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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.
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.
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.
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.
Paulina Sims: Good day, ladies and gentlemen, and welcome to Keysight Technologies Fiscal Fourth Quarter 2025 Earnings Conference Call. My name is Victoria, and I will be your lead operator today. This call is being recorded today, Monday, November 24, 2025, at 1:30 PM Pacific Time. I would now like to hand the call over to Paulina Sims, Director of Investor Relations. Please go ahead, Ms. Sims. Thank you, and welcome, everyone, to Keysight's Fourth Quarter Earnings Conference Call for Fiscal Year 2025. Joining me are Satish Dhanasekaran, Keysight's President and CEO, and Neil Dougherty, our CFO. During the Q&A session, we will also be joined by Kailesh Narayanan, President of the Communication Solutions Group, and Jason Carey, President of the Electronic Industrial Solutions Group. The press release and information to supplement today's discussion are on our website at investor.keysight.com under financial information and quarterly reports. Today's comments will refer to non-GAAP financial measures. We will also make reference to core growth, which excludes the impact of currency movements, and acquisitions or divestitures completed within the last twelve months. The most directly comparable GAAP financial metric and reconciliations are on our website, and all comparisons are on a year-over-year basis unless otherwise noted. We will make forward-looking statements about the financial performance of the company on today's call. These statements are subject to risks and uncertainties and are only valid as of today. We assume no obligation to update them and encourage you to review our recent SEC filings for a more complete view of these risks and other factors. Lastly, management is scheduled to participate in upcoming investor conferences hosted by UBS and Barclays. And now I will turn the call over to Satish. Satish Dhanasekaran: Good afternoon, everyone. And thank you for joining us today. Keysight delivered outstanding fourth quarter results exceeding the high end of our guidance. Orders grew 14%, revenue increased 10%, and EPS rose 16%. This was a strong finish to a year of building momentum. Full-year orders and revenue rose 8%, and EPS increased 14%, surpassing our expectations and our long-term model. Keysight's leadership and differentiated solutions continue to drive demand across our markets. Our portfolio is enabling major innovation waves shaping our markets: AI and accelerated compute, non-terrestrial networks, 6G, next-gen semiconductors, and defense modernization. We enter our fiscal 2026 with a strong solutions roadmap aligned to our customers' priorities, a healthy pipeline of sales opportunities across our end markets, and a broader set of capabilities. In Q4, we advanced our software-centric solution strategy with the acquisitions of Spirent, Synopsys Optical Solutions Group, and ANSYS PowerArtist. We're excited about the talent, the technology, and the expanded customer value we can bring to the marketplace. Our operating model continues to generate strong free cash flow, providing us the flexibility to invest in the organic growth of the business, pursue select strategic acquisitions, and return capital to shareholders. In fiscal 2025, we achieved record free cash flow of $1.3 billion while investing in R&D, completing three acquisitions, and returning approximately $375 million through buybacks. Since the start of 2023, we have repurchased over $1.5 billion of shares or approximately 45% of free cash flow. Today, I am pleased to announce that our board has authorized an additional $1.5 billion share repurchase program supporting our ongoing capital return. Turning to business segments, the Communication Solutions Group orders grew for the sixth straight quarter, delivering double-digit order and high single-digit revenue growth for the full year. Wireline orders and revenue grew double digits both in Q4 and for the full year, setting a new record for the business. AI infrastructure build-outs and rapid upgrades to the technology stack are driving greater design emulation and test intensity across multiple vectors. Our solutions span the entire workflow from silicon design to system validation and secure deployments. Rapid scaling of AI workloads is accelerating new designs across the technology stack from compute to networking interconnect, memory, and power. These transitions require redesigns across AI silicon, DSPs, switches, and transceivers, all of which are enabled by Keysight Solutions. Optical speed refresh cycles are also gaining momentum, moving from the 400 gig to 800 gig to 1.6 tera. In Q4, we collaborated with Broadcom to validate next-gen 1.6 terabit networking silicon and custom AI accelerators. Keysight's silicon photonics solutions continue to drive advancements in CPO and LPO technologies of the future. With the breadth of Keysight's portfolio spanning physical layer solutions and AI emulation solutions built on technologies acquired from Ixia, we're making a meaningful contribution to the entire ecosystem. We're also capitalizing on robust demand from the scaling AI supply chain, including rack and cluster components, interconnects, and AI accelerators. Additionally, Keysight is actively involved with industry leaders and a growing number of consortia shaping the future of AI infrastructure. At the Open Compute Project Conference, we partnered with Meta to demonstrate large-scale validation of GPUs and networking prior to deployment into clusters. The recently launched Keysight AI Data Center Builder won the Data Center Innovation Best Product Award at the European Conference on Connectivity in October 2025. Turning to wireless, orders and revenue grew high single digits for the full year and outperformed expectations driven by ongoing standards evolutions, non-terrestrial networks, and early 6G research. We saw steady 5G demand continue with releases eighteen and nineteen of the standard, which included enhanced uplink, advanced MIMO, and energy efficiency applications. Momentum increased in non-terrestrial networks, where we are engaged with industry-leading players to advance direct-to-cell connectivity and new LEO designs. Spirent's best-in-class precision location simulators expand Keysight's offering by providing the accuracy and the realism needed to enable the next generation of positioning, navigation, and timing use cases. In 6G, the industry is shifting from pure research to early pre-standards designs. We are engaged with market-defining customers and are well-positioned to intercept the industry's priorities. We doubled our 6G collaborations over the past year, partnering with customers on several new applications, including channel sounding, network modeling using digital twins, FR3 spectrum, and advanced MIMO phased antenna design. In aerospace, defense, and government, we generated record orders while revenue increased by 8% for the year. In an increasingly competitive global security and defense landscape, we're seeing strong customer engagement for defense modernization, enhanced deterrence capabilities, and operational readiness. Opportunities are expanding for Keysight as traditional primes, direct government entities, and a growing contingent of neoprimes and defense technology companies invest in emerging technologies in space and satellite, autonomous systems, and advanced antenna designs. This quarter, we secured key wins with US prime contractors to accelerate automated device verification. Our advanced component analysis capabilities are enabling fast phased array antenna over-the-air characterization for space, radar, and tactical communication. We won a deal from a US prime contractor for multiple solutions spanning high-performance spectrum analysis, signal generation, and network analysis for radar and air defense applications. In Europe, momentum remains strong, as multiple primes invest in radar, EMSO, and space applications. Ministries of Defense in allied nations are leveraging our wideband signal recording capabilities to capture field data for lab analysis. With decades of leadership across RF, digital, and optical technologies, plus new federal-focused capabilities from Spirent, Keysight is well-positioned to capture growing defense demand. Now moving to the Electronic Industrial Solutions Group, orders and revenue both grew in Q4 and for the full year. In our general electronics business, orders grew for the fifth consecutive quarter and were up high single digits in Q4 and double digits for the full year, led by strength in the broad electronics supply chain, digital health, and education. AI-related innovation and investment fuel demand for our differentiated solutions for high-speed PCB, interconnect, and component test. In digital health, interoperability, connectivity, and latency challenges in the medical device and systems workflow are driving investment. Advanced research spending in semiconductor, 6G, quantum, and photonics initiatives is also continuing at a steady rate, particularly outside of the US, where we benefit from our global scale and local engagement. In semiconductor, the pace of innovation and investment remains robust. Our semi-business delivered solid order and revenue growth this quarter, driven by steady demand for wafer test and lithography solutions, as AI-driven capacity expanded for leading-edge nodes, high-bandwidth memory, and silicon photonics. As lithography and foundry customers expand their own advanced packaging offerings, we're enabling them to achieve unprecedented levels of precision and accuracy. Our deep collaboration with the world's leading foundries and integrated device manufacturers, as well as their respective customers, allows us to identify and address their end-to-end needs from early R&D to wafer fabrication. This year, we saw robust growth in silicon photonics. The investments that we initiated two years ago are allowing us to capture this inflection. While geopolitical and policy uncertainties remain, the outlook for semiconductor capacity and investment and new technology roadmaps remains positive in 2026. In automotive, despite mixed headlines, we continue to empower customer innovation, and demand has largely stabilized. We're also expanding into new opportunities in grid modernization, where our combination of physical layer power, protocol layer, and network expertise is a differentiator. Our portfolio of solutions spans software-defined vehicles, EV charging, grid, and manufacturing. In-vehicle network compliance and security remain customers' priorities, as well as the design and test of new sensing architectures and optical connectivity. The recent acquisition of the Optical Solutions Group expands our photonics portfolio as interconnect and photonics complexity increases across the next generation of industrial and automotive applications. We continue to advance our go-to-market and customer engagement model to deepen long-standing strategic relationships while acquiring new customers and opportunities as the global supply chains shift. Over the past year, our teams executed over 150 strategic engagements with market-defining innovators while expanding our customer base with more than 3,000 new logos. Our Keysight World events reached thousands of customers globally. We actively participated in industry events such as Mobile World Congress and European Microwave and over 30 standards bodies with industry leaders. We continue to maintain life cycle engagement with our customers through our growing services business, which has reached record revenue fueled by robust demand for KeysightCare premium offerings. In summary, fiscal year 2025 marks a return to growth, and as we look ahead, we're encouraged by the momentum in our business and end markets. The technologies reshaping our world directly match Keysight's strengths, and we're leaning in with our first-to-market solutions, customer collaborations, and operational discipline. Even in an uncertain environment, we're confident in the fundamentals of our business model and in our ability to deliver long-term shareholder value. I'll now turn it over to Neil to discuss our financial performance and outlook in more detail. Neil Dougherty: Thank you, Satish, and hello, everyone. Fourth quarter revenue of $1.419 billion was above the high end of our guidance range, up 10% on a reported basis or 9% on a core basis. Orders of $1.533 billion were up 14% on a reported basis or 12% on a core basis. Fourth quarter results included $22 million in orders and $11 million of revenue from the recently completed acquisitions, while currency added $4 million to orders and $7 million to revenue. Looking at our operational results for Q4, we reported a gross margin of 64%, operating expenses of $539 million, and an operating margin of 26%. We generated $331 million of net income and delivered earnings per share of $1.91, which increased 16% year over year. Our weighted average share count for the quarter was 173 million shares. For the full year, Keysight generated revenue of $5.375 billion, up 8% as reported or 7% on a core basis. Gross margin was 65% and operating margin was 26%. FY 2025 earnings per share of $7.16 was up 14%. For the year, Keysight delivered core operating leverage of 39% inclusive of tariff impacts. Moving to the performance of our segments, the Communications Solutions Group generated fourth quarter revenue of $990 million, up 11% on a reported basis or 9% on a core basis. Commercial communications revenue of $660 million was up 12%, driven by continued strength in wireline and growth in wireless. Aerospace, defense, and government achieved revenue of $330 million, an increase of 9%. Altogether, CSG delivered a 66% gross margin and a 27% operating margin. The Electronic Industrial Solutions Group generated $429 million in revenue, an increase of 9% on a reported basis or 8% on a core basis, with growth in semiconductor and general electronics. EISG delivered a 60% gross margin and a 25% operating margin. In FY 2025, software and services accounted for approximately 37% of Keysight revenue, while annual recurring revenue was 29% of the total. Moving to the balance sheet and cash flow, we ended the quarter with $1.9 billion in cash and cash equivalents, generating cash flow from operations of $225 million and free cash flow of $188 million. During the quarter, we deployed $1.7 billion for acquisitions. We also repurchased 595,000 shares at an average price of approximately $168 for a total consideration of $100 million. Full-year share repurchases totaled $375 million or approximately 30% of the $1.3 billion in free cash flow generated this year. Now turning to our outlook, for 2026, we expect revenue in the range of $1.53 billion to $1.55 billion, representing 19% year-over-year growth at the midpoint. Excluding the recent acquisitions, this guidance assumes 10% year-over-year revenue growth. We expect Q1 earnings per share to be in the range of $1.95 to $2.01 based on a weighted diluted share count of approximately 173 million shares. Keysight enters FY 2026 with a strong backlog and a robust sales funnel. As a result, we expect FY 2026 revenue growth, excluding acquisitions, to be at or above the high end of our 5% to 7% long-term target. The recently completed acquisitions of Spirent, the Optical Solutions Group, and PowerArtist are expected to contribute approximately $375 million of revenue in FY 2026. We are working to realize in excess of $100 million of synergies and other operational efficiencies across Keysight, even as we sustain critical investment in R&D to ensure Keysight's expanded product portfolio intersects the growth opportunities in our markets. The acquisitions are expected to be accretive to Keysight's earnings twelve months post-close, while this implies some mild dilution in FY 2026, we expect the strength of our core business to enable FY 2026 EPS growth at or above our long-term 10% target. Now a few additional modeling considerations for the year. As expected, Keysight enters FY 2026 having fully mitigated the impact of tariffs implemented in April. We now expect the August tariff increase to be fully mitigated in Q1, one quarter earlier than previously communicated. These expectations are reflected in our guidance. At current debt levels, annual interest expense is expected to be approximately $110 million. Capital expenditures are expected to be approximately $160 million, and we are modeling a 14% non-GAAP effective tax rate for FY 2026. In closing, we ended our fiscal 2025 with outstanding results and expect the momentum to carry into 2026. Technology innovation is driving demand for high-performance solutions across a broad range of industries. With our differentiated portfolio, technology leadership, and durable financial model, we are well-positioned to deliver sustained revenue and earnings growth. With that, I will now turn it back to Paulina for the Q&A. Paulina Sims: Thank you, Neil. Victoria, will you please give the instructions for the Q&A? Operator: Of course. To withdraw your question, please press 2. Our first question comes from the line of Mehdi Hosseini with SIG. Your line is now open. Mehdi Hosseini: Yes. Thanks for taking the question. Looking to the new fiscal year, Satish, how do you see the wireless trending? It has been kind of depressed for the past few years. And I'm just wondering if there's any catalyst on the horizon that gets you excited, or should we assume FY 2026 would be similar to the last year just as trending sideways. I don't have a follow-up. Satish Dhanasekaran: Yeah. Well, thank you, Mehdi. You know, we're quite pleased with the results in '25 across all our segments and just this return to growth across all our regions that we saw this quarter. Specific to commercial communications, we're equally excited about the opportunities that we have in next-gen connectivity, compute, semiconductor, and we see a plethora of these technologies that we can really make meaningful contributions and grow our portfolio. Specific to your question on wireless, obviously, wireless exceeded expectations this year, in part driven by stabilization in 5G, which is normalized, and then some of the advanced technology areas that we've made investments in, starting to show some early results. Even prior to 6G hitting inflection. So I would say, you know, we are optimistic about the wireless growth into 2026. But even ahead of the 6G inflections that may occur in the later part of the decade. Mehdi Hosseini: Okay. And a quick follow-up as we look into the adoption of 1.6 terabyte per second wireline, would there be an additional growth acceleration for Keysight? Would there be any upgrade? And I'm asking the question because speed is to the extension of Keysight, and we get to those data rates. I wonder if there's any upgrade or pricing that would help with a higher growth rate. Any color would be great. Satish Dhanasekaran: I think, you know, we really, as you know, Mehdi, our strategy has been to develop first-to-market solutions, which offer our customers greater value and the higher technological complexity. It really plays to our strength. And with regard to the wireline, there's a plethora of inflecting technologies across the entire AI stack, including the networking one that you referenced. We're well-positioned to continue the momentum into 2026. Operator: Great. Thank you so much for your questions. Our next question comes from the line of Samik Chatterjee with JPMorgan. Your line is now open. Samik Chatterjee: Yep. Thank you. Thank you for taking my questions, and congrats on the strong outlook here. Satish, you mentioned sort of the order acceleration through the year, but still when I take out the acquired business and the contribution there, there was a significant acceleration quarter over quarter from July to October. Maybe if you can just sort of go ahead and into details there a bit in terms of how much of that was attributable to maybe more wireline and specifically related to production use cases, to R&D, and what sort of the driver of the significant acceleration because it seems like you're not only sort of confident about the order outlook here, but you also have visibility into the pipeline of that remaining robust? And I have a quick follow-up. Thank you. Satish Dhanasekaran: Thank you, Samik. Yeah. Very pleased with the results in quarter four. And I may want to start by saying, clearly, revenue outperformance was driven by broad order strength that we saw, with both our CSG and EISG businesses growing double digits this quarter. And we also are quite pleased with the broad nature of the strength. All our regions grew. And it's pretty broad. And the areas that we have really been focusing on the portfolio with our growth initiatives have really kicked into early gear. Is the way I would characterize this. And then when we look ahead at the pipeline, you know, we see a very robust pipeline. Obviously, our visibility, sixty to ninety days, is pretty good. And we see a robust set of pipelines that we can go execute. We're also seeing the underlying demand, whether it is the volume of the pipeline or the velocity of the pipeline or the conversion rate, the sort of metrics that we track, including the quality of the pipeline, they're all trending up. So we feel good about this, and we reflected that in our guide. Samik Chatterjee: Okay. And maybe quickly, just for Neil. Neil, you outlined the synergy expectation here. Can you just give us a bit more details in terms of how to think about what sort of required for the acquisitions to go from EPS accretive to potentially the operating margins of those acquired businesses being similar to the corporate average or being operating margin accretive in the future? Neil Dougherty: Yeah. Absolutely. So as I said in their prepared remarks, we're working to generate a $100 million of run rate synergies and other operational efficiencies across Keysight. Certainly, the majority of that, the large majority of that is coming from synergies as we integrate these acquisitions. You know, those of you that have covered Keysight for a while will know that our integration is complete, and we do a thorough integration that tends to take us on average twelve to eighteen months to complete. And a significant driver of cost synergies for us is when we get systems aligned. Getting these acquisitions into our ERP environment is a big driver, and that does take time. So think as you think about FY 2026, relatively low realized synergies in these first few quarters until we can get to that cutover point. And then later in the year, I think you'll see a step function improvement in terms of synergy realization. Within a longer tail of smaller synergy realization into 2027. Operator: Thank you for your questions. Our next question is from the line of Andrew Spanola with UBS. Your line is now open. Andrew Spanola: Thank you. I wanted to ask a question on the wireline business. Generally, when we think about your R&D business, it sort of runs in front of the actual deployment of the hardware by a few years. And we think about 16 coming in 2030, it needs to be spending in '27. So I'm wondering how should we think about wireline? A lot of the hyperscaler build is going on pretty actively right now, and we're really just starting to see your wireline business pick up in the last few quarters. So I'm wondering what's different about the timing on the wireline business, the hyperscalers? And what does that tell us about maybe the visibility and the longevity of this spend? Satish Dhanasekaran: Yeah. I'd say there's a good question, Andrew. I'd say there's a couple of things going on. There's a couple of things going on. Obviously, the AI cluster and infrastructure build-outs are occurring, driven by the hyperscaler spend. You know, so the entire supply chain is sort of locking in grid and trying to deconstrain a constrained supply environment. So there's some of our impact, positive impact, to our business from that dynamic. But the longer-term overarching theme is the underlying waves of technology across the entire stack, all the way from compute to memory to storage to the infrastructure itself. When it all comes together, I think we're making significantly bigger contributions and participating in that secular long-term trend from an R&D perspective. And so we feel good about both these opportunities in the short and medium term. Operator: Thank you for your question. Our next question comes from the line of Atif Malik with Citi. Your line is now open. Atif Malik: Hi. Thank you for taking my question. I have a question for Satish here. Satish, NVIDIA announced a $1 billion strategic investment in Nokia, developing AI-powered networks for future 6G RAN infrastructure. And I heard you still say that the latest part of this ticket for 16. In terms of the adoption, like, why wouldn't it be faster if the AI guys are supporting faster adoption of 6G? Just kind of help us out. Has anything changed with respect to your view on the inflection in 6G? Satish Dhanasekaran: Yeah. This is a good question. I think when we think about any big technology role, such as a generational role, we start to look at what the standards are. And that's often a good mile marker for how