we are positioning IVFH to operate with greater consistency, improved financial performance and long-term strategic discipline. We appreciate your continued engagement and look forward to updating you on our progress in the quarters ahead. Operator: Thank you. A replay of this call will be available on the company's website at www.ivfh.com. This concludes today's conference call. You may now disconnect.