deployments will occur. And so when we think about the standardization, we're thinking twenty-eight, twenty-nine-ish time frame when that process comes to some level of maturity before global deployments may occur. But specific to our portfolio, we're quite excited by the new opportunities the changing technology stack presents itself. I'll have Kailesh make a couple of comments on some of the collaborations that we're currently engaged in that we feel like will result in meaningful upside to the company. Kailesh Narayanan: Thank you, Atif. See, we are working with operators, to your point, in helping them evaluate how GPUs and AI accelerators can be deployed in RAN environments. We have a solution portfolio that we have launched recently that allows them to model concurrent RAN and AI workloads in partnership with NVIDIA and an ecosystem of US operators. Recently, we also launched a solution to bring the concurrent exploration of compute as well as connectivity infrastructure using some of our wireline as well as wireless portfolio. All of this is exciting and is enabling the industry to further the 6G standard forward. Operator: Thank you for your question. Our next question comes from the line of Rob Mason with Baird. Your line is now open. Rob Mason: Yes. Good afternoon. My first question was going to direct to Satish. I was curious if you could just speak to the positioning business that you did acquire with the Spirent acquisition. It does look like that's, you know, really new capability that you bring into the portfolio. You made mention of it some in the aerospace defense commentary, but I'm just curious how you see that technology layering across the portfolio applicability and where do you think Keysight's relationships can add incremental value to that capability. Satish Dhanasekaran: Yeah. Thank you, Rob. Great question. I'm very happy to answer it, as you can probably sense. You know, positioning is a crown jewel, right, inside the Spirent portfolio. Very unique capabilities with regard to positioning, navigation, and time. And you might say, what does it do? What do the products really do? Well, it simulates and emulates satellite environments in the lab. I used to be an engineer at Motorola, and even dating back to my time as an engineer, I've used these tools, and I'm a big fan of these tools. Inside the Keysight environment, I think it takes a completely different upgraded opportunity set because of our different end market exposure. I would just start with automotive being an example. You know, you start to look at autonomous systems, integrated sensing, and communication in the context of 6G, aerospace defense with jamming, spoofing, and a whole bunch of new considerations that the security environment now requires. Quite excited by it. It'll take us some time to get it all plumbed together into our solutions portfolio. But, you know, this has been a gap in our portfolio. And one we feel really good about embracing. I was just meeting with the team a week ago, and very excited, as you can say. And maybe Kailesh can give you a little bit more color on some specific applications that we're already starting to build into our value proposition. Kailesh Narayanan: Yeah. Thanks, Satish. And as the LEO and NTN now scale, we obviously see significant opportunities to offer additional value to our customer base. We're looking to bundling in some of these capabilities with our classic physical and protocol layer solutions. And clearly, this is an upside for us. Satish talked about NTN design activity gaining momentum. What this does is it enhances our portfolio that we already have from testing antennas on satellites to going into satellite constellation emulation, orbital emulation, channel emulation, and so forth. So plenty of applications here to bundle this capability into Keysight's portfolio. That's going to drive business both in our aerospace defense as well as wireless market. Rob Mason: That's very helpful. Just as a follow-up, Neil, was going to see if you could provide a little help on maybe the cadence of how the M&A revenue contribution folds in this year? It just looked like the first quarter guided contributions above the run rate. I know Spirent, in particular, had more second-half weighted calendar second-half weighted revenue. But how should we think about the cadence for the year? Neil Dougherty: Yes. The revenue from the acquisitions, first of rough estimates at this point, 75% into CSG, about 25% into EISG. From a seasonality perspective, it does skew a little bit more heavily towards Q1 versus the remainder of the year. We have that approaching 30% here in the first quarter and then with the remaining three quarters, you know, more or less equal to one another. Now I would, the small caveat, we're obviously basing that on how these businesses behaved in their prior environments and recognize that, you know, particularly as we bring people onto our their Salesforce is onto our sales structures, are likely going to, you know, relatively quickly start to shift and start to align with Keysight. So we'll have to see how that plays out. But right now, we're modeling close to 30% in Q1 and relatively evenly thereafter. Operator: Thank you for your questions. Our next question comes from the line of David Ridley-Lane with Bank of America. Your line is now open. David Ridley-Lane: Thank you. Wanted to dive into that sort of commentary that you'll have 10 plus percent adjusted EPS growth even with the dilution. Very bright in sort of thinking, we're not talking about significant EPS? Dilution? Any way to sort of put some parameters on that? Neil Dougherty: Yeah. I mean, I just I described it in the prepared remarks as mild, so I think you could think of on a percentage basis as low single digits. David Ridley-Lane: And then the other, you know, the other question I had just on the contribution is that core commentary that you were talking about in terms of the organic revenue growth sort of fit with the historical sort of forty-ish plus percent incremental margins? Or how should we think about the contribution of the M&A synergy benefit versus your core incrementals is where framing up the entire fiscal year? Thank you. Neil Dougherty: Yeah. So, obviously, Spirent is a company, a public company, so you could go look. You know, those businesses were, as we inherited them, were operating at profit levels that were lower than Keysight's. But we have committed that on a post-integration basis, we expect an accretive decrease site operating margin. So over that twelve to eighteen month period of time, we're gonna make a pretty significant increase in driving improved profitability in those businesses via this $100 million synergy and other efficiency capture. In the core businesses, I think 40% incremental is the right way to continue to think about our business. You know, the one thing that you need to factor in is tariffs, which again, we're still lapping. They're still not fully in our run rate. But as you saw this year, we came very close to delivering to the 40% core incremental wall of absorbing tariffs in the second half. So it's the right way to think about our business, but the tariffs do provide a marginal incremental headwind. Operator: Thank you for your questions. Our next question comes from the line of Mark Delaney with Goldman Sachs. Your line is now open. Mark Delaney: Yes. Good afternoon. Thank you very much for taking my question. In your prepared remarks, you said that for the full year, you'd expect your revenue growth to be at or above the high end of the 5% to 7% target model. As you think about some of the different businesses, A and D, wireline, wireless, EISG, can you give us a better sense of which one do you think will grow at that level? Or above and any end markets that might grow a little bit slower and build up to that consolidated view that you provided? Neil Dougherty: Man, yeah, I mean, I think Satish has already provided you some color on the markets. I think as you think about wireline, that we're clearly benefiting from the investment wave in AI. We would think that AI is positioned to, you know, be a significant growth driver for the company going forward. I think if you think about wireless, Satish has already commented, but I think, you know, we do see growth from where we are at these levels. So you could think about wireless growing in line with, you know, our targeted growth levels for commercial comms, which was 4% to 6%. I think in the industrial businesses, I think the 4% to 6% is probably the right way to think about it with strength in semi and GEMS being offset by something kind of some continued questions in automotive is the way I would think about it. Mark Delaney: That is helpful. My follow-up was on tariffs. Neil, you said you expect to fully offset the August tariff sooner than you previously expected. Can you just provide some more context to what's allowing Keysight to achieve that somewhat sooner? Thank you. Neil Dougherty: Yeah. I mean, a couple of things. So first of all, you know, last quarter, we guided you to if you took our comments from May, added a number of comments from August, we guided you to an annualized tariff range of $150 million to $175 million. And now it looks like we're trending towards the lower end of that range. So I think that's a benefit. And then with the strength of our business, you know, our pricing and surcharging mitigations are ramping a little than expected, and we're going to be able to offset those tariffs again on a dollars basis one quarter ahead of what was previously communicated. Satish Dhanasekaran: And the other part that I would add, Mark, is also we decided intentionally to honor all outstanding orders, pre-tariff that was in our backlog. So effectively, we've been, you know, some of the shipments have all gone out. And so our forward-looking exposure at zero tariffs, if you will, is much smaller now. Operator: Thank you. Thank you. Thank you for your questions. Our next question comes from the line of Aaron Rakers with Wells Fargo. Your line is now open. Aaron Rakers: Yeah. Yeah. Thanks for taking the questions, and congrats on the results. Neil, I wanted to ask you about the operating margin. I know this feels like a long time ago, but back at the Analyst Day in 2023, you talked about, you know, attaining a 31% to 32% operating margin. I think the initial target was by fiscal 2026. Given the operating incremental leverage that you're seeing in the model, you know, layering in, you know, the acquisitions that you're doing and driving, you know, accretion over time from that. How are you thinking about the achievement of getting to that 31% to 32%? Is that something that you think we could see in fiscal 2026, or do you think that that, you know, might still be a little bit farther out? And I have a quick follow-up. Neil Dougherty: Yeah. No. I definitely think it's further out. In fact, you know, it was, you know, we took '26 essentially off the table when our business went into the downturn over the 23% to '24 period. Obviously, that was not something that we had contemplated when we made that commitment. Our business was operating at 29% operating margin when we made the 31% to 32%, you know, when we put that number out there. Since that time, obviously, we've seen a correction in our business. As we as evidenced this year. Business is returning to growth. We're back to delivering strong incrementals. We have an incremental opportunity here with these acquisitions that we brought in as we realize value capture from those. I think all of those things will enable us to deliver strong profit, strong growth in profit, profitability, and earnings over the time frame. But it will take us a while to climb back from these current 26% levels to the levels we were contemplating when we were at 29% back in fiscal 2023. Satish Dhanasekaran: Aaron, just to add to what Neil said, the fundamental tenets of our value creation that I laid out in terms of our business model and operating model remain intact, including the downside performance that we delivered during a downturn. So those fundamentals remain intact. Equally excited about the opportunities for driving growth and capturing upside in the market, including the value creation incrementals we can deliver from the acquisitions post-integration. Aaron Rakers: Yep. Very clear. And then as a quick follow-up and just maybe more thematically, we talk a lot about 800 to 1.6 T. Starting to hear you guys talk a bit more about, you know, pervasively about silicon photonics. And I'm curious about what your thoughts are with regards to that. When do we expect to see the volume deployments from the market, appreciating you're on the R&D side? I'm just curious about how you see that because there's a lot of discussion around scale-ups, scale across networking and AI, and obviously, you're at the tip of the spear in some of those architecture shifts. Thank you. Satish Dhanasekaran: Yeah. I'll have Kailesh make some comments, and then maybe Jason can follow up on the silicon photonics as well. Kailesh Narayanan: Yeah. You, Satish. Clearly, there is a scale element to it. Right now, the demand is up for high-speed silicon optics, interconnects, accelerators, custom silicon, and so forth. And this is driving both design and R&D activity that we're enabling as well as validating many of these racks that have lots of GPUs, complex cabling, interconnect, and networking. We're participating in validating those as well. So there's a scale element. And your question about the speeds, clearly, we're seeing a design refresh that is occurring throughout the network. And this is occurring at a faster pace. We are seeing concurrent activity in 400 G, 800 G, 1.6 Tera. The 1.6 terabit wave is still ahead of us. We demonstrated this year solutions to enable 1.6, 3.2. As we outlined in our prepared remarks, we enabled Broadcom with their 1.6 terabit silicon. And what's interesting is there are multiple challenges that the industry is facing right now. Some customers are pushing speed. Others are pushing a decrease in power at the same speed. Yet another group of customers is working on improving density at the same speed, and all of this is occurring concurrently, driving a lot of R&D activity and design emulation intense test intensity. We're able to enable the industry with. Jason Carey: Thanks, Kailesh. So I think he gave you a very robust overview of what's happening on the R&D side, and the beauty of Keysight is we have the ability to address customers' workflows all the way from R&D, you know, into validation and into manufacturing. And so certainly seeing the benefit of AI-driven investments come through in some of our semi businesses, where foundry investment, as you know, Aaron, has been happening on the front end this year. We've sold a double-digit number of systems, you know, to foundry customers on the silicon photonics side. I would say it's still early days, and we expect continued growth next year from silicon photonics as capacity continues to expand and move, like you said, from R&D to commercial production. Operator: Thank you for your questions. Our next question comes from the line of Mia Marshall with Morgan Stanley. Your line is now open. Mia Marshall: Great. Good. Thanks. And congrats on this quarter. A couple of questions for you. Just in terms of the strength that you saw in aerospace and defense, could you speak to, you know, is this kind of the broadening of budgets that you had been expecting out of some of kind of the allies? Is this new program? Just kind of a little bit of where you saw that strength. And then maybe as a follow-up, noted kind of the positive uptick in the auto orders year over year. And so just wondering where you're starting to see some green shoots on the auto side. Thanks. Satish Dhanasekaran: Yeah. We'll answer that, Meta. I was expecting you to ask me to size my AI business, but I was ready to do that. But since you asked me, I'm gonna skip forward to the aerospace defense business. So, record bookings this year built backlog, again. And I think it's a year where with considerable noise in the system, I just say in the quarter one, you know, we had this entire situation with administration change. We knew that was gonna be a challenging situation for our business. And I also predicted that things would improve as the year went by, and it did. And then, as we look at Q4, we had the situation with continuing resolution, you know, spending environment from a direct government was a bit more moderated. But our prime contractor business was good. And I also we saw strength in Europe, in particular, I think this whole deterrence, and the associated technologies, our portfolio is well-positioned with that. And then, defense technology in general with neoprimes and others coming up with faster, more nimble platforms, are adopting Keysight solutions as well. So we feel good about our portfolio and the future focus. As we have said before, this is one of those businesses that is quite easier sort of to call on a long-term basis. Really tough to call on a quarterly basis. But, our pipeline looks solid as we go into 2026. I'll have Jason make some comments on automotive. Jason Carey: Hi, Meta. Thanks for the question. Yes. So you know, as we move through this year, we saw our automotive and energy business reach some level of stability at current levels. While orders were still down for the full year as we expected, they did grow year over year in Q4. We benefited, frankly, from a fairly soft compare last year. In Q4, but it was great to see that all subsegments of the business grew across software-defined vehicle, our electric vehicle, ESI, and even on the manufacturing side, small amount of growth. So investment's happening more in the software-defined vehicle space and vehicle network, advanced connectivity, advanced sensing and radar, as well as continued healthy chip design software renewals. Within the quarter were healthy. And we're seeing on the EV and grid side, charging and grid simulation activity and solutions are really customer priorities. And then even in the manufacturing, some capacity investment side to software-defined vehicle electronics. And a few new customers within the quarter. So good to see things stabilize from here. We're not following an inflection, but, you know, we'll see how things progress here going into FY 2026. Operator: Thank you for your questions. Our next question comes from the line of Tim Long with Barclays. Your line is now open. Tim Long: Thank you. Satish, I wasn't gonna ask about scaling the AI business, but it sounds like you'll answer it. So let's start with that one. If you don't mind, maybe just give us an idea of when you look at wireline and semis and kind of the overall business, kind of what's it doing for you? And then secondly, if you could just talk about software and services, 37% on a year. I think in the slideshow, it says going up another 300 basis points. With the M&A. So it gets you to 40%, a pretty healthy number. What's the outlook for moving that with the M&A and kind of the way things are going? In AI and software overall? Are you thinking that we'll see a continued move upward in kind of the complexion of the business coming from the software and services side? Thank you. Satish Dhanasekaran: Thank you, Tim. First, I would say that our wireline business had a record year, growing double digits this year. And, you know, if you look at the plethora of contributions that we're making towards next-gen technologies that are attributable to this entire AI ecosystem. And AI clusters and the additional infrastructure that's being built, I would say, you know, it's roughly half of our wireline business is seeing that impact because it's a broad, again, it's a broad set of portfolio of tools. We bring across physical and protocol layers of emulation. So and the wireline business of Keysight is, you know, if you look at the commercial communications, you know, it's a little under half of the business. With wireless still being a little over half. So that sort of gets you to see it. And that part of the business is growing strongly with robust adoption from customers across the entire tech stack that we referenced before. The second part of the question is really about software and services, and this has been a focused area of strategy for us for a long period of time, and there's more upside for us as we move forward. Obviously, the addition of the Optical Solutions Group and Spirent and the PowerArtist give us a meaningful uplift right away, but also the ability to continue to add more content and create life cycle value for customers and capture that value for the P&L. So we're quite excited by that as we look forward. Operator: Thank you for your questions. Our next question comes from the line of Rob Jamieson with Vertical Research Partners. Line is now open. Rob Jamieson: Hey, guys. Congrats on the quarter. Hey. So just wanted to touch on R&D and just some of the investments. Just approaching 19% of sales this year. First, just talk a little bit about where you're investing the most heavily, whether that's AI and data center or some of the 5G advanced stuff that we talked about last quarter. And then as we look ahead, actually think about R&D intensity going forward just with Experian, Optical Solutions Group, and PowerArt. You know, just given the software nature there and wanting to keep your competitive advantage, just how should we think about, you know, prioritization there going forward? Satish Dhanasekaran: Yeah. Thank you. Well, first, I would say that, you know, we look at the entire portfolio, we have a cohesive portfolio of physical layer protocol layer emulations, and into applications such as the design space. And we see opportunities in the physical layer to refresh our portfolio of offerings. As the new technologies come in and customers are ready for adoption. So you're we're in between that refresh phase of investment right now. Over the next eighteen months, feel really good about the new product introductions that are, that we have that we're continuing to work on. And so you're seeing that not only in the traditional wireless, but also in different technology and in AI. So you're seeing a little bit of increase in R&D spending associated with that. But I do believe that these products and solutions are gonna help us outperform our market. Under a range of conditions, so that's why we're doing it. With regard to, you, your point is well taken with regard to the software assets. They typically run north of our company average. And so I'll let Neil sort of help you with the modeling of it. Neil Dougherty: Yeah. I mean, I think as we think about integration, as we said in some of our prior comments, the primary area is the focus are on leveraging our go-to-market, leveraging our back office. That being said, there may be some opportunities as we breathe need async in the portfolio to align and share some costs. But, you know, primarily, we're looking for leverage in other parts of the panel. Rob Jamieson: Okay. That's helpful. Thank you. And then just free cash flow, just solid again this quarter. Anything to call out in terms of some of the drivers or levers there? And then as we look into '26, just how should we think about conversion, you know, for the full year? I know you've probably got some acquisition-related cash expenses, but would you still expect to be above, you know, that 90 plus percent long-term conversion rate that you're targeting? Neil Dougherty: Yeah. I mean, I think we expect to continue to expect good conversion of non-GAAP net income into profitability or into free cash flow. That's how we track it. As you know, we do we will see some additional integration-related expenses that will put, you know, some pressure on free cash flow conversion during the year. But, again, I think if we step back and think about it from the grand scheme of things relatively, you know, a small proportion of the overall total, and therefore, we'd still expect strong free cash flow conversion next year. Operator: Thank you for taking my question. Thank you for your questions. That concludes our question and answer session for today. I would like to turn the call back to Paulina Sims for any closing remarks. Paulina Sims: Thank you, Victoria, and thank you all for joining us today. Have a good day. That concludes our conference call. You may now disconnect your line.
Operator: Good day. Thank you for standing by. Welcome to Semtech Corporation's Third Quarter Fiscal Year 2026 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following our prepared remarks, there will be a question and answer session. Please be advised that today's conference call is being recorded. I would now like to hand the call over to Mitch Haws, Senior Vice President of Investor Relations for Semtech. Thank you. Please go ahead. Mitch Haws: Thank you, and welcome to Semtech's Third Quarter 2026 Financial Results Conference Call. Participants on today's call are Hong Hou, our President and Chief Executive Officer, and Mark Lin, our Executive Vice President and Chief Financial Officer. Hong Hou: But before we begin, I would like to highlight upcoming investor events, including the UBS Technology Conference in December, the Consumer Electronics Show in January, and the Needham Growth Conference in January. Today, after market close, we released our unaudited results for 2026, which are posted along with an earnings call presentation on our Investor Relations website at investors.semtech.com. Today's call will include various remarks about future expectations, plans, and prospects, which comprise forward-looking statements. Please refer to today's press release and see Slide 2 of the earnings presentation as well as the Risk Factors section of our most recent Annual Report on Form 10-Ks, for a number of risk factors that could cause our actual results and events to differ materially from those anticipated or projected on today's call. You should consider these risk factors in conjunction with our forward-looking statements. We will refer primarily to non-GAAP financial measures during today's call. Please see today's press release and Slide 3 of the earnings presentation for important information regarding notes on our non-GAAP financial presentation. The press release and earnings presentation also include reconciliations of our GAAP and non-GAAP financial measures. With that, I will turn the call over to Hong. Hong Hou: Thank you, Mitch. Good afternoon to all of you joining the call today. The Semtech team made solid progress again this quarter, driving strong sequential and year-over-year revenue and earnings growth. Aligning our data center roadmap to capture major growth and design win opportunities ahead, further strengthening our financial profile all while executing on the R&D roadmap and portfolio expansions we believe establish a foundation for growth. Looking at Q3, net sales were $267 million, up 4% sequentially and up 13% year-over-year, driven by the momentum of our data center and LoRa portfolio. Adjusted operating margins grew 180 basis points sequentially and 230 basis points year-over-year. Adjusted diluted earnings per share were 48¢, up 17% sequentially and 85% year-over-year. Again, this quarter, the core assets we have delineated, namely data center, LoRa, and Perse, together strongly contributed to our revenue deals. We continue leveraging our R&D resources to expand our portfolio, including in LoRa, with multiple protocol integration showcasing WiSAN and LoRaWAN synergy for smart infrastructure. And the new TIA and driver building blocks that establish new performance standards for 1.6 multimode optical transceivers in AI data centers. In addition to our strong financial performance, we further optimized our capital structure with a successful convertible offering. The collective actions taken over the past few quarters have provided Semtech significant balance sheet flexibility, resulting in nominal interest expenses and a much improved cash flow generation. This improved financial position allows us to accelerate investments in our core technologies. Finally, portfolio optimization remains a key focus. At the beginning of our fourth quarter, we completed the acquisition of the Force Sensing business, including its technology products, and key employees from Provo. By leveraging Semtech's customer penetration, global sales, and support network, and our existing capacitive sensing product portfolio, we expect to accelerate the proliferation of the advanced force sensing human-machine interface solutions and the MEMS sensors by targeting leading computing, smartphone, wearable, and automotive applications. In addition, we are making solid progress on the divestiture of noncore assets. With our new financial adviser, we have engaged in diligence conversations with a number of interested parties, which has generated multiple indications of interest. We believe this asset represents a very compelling synergistic value to these potential acquirers. Now let me move the discussion to our end markets. From Q3, infrastructure net sales were $77.9 million, up 6% sequentially and up 18% year-over-year, strongly supported by our data center business. Net sales for data center were a record $56.2 million, up 8% sequentially and up 30% year-over-year, benefiting from strong demand for our broad portfolio including our market-leading fiber edge TIAs, whose net sales set another record. Moving into Q4 and the next fiscal year, we expect an acceleration of sequential and year-over-year growth for the data center business. This conviction is supported by our expectation of continued increases in AI CapEx, expanding customer engagement, and a strong demand pipeline for high-performance, low-power solutions, including the incremental contributions from linear pluggable optics or LPO and the coverage linear equalizers. We believe our low-power analog solutions are a core enabler for making next-generation data centers scalable at 800 gig and 1.6 t. With hyperscale and AI data centers capacity, major down electric consumption every incremental watt saved in networking connectivity, multiplied by tens of millions of ports, will enable a meaningful increase in compute capacity. By delivering best-in-class efficiency and sync signal integrity at the physical layer, analog solutions give cloud and AI operators the flexibility to adopt new 1.6 base of topologies. Whether that is the higher density switches, new optics architectures, or more disaggregated racks, while staying within strict power, thermal, and transmission latency envelopes. To support data center build-outs, we are seeing broad-based demand acceleration, supported by customer forecasts for 800 gig TIAs through 2026. Beyond 800 gig, we are actively supporting a wide range of customers on their 1.6 t transceiver designs and deployment with both TIAs and drivers. And we expect 1.6 volume ramps to begin early in calendar year 2026, concurrent with the deployment of 1.6 switches. Regarding LPO, we have secured design wins with several leading US hyperscalers with our TIAs and drivers in 800 gig transceivers and AOCs. And we continue expanding our customer pipeline through engagement with our optical module customers. We expect a meaningful revenue contribution from TIAs for LPOs starting in Q4, and the momentum to build into calendar 2026. In parallel, we are accelerating our R&D roadmap and targeting initial sampling of 1.6 LPO drivers and TIAs before year-end. Regarding active copper cables, customers benchmarking ACCs against the competing technologies are seeing clear advantages. Excellent signal integrity, lower latency, and more importantly, power consumption up to 90% lower than DSP-based AEC solutions. We expect to ramp ACCs with a major hyperscaler during calendar year 2026. With this deployment transitioning, incorporating ACCs in place of AEC or DACs, we anticipate broader market penetration. As this hyperscaler demonstrates ACC's benefit versus the incumbent technologies, our engagements with additional ACC customers are intensive and broad-based. And we anticipate more design wins over the coming quarters. In addition, a number of customers, including our Android customer, are evaluating the integration of our copper edge linear equalizers on their PCB boards and connectors to improve signal integrity of the high-speed links. We anticipate designing of onboard copper edge use cases over the coming quarters. Moving forward, we believe our broad portfolio of fiber HTIAs and our rapidly emerging copper edge and LPO solutions position us for accelerating data center revenue growth throughout 2026. Now moving to our high-end consumer end, net sales for Q3 were $41.9 million, up 2% sequentially and up 5% year-over-year. Year-to-date, net sales were $118.5 million, up 6% compared to the same period last year. Drills from a high-end consumer portfolio are outpacing market metrics, such as worldwide handset unit volume deals by a considerable margin, demonstrating market share gains, customer adoptions of our differentiated solutions, and the strong supply chain execution. In addition, our per se sensing technology continues to be designed in a growing range of applications, including smart glasses and smartphone platforms supporting both existing designs and new launches over the coming quarters. As I referenced earlier, we completed the acquisition of the leading force sensing portfolio from QUVO at the '4. The integration is well underway, with our first product shipped starting last week, and we look forward to this company's expanding our sensor portfolio with a proven IP and paired with our global go-to-market engine unlocking cross-selling opportunities across a diverse array of leading customers. The combination of these unique capabilities provides a robust set of touch and gesture detection capabilities. Moving to our industrial end market, Q3 industrial net sales were $147.2 million, up 3% sequentially and up 12% year-over-year, driven by another quarter of strong LoRa performance. LoRa-enabled solutions net sales were $40 million, up 10% sequentially and up 40% year-over-year, supported by the continued expansion across several end markets and multiple applications in verticals such as smart utilities, smart buildings, smart city, and asset management. Looking ahead, we believe we are well-positioned to drive LoRa adoption with additional capabilities and features. Our recently launched Gen 4 LoRa plus transceivers offer integrated multiprotocol connectivities in addition to the LoRa LoRaWAN capabilities in a single chip across both sub-gigahertz and 2.4 gigahertz frequency bands. This simplifies hardware design, lowers the bond cost, and enables customers to create a unified design supporting multiple protocols, thus enabling deployments for customers rolling out solutions across different geographies and regions. The LoRa plus transceiver now delivers data rates of up to 2.6 megabits per second on both sub-gigahertz and 2.6 gigahertz bands. This capability enables faster transfer of video images and richer sensor data while maintaining ultra-low power consumption and enables applications that were not practical before. We are also continuing to see good traction in commercial drones. LoRa enables long-range communication up to 10 kilometers for applications like agriculture monitoring, livestock tracking, and infrastructure inspection. With Gen 4's higher data rate, drones can now transmit images and sensor data in real-time while covering larger areas efficiently. Our IoT systems and connectivity business recorded Q3 net sales of $88.3 million, down 1% sequentially and up 7% year-over-year. We see strong design win momentum as IoT transitions from 4G to 5G, leveraging our market leadership. As of this quarter, we have completed all the necessary certifications for 5G REDCap modules, and the products are now commercially available. The business pipeline continues to be strong, thanks to the broader market recovery and the favorable geopolitical environment for this business. Networking solutions with routers, gateways, and services in the portfolio had a strong execution quarter, advancing strategic initiatives across the carrier partnerships, software platform innovation, and market positioning. We expanded our 5G standalone capabilities with support for network slicing, enabling dedicated first responder network slices on T-Mobile's key priority and Verizon's frontline networks. We believe this persistent AirLink as a differentiated solution for mission-critical public safety communications where quality of service and network prioritization are essential. We launched the AI-powered support tools, delivered our next-generation management platform supporting both cloud and on-prem customer requirements, and announced a strategic partnership with the GTEC, extending our reach by embedding AirLink connectivity into their rugged computing ecosystem. The mission-critical cellular router market continues growing in double digits with accelerating 5G refresh cycles, and we believe we are well-positioned to capture share through our carrier relationships, ecosystem partnerships, and differentiated rocket science and lessons. We also launched the industrial first single vendor offering with Skylow, providing access to terrestrial and satellite networks through a single SIM and delivering the industry's first complete device-to-cloud terrestrial and satellite IoT solution from a single partner. Our strong results this quarter reflected the impact of our focus on growth of our core assets, disciplined R&D investments, and the deep and expanding partnerships we are building with our customers. As power constraints intensify for our customers across all our end markets, we believe Semtech is uniquely positioned to lead a world of web ultra-power efficient solutions spanning high-bandwidth data center networking, LoRa connectivity for rapidly expanding IoT use cases, and sensing technologies that enable the functionality of next-generation AI interfaces. We see significant opportunities ahead and are focused on executing against them while continuing to create long-term value for all of our stakeholders. Now let me lay out my priorities for the next few months. First, capture growth opportunities in our core assets. Through selective strategic investments, we plan to fill key capability gaps leveraging our operational excellence. We will also focus on ensuring capacity availability, particularly against the backdrop of tight supply and geopolitical uncertainties. Second, focus on the divestiture of noncore assets. This will help address margin disparities and enable us to focus fully on our core business priorities. Third, strengthen our winning culture and elevate our company mindset to work great as a new normal. In the year of Semtech rising, we fixed the balance sheet, aligned our core portfolio with market growth drivers, and built a strong foundation of winning culture. Building on the momentum of these successes, we are now embarking on the journey of the Semtech transforming, paving the way towards Semtech excellence and solidifying our position as a global leader in enabling next-generation data center, LoRa-based IoT, and our expanded sensing portfolio. With that, I will now turn the call over to Mark for additional details on our financial results and our outlook for 2026. Mark Lin: Thank you, Hong. For Q3, we recorded our seventh consecutive quarter of net sales growth, with record net sales of $267 million above the midpoint of our outlook, up 13% year-over-year. Net sales trends by end market reportable segment, geographic region are included in the accompanying earnings presentation. Adjusted gross margin was 53%, at the midpoint of our outlook. Total semiconductor products gross margin was 61.3%, up sequentially from 60.7% and up year-over-year from 59.9%. Total semiconductor products gross margin reflects meaningful sequential and year-over-year net sales gains in data center and LoRa. IoT systems and connectivity gross margin was reflective of mix related to net sales growth in cellular modules, with Q3 at 36.6%, compared to 39.5% in Q2 and 41% in the prior year period. Adjusted net operating expenses were $86.5 million, below the midpoint of our guidance range, benefiting from prudent cost control and a relatively stronger U.S. Dollar. Adjusted operating income was $54.9 million, up 13% sequentially and up 26% year-over-year, resulting in an adjusted operating margin of 20.6%, up 180 basis points sequentially and up 230 basis points year-over-year. Adjusted EBITDA was $62.7 million, up 11% sequentially and up 23% year-over-year. Adjusted EBITDA margin was 23.5%, up 160 basis points sequentially and up 190 basis points year-over-year. Adjusted net interest expense was $2.5 million, down 86% year-over-year. The capital structure changes completed in October were in effect for only two weeks of the quarter, so the bulk of the benefit will be realized starting in Q4. To summarize these changes, we issued a $402.5 million convertible note, inclusive of the green shoe, due November 2030, with a coupon of 0%, and a conversion premium of 42.5%. Along with the offering, we entered into cap calls which increased the conversion premium to 100%. As such, until we reach an effective conversion stock price of $141.82, the 2030 note will not factor into non-GAAP dilution. And of course, cash interest is due on the note. Net proceeds from the 2030 note along with the issuance of 5.3 million shares, and $3.5 million in balance sheet cash, were used to fully retire our 2028 notes with a coupon of 4% and about $219 million of the 2027 notes with a coupon of 1.625%. We also fully repaid our term loan, for which we were incurring cash interest at about 5.8%. Our debt currently consists of $402.5 million of the 2030 notes and $100.5 million of the 2027 notes. Currently, annualized interest expense is under $3 million, compared to $75 million for the third quarter of last year. Our significantly reduced cash burden from interest allows us to continue our acceleration of investments in strategic, high-growth areas of our business, while driving earnings growth and positive cash flow. We were well-positioned for the Force Sensing portfolio acquisition, which closed at the beginning of Q4, which we expect will integrate very well into our sensing portfolio. Other net non-operating expenses were $400,000, primarily from foreign exchange revaluation losses. We recorded adjusted diluted earnings per share of 48¢, up 17% sequentially from $0.41 and up 85% from 26¢ recorded a year ago. Our income statement results have translated to strengthening cash flow. Operating cash flow for Q3 was $47.5 million, sequentially up 7% from $44.4 million and up 60% from $29.6 million a year ago. Free cash flow for Q3 was $44.6 million, sequentially up 8% from $41.5 million and up 53% from $29.1 million a year ago. We ended Q3 with a cash and cash equivalents balance of $164.7 million. At the end of Q3, net debt sequentially decreased $20.8 million to $338.3 million. Along with debt reduction, strong business performance contributed to an adjusted net leverage ratio of 1.5 as of the close of Q3, sequentially from 1.6 and down year-over-year from 7.2. Now turning to our fourth quarter outlook. We currently expect net sales of $273 million, plus or minus $5 million, up 9% year-over-year at the midpoint. We expect net sales from our infrastructure end market to increase sequentially, supported by projected sequential data center growth of approximately 10%. We expect net sales for our high-end consumer end market to decrease about 3% sequentially. Typical seasonality in this end market is expected to be partially offset primarily by market share gains, but also from projected contributions from the newly acquired Force Sensing portfolio. We expect net sales from our industrial end market to be about flat, with LoRa decreases offset by growth in IoT systems and connectivity. Based on expected product mix and net sales levels, we expect adjusted gross margin to be 51.2%, plus or minus 50 basis points. Our consolidated adjusted gross margin outlook reflects sequential mix changes in the industrial end market. We project strong net sales growth from cellular modules, a part of our IoT systems and connectivity business, with gross margins that are considerably below the corporate average. Lower net sales with gross margins considerably above the corporate average are expected at about the midpoint of the $30 million to $40 million range we provided during last quarter's call. That said, our gross margin outlook for our total semiconductor products is expected to be 60.5%, plus or minus 50 basis points, up 220 basis points year-over-year at the midpoint, and incorporates our projections of data center net sales growth. Adjusted net operating expenses are expected to be $91.2 million, plus or minus $1 million, resulting in an adjusted operating margin at the midpoint of 17.8%. Included in the higher fourth quarter adjusted operating expense outlook are R&D costs associated with the addition of the Force Sensing business, along with increased investment in support of our growing data center portfolio. We have demonstrated strong returns on our R&D investment and expect incremental returns from our future investments. Adjusted EBITDA is expected to be $56 million, plus or minus $3 million, resulting in an adjusted EBITDA margin at the midpoint of 20.5%. We expect adjusted interest and other expense net to be approximately $5 million. We expect an adjusted normalized income tax rate of 15%, consistent with Q3. These amounts are expected to result in adjusted diluted earnings per share of $0.43, plus or minus $0.03, based on a weighted average share count of 95.7 million shares. Hong Hou: Thank you, Mark. We can now turn the call back over to the operator for the question and answer session. Operator: Thank you. And with that, we will now be conducting a question and answer session. If you would like to ask a question, please press 1 on your telephone keypad. The confirmation tone will indicate that your question is in the queue. You may press 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star key. One moment while we poll for questions. And our first question comes from the line of Rick Schafer with Oppenheimer and Company. Please proceed with your question. Rick Schafer: Thanks. And congrats, you guys. My first question, I guess, is really on CopperEdge. It sounds like ramping with your lead CSP this quarter. And I'm just really curious, sort of, I mean, that's breaking the ice. I mean, does that how does that set you up with other CSPs next year? You know, basically, does this validation from this lead customer speed deployments or wins with other CSPs? And is there any sense that you have today or maybe it's just too early to know, but any sense of how many ACC or CopperEdge customers you expect to ship to next year? Hong Hou: Rick, thank you very much for your questions. So for the CopperEdge in the ACC to supporting a leading hyperscaler, they have the product designed into three programs. And then anticipate the ramp to start in 2026. But we supply our CopperEdge ICs to cable manufacturers, so they certainly need the product earlier than that. And we, right now, have all the things ready to go and based on the forecast they provided. So we need to make capacity available to support their very rapid ramp. And in our Q4, our revenue is just a starting point for that customer. But the substantial ramp is going to be throughout the fiscal year 2026. As for you mentioned about, yeah, there's about icebreaking adoption. Definitely, we view this as a catalyst because the benefits of the ACC over the competing technology are very obvious, especially in the power savings. And it's when we engage with the different hyperscalers, we sense that, you know, ACC is typically adopting the platform design. So, certainly, now we see the broader base awareness of this advantage and the deployment by this hyperscaler certainly will provide a strong reference point for other hyperscalers to use in their future platform designs. As for how many, we have been working with our cable partners and engaging pretty much with every hyperscaler out there. I do expect more design wins in the coming quarters. Rick Schafer: Thanks, Hong. And maybe for my follow-up, you know, it's just a question I think we all get a lot, and you do too, I'm sure, is just sort of how do you approach sizing the ACC opportunity? I mean, is a good product sort of the roughly $100 million, you know, DAC cable market? Or, you know, I guess just sort of a starting point some way to kind of size that market and as part of your answer, I'd be curious just to understand better where we clearly see the benefits in terms of latency and power of AC but where like, what kind of workloads or what kind of designs where does win versus AEC? Like, where's some of the lowest hanging fruit you know, for Semtech there? Hong Hou: Yeah. So what we see, the ACC, it's positioned in a sweet spot. Between DAC, which had a signal integrity limitation for transmitting over a longer distance at a high speed. Then AEC, which is certainly can transmit with a longer distance, but with a significantly higher power consumption. So, certainly, if you look at the AEC plus DAC is a huge TAM. And, ACC, as I said, is so uniquely positioned. It will chip away a substantial portion of it as we start deploying the hyperscalers. So over time, we'll have a better idea how do we quantify the opportunity in the future. Rick Schafer: Thanks a lot. Hong Hou: Thank you. Operator: Thank you. And our next question comes from the line of Sean O'Laughlin with TD Cowen and Company. Please proceed with your question. Sean O'Laughlin: Hey. Thanks, guys. Thanks for letting me ask a question, and congrats on the solid results here. You mentioned Hong, you mentioned Q4 growth in data center. Think you used the word meaningful contribution from LPO in the quarter. Maybe you could just either talk about that deployment specifically, or if you can't get into any details onto that deployment, but in general, how do you envision LPO coming to the market? Is it sort of like on the ACC side where it's very project-specific and therefore kind of concentrated and lumpy? Or do you sort of envision it to fold into the mix over time like the, you know, like a CPU server chip of all would have been to the new generations. Hong Hou: Yeah. Hi, Sean. Thank you for the question. So we see a strong sequential growth opportunity in Q3 for Q4 for our data center business. As we mentioned, we anticipate approximately 10% quarter-over-quarter growth. That's on top of 8% sequential growth from Q2 to Q3. And the majority of the growth is going to be on the fiber edge product. In LPO, we are gaining more hyperscaler design wins. We anticipate a meaningful contribution for LPO. If I have to say meaningful, you know, for, you know, Q4, mid-single-digit level. And, ACC contribution now Q4 is still going to be very nominal. As I mentioned early on that, the hyperscaler ramp in volume in their racks for the interconnect is going to be starting in 2026. We'll probably be three to four months prior to that, getting the ramp going to supply to cable manufacturers to get the ACCs ready. Sean O'Laughlin: Great. Thanks for that, Hong. And then I just had a quick question for Mark. On the gross margin side in Q4, understood on the mix shift within IoT, I guess, of two questions around that. Is this sort of a permanent mix shift that you're anticipating or is this just sort of a temporary LoRa was strong in Q3, going to dip a little bit in Q4, so that'll balance out longer term. And then, well, I guess, maybe this part is I don't know if this is a Hong question or a Mark question, but one of the suppliers on the foundry side in your space talked about, you know, some significant CapEx that they were anticipating on the silicon photonics, but especially the silicon germanium side. And just wondering if you anticipate any sort of headwinds on that side as, you know, the as you mentioned, the entire market goes through a capacity constraint environment here. Mark Lin: Thanks for your question, Sean. Let me try to address gross margin first and clarify there. On the positive side, semiconductor gross margins driven by data center and LoRa, you know, up was 61.4% in Q3, 140 basis points year-over-year, up 60 basis points quarter-over-quarter. SIP gross margin signal integrity products, which encompasses data center, it was gross margin for Q3 was 65.1%. Up 70 basis points quarter-over-quarter, 200 basis points year-over-year. And the reason I'm providing these statistics is, you know, what we have what we've delineated as our core portfolio. Right, of data center, or per se, those are our faster-growing markets. And those gross margins, hopefully, you can see it, are above the corporate gross margin averages. So as those businesses, we believe, will continue to ramp, we believe they'll be accretive to the gross margins. On the IoT systems and connectivity side, we mentioned that we're going to have growth in cellular modules, where, you know, gross margin is less than a third of our semiconductor products. And we also have normally lower sales from LoRa. In terms of where that's heading, you know, we've talked about what's in our core portfolio and what is not in our core portfolio. And I think from what Hong mentioned, one of the top priorities is we're looking at portfolio rationalization there, partially to remove that margin disparity. On your question on foundry, Hong Hou: Maybe I can answer that one. Yeah, Sean. You are right. The silicon germanium technology platform right now is widely used in making physical media devices. The TIAs and drivers, but also in silicon photonics. That is why my first priority over the next few months is to make capacity available. That foundry is our close partner. We have a long-standing relationship over the last decade and a half. And they have been providing excellent support to us. Another nuance related to the component availability is a co-planning process with our customers and with our customers' customers sometimes. And that is a process we have implemented a few quarters ago. It has been working extremely well. So even they share their visibility even in a business development stage. And based on the understanding and based on our triangulation, we have the wafer start in the fab. And typically, the lead time is six months plus or minus. But with the planning process, we gained the visibility. We can start earlier and we have never really let our customers down with our key components. Sean O'Laughlin: Great. Thanks, guys. Congrats again. Operator: Thank you. And our next question comes from the line of Harsh Kumar with Piper Sandler. Please proceed with your question. Harsh Kumar: Yeah. Hey. Thank you, Hong. Hong, last call, I think I was giving you a little of a hard time on lack of sequential growth in the data center business. And I think suffice to say, you've fixed that, going forward. But I did have a question on that. My question is, LPO seems to be a little bit earlier than ACC and it seems to be coming on. You're excited about it. But almost everybody I know struggles with the scope and size of that market. So maybe if I can ask you again, or not again, but if I can ask you to just help us understand how big can LPO be as a business, and maybe what is your positioning in the LPO business. And then as a follow-up on the ACC side, I wanted to ask you ACC, are you seeing applications that replace ACC? I'm sorry. AEC. Or just brand new applications. Hong Hou: Yep. Thank you, Harsh. So first of all, on the data center growth, yes, so we're seeing very strong momentum and booking and outlook and forecast is very strong throughout 2026. And the LPO is we're pretty excited about the first meaningful ramp in our Q4. And as I mentioned before, the LPO gives us an incremental opportunity to bring more content in the transceivers. So we benefited from a strong backdrop of the transceiver demand. With the real-time solutions where we provide market-leading TIAs, by offering LPO, we have opportunities to offer drivers in addition to TIAs. So that will increase our TAM by 150%. So we certainly welcome that transition and definitely the rollout of MNP LPO will cannibalize the DSP-based solutions. But, will they do it any day with the increased TAM? ACC, on the other hand, is a net gain. So right now, with the air pocket, we're experiencing from the early adoption in the rack interconnects, the ramp with these hyperscalers is going to be giving us an acceleration of data center revenue. The adoption dynamics for LPO and ACC is a little different. LPO tends to be gradual. Because in their switch fabric, they can as soon as they as long as they have the confidence in the signal integrity on the host they plug into, they can use LPO. ACC, on the other hand, is more the platform-based. When they design the new rack platform, and they will have the power consumption envelope and ACC provides, you know, 90% of power saving compared to AEC. That is a huge amount. When you look at it as rack design right now, any rack, they probably have anywhere from 100 to 200 cables inside. So, each connector, you know, each cable has two connectors on each end. That you can translate into significant power savings. So ACC is encroaching into the established AEC market. But also DAC market. And because the short connects are predominantly DAC-based. But with the ACC availability, especially for 200 gigabit per line, and ACC is expected to be mainstream for longer than meter reach in the future. Harsh Kumar: Understood. Very helpful as always. And my next question was the Force Sensing acquisition. I don't know much about it. Maybe you could tell us just really quickly, given this is an earnings call, just really quickly what the product does and how you intend to use it, and how much revenue and kind of OpEx you had because OpEx jumped up quite a bit. Hong Hou: Yeah. So the Force Sensing is a capability, you know, you need to touch it and to activate it. We have the capacitive sensing that based, you know, when you have your human body close to the sensors, you change the dielectric constant, you can activate the sensing. But with the Force Sensing, you need to apply the force to activate it. It combines with capacitive sensing very nicely to offer broader capabilities for smart wearable and computing and automotive platforms. The asset we acquired from QUVO was originally at a company called Next Input. They were founded in 2012. And about four and a half years ago, it was acquired by QUVO. And the technology is very differentiating. They have over 175 patents issued and under applications. When we were looking at how to grow the core asset, and how do we fill the gaps in capabilities, the Force Sensing was on our roadmap. And just optimistically, we found this asset available. So we got them acquired and got them nicely integrated. The acquisition happened slightly less than a month ago, but as I mentioned, the integration has already been very successful. So we made the first shipment of the product with our fulfillment infrastructure last week. As for the incremental R&D increase, it's still a lot better to buy this asset than otherwise internally investing. And so it's largely a technology tuck-in. The revenue contribution at this point is immaterial. But we do project a very healthy synergy and a very healthy contribution of this technology and asset to our future revenue. Mark Lin: And, Harsh, just to double-click on OpEx. While there is incremental OpEx from our sensing portfolio, including this force sensing product, we're also increasing R&D in the data center. So the areas where we're investing, the core areas and these assets isn't changing. And we've been able to deliver some pretty good returns in data center, LoRa, and sensing with some nominal increases in OpEx. We expect to be doing the same in Q4. Harsh Kumar: Thank you so much. Operator: Thank you. And our next question comes from the line of Christopher Rolland with Susquehanna International Group. Please proceed with your question. Christopher Rolland: Hi. Thanks for the question, guys. And congrats on the results. I guess, first, a clarification and then a question. The first clarification is you talked about a customer integrating linear equalizers on PCB in the coming quarters. If you could talk a little bit about that, is that a high-volume win or more of a test case? And then just a clarification, you said that you are ramping LPO with several leading US hyperscalers. Are those the same two that you were talking about last quarter, or are there additionals for LPO? Thank you. Hong Hou: Yeah. Thank you, Chris, for the questions. First, on the customers evaluating the linear equalizer in the PCBs or connectors. Those are for the high-volume applications for the high-speed traces. And some customers are planning to do it in the PCBs. And some other customers are seeing the marginal loss of signal integrity from the host, from the ASIC to the port. So, they are evaluating using a linear equalizer to bridge the signal integrity. And it's pretty exciting. So there's a pretty broad base and one of the three, four customers. Those type of applications. As for the LPOs, we stopped counting how many hyperscalers are planning to use it. I will say, at this point, the conversation almost saying, you know, when I was talking to the teams and when I was engaging with our customers, doing the optical modules, the CIOE in Shenzhen and ECOC in Copenhagen. And we were joking. It's more like a who are not planning of using LPO and why? So I would say this technology, at this point, is not if, but more like a when. And what platform they're going to be using it. And we're really excited about the marked starting point of the ramp, but we do expect acceleration throughout 2026. Christopher Rolland: That's fantastic, Hong. And then secondly, I'll leave it up to you at Dealer's Choice. Either Pawn in China and when we should get confirmed tenders and what you're hearing there. Or, LoRa, kind of your outlook there. It seems like this Gen 4 has some new use cases, which is pretty cool. You can answer either or both. Hong Hou: LoRa, one question, LoRa. So yes, Gen 4 is gaining tremendous momentum. And the multiprotocol is really very exciting. So we plan to provide SDK and software stack to enable WiSAN first and to enable a security application, combined with a LoRaWAN. Christopher Rolland: Thank you. Very cool. Operator: Thank you. And our next question comes from the line of Tim Arcuri with UBS. Please proceed with your question. Tim Arcuri: Thanks a lot. Hong, your tone on divestiture has definitely changed versus what it was three or so months ago. It was sort of put on hold a little bit, and now sounds like you have another adviser, and you have some folks who are interested. And so can you just like, what changed and was it you weren't getting the price you wanted? And now these buyers are more interested in engaging at a price that you're happy with. What's can you just walk through, like, the evolution of what sort of change there, and maybe how close are you to do you think executing something? Hong Hou: Thank you for the question, Tim. So the simple answer is nothing has changed. So this time around, you know, we definitely have more dedicated mind share from the potential acquirers. And because the geopolitical situation is a little bit more settled, and also, they're seeing some of the tailwinds playing into the reality. And into the new business opportunities, the backlog, and also what projected Q4 sequential growth. So, you know, to the right acquirers, this really represents a pretty significant synergistic value to them. And as for the timing, we really cannot predict. But rest assured, this is my top priority. Tim Arcuri: Okay. And then, just on the rack, so it sounds I mean, you're kind of it sounds like you're semi promising Kyber in 2027. And I just want to make sure, do you have a lot of visibility on that just given what happened this year with the black ball racks? I just want to talk through how much confidence that you actually have on that that you would be ramping on Kyber in '27 because it does sound like you're kind of semi promising that. Thanks. Hong Hou: Tim, I would shy away from the specific platform, but go back to the fundamentals. So there's really not a whole lot of different ways to improve the signal integrity, especially when you get the high-speed signal launched into very thin metal traces. So you're going to lose the signal strength. You're going to distort the signal and you need to condition that. And there's no better or more seamless way than getting a linear equalizer integrated on the board. If they have other ways to do it, they would do it as well. So that's a fundamental belief. And that's the use case that we've seen with the multiple customers who are interested in incorporating linear equalizer on PCBs. Tim Arcuri: Okay. Thank you. Operator: Thank you. And our next question comes from the line of Tore Svanberg with Stifel. Please proceed with your question. Tore Svanberg: Yes. Thank you, Hong. Thank you, Mark. Hong, my first question is on ACC. You mentioned the three programs there with the lead customer ramping in '26. I know you can't talk about specifics, but could you at least confirm that all three programs are, you know, either cable or PCB board? And are they all based on the same speeds? And if so, what are the speeds? Hong Hou: Hey, Tore. Thank you for the question. All three programs are for 200 gigabit per second trace. And they are all in cable forms. Three programs, of them are the chip onboard. Tore Svanberg: Yeah. Thank you for confirming that. And as my follow-up, and sort of back to the Sierra Wireless gross margins, they've been under quite a bit of pressure. I mean, I understand the mix of modules versus services and so on and so forth. But you know, we're also hearing about, you know, component costs going up, whether it's memory or, you know, modem chips or anything like that. So how should we think about that gross margin not just next quarter, but, you know, over the next few quarters? Mark Lin: Yeah. So, Mark, you want to Yeah. So on the gross margin for that the ISC business, so you mentioned memory. Maybe I'll just get to the point. In terms of let's say, inflationary cost on the palm, we're not experiencing that. Especially memory. We have a few choices there in terms of suppliers. So in their for ISC, it really is mix. That's the primary driver of gross margins. As we as cellular modules is a higher percentage, the gross margin goes down. And, you know, if we have more in terms of services or a router business, gross margin of that business goes up. But at this point, as we're guiding next quarter, we're seeing really strong orders and expectations for customer delivery ramps into Q4. Tore Svanberg: So, Mark, this so this this is basically 5G modules that are ramped this quarter. And because they're lower margin than services and software, that's basically what's weighing on it. Mark Lin: That's right. But it's both 4G and 5G. But, of course, 5G is definitely a tailwind. Correct. Tore Svanberg: Yeah. Great. Thank you very much. Congrats. Operator: Thank you. And our next question comes from the line of Quinn Bolton with Needham and Company. Please proceed with your question. Quinn Bolton: Yes. Thanks for taking my question. I wanted to follow-up on that last question. Just, Mark, maybe you can level set us. I think you said the semiconductor gross margin for the fourth quarter would be 60.5. Don't know if you gave an ISC gross margin, but it looks like it's got to be pretty materially below the 36.6 that you did in the third quarter. So just wondering if you could give us some range where you think that ISC gross margin comes out in the fourth quarter. Mark Lin: Yes. At this point, I'll just say that the ISE gross margin will be lower primarily due to the drivers we talked about with cellular modules. On the again, on the positive side, semiconductor gross margins, was 60.5%, plus or minus 50 basis points. So still quite healthy, and we expect that to continue to grow. Well, we're only guiding on one quarter. Right? The drivers of gross margin between data center, LoRa, and per se, our sensing business now is expected to be accretive to the gross margin. Quinn Bolton: Got it. And then I'm not sure if it's for Mark or Hong. It does sound like you may be getting closer to a potential divestiture based on your comments in the script. I think in the past, you described a divestiture of noncore assets as being nondilutive to EPS because you would take deal proceeds and pay down high-interest rate term loan debt. Well, you've now done that interest expense annually is less than $3 million. So I guess I'm hoping you could comment now without the balance sheet, would a divestiture of noncore assets be dilutive to EPS? Mark Lin: At this point, we're looking at the lower gross margin portions of our business. So that would be something that, at this point, without naming all the specific assets that we're looking at, let's say it's nominal impact to an immaterial impact. Quinn Bolton: Okay. Thank you. Operator: Thank you. And our final question comes from the line of Cody Acree with The Benchmark Company. Please proceed with your question. Cody Acree: Yeah. Thanks, guys, for taking my questions. Hong, if any, maybe go back to the ACC opportunity for a minute. Can you talk to some of the market's concerns around the reliability of ACC? In earlier testing. Is that contributing to any of the hyperscaler what it looks like to be maybe incremental delays in the program ramp I believe was expected to begin here in Q4, and now it's like a more into next year. Hong Hou: Cody, yeah, thanks for the question. I'm not aware of any reliability you were mentioning about the ACC. So there's some chattering. Like, this is more like a couple of years ago by not really the players no longer active in the industry, and there's some false start but false start but there are no any issues we are aware of, and we have deployed a significant amount of ACCs in the industry. So I mean, we haven't heard anything bad. And then with the hyperscalers, they have gone through months of qualification. And reliability testing, system validation process. They're very careful, and they're very technically capable. We haven't heard any concern about that. Cody Acree: Alright. Great. Thanks for that clarification. Can we go to your discussion of ensuring capacity availability you just talk about some of the strategies that you might be able to employ specifically on the wafer side you mentioned earlier? Hong Hou: Yeah. So, in a way, talk about silicon photonics silicon germanium semiconductor platform to support silicon photonics and our PMD physical media devices. And there are more than one location. And we try to make mark capacity available by engaging and qualifying manufacturing from other sites and other countries. So that not only unlocks some additional opportunity, capacities, but also makes it more robust from the geopolitical point of view. So that's what I mean. That's the focus for the near term. Cody Acree: Would you look at anything like, dedicated capacity commitment, or investment on your part? Hong Hou: So the capacity, you know, certainly, we have been increasing the CapEx investment in the back end. Example, testing. But for the foundry capacity, we are primarily working with our partners to qualify their foundry from different locations. Cody Acree: Alright. Great. Thank you, guys. Mark Lin: Thank you. Thank you, Cody. Operator: Thank you. And with that, there are no further questions at this time. I would like to turn the call back over to Mitch Haws for closing remarks. Mitch Haws: That concludes today's call. Thanks to all of you for joining us today. Look forward to seeing you at various investor events over the coming weeks. Operator: Thank you, Mitch. And with that, this does conclude today's teleconference.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to Central Garden & Pet Company's Fourth Quarter and Fiscal 2025 earnings call. My name is Paul and I will be your conference operator for today. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will hold a question and answer session. Instructions will be given at that time. As a reminder, this conference call is being recorded. I would now like to turn the call over to Friederike Edelmann, Vice President, Investor Relations. Please go ahead. Friederike Edelmann: Good afternoon, everyone, and thank you for joining Central Garden & Pet Company's fourth quarter and fiscal year 2025 earnings call. Joining me today are Nicholas Lahanas, Chief Executive Officer; Bradley G. Smith, Chief Financial Officer; John Edward Hanson, President of Pet Consumer Products; and John D. Walker, President of Garden Consumer Products. Nicholas will start by sharing today's key takeaways followed by Bradley, who will provide a more in-depth discussion of our results. After their prepared remarks, John D. Walker and John Edward Hanson will join us for the Q&A session. Before they begin, I would like to remind everyone that all forward-looking statements made during this call are subject to risks and uncertainties that could cause our actual results to differ materially from those forward-looking statements expressed or implied today. A detailed description of Central Garden & Pet Company's risk factors can be found in our annual report filed with the SEC. Please note that Central Garden & Pet Company undertakes no obligation to publicly update these forward-looking statements to reflect new information, future events, or other developments. Our press release and related materials, including GAAP reconciliation for the non-GAAP measures discussed on this call, are available at ir.central.com. Last but not least, unless otherwise specified, all comparisons discussed during this call are made against the same period in the prior year. If you have any questions after the call or at any time during the quarter, please do not hesitate to contact me directly. And with that, let's get started. Nicholas? Nicholas Lahanas: Thank you, Friederike, and good afternoon, everyone. I'd like to begin by highlighting three themes we will focus on today. First, fiscal 2025 was a year of meaningful progress and tangible accomplishments across Central Garden & Pet Company. Our record bottom-line performance underscores the strength of our business model, the rigor of our execution, and the relentless commitment of Team Central. Second, we continue to strengthen our foundation by streamlining operations, consolidating facilities, optimizing our portfolio, and driving efficiencies that enhance our cost structure and position us for sustained profitable growth. And third, as we enter fiscal 2026, we're energized by our momentum and the opportunities ahead. Powered by our central-to-home strategy and sharp disciplined execution, we're poised to accelerate our long-term agenda with even greater focus and agility. Now let me expand on each of these points. First, our fiscal 2025 achievements. Thanks to the hard work and dedication of our more than 6,000 employees, we closed the year with expanded gross margins, record EBITDA, and record earnings per share. These results underscore the strength and resilience of our business model as well as the drive and commitment of our people. We delivered consistent performance while advancing portfolio optimization and maintaining disciplined cost management. Throughout the period, we upheld operational rigor, streamlined our footprint, and drove efficiency initiatives across both segments. We also navigated variable weather conditions by simplifying our business and tightly managing costs, actions that have made our model even more resilient and predictable. Results reflected the transition of two third-party product lines in our Garden Distribution business to a direct-to-retail model. At the same time, we continue to deliberately reduce our exposure to low-margin durable products in both pet and garden. A strategic move that, while creating short-term top-line pressure, strengthens our portfolio and positions us for sustainable profitable growth. We ended the year with record results, a fortress balance sheet, and strong momentum as we head into fiscal 2026. Second, advancing our cost and simplicity agenda. Our initiatives continue to deliver measurable sustainable benefits, enhancing productivity, expanding margins, and positioning us to fuel future growth. We've largely completed our multiyear supply chain network design project, a major milestone that has strengthened customer alignment, increased service speed, and improved cost efficiency across our logistics network. The project also established enterprise-wide e-commerce fulfillment capabilities and modernized our distribution footprint. Together with the sale of our Garden Distribution business and the intentional exit of the Pottery business, this work has enabled us to close 16 legacy facilities to date. By the end of the calendar year, we will be operating a modern, high-performing infrastructure anchored by DTC-enabled fulfillment centers in Salt Lake City, Eastern Pennsylvania, and Covington, Georgia. A network built for speed, efficiency, and growth. Across our footprint, systems, and processes, we're streamlining operations, boosting productivity, and freeing up resources to reinvest in the business. These actions are making Central Garden & Pet Company simpler, stronger, and better positioned to scale, creating a more resilient, cohesive, and predictable company that delivers consistent performance, adapts with flexibility, and is poised to capture the full potential of the opportunities ahead. Third, outlook for fiscal 2026. We entered the year with strong momentum, clear priorities, and a unified focus on delivering results. Our diversified portfolio, operational agility, and prudent cost management give us confidence in our ability to deliver profitable growth despite the current global macro environment and policy shifts. We expect consumers to remain focused on value and performance with a promotionally active but stable retail environment and continued channel shifts from pet specialty to e-commerce. We're delivering with precision to offset cost inflation, tariffs, and supply chain complexity through productivity gains driven by our cost and simplicity agenda and pricing discipline. After incorporating these factors and our operating plans, we expect fiscal 2026 non-GAAP earnings per share to be $2.70 or better, supported by margin expansion and operational performance. As always, our outlook excludes potential impacts from acquisitions, divestitures, or restructuring actions, including activities related to our ongoing cost and simplicity agenda. We remain confident that the central-to-home strategy is the right path and the foundation for long-term value creation. We're combining the agility of a startup with the strength and scale of a category leader, empowering business units to innovate quickly while leveraging Central Garden & Pet Company's operational and financial capabilities to accelerate growth. By sharing tools, data, and talent across the organization, we're building a connected enterprise. One that learns faster, executes smarter, and compounds its competitive advantage over time. This approach enables us to bring new ideas to the consumer faster, capture opportunities sooner, and scale what works across our platform. Looking ahead, we'll continue to balance sensible cost and cash management with targeted investments that fuel organic growth, particularly in innovation, e-commerce, and digital technology. A key priority is making our data AI-ready, improving accessibility, quality, and integration to generate deeper insights and unlock meaningful value and competitive advantage across the business. These strategic investments are already translating into stronger innovation momentum. Recent launches highlight how we're combining insights, performance, sustainability, and consumer impact. Examples include wild bird feed, our redesigned Pennington feeding frenzy, and 3D Pro lines that elevate visibility and engagement both online and at retail, supported by a robust digital marketing program. Worry Free 30% Vinegar, a high-performance multipurpose cleaner six times stronger than standard vinegar. Farnam Endure Gold Fly Spray, a next-generation EPA-approved formula that delivers long-lasting and highly effective fly control, bringing advanced performance and care to horse owners. In parallel, M&A remains a strategic lever for growth. We're actively pursuing margin-accretive consumable businesses that complement our portfolio and expand our presence in attractive categories. While market engagement has increased, deal flow in our core categories remains somewhat limited. We expect activity to accelerate as market conditions continue to improve. I want to thank our team across Central Garden & Pet Company for a record year of meaningful progress and unwavering focus. We've done a tremendous amount of foundational work and as a result, we're entering fiscal 2026 with the business performing at a very high level. With strong financial flexibility and an improving M&A landscape, we're confident in the road ahead. That confidence is reinforced by the strength of our retail partnerships, which continue to deepen and drive mutual growth. As recognition of that strength, we were honored to be named Lowe's Lawn and Garden Vendor Partner of the Year and KT was recently recognized with the NCAP's 2025 Pet Amazon Best in Class PDP Award, for Excellence in product content and presentation. And with that, I'll hand it over to Bradley. Bradley? Bradley G. Smith: Thank you, Nicholas. Building on Nicholas's remarks, I will begin with our fiscal 2025 results. Net sales were $3.1 billion, a decrease of 2%. While variable weather and softer demand in pet durables created meaningful headwinds, the overall sales decline for the year was driven entirely by two key factors. First, our proactive decision to reduce exposure to lower-margin businesses, including pet and garden durables, as well as our UK operations. This step is part of our ongoing effort to optimize the portfolio, improve margins, and strengthen the foundation for sustainable growth. Second, the transition of two third-party product lines in our Garden Distribution business to a direct-to-retail model. Importantly, our remaining portfolio grew slightly for the year and delivered record sales across several key businesses, including Wild Bird, Dog Treats, Equine, and our professional portfolio, a clear sign that our underlying business is strong and that our strategy is working. Non-GAAP gross profit was $1 billion, up 4.5%, and non-GAAP gross margin expanded 210 basis points to 32.1%, largely supported by productivity initiatives. Both segments contributed to the improvement. Non-GAAP SG&A expense was $738 million, roughly in line with the prior year. As a percentage of sales, non-GAAP SG&A was 23.6%, compared with 23%, mostly due to lower volume and the sequencing of productivity and commercial investments. Throughout the year, we balanced sensible cost management with continued investment in long-term growth drivers. Non-GAAP operating income for the year increased to $265 million from $223 million, and non-GAAP operating margin expanded to 8.5% from 7%, supported by structural cost improvements and overall strong execution. Non-GAAP adjustments totaled $15 million in fiscal 2025, all related to our cost and simplicity agenda. In our Garden segment, these adjustments largely reflected the consolidation of two legacy distribution facilities, one in Ontario, California, and another in Salt Lake City, Utah, into a single larger and more modern site in Salt Lake City. That work began in the third quarter and continued into the fourth quarter, resulting in $5 million in SG&A charges. In our Pet segment, the adjustments were mainly related to the strategic wind-down of our UK operations and the transition to a more profitable direct export-only model. This initiative spanned the second through fourth quarters and resulted in $10 million in total charges, $6 million in cost of goods, and $4 million in SG&A. Below the line, net interest expense was $33 million compared with $38 million by higher interest income from larger average cash balances. Other expense was $500,000 compared with $5.1 million as we lapped the prior year impairment charge on two minority investments. Non-GAAP net income totaled $174 million, up 22%. We delivered record GAAP and non-GAAP earnings per share of $2.55, up $0.93, and $2.73, up $0.60, respectively, exceeding both our guidance and last year's performance. Adjusted EBITDA for the year was $371 million compared to $334 million. Our effective tax rate for the year was 24.4% compared to 23.2%, due primarily to the non-deductibility for tax purposes of losses incurred in connection with the wind-down of our UK operations. Now turning to the consolidated financials for the fourth quarter. Fourth quarter net sales were $678 million, up 1% versus the prior year, led by strength in Garden. Non-GAAP gross profit for the quarter was $197 million compared with $174 million, and non-GAAP gross margin expanded 310 basis points to 29.1%. It's worth noting that we lapped a significant grass seed inventory charge that was taken in last year's fourth quarter. Excluding the impact of that charge, our gross margin rate was consistent with the prior year as productivity improvements effectively offset the initial impact of tariffs. Most of our actions to mitigate tariff-related cost increases are only now beginning to flow through the P&L, positioning us for additional benefit going forward. Non-GAAP SG&A expense for the quarter was $198 million, a 7% increase, and as a percentage of net sales was 29.2% compared with 27.7%. The increase largely reflects the cadence of investments tied to our productivity and commercial initiatives. Non-GAAP operating loss for the quarter was $649,000 compared with $11 million, and non-GAAP operating margin improved to negative 0.1% from negative 1.7%. Non-GAAP adjustments for the quarter totaled $6 million, including $3 million related to our UK operations and $3 million associated with the Garden facility consolidation. Of the total, $5 million was recorded in SG&A and $1 million in cost of goods. Below the line, net interest expense was in line with the prior year. Other expense for the quarter was $600,000 compared with $6 million. Non-GAAP net loss for the quarter was $5 million compared with $12 million. GAAP loss per share was $0.16 compared with $0.51, and non-GAAP loss per share was $0.09 compared with $0.18. Adjusted EBITDA for the quarter was $26 million compared with $17 million. Now let me provide highlights from the fourth quarter from our two segments, starting with Pet. Net sales for the Pet segment were $428 million, a decrease of 22%. Due to the closure of our UK operations and lower durable sales, both the result of deliberate actions to simplify the business and enhance profitability. These impacts were partially offset by strong growth in our Animal Health businesses, particularly within our professional portfolio and equine. While demand for durables remains soft, consumables performance continued to be relatively stable, supported by positive point-of-sales trends in the fourth quarter. Consumables now represent roughly 84% of total Pet segment sales, an all-time high, highlighting the strength and resilience of our core business. Across the Pet segment overall, we maintained our market share and delivered gains in dog chews, pet bird, equine, and flea and tick, as well as in our professional portfolio. E-commerce continues to play an important role in our channel mix, representing 27% of total Pet segment sales, consistent with the prior two quarters, reflecting steady consumer engagement across digital platforms. Non-GAAP operating income was $31 million compared with $35 million due to slightly lower volumes combined with the timing of investments and productivity and commercial initiatives. Non-GAAP operating margin contracted to 7.2% from 8%. Adjusted EBITDA for the segment was $41 million compared with $45 million. Now moving to Garden. Net sales for the Garden segment were $250 million, a 7% increase. We benefited from an extended selling season driven by favorable fourth-quarter weather following a cool and wet third quarter. We also saw improved sell-through aided by additional product placements, strong retail execution, and disciplined inventory management. Our wild bird, grass seed, fertilizer, and packet seed businesses delivered particularly strong quarters with growth in both sales and share across retailers and channels. The strong fourth-quarter rebound made this our biggest point-of-sale year ever in Garden despite the reduction in our distribution business, variable weather earlier in the year, and lower home center traffic, a testament to the agility of our teams and the strength of our retail partnerships in Garden. Garden e-commerce sales grew at a double-digit rate across every category, surpassing 10% of total segment sales for the first time. Enhanced product content, improved videos, and targeted new item introductions increased click-through, add-to-cart, and conversion rates across retailer platforms. Results remained especially strong in wild bird and grass seed, where we continue to lead the category and deliver robust growth across both pure play and omnichannel partners. Given the garden industry's relatively low digital penetration today, we see significant runway for sustained online growth across our categories in future quarters. Non-GAAP operating income came in at $1 million, an increase of $26 million, with non-GAAP operating margin expanding to a positive 0.4% from a negative 10.6%. Adjusted EBITDA totaled $11 million, an improvement of $25 million, underscoring the strong finish to the year. Turning now to the balance sheet and cash flows. Cash flow from operations was $333 million in fiscal 2025, compared with $395 million a year ago. Our ongoing focus on working capital efficiency resulted in an additional $36 million reduction in inventory, our tenth straight quarter of year-over-year improvement. CapEx for the year was $41 million, about 4% lower than last year, reflecting prudent investments primarily in productivity-enhancing initiatives and essential maintenance projects. Depreciation and amortization were $85 million, 7% below the prior year, consistent with our focus on efficient capital deployment. At year-end, cash and cash equivalents totaled $882 million, up $129 million, underscoring our strong liquidity and consistent cash generation. Total debt was $1.2 billion, unchanged from the prior year. Gross leverage ended the year at 2.8 times, both below last year and our target range of 3 to 3.5 times. Net leverage was approximately 0.8, supported by our solid cash position, and we had no borrowings outstanding under our credit facility at year-end. This balance sheet strength provides the flexibility to invest in growth, maintain financial resilience, and return value to shareholders. Looking ahead to fiscal 2026, and as Nicholas mentioned earlier, we are guiding non-GAAP EPS to $2.70 a share or better, reflecting continued focus on operational excellence, margin expansion, and disciplined cost management. While the tariff environment remains fluid, we currently project incremental year-over-year gross tariff exposure of roughly $20 million over the next twelve months. The majority of the exposure is within the Pet segment. We are expecting to offset most of the tariffs through pricing, portfolio, and supply chain actions. We plan to invest approximately $50 million to $60 million in CapEx, primarily maintenance and productivity initiatives across both segments, underscoring our commitment to high-return projects that strengthen operations and enhance profitability. For the first quarter, we expect non-GAAP earnings per share of approximately $0.10 to $0.15, consistent with normal seasonal trends. It's important to note that last year's first quarter benefited meaningfully from favorable timing of both shipments and promotional activity. This year, we also have one less shipping day between Christmas and the end of our fiscal quarter ending December 27. In addition, the results will reflect a temporary shipment hold we initiated with a large retailer and the shifting of certain orders into the second quarter. As a reminder, the first quarter is typically one of our smaller periods and not indicative of full-year performance. As always, our outlook excludes any potential impacts from acquisitions, divestitures, or restructuring activities that may occur during fiscal 2026, including projects under our cost and simplicity agenda. That concludes our prepared remarks. Operator, please open the line for questions. Operator: Thank you. We will now be conducting a question and answer session. Our first question is from Bradley Bingham Thomas with KeyBanc Capital Markets. Bradley Bingham Thomas: Good afternoon. Thanks for taking my question. I wanted to ask about the operating margin at a high level. You all have been doing a tremendous job of driving improvements and efficiencies. And so as we think about this upcoming fiscal year, I was hoping you could talk about some of those puts and takes and how they sort of are expected to net out between cost and simplicity, tariffs, demand challenges, etcetera. Thank you. Nicholas Lahanas: Brad, this is Nicholas. Yes, we're going to continue to work on cost and simplicity. So we have every intention of expanding margin into 2026. We may not get as dramatic results as we've got in the last few years because we're seeing that the low-hanging fruit has been picked in a lot of ways. The other thing I would say, don't underestimate the effect that product mix has. So we have to see how that plays out as well. But I would say for right now, as we put together our plans for 2026, we are expecting to continue to expand margin. Bradley Bingham Thomas: Great. And if I could ask a follow-up with respect to the Garden segment. It seems like some really strong execution there. I know that the months ahead will be important as we try to figure out what sell-in can look like for the spring 2026 garden season. But can you give us a little more color about how you're feeling about that? And what the outlook of that garden category may be for next year? John D. Walker: Brad, it's John D. Walker. I'll take that question. Thanks for the question. I'd say that we're looking forward, of course, everything's dependent on what takes place in season, particularly around weather. But I'd say going into it, we are cautiously optimistic. I think one of the things that gives us reason to believe is our year-over-year points of distribution or total distribution points. That's SKU store combinations. Distribution gains, if you will. We feel great about that. It's gonna, you know, we're gonna show an increase year over year. If you exclude the pottery business that we exited, our points of distribution will be up 8% year over year. And if you look at manufactured products that we manufacture in our plants, it will be up double digits. So I think that strong distribution base execution by our team going into season, the controllable causal factors, we feel great about. It's up to mother nature to do her part. But I'd say, cautiously optimistic would be my terminology looking at the season. Bradley Bingham Thomas: That's very helpful. Thank you so much. Operator: Our next question is from James Andrew Chartier with Monness, Crespi, and Hart. James Andrew Chartier: Hi, thanks for taking my question. I just want to talk about, it looks like corporate expense was up about $11 million in the fourth quarter after being down in the first three quarters. So just wanted to get some more color on that. And then can you quantify the impact of tariffs on the fourth quarter? Please? Thanks. Bradley G. Smith: So corporate expenses, I mean, a lot of it had to do with kind of a quarterly variation of timing expenses during the year when compared to last year. So there was that element. But on top of that, we had some investments that we made to support commercial growth in '26, some of which we recorded in corporate. And then we also had some other miscellaneous true-ups we had related to certain reserves and whatnot. So it was really a combination of three different elements. Nothing that would suggest anything structural on a full-year basis going into this year? James Andrew Chartier: Great. And then on the tariff? Bradley G. Smith: Yes. So tariffs, gross tariffs were, I want to say roughly $7 million to $8 million in the fourth quarter. James Andrew Chartier: Okay. And then you talked about investing behind, I think, a new product launch for pet. Just curious what that spend looked like and then how that product performed for you? John Edward Hanson: Yeah. We've got a this is John. The product launch we mentioned was the Farnam Endure Gold Fly Spray and that's a new EPA-approved product. And the efficacy, you know, is significantly better. We're in the process of launching it right now. Customer feedback is really strong. But, you know, it's a bit of a seasonal business. So we're really see that takeaway really until next season, kinda March, April, May, June. We also made some incremental investment at Farnam in Q4. Bradley G. Smith: That ended up paying off quite well where we took several SharePoints in equine during the quarter. John Edward Hanson: Yes, we did. And we continued to invest where we see high opportunity and high return, that was one of them. And that was focused on digital and content and paid off. James Andrew Chartier: Great to hear. Thank you. Operator: Our next question is from Robert James Labick with CJS Securities. Robert James Labick: Good afternoon. Thanks for taking our questions. Of sticking with the tariff theme, obviously, you're navigating it through it like everyone else as well. You said price is going to be one lever. Can you talk have your retail customers accepted your pricing? Have they passed it along? Kind of when will you know consumer I guess, acceptance and elasticity? How are you thinking about those? Bradley G. Smith: Maybe I'll answer the first part where we are in the negotiations and John, maybe you can jump in on the others. Yes, I would say we're more than halfway there in terms of negotiations with customers. It's almost exclusively on the pet side of it on Garden. And they've obviously been very challenging. We had to hold some shipments as a result of those discussions with one of our customers, which we mentioned a bit earlier. So we are expecting to be done with those discussions, I think, kind of end of this quarter, maybe early Q2. John, you want to comment on the consumer part and passing through to retailer? John Edward Hanson: Yes. So we haven't seen the prices go up yet in the marketplace. You know? So a little bit TBD. Now we can, you know, model what we've done in the past, and we do a good job of doing that. And that speaks to probably around a one elasticity. And it's been pretty consistent. But we do everything we can to in these tariffs. Right? We look at country of origin and we look at our SKUs and make sure we got the right SKUs. And if we have to optimize them, you know? And then pricing, you know, is a partnership with the customer. And we do it as last resort. But we do do it and have done it before. Bradley G. Smith: Yeah. And we don't price to build margin. We price to offset some of the costs. That's something we're very, very disciplined about. Yes. I mean, Nicholas mentioned earlier that we're in a position to modestly expand margin this year and is clearly going to be the ongoing cost and simplicity efforts, including the tariff products as well as other projects we've got going on that really are going to be needed to get us over the line. And be able to expand margin. Robert James Labick: Okay, great. And obviously, you've had a lot of progress over the last few years cost and simplicity and the margin improvement. You talk about how much you're you said, I guess, in Q4 a little bit you reinvested for growth in 2026. How do you think about changing the investment level or either promotional activity or brand building as you continue to get this margin improvement from cost and simplicity? John Edward Hanson: Yes. We're definitely up in our game in terms of investment around the consumer, around digital. Bradley G. Smith: And also we want to up our game around innovation. So really those are the three areas we need to get better at and put some money behind. John Edward Hanson: We're trying to stay agile in a lot of ways. So the great thing about digital is we can make an investment and see how it does. And pivot based off of that. So when we see something that works, we tend to, you know, continue to feed the beast. And then if something doesn't, you know, we'll pivot and continue to tweak. So it's a very dynamic agile way of promoting product. Mainly through retail media. John Edward Hanson: But we're also building out a lot more content we have in the past. And you can see that with our feeding frenzy, you know, wild bird product, that's out there now. And we've had some nice results there and plan on building on that. That's really a really nice case study for the company, and we're gonna be doing more of that going forward. Robert James Labick: Thank you. Operator: Our next question is from Brian McNamara with Canaccord Genuity. Brian McNamara: Afternoon, guys. Thanks for taking the questions. So I know you don't guide on the top line, but I was hoping you could provide some kind of high-level thoughts on how you see 2026 potentially playing out? And what outside of weather could drive better or worse top-line trends? Nicholas Lahanas: Yeah. I mean, our view right now is that the top line is going to be challenging. Once again, as it was in 2025. We think '26 is going to be extremely challenging. For reasons that we sort of outlined, we've got a little bit of a headwind with tariffs. Consumer confidence is at a low point right now. So we really need to see how the consumer is going to react to pricing. And really, you know, their behavior and the whole notion of the bifurcation of income. Right now is very real. We're seeing it in both of our categories. So it's a little bit of a wait and see. Think, you know, again, we're not gonna guide on that top line, but you know, we make every effort possible to grow every year. And that's what we're gonna do going into twenty-six. So that's about all we can say right now. More to come. As we get deeper into the year. And then, you know, as always, weather is gonna play a pretty big impact, particularly on the garden side. Bradley G. Smith: Hey, Nicholas. I think one thing that I would add to that is the SKU rationalization and some of the portfolio that we've done has also been a drag on the top line, but it's one of the reasons why our margins have been so strong. Nicholas Lahanas: So we'll continue to look at SKU rationalization. It's an ongoing process. Brian McNamara: Yep. That's absolutely right. Great. Brian McNamara: And then secondly, I know you mentioned, I think, durables are 16% of your pet sales. How did durables do overall as a category that still a double-digit decline in Q4? John Edward Hanson: Yes. It's yeah, 16% is the right number and it was a double-digit decline in Q4. Keep in mind what Bradley said as well. You know, a big piece of that decline was our proactive decisions to discontinue low-margin no-margin SKUs. And that was completed in half one. So we're lapping that. We've got another first half of next year to lap that. But that was a huge contributor to the decline. Bradley G. Smith: Yeah. I mean, the hope is kind of as we get into the second half of this year, we'll be at a point where, you know, year-over-year durables trends are not significant enough that we're discussing it quarterly. Brian McNamara: Great. And then what's the company's house view on pet ownership trends currently? And kind of what data do you focus on to inform that view? John Edward Hanson: Yeah. We've got a variety of sources of data. The view is it's stabilizing and is pretty stable right now. We do have a live animal business as well. And in Q4, we saw that stable kind of up slightly also slightly, but we'll take it. Right? So as we look forward into next year, we do believe that stabilized. You know? And if I looked at the categories that we compete in for the year, you know, I would hope they'd be up. They'd be stable or up slightly. You know, low single digits. Nicholas Lahanas: Yeah. Just to pile on to what John said, our live goods, our live animal business sequentially had less and less declines. And actually, Q4 posted about a 1% gain. And you know, that gives us some optimism because it's quite a trend. You know, we can see the trend heading in a very positive way. Brian McNamara: Great. And then just the last one on capital allocation. I know that company repurchased quite a bit of stock from Q1 to Q3 and very little in Q4, and you're sitting on a record cash balance. I'm curious how we should read that as the M&A pipeline improves? Are you keeping dry powder or is it something else? Bradley G. Smith: We're definitely keeping dry powder. We're actively on the hunt. We are, as you know, Brian, the market is not as robust as we'd like it to be in terms of interesting opportunities, particularly in margin-accretive pet consumables, which is a bit our bull's eye. But we're continuing to be optimistic that we're going to find some deals to do this year. Nicholas Lahanas: But we're also still remaining opportunistic on the stock price. Even this quarter, we bought back about $18 million in the quarter. So when we see dips, we're going to take advantage of those because we do have conviction that it's undervalued and a tremendous opportunity here. We'll always be there to return money to shareholders. Brian McNamara: Great. So I appreciate the color. Operator: Thank you. Our next is from Andrea Teixeira with JPMorgan. Andrea Teixeira: Hi, good afternoon, everyone. Thanks for taking the question. First, can you comment on the pricing that you're embedding into fiscal 2026? And understandably, mentioned durables may still have a double-digit decline. I understand the first half similar to what happened in this quarter. Given the timing of some of the SKU rationalization. So maybe if you can kind of, like, let us know how the underlying price pricing embedded into your guide? And then my second question also related the guidance since fiscal 'twenty-six. On the margin front, you obviously made significant progress in your rationalization process. What should we be thinking about margins going forward? Should we be keeping that same progress I mean, taking the fourth quarter, of course, there's some seasonality there. So if you can help us kind of, parse out how we should be thinking about margins. Thank you. Nicholas Lahanas: Thanks, Andrea. Yes, pricing, we're looking to take some price fairly modest, about 1% going into 2026. Really designed to just offset tariffs and some commodity exposure. So pretty modest overall, nothing like we had a few years ago when inflation went completely bananas. In terms of margin, we go into every year wanting to expand margin. That's really part of our financial algorithm. Q4, we expanded by 310 basis points. Going forward, it's going to be a little bit more modest. We've gotten through a lot of the low-hanging fruit, but we are planning on expanding margin into 2026 for the total company. Andrea Teixeira: Okay. Thank you. Operator: Our next question is from William Michael Reuter with Bank of America. William Michael Reuter: Hi. So my first question is in lawn and garden. So you said your points of distribution, excluding the exit of pottery, was up looks to be up 10% for next year. It sounds like there maybe is, like, 1% price in there. If weather were to be equal, I don't see why we wouldn't see a lot of growth in the lawn and garden revenues next year. I guess, what is the conservatism that's off that and that your tone doesn't sound more bullish? John D. Walker: Well, I did say cautiously optimistic. But just to add a couple of the a little more color. So excluding the pottery exit, will be up high single digits in items that we manufacture will be up double digits. So, yes, we're optimistic. Very bullish. With regard to that. Weather is always an unknown. And, you know, we don't plan for improvement in weather year over year. However, if there is improvement in weather, then I think we have a very we have a very outlook on the year. So again, you know, I'm just trying to keep it somewhat cautious before the season. We are a seasonal business. Last year during the peak sixteen weeks of the season, we had rain on eight of those weekends. So, hopefully, year over year, there's improvement there. And if there is, then I think we feel great about our prospects for the year. Bradley G. Smith: With top line, we are also remember, we're still unwinding a large vendor that has chosen to go direct. And so that's gonna be a headwind in '26 as well. Similar to what we had in 2025. William Michael Reuter: The same vendor? Bradley G. Smith: Yeah. William Michael Reuter: The eight of 16 key weekends, when does that period start for you? John D. Walker: March through May. William Michael Reuter: Okay. So, basically, March 1 is the first of those days. Okay. And the second is gonna be a little bit of a follow-up, but you know, you are seeing modest M&A. When asked about share repurchases, you said you purchased $18 million. It's just so small in the context of how much money you guys have. Do you I mean, are you just gonna sit on the cash and until the M&A environment and opportunities become more plentiful? Or, you know, would you consider either a large dividend or share repurchase at some point? Nicholas Lahanas: Well, the $18 million is just this quarter. If you look at last year, did over $150 million, which is a little more relevant. We're going to probably go through that with our Board, not something we're prepared to discuss right now. My bias and Bradley's bias would be to hang on to the money a little while longer and really look for M&A. For us, that's a lot more exciting, helps grow the top line. Helps fill out the portfolio. We believe that's really why a lot of shareholders hold the stock. Is our ability to do M&A. It's really foundational. The company. So that would be our bias. That said, we want to make sure we're doing right by our shareholders. And why we continue to buy the stock back. William Michael Reuter: Got it. Okay. Cool. I'll pass to others. Thank you. Operator: Our next question is from Carla Casella with JPMorgan. Carla Casella: Hi, thanks for taking the question. First one is around you mentioned some shipments that were going move from 1Q into 2Q. Did you quantify that? Bradley G. Smith: No. Will you? Nicholas Lahanas: No. No. Okay. That number is a moving that number is evolving. So it would just be a Yeah. Carla, we won't quantify it because there's a number of factors that are at play. It's not only shipments that we know of right now, but and we've talked about this lot. Over the years. When we get into that December time frame, so towards the '1, you're competing for trucking with, you know, with the large retailers as they're kinda winding down Christmas. And a lot of times, we don't know if the trucks are gonna show up. And so what we had last year was, you know, all the stars sort of aligned for Q1. If you recall, last year, Q1, we had a little bit of a, you know, call to pull forward. We had, you know, shipments that normally ship in Q2 fall into Q1. Our top line was up. And then Q2 early on was a little bit softer. We have a little bit of the reverse effect that we think is gonna happen. And, I mean, the delayed shipments we know about, but then there's also the noise of will those trucks show up sort of at the December, which is a bit of a coin flip. John D. Walker: Yeah. Nicholas, I'll add a little more color to that. So Carla, this is John D. Walker. And on the garden side of the business, at the '1, we received a lot of the orders for retailers that are setting their stores for the upcoming season, the lawn and garden season. And a lot of that typically ships between Christmas and New Year's. Oftentimes, they don't want to bring in inventory before Christmas. And this year, our fiscal quarter ends on the twenty-seventh. So we have one shipping day after between Christmas and New Year's. We haven't even received all of those orders yet from retailers. And really, as Nicholas said, trying to pinpoint exactly what is going to shift in Q1 and what's going to shift into Q2. Intuitively, it tells us that some shift to Q2 will happen, but it's really hard to quantify it this early. Does that make sense? Carla Casella: Okay. Great. Yeah. That does. And that's super helpful. Other thing is you talked about that you're seeing the income dispersion that we're also hearing a lot of retailers talk about. Are you seeing also can you talk about whether you're seeing strength or weaknesses in any of your different channels, home centers, specialty pet, mass, etcetera? Nicholas Lahanas: I mean, the biggest trend we're still seeing is sort of the migration to online. Overall across both segments. Pet being more developed online than garden. But if you look at the garden growth rate, it's been just tremendous. You know, we have 60% growth on the garden side with some of the online retailers. And it's quickly catching up. I think you're just seeing some volume leap, brick and mortar. And go in online. I think some of the retailers that have robust omnichannel strategies are the ones winning right now. So we're seeing some of that. As far as the income and that diversion of income, the bifurcation of income rather, I'm not sure we're seeing it in any specific channel. I'll let John and John D. Walker weigh in on it. But as far as where we're sitting, we're not seeing a ton of it. John Edward Hanson: Yeah. On the pet side, I would add, I don't think we're seeing a ton of it. The pet specialty channel, as we've communicated in the past, remains challenged. Foot traffic has been a bit of a challenge. I do believe as we see live animals stabilize, that's going to be good for that channel. But bifurcation of income, we're not I can't call anything specific out. Carla Casella: Okay. Great. Thanks a lot. Operator: And that was our last question. And with that, we're going to close the call. Happy Thanksgiving, and we'll take your questions if you have any during the quarter. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Attention, everyone. Please remain holding. The call will begin momentarily. Good afternoon, and thank you for attending today's Blue Bird Fiscal 2025 Fourth Quarter and Full Year Earnings Call. My name is Jayla, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. At this time, I'd like to pass the conference over to our host, Mark Benfield. Please proceed. Mark Benfield: Thank you. Welcome to Blue Bird's fiscal 2025 fourth quarter earnings conference call. The audio for our call is webcast live on bluebird.com under the Investor Relations tab. You can access the supporting slides on our website by clicking on the presentations box on the IR landing page. Our comments today include forward-looking statements that are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters we have noted on the following two slides, in our filings with the SEC. Blue Bird disclaims any obligation to update the information in this call. This afternoon, we will hear from Blue Bird's president and CEO, John Wyskiel, and CFO, Razvan Radulescu. Then we'll take some questions. Let's get started. John? John Wyskiel: Thanks, Mark, and good afternoon, everyone. And thanks for joining us today. It's great to be here, and we're excited to share with you our fiscal 2025 fourth quarter and full year financial results. The Blue Bird team did an outstanding job once again delivering record sales and adjusted EBITDA for the year. Razvan will be taking you through the details of our financial results shortly, so let me get started with some of the key takeaways for the fourth quarter and full year on slide six. As shown in the first box, Blue Bird beat guidance on all metrics and delivered a record year. And this is despite the impact and challenges associated with the administration policy on tariffs which continues to create some pricing uncertainty in the overall market. This uncertainty, coupled with the fourth quarter typically being the lightest order period, reduced our backlog to 3,100 units. We will talk further on this, but we would consider 2025 fourth quarter ending backlog as still in the range. And in fact, today, our backlog is up to nearly 4,000 units and 850 EVs. Once again, we had a strong operational execution and performance for the quarter. It is a testimony to the team's dedication. During the quarter, we also furthered our long-term manufacturing strategy by beginning scope development and automation business cases for our new factory. Once again, we are looking at where we can apply production automation, automated material movement, and manufacturing execution systems, which will bring shop floor connectivity and ease of data collection. As I explained before, this fits into our manufacturing roadmap, which will result in cost reduction steps for the future and will improve our overall long-term competitiveness. In terms of pricing, we remain extremely disciplined. Bus prices remained higher than the previous year and the previous quarter. This process is very much how we manage the business. Our track record in dominance in alternative powered vehicles continues. Our EV demand is stable despite the tariff pricing uncertainty and EPA funding. The outlook in this area, though, remains strong. Alt Power is a segment we created more than fifteen years ago and we continue to maintain our lead position. During the quarter, we also looked at our long-term investment thesis and have further defined our roadmap for both manufacturing and product. Again, we will invest in projects that have a clear and strong returns profile, and I look forward to sharing more in our next earnings call. We recognize investing in our operation and product portfolio will improve the overall business. Consistent with what I communicated in the last two calls, it's our objective to position this business to be a strong long-term investment. And finally, we continue to manage the impacts of the administration executive orders and tariff volatility. We are fortunate to be well positioned to navigate this situation to a margin neutral outcome. Overall, adjusted EBITDA came in at $221 million for the year or 15% of revenue. That's $38 million better compared to last year's record year. Let's turn the page and take a closer look at the financial and key business highlights for the year on slide seven. We sold 9,409 buses in 2025 and recorded revenue of $1.48 billion. A record year and $133 million ahead of last year. On the EV side, we sold 901 electric vehicles, 9.6% of volume, and our long-term outlook for EVs remains optimistic. As already mentioned, adjusted EBITDA for the year came in at $221 million, $38 million stronger than last year. And free cash flow came in at an outstanding $153 million. Razvan will talk more to this and her outlook later in the call. Turning to the right side of the page, I'll start with backlog. Our backlog finished the year at 3,100 units. This drop was a function of industry volatility and the period itself. Fiscal fourth quarter is typically and historically the lightest order period for Blue Bird. Razvan Radulescu: Our 2025 order intake for the quarter was in line with the ten-year prior average, validating there were no performance issues during the quarter. More recently, we are also seeing our strategy on providing pricing stability into June and next year paying off. Our backlog has increased some 800 units since year-end. Overall, the fundamentals are still there. The fleet is aging. We are coming into a heavy replacement cycle. And there have been industry supply issues the last few years leaving pent-up demand. So all of this continues to point towards this situation being more temporary than long-lasting or structural. Year-over-year selling prices for buses was up almost $8,300 per unit. But, of course, this also includes tariff recovery as part of our margin neutral strategy. With tariffs excluded, pricing is still up year-over-year. And part sales totaled $103 million for the year. All powered buses represented a strong 56% of mixed unit sales for the year. Again, this compares with a typically less than 10% for our major competitors. And we benefit from higher margins and higher owner loyalty with their gas and propane products. As we are the exclusive supplier to the industry today. At the end of the quarter, we had 901 EVs booked and 680 EVs in our order backlog. Our latest guidance reflects approximately 750 EV unit sales for fiscal 2026. Our EV backlog is deep enough that it'll push some bookings into fiscal 2027. Again, we remain optimistic on EVs in the school bus sector. EVs are a perfect fit for school buses when you look at the duty cycle, available charging intervals, range, and the proven health benefits to our children. John Wyskiel: Similar to last quarter, we continue to see rounds two and three of the EPA clean school bus program flowing to our end customers. And we continue to see that rounds four and five are still in play. The government shutdown has created some delay, but we are hopeful to soon hear when and how these funds will be administered. And reimbursement funds continue to flow for an $80 million MES contract with the DOE. This is for their funding towards our new plant in Fort Valley. There's been a lot of rumor in the areas of best grant but there's been no unfavorable direction provided to us from the DOE. As a reminder, this project adds 400 well-paying American jobs to a century-old American company with an iconic brand. To build clean school buses, providing our children with the benefits of clean air. As I have said in prior earnings calls, it is really a great story. Overall, we beat our guidance for the twelfth consecutive quarter and for the full year. With an overall 15% adjusted EBITDA and record profits in Q4 for the full year, I'm very proud of our team's accomplishments. So we'd like to now hand it over to Razvan to walk through our fiscal 2025 fourth quarter and full year financial results as well as our full year guidance in more detail. Razvan? Razvan Radulescu: Thanks, John, and good afternoon. It's my pleasure to share with you the financial highlights from Blue Bird's fiscal 2025 fourth quarter and year-end record results. The year-end is based on a close date of 09/27/2025 whereas the prior year-end was based on a close date of 09/28/2024. We will file the 10-K today, November 24, after the market close. Our 10-K includes additional material and disclosures regarding our business and financial performance. We encourage you to read the 10-K and the important disclosures that it contains. The appendix attached to today's presentation includes reconciliations of differences between GAAP and non-GAAP measures mentioned on this call as well as other important disclaimers. Slide nine is a summary of the fiscal 'twenty five fourth quarter and full year record results. It was another outstanding operating quarter for Blue Bird. With significantly improved volume and with high margin units across all powertrains, driving both our top line and our bottom line results. Beat the adjusted EBITDA quarterly guidance provided in the last earnings call and in fact, we delivered the best quarter ever for Blue Bird. With $68 million adjusted EBITDA margin. The team continued to push hard and did again a fantastic job and generated 2,517 unit sales volume which was 51 units above prior year Q4 volumes. All-time quarterly record net revenue of $409 million was $59 million or 17% higher than prior year driven by increased prices and the higher number of EV units. Adjusted EBITDA was a quarterly record of $68 million driven by higher volumes in EV units, improved pricing, and operational improvement in efficiencies and quality. Adjusted free cash flow was $60 million a $10 million increase versus the prior year fourth quarter, driven by strong operating margins and working capital improvements. John covered already the record fiscal twenty five year-end key figures, with 9,409 units, $1.48 billion in revenue, $221 million or 15% in adjusted EBITDA, and a record $153 million in free cash flow close to 70% of the adjusted EBITDA. I will provide more details on our full year results later in the presentation. Moving on to Slide 10. As mentioned before by John, our backlog at the end of Q4 has softened at just over 3,000 units including 680 EVs. This was due to the uncertainty of bus pricing driven by the tariffs over the last six months. Our mitigation actions, combined with us recently locking our tariff charges for new orders with deliveries until June 2026, drove an improved order intake during fiscal twenty six Q1 as expected with our backlog currently sitting at nearly 4,000 units including over 850 EVs. Breaking down the quarterly record $409 million in revenue, into our two business segments, The vast net revenue was $384 million, up by $61 million versus prior year. Our average bus revenue per unit was up $21,000 to $153,000 per unit, which was largely the result of pricing actions taken over the past year and higher EV product mix. EV sales in Q4 were 233 units as expected, or 149 units higher than last year. Parts revenue for the quarter was slightly down year over year at $25 million. This continued great performance was in part due to strong demand for our parts, as the fleet is still aging. Gross margin for the quarter was 21%, or 4.1 percentage points higher than last year due to our sustained operational performance and our pricing overtaking the inflation costs, including the effects of tax. Fiscal twenty twenty five Q4, adjusted net income was $43.4 million an outstanding $17.6 million or 68% improvement year over year. Adjusted EBITDA of $68 million or 16.6% was up compared with prior year by $26.6 million or a 64% improvement. Adjusted diluted earnings per share of $1.32 was up $0.55 versus the prior year. Slide 11 shows the walk from fiscal twenty four Q4 adjusted EBITDA to the fiscal twenty five Q4 results. Starting on the left at $41.3 million. The impact of the bus segment gross profit in total was $27.6 million split between volume and pricing effects, net of material cost increases, $23.3 million plus efficiency and quality improvements of $4.3 million. The parts segment gross profit was slightly down by $800,000 driven by slightly lower sales, as mentioned earlier in the call. Overall, the SG&A and other income expenses were flat year over year. Sum of all of the above-mentioned developments drives our record fiscal twenty five Q4 reported adjusted EBITDA result of $67.9 million. Moving to Slide 12, I will cover some more details regarding our full year record results. Breaking down the $1.48 billion revenue into our two business segments, The bus net revenue was $1.377 billion, up by $134 million or 11% versus prior year. Our average bus revenue per unit was $146,000, an increase of $8,000 per unit versus the prior year. Which was largely the result of pricing actions taken over the past year and improved EV product mix. EV sales for fiscal twenty five were 901 units as expected, an increase of 197 units or another 30% improvement versus last year, and the same percentage growth of the year before. Part revenue for the year was flat at $103 million maintaining the already very strong prior year level. This performance was in part due to increased demand for our parts of the fleet still aging. Gross margin for the year was a record 20.5%, 1.5 percentage points higher than last year due to our sustained operational performance and our pricing overtaking the inflationary cost year over year, including the tariff effect. In fiscal 'twenty five, adjusted net income was $144 million a $29 million improvement year over year for a 25% improvement. Record adjusted EBITDA of $221 million or 15% was up compared with prior year by $38 million for a 21% improvement. Adjusted diluted earnings per share of $4.38 was up 92¢ versus the prior year. Slide 13 shows the walk from fiscal 'twenty four adjusted EBITDA to the fiscal 'twenty five results. Starting on the left at the prior record of $183 million the impact of the bus segment gross profit in total was $48 million driven mainly by the volume and pricing effects, net of material cost increases. On the operations side, the labor and health care cost increases were offset by improved efficiencies and quality improvement. Par segment gross profit was slightly down just under $1 year over year, due to slightly lower sales. These great improvements were offset by planned increases of $9 million in our fixed cost mainly personal and fringes slash health care related SG&A and engineering, as we continue to invest into our business and our people. The sum of all of the above-mentioned developments drives our new record fiscal twenty five adjusted EBITDA result $221 million or 15%. Would like to remind you that 15% adjusted EBITDA was our long-term target not too long ago, and we delivered it ahead of the plan and with relatively low units sold under 9,500, compared to the pre-COVID years. Moving on to Slide 14. We have extremely positive development year over year, also on the balance sheet. We ended the year with $229 million in cash, and this is after we repurchased $40 million worth of shares during the year. Our liquidity set at a record $371 million at the end of fiscal twenty five a $100 million increase compared to a year ago. The operating cash flow was a very strong $176 million in this year, driven by an improvement in operations and margins and improvements in working capital. The adjusted free cash flow was also a new record at $153 million fiscal twenty five. Or a 70% conversion from adjusted EBITDA of $221 million. On Slide 15, we want to share with you our confirmed fiscal 'twenty six guidance. We have a number of both tailwinds and headwinds and we maintain a cautious stance given the volatility of tariffs and other government policies related to EVs. As tailwinds, we have an aging fleet driving strong demand stable pricing and still a solid industry backlog. We offer not only diesel and gasoline school buses, but we have the only propane fuel school bus in the industry. With clean fuel and best in class total cost of ownership. Are also leading in the EV segment. And are confident that the still upcoming orders from rounds two and three of the EPA clinical bus program. Will improve our already very strong EV backlog. Additionally, at the end of fiscal twenty six, are planning to bring to market our new commercial chassis product. John Wyskiel: Okay. Razvan Radulescu: With headwinds, the tariffs are still unpredictable at times. And the material costs people and health care costs, as well as supply inflation pressures are still present. The backlog is lower year over year. However, it is still significantly above pre-COVID levels for this time of year. And finally, we expect to deliver a much higher number of EVs in the second half versus first half similar to fiscal twenty five. In summary, we are maintaining our units and revenue midpoint guidance to $9,500 and $1.5 billion respectively, And given our record fiscal twenty five results, we are also maintaining our adjusted EBITDA guidance of $220 million or 14.7%. With a range of $210 to $230 million and fourteen point five percent to 15% margin. Moving to Slide 16, we laid out for you the quarterly guidance for fiscal 'twenty six, and also shown the actuals by quarter for fiscal twenty five. Essentially, we are targeting a repeat of our all-time record fiscal twenty five performance in fiscal twenty six. Despite the unfavorable tariff environment, and slightly lower EV volumes. Starting in Q1 with the seasonal lowest number of production weeks in the year, due to year-end holidays, We expect to sell approximately 2,100 units, including 100 EVs, and generate $325 million in revenue with adjusted EBITDA of $40 to $45 million. In Q2, we expect our total volume to go up to approximately 2,200 units including 150 EVs and generate $350 million in revenue with adjusted EBITDA of $45 to $50 million. In Q3 and Q4, we expect an increased number of total units with 225 EVs in Q3 and two hundred seventy five EVs in Q4 driving quarterly revenue around $400 to $425 million and adjusted EBITDA of $60 million to seventy million dollars per quarter as shown. On Slide 17, in summary, our fiscal 'twenty six guidance for net revenue is $1.45 billion to $1.55 billion with adjusted EBITDA of $210 million to $230 million and free cash flow of $10 million to thirty million after deducting $100 million in extraordinary CapEx for the new plant. We expect fiscal 'twenty six to be another strong year for Blue Bird on our path of profitable growth. Speaking of profitable growth, let's look again on Slide 18 at some of our principles for running the business and touch on some capital allocation points. We strongly believe that revenue is vanity, profit is vanity, and cash is king. Let's cover these points one by one. On the revenue side, we are focusing on executing our organic growth an emphasis on alternative fuels. However, we do still offer diesel for those that continue to request it. We are not chasing market share, yet we are reengaging with some of the national large fleet as already shown in fiscal twenty five. While we continue to be laser focused on our core school bus business, have planted the seeds for adjacent market growth in the commercial step and chassis business. As well as with MicroBird with the new plant launched this summer in New York State. Looking at profit, we continue to be very disciplined in our margin management. We have implemented a price increase of $3,500 per bus for all orders received after 11/18/2025 to cover for new standard safety features For example, industry first driver airbag, and the expected variable cost increases, and we continue to execute on our margin neutral tariff strategy. We continue to monitor our backlog and keep it above one quarter of production providing us with the ability to schedule our mix and manage our supply chain efficiency. Finally, we work relentlessly on reducing our variable cost through continuous cost improvement quality improvement, manufacturing on one shift, supply chain management, and skill forward buy. John Wyskiel: We Razvan Radulescu: Looking at cash, we plan to invest over the next two years up to $200 million into our future manufacturing capabilities while also returning value to our shareholders through stock buybacks. We already completed $50 million buyback through fiscal twenty five Q4. We expect another $10 million in the current quarter they have a new program announced in the last earnings call for up to $100 million over the next two years. And we plan to achieve this while maintaining great liquidity and a strong cash position and they have flexibility in case we decide to pursue strategic and focused attractive M&A opportunities. Moving on to slide 19. Given our strong business momentum and record results of fiscal 'twenty five, Today, we are reconfirming the medium-term outlook at 15% margin with volumes of up to 10,500 units, including 500 commercial chassis, generating revenue around $1.6 billion and with adjusted EBITDA of approximately $240 million. Starting in 2029 and beyond, our long-term target remains to drive profitable growth So now it's on higher levels, towards $1.8 to $2 billion in revenue, comprising of 12,000 to 13,500 units including 1,000 to 1,500 commercial chassis, and generate EBITDA of $280 to $320 plus John Wyskiel: million or 15.5% to 16% plus Razvan Radulescu: at best in class levels. The profitable growth comes not only from improved EV mix, driven by sustained state funding, and improved EV total cost of ownership over time, but also from our new Blue Bird commercial chassis addressable market expansion as well as our Micro Bird joint venture new plant expansion in The USA which went live this summer. Continue to be incredibly excited about Global's future and now I'll turn it back over to John. John Wyskiel: Thank you, Razvan. Let's move on to Slide 21. We've shown this slide on several earnings calls so I won't spend much time on it today as our priorities remain consistent. The chart on the left side of the page outlines the Blue Bird value system as a company. Taking care of our employees, delighting our customers and our dealers, and delivering profitable growth. The right side of the page outlines how we get there. And, of course, the objective of delivering sustained profitable growth to our investors is at the center of it all. And when you turn to page 22, it really summarizes what a great year 2025 was and what a bright future the company has. As we invest in the business with a longer-term perspective, we see our outlook only getting stronger. Starting at the top, we built 9,409 units for fiscal twenty twenty five. But with a 6% CAGR projected for the school bus market, as well as entering new market adjacencies, we see our long-term volume growing to 13,500 units between school bus, commercial chassis. Our revenue for fiscal twenty twenty five was up 10% from the prior year ending at just under $1.5 billion and our profitability soared 21% in 2025 to $221 million adjusted EBITDA. But when you factor in these growth opportunities, our long-term outlook shows the company reaching $2 billion in revenue and $320 million or 16% plus in adjusted EBITDA. And at the bottom of the page, you will see EVs are still very relevant for us. This year, EV sales grew 28% to 901 units. And our long-term outlook shows a thousand units plus. Overall, the achievements in 2025 were simply outstanding. But with the strong fundamentals of the industry and with our investment in the future, the outlook for the company is nothing but promising. There's a lot to be excited about. So I'll wrap it up on slide 23. First, this great company and iconic brand is almost a 100 years old. Blue Bird has stood the test of time. And it continues to be poised for an exciting future. We delivered an outstanding 2025 just under $1.5 billion in revenue, and $221 million or 15% in adjusted EBITDA. We remain confident that the clean school bus funding program will continue. The bipartisan initiative, it's 100% appropriated. And eliminates harmful tailpipe toxins benefiting our children and communities. And we remain optimistic on overall near and long-term volume. The fundamentals of this industry are solid. And this kind of performance has put Blue Bird in a position to focus longer-term as we invest and enter new segments, and upgrade our operations and product. As always, I want to thank our employees, our dealer network, supply partners, and, of course, our investors. All are critical to our success. Similar to my message in the last calls, I remain excited about Blue Bird. 2025 has been an incredible year with record results. And beating guidance. This company has such a rich history and an exciting future. Thank you. So that concludes our formal presentation for today. And I'd now like to hand it back to our moderator for the Q&A session. Operator: Followed by one on your telephone keypad. If for any reason you would like to remove that question, it is star followed by two. Again, to ask a question, it is star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking a question. I'll pause briefly here as questions are registered. Our first question comes from Mike Shlisky with the company D. A. Davidson Companies. Mike, your line is now open. Mike Shlisky: Good afternoon, and thank you. I want to get a little bit more detail on the federal EB bus program if you could. How important is that to the fiscal twenty six guidance? Do you have to see money flow again for you to make the difference that you put in there for EVs for the year? Can you help us also on whether the state and local subsidy programs that are out there across a lot of different states have they increased over the last twelve months or so, and have state and local kind of overtaken federal as the driver of EV demand? John Wyskiel: Hi, Mike. Thanks very much for the question. I would say that when you look at everything we have EVs are relevant, and rounds three is flowing, as you know. But I don't think it's contingent when we look at our outlook to have to keep having to have rounds four and five come through. We have a strong outlook I think it's stable. Yeah. So I think it's with the state mandates that we see out there, I think it supports demand. I don't know if Razvan has anything to add. Razvan Radulescu: Yeah. So for fiscal twenty six, it does not rely on any round four or five, and we also have a very strong backlog. So we feel very good about the 750 guidance of EV. And there is some upside potential up to 1,000 units in this year. Mike Shlisky: And then just looking at the '26 outlook, I know that most years, the real order season, she was charged after Christmas break, and I know it's on November here. So I guess, I mean, being flat at a very high level is probably not the worst thing in the world coming up here, but do you are you kind of taking a conservative stance till you start hearing from people ordering after the Christmas break? Do you think maybe we'll get a much better picture of what real demand is on the next earnings call? You know, just kind of looking at the slide that you just talked about, John, at the end there, the industry outlook for retail sales is quite a bit higher, not a little bit higher at these 2026. And 2025, but your definitely doesn't really imply that at this time. So gonna help us to kind of reconcile the broader industry your season, and your outlook that you put forth today. John Wyskiel: Yeah. Yeah. Thanks, Mike. No. We have maybe a couple things. Yeah. Certainly, you look at the demand in the out years, it's strong. I mean, we know the fundamentals. Right? The replacement cycle is coming due. When you look at things like student enrollment, it's stable. There's a lot of things that support the demand going up. And then from our end, of course, we have the capability of producing some extra demand as well. And that includes, of course, in a couple of years, our new factories. So we'll be able to support that. But overall, yeah, I have probably less of a wait-and-see type of approach with this one that you kind of alluded to in the beginning. I think everything there is underneath, and everything we can see, including our backlog in the last quarter, seems strong. So I feel comfortable. I don't know if, again, Razvan or Mark, if you guys have anything to add. Mike Shlisky: Take that as a no. What was my next question here, if you don't mind? So my last one here is on the commercial chassis project that you guys are working on. Just give me a little bit more detail there. You know, what number of customers are testing it? What kind of customers what the initial what the early reactions have been, and your confidence that there's a real ramp in '27 taking place here. John Wyskiel: Yeah. I'll comment on a couple of things. First, we've got a couple of prototypes that have been built and bodies have been mounted, and they're now going through calibration as well as some early testing or, I'll say, some testing in general. The product's been well received by the customers that looked at it. They seem to be favorable. The market we know is open to another competitor. And then as you know, we have capacity. So I think more to come as we start, you know, getting past the hurdle of release, if you will. But indications seem good for the product. Mike Shlisky: Great. I appreciate the answers. I'll pass it along. Razvan Radulescu: Thanks, Mike. Operator: Next question comes from Eric Stine with the company Craig Hallum. Eric, your line is now open. Eric Stine: Hi, everyone. Eric. Hello. Hey, Eric. Hey. So maybe just sticking with, I guess, the commercial chassis, but also tagging into fiscal twenty six. I mean, is it, I know that you expect some contribution in Q4, or fiscal Q4. I mean, is it fair to say, though, that, that is a pretty minimal contribution? That's really not a you know, driver of low end to high end. As we think about the year? Razvan Radulescu: Yeah. You are correct, Eric. We have in our guidance approximately 100 commercial chassis and in terms of moving from low end to high end of guidance, they are not material at this point in time. Eric Stine: Okay. Got it. And so then thinking about the guide, I mean, yes, you're factoring in tariffs are still an issue, but I guess, arguably, maybe calm down a little bit year over year. I know you are seeing some benefit from the stable pricing that you've got at least through a portion of fiscal twenty six, Then you also mentioned the price increase, and so I would assume that that's more for the second half. So I mean, clearly, you are guiding to a bit of a ramp throughout the year. I know you've talked about that, you know, really with the backlog, even if it's down a little bit, you know, there's not that typical seasonality that would have been seen in years past. So I mean, it's pricing kind of the main determinant here and the reason for that ramp? I mean, other than EV mix, I guess. Razvan Radulescu: Yeah. It's Razvan. So we have a couple of factors I mean, first of all, it has to do with the number of production weeks that are in the year. Q1 is the lowest number of weeks Q2 is slightly up, and then Q3 is the highest one. And then Q4 again goes down a little bit. So you have the production seasonality. The new price increase, talked about the $3,500 per bus This is for new orders. And it will materialize in They go most likely at the end of the backlog, and it's for new orders. Q3 a little bit and then into Q4. In terms of tariffs, we are monitoring the situation. We have provided tariff charge stability to our customers and orders. All the way through June right now. So depending on how the reality of tariffs materializes until then, there is still a little bit of risk. And, therefore, we are probably conservative in terms of the guidance for the first half. And then we expect to ramp in the second half. Eric Stine: Got it. Alright. That is helpful. And then maybe last for me, just coming back to the order environment, and, you know, I do appreciate that after the holidays, that's when things pick up, but a nice bounce back here, I guess, as of a week ago. I mean, as you've talked to dealers, it sounds like you feel that that is sustainable and that those are trends that, you know, maybe are more normalized after that period where there was a lot of tariff uncertainty and that really impacted the orders. Is that a fair characterization of your view? John Wyskiel: Yeah. For sure it is, Eric. When you look at it, if you go back to the beginning of the year, there was constant change in tariffs. And I think it had some impact in terms of maybe, you know, districts seizing up on some orders. They were just waiting to see. But you can certainly see it now. It's starting to stabilize. Like, you said. We have pricing out to the end of or to June rather for, that's firmed. I think all of those suggest just what you indicated is that there's some stability coming back into the order cycle. Eric Stine: Okay. Thank you. Razvan Radulescu: Thanks, Eric. Operator: One moment, team. I'm having some technical difficulties on my end. Next question comes from Greg Lewis with the company BTIG. Greg, your line is now open. Greg Lewis: Hey, thank you and good afternoon and thanks for taking my questions. If we if I was thinking about the backlog and just on Slide seven, you kind of outlined what has happened quarter to date for the total backlog, but you didn't kind of you didn't update the, the EV side. Not sure if if we have that information, but just kind of as as we think about the backlog as a percentage of the fleet on the EV side, is kind of the bookings that were done or the the order book growth you know, quarter to date, does it kind of mirror what we have in the current order book, or was there you know, a little bit of underperformance or overperformance on EVs with the quarter to date earnings or orders. Razvan Radulescu: Yeah. Hi, Greg. This is Razvan. Thanks for the question. I had it actually in my remarks. The EV corresponding number is 850. So we had an increase also in EV throughout the course. Greg Lewis: Okay. And on a percentage basis, about the same grade. And then the other question I had was I'm not sure if it was today or last week, but I guess in New Jersey, came out with updated an updated incentive program ZIP I guess they were at least $37 million. For additional buses. Kind of curious was that something that the the you know, Blue Bird and and the market was expecting? Did it kind of come out of nowhere? And just as we think about what New Jersey did or or announced, should we be thinking about and and I know you kind of talked about it in the remarks. But should we be thinking about other states kind of following through with updated programs that you're at least tracking or watching, or was this kind of just like a one-off? John Wyskiel: Yeah, Greg. I think each state is different. In terms of how they apply funds, but it could it's a testimony to the state funding. It's there. It's real, and it's and it's flowing. And we know there are certain states that are aggressive in this area in terms of EV mandates. Greg Lewis: Okay. So was this largely expected, or was this something that we kind of knew it was gonna happen, we didn't know the timing of it? John Wyskiel: This particular program I would say, wasn't a cornerstone of our communications here, but it's the trend we see across the country and what we talk about. On these calls is that outside of the federal side, there is real demand at the state level. So we continue to see a general trend of growth in these types of state-level programs. I was gonna say from a macro level, we knew that things would flow, but we don't really necessarily get into each state and the analysis of each, single grant. Greg Lewis: Yeah. Now we're trying to do that. It's a lot of leg work. Anyway, hey, guys. Thanks for taking my questions, and have a great night. Razvan Radulescu: Thanks. Operator: Our next question comes from Sharif Elsabi with the company Bank of America. Sharif, your line is now open. Sharif Elsabi: I guess just looking at the midpoint of guidance, it seems to indicate a little bit of a lower price mix in the second half of the year versus the first half? Understand there's the chassis product coming in the fourth quarter and likely some tariff impact given the second half weighting of EVs. But I was just wondering if there's any other puts and takes we should be considering with regards to the first half versus second half price mix. Razvan Radulescu: Actually, this is Razvan. So as I mentioned before, the price increase I talked about will come only at the tail end of the fiscal year. And then you have numerous other factors. You have the product mix. You have the fleet mix. So all of them are baked into our detailed bottom-up forecast. But overall, I would say, in general, we look at pretty flat pricing other than the pricing that I talked about. And the wildcard is still the tariffs at this point in time. We have not communicated Q4 tariffs. Charges yet. As we are waiting and monitoring what will be the development on the cost side on the government policy related to tariff by the So overall, I would say, still, we are forecasting very strong EBITDA margins in the 15-16%. We will update the guidance as needed in the next quarters to come. Sharif Elsabi: Thank you. Operator: Our next question comes from Craig Irwin with the company Roth Capital Partners. Craig, your line is now open. Craig Irwin: Good evening and thanks for taking my questions. Razvan, the last several years, Blue Bird has provided on a quarterly basis, the dollar value of the backlog. And for a number of years, also, the dollar value of the EV backlog know, you gave us the $6.80 and $8.50 and, you know, obviously, the $30.68. Do you have those two financial metrics for us on this call? Razvan Radulescu: Yeah. I mean, definitely, we can provide those in our follow-up calls if you request this level of detail. And right now, we're focused more on the units at this point in time, but, definitely, those are available if requested. Craig Irwin: Fantastic. I'll definitely ask for that. Thank you. Operator: Our next question comes from Chris Pierce with the company Needham. Chris, your line is now open. Chris Pierce: Hey. Good afternoon. Can you hear me? John Wyskiel: Hey, Chris. We got you, man. Chris Pierce: Cool. Thank you. I just wanted to ask two questions on industry competitive dynamics. I know you have peers that are owned by companies that sell Class A trucks into The US and that are seeing section two thirty two tariffs and are talking about you know, losing share of that part of the business. Do you think we'll see here? Is it too early to talk about potential competitive shifting dynamics in the school bus market as they maybe try to make up for lost units in other parts of their business, or is that kinda too early to tell? Have you seen anything along those lines? Razvan Radulescu: This is Razvan. I think it's too early to tell, and that's probably more of a question that you have to ask them how they manage between the different sections of the business. But so far, we haven't seen any meaningful change from that. Chris Pierce: Okay. And then I know in your prepared remarks, you talked about student enrollment numbers. I guess, there are smaller competitors that are kinda working on optimizing school bus schedules. So it looks like there's less you know, just more throughput on the buses that run versus running a total number of routes. Is that something you're seeing where you kinda do you have software like that where you kinda bid on larger contracts? And larger school districts, or are school districts where we're trying to reduce the number of buses increase students per bus, or is that also kinda early days? John Wyskiel: No. That's not something that we generate or produce. But, obviously, we work with fleets or providers that do have that software. I mean, there's and you know some of them that are out there. It's not something we do. Yeah. But in terms of impact to the order or general demand, we haven't seen anything meaningful. At this point in time coming out through higher utilization of school buses. If this was your question. Chris Pierce: Okay. Thank you, boss. Razvan Radulescu: Thanks, Chris. John Wyskiel: Chris. Operator: Questions registered in queue. I'd like to pass the conference back over to our hosting team. For closing remarks. John Wyskiel: All right. Thank you, Jayla, and thanks to each of you for joining us on the call today. Blue Bird has delivered another year of record results, beating guidance, and demonstrating our credibility rather. This is despite a challenging environment. With the fundamentals of the industry, I remain enthusiastic for Blue Bird and its future, and we look forward to updating you on our progress next quarter. Should you have any questions, please don't hesitate to contact our Head of Investor Relations, Mark Benfield. Blue Bird continues to be stronger than ever and has an amazing future ahead as we approach our one hundredth anniversary in a couple of years. Thanks again from all of us at Blue Bird, and have a great evening. Operator: That will conclude today's conference call. Thank you for your participation and enjoy the rest of your day.
Regina: Good afternoon. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Agilent Technologies, Inc. Fourth Quarter 2025 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. Tejas, you may begin the conference. Tejas: Thank you, and welcome, everyone, to Agilent's conference call for the fourth quarter fiscal year 2025. As many of you know, I recently joined Agilent after a fun senior stint in Wall Street. And I'd just like to say how excited I am to be joining the team at such a pivotal time in our journey. With me on the line are President and CEO, Padraig McDonnell, CFO, Adam Alanoff, and Rodney Gonzalez, Vice President, Controller, and Principal Accounting Officer who served as interim CFO until Adam's arrival. Joining the Q&A will be Simon May, President of the Life Sciences and Diagnostics Markets Group, Angelica Riemann, President of Agilent CrossLab Group, and Mike Zhang, President of the Applied Markets Group. This presentation is being webcast live. The press release for our fourth quarter financial results, investor presentation, and information to supplement today's discussion along with the recording of this webcast are available on our website at investor.agilent.com. Today's comments will refer to non-GAAP financial measures. You'll find the most directly comparable GAAP financial metrics and reconciliations on our website. Unless otherwise noted, all references to increases or decreases in metrics are year over year, and references to revenue growth are on a core basis. Core revenue growth is adjusted for the impact of currency exchange rates and any acquisitions and divestitures completed within the past twelve months. Guidance is based on forecasted exchange rates. During this call, we will make forward-looking statements about the financial performance of the company. These statements are subject to risks and uncertainties and are only valid as of today. Agilent assumes no obligation to update them. Please look at the company's recent SEC filings for a more complete picture of our risk and other factors. And now I'd like to turn the call over to Padraig. Padraig McDonnell: Thank you for joining today's call. Before I talk about our results, I want to start by introducing Adam Alanoff, our new CFO, who officially joined Agilent last week. Adam joins us after a distinguished tenure at Amgen. We advanced through a series of finance, strategy, and transformation leadership roles, over a total of nineteen years. Most recently serving as Vice President of Investor Relations and Treasurer. I'm looking forward to leveraging Adam's expertise in strategic planning and M&A, and his commitment to cross-function collaboration will be invaluable to Agilent in the years ahead. Adam, would you like to say a few words? Adam Alanoff: Thanks, Padraig. I'm thrilled to join Agilent at such an exciting time. My interactions with the leadership team over the past few weeks both within the finance function as we contemplated the guide, and with the broader team, have only reinforced my optimism for what lies ahead. I'm looking forward to working with the team to drive growth and innovation, advance operational excellence, and preserve Agilent's history of financial discipline. Padraig McDonnell: Great to have you on board, Adam. I also want to take a moment to express my sincere appreciation for Rodney stepping in as interim CFO over the past four months. His long distinguished career at Agilent demonstrated he was more than capable of helping us bridge this important transition. Now let me talk about the Q4 results. It was another strong quarter. The Agilent team executed exceptionally well, delivering the solutions our customers need in a market that is showing continuing signs of normalization. In the fourth quarter, Agilent reported $1.86 billion in revenue, growing 7.2% on a core basis. Our sixth consecutive quarter of core growth acceleration. This performance came in above the high end of our guidance. Our customer-first approach is paying dividends with top-line results that compare very favorably with our peers. Momentum remained broad-based across the portfolio supported by strong LC and LCMS demand and share gains, CDMO upside, solid double-digit contributions in key regions, and a replacement cycle that continues to accelerate. These trends reflect our structurally resilient portfolio and performance that tracks above the broader market. At the same time, our Ignite operating system continues to improve the effectiveness and efficiency of our organization. Ignite helped deliver more than 200 basis points of sequential margin improvements compared with last quarter, while funding incremental performance-driven variable pay. The bottom line result was fourth-quarter earnings per share of $1.59, above the midpoint of our guidance. Simply stated, in a dynamic environment that continues to evolve, the Agilent team delivered for our customers and our shareholders. As we close the 2025 fiscal year, I want to highlight four key dimensions where we made exciting progress this year and that will drive our growth for the future. First, the innovative products and services that we develop with a customer lens to create differentiated value. Second, the extraordinary customer intimacy and trust our unified sales and service organization creates that unlocks high-quality lead generation and funnel conversion. Third, the increased capabilities and level of talent throughout Agilent. Fourth, the Ignite operating system that enables us to effectively combine these elements to drive long-term growth and maximize value for customers, shareholders, and employees. Let's start with innovative products and services. The success of our customer-focused innovation was on display throughout the year with products and services that differentiate us from the competition and drive our growth by solving real customer problems. This includes our next-generation Infinity 3 that is delivering as much as 30% improvement in productivity for our customers. Infinity 3 drove double-digit healthy growth in the second half of the year. That is underpinned by customers returning to buy large volumes of additional units because of their great experiences. Our Pro IQ LCMS also has seen an amazing ramp. Its unique value proposition for pharma and biotech is driving strong customer interest, as well as sales that are well ahead of our already robust expectations. The summer launch of our Pro IQ drove overall LCMS growth of more than 50% in the first full quarter. And last month, we introduced our Alturo BioInert column. Customers are rapidly adopting the Alturo column, and the column's ramp is an order of magnitude greater than past column launches. This is a clear indication of just how important increased sensitivity and resolution are in key applications that support oligos and GLP-1s. These results also highlight new product launch excellence across the organization. When it comes to artificial intelligence, we are using AI to accelerate our innovation engine and drive operational excellence. For example, AI generates 80% of our engineering drawings, based on product specifications and customer needs, thereby increasing design productivity and reducing custom design cycle times by 75% for our GC products. In our operations, our order fulfillment team is leveraging Agilent AI for testing, inspection, and control to eliminate redundant shifts, reduce downtime, and improve quality. Our second key dimension, extraordinary customer intimacy, centers on a cornerstone of continued success. Leveraging our unified sales and service model to maintain lasting customer relationships. Our commercial team members are uniquely positioned as trusted customer partners. Agilent's commercial model is a unified end-to-end organization to provide presales consultations, a modern and easy-to-use e-commerce platform, and a highly experienced deep technical post-sale service and support that ensures customer success. Our field service engineers build long-term relationships with our customers by partnering with them to solve their most critical problems. Those relationships provide highly valuable insights that fuel a vital and growing portion of our demand generation programs. Insights from our service team now account for 30% of all sales leads. And these leads come with an order conversion rate that is more than double that associated with the rest of the sales funnel. Because of our uniquely deep connection with our customers, it will come as no surprise that they consistently rate Agilent services as best in class. We don't take this privileged position for granted. That's why we continuously implement new ways to enhance customer intimacy. In terms of AI and customer intimacy, we are working to deploy AI within our CRM to support our sales team with predictive insights, automating tasks, and proposing personalized content in service of our customers. We're also using virtual agents to complement on-site support in select markets to resolve customer issues more quickly. The third dimension is our increased capabilities and level of talent throughout Agilent. We've leveraged our deep bench of in-house talent and complemented it with external hires that bring fresh perspective and domain expertise. At an executive level, in addition to Adam, we brought on Megan Henson to lead our HR team to help us build on our strong culture. August Beck, who joined us from Thermo Fisher as our Chief Technology Officer, brings deep scientific knowledge and analytical technologies and a proven ability to lead innovative R&D teams. And most recently, Jaidip Ganguly joined from Gilead to drive world-class manufacturing while leveraging our global scale to realize increased efficiencies. While these individuals are important and visible additions to our leadership team, all Agilent employees are focused on accelerating the pace of innovation, driving superior execution, and most importantly, delighting our customers. Finally, we are bringing together these foundational strengths through our Ignite operating system, our fourth key dimension. We launched Ignite at the start of the year to improve the pace and quality of our execution and to usher in a new mindset that leverages the power of the enterprise to maximize both growth and stakeholder value. Some examples of Ignite's early success include enhanced top-line growth through the creation and implementation of an enterprise pricing program that drove performance across the year, more than doubling our price growth compared with FY '24. Faster decision-making and improved efficiency by reducing layers of bureaucracy, meaningful procurement cost savings through globalization of vendor contracts, that leverage increased scale for additional negotiating power. And we saw the power of Ignite in real-time this year as it enabled the immediate creation of our tariff task force to drive a rapid and coordinated response to global tariff changes. The cross-functional task force rapidly developed a unified strategy and executed a suite of interconnected projects that greatly accelerated our tariff mitigation efforts. As a result, we are highly confident that we will fully mitigate current tariffs in FY '26. All told, Ignite has already delivered well over $150 million in annualized savings. The Ignite operating system is able to quickly assemble knowledge from across the organization, develop a thorough and actionable enterprise plan, and actively drive implementation and quantify outcomes. This is critical as Agilent continues to evolve. Finally, and this is important, Ignite has strengthened our organization's readiness to identify, acquire, and integrate attractive assets. Integration of BioVectra is one example. It's been a highly productive year for Agilent. We've laid a robust foundation upon which we can drive long-term differentiated growth and value. Now let me share some additional details of our Q4 results starting with our end markets. We continue to see signs of improvement in the pharma market. The Agilent team was able to leverage those conditions in our customer-centric approach into an excellent 12% growth during the quarter. We also saw a nice pickup in spending among our biotech customers. That spending grew into the low twenties during the quarter, and low double digits ex CDMO, which was led by our large accounts. Our customer-focused solutions for oligotherapeutic developments, peptide-like GLP-1s, and Infinity 3 drove our performance in pharma to low double-digit growth in LC, and mid-teens growth in LCMS platforms. That performance is above that of our peers and points to share gains across the replacement and greenfield opportunities. Our specialty CDMO business continues to be a differentiated growth driver. It represents nearly 20% of LDG revenue and grew more than 40% on a core basis during Q4. During the quarter, commercial programs drove 60% of our NASD revenue. The capacity increases we implemented at BioVectra in the third quarter enabled a record fourth quarter that was in line with our elevated expectations. Even as the intra-quarter cadence shifted revenue to October. Chemical and advanced materials grew 7%, as we continue to see strong demand in the Americas and Europe. Chemicals customers continue to invest in capital equipment, to meet the demand driven by reshoring of downstream customers in the semiconductor market, increasing global competition for critical resources, and an enhanced focus on regional supply chain security. Diagnostics and clinical continues to be a durable mid to high single-digit performer with 7% growth in the quarter. We're excited about the upside potential here as our new Dako Omnis family penetrates medium and low throughput labs. Environmental and forensics grew 9%, as the approaching implementation of a revised EU drinking water directive drives investment in new capabilities. Also, commercial labs and forensic customers in the Americas are moving quickly to spend the capital budgets before year-end. Even as US government spending in this end market remains muted. Our market-leading PFAS business grew high single digits in Q4 and almost 40% for the year, despite meaningfully tougher comps and the US EPA headwinds we mentioned last quarter. Environmental use cases remain the bulk of our PFAS revenue, though growth is increasingly coming from our end markets such as food and CAM. Our business in the food market finished a strong year with a growth of 7% in the quarter. Finally, academia and government, our smallest end markets, at 7-8% of annual revenue, declined 10% in the quarter. To no one's surprise, federal spending reductions had an increased impact on instrument spending in the US. In summary, our growth across major end markets continues to run ahead of our peers supported by stronger LC and LCMS adoption, healthy contributions from specialty CDMO platforms, and solid traction in applied workflows. We continue to see nice momentum in our instrument portfolio, with instrument book-to-bill exceeding one for the seventh consecutive quarter. We are in the early stages of a normalized replacement cycle and gaining share against the plus the growth of our installed base enables robust attach rates for consumers and service offerings to lend meaningful durability to our top line for your strong recurring revenue. As we look to FY '26, our priorities remain clear. Advance our Ignite operating system, sharpen commercial execution, capture opportunities from improving end markets, innovative new products, and a multipronged replacement cycle. In our end markets, we expect continuation of positive trends in pharma. This will be enabled by improved visibility around pricing, and a stabilizing tariff environment. As well as the very early stages of pharma reshoring that we anticipate could start to materialize in orders towards the end of the year. And while it's too soon to call an inflection, the accelerating pace of M&A and improving funding environment into October bodes well for our small and midsized biotech customers in FY 2026. We remain bullish on demand outlook for specialty CDMO pharma services, with strong market momentum in our key modalities like siRNA and GLP-1s. We expect to drive mid-teens growth in the coming year as we get ready for opening new capacity in 2027. We expect applied markets will continue to grow as customers adapt to shifting macro conditions, and structural drivers like the expansion of PFAS testing and semiconductor reshoring support durable long-term demand. In diagnostics and clinical, we see continued strength as testing demand grows and our expanded Dako Omnis offerings enable new placement opportunities. In our smallest end market, academia and governments, we are not expecting a meaningful recovery in FY '26. As ongoing US federal spending headwinds seem to be unlikely to abate soon. Putting it all together, incorporating the stronger baseline comparison for FY '26, we're starting the year with an expectation of 4% to 6% core growth. We believe this range is a prudent initial guide that takes into account secular growth drivers. This includes instrument replacement cycles, demand for our specialty CDMO services, with that of these specific needs in GLP-1s and PFAS, and pharma and semiconductor reshoring. This allows for unevenness in ongoing recovery dynamics across our markets. We anticipate these growth drivers reinforced by Ignite to provide continued momentum. We also expect to deliver 75 basis points of operating margin expansion in FY 2026 at the midpoint. This target allows us to make critical investments to drive innovation, expand our digital commercial capabilities, and prepare for the opening of our new CDMO capacity in 2027. All while absorbing incremental material costs driven by tariffs and assumptions for a steady end market recovery. This margin expansion translates into 9% operating profit growth at the midpoint, demonstrating the strong operating leverage inherent to our model. For FY '26 earnings per share, guiding 5% to 7% that includes an EPS growth headwind of three percentage points from the one-time step-up in tax rate reflecting the new global minimum tax regulations. Adjusted for this tax dynamic, underlying EPS growth would have been in the high single to low double-digit range. Our financial discipline remains unchanged. We are deploying capital where it delivers the highest long-term value. Balancing investments and innovation, M&A opportunities, as well as strategic capacity expansion while returning capital to shareholders. Let me turn it over to Rodney, who will provide additional details on the fourth quarter results and our guidance for next year. Rodney Gonzalez: Thanks, Padraig, and good afternoon, everyone. In my comments today, I'll provide additional detail on revenue in the quarter as well as walk through the income statement and cover other key financial metrics. I'll then cover our new full-year and first-quarter guidance. Q4 revenue was $1.86 billion, above the high end of our guidance. On a core basis, we posted growth of 7.2% while reported growth was 9.4%. Currency had a favorable impact of 0.9% while M&A contributed 1.3%. The BioVectra acquisition is reflected in core growth starting in October. At a business segment level, LDG grew 11%, well ahead of guidance bolstered by the strong performance in our LC and LCMS instruments and robust CDMO results. AMG grew 3% as expected. Led by high single-digit growth in GC and GCMS as we see increasing benefit from the instrument replacement cycle in those platforms as well. ACG grew 6% in line with our guidance with high single-digit growth in the rest of the world, offset by mid-single-digit declines in China. On a geographical basis, both the Americas and Europe saw healthy 11% growth with broad end market strength, outside of academia and government. China declined 4% and the rest of Asia ex China grew 4%. Results in China were below our low single-digit growth expectations, though revenue contributions remained stable around $300 million per quarter. India grew in the high teens in Q4 with double-digit growth in pharma and greater than 20% growth in each of our applied markets. This balanced strength across our geographies which saw us deliver double-digit growth ex China remains a key differentiator of our performance profile. Gross margins in Q4 improved sequentially by 100 basis points and came in at 54.1%. On a year-over-year basis, were down 100 basis points due to tariff headwinds. Operating margins were 27.2%, up more than 200 basis points sequentially driven by leverage on volume, strong pricing, and tariff mitigation. We delivered this result despite absorbing an incremental 60 basis point sequential headwind from performance-driven variable pay. Absent the variable pay dynamics that reflect better business conditions and our strong execution. Operating margins would have expanded by 270 basis points over the prior quarter. Well above our guide of 230 basis points of sequential expansion. On a year-over-year basis, operating margins were down only slightly due to tariffs. Now moving below the line, we had $10 million in other income, while our tax rate of 12% was as expected. Finally, we had 284 million diluted shares outstanding in the quarter. Putting it all together, Q4 earnings per share was $1.59, that was above the midpoint of our guidance and grew 9% from a year ago. Now let me turn to cash flow and the balance sheet. Operating cash flow was $545 million in the quarter, and we invested $93 million in capital expenditures. We purchased $85 million in shares and paid $70 million in dividends during the quarter. More recently, we increased our industry-leading dividend by 3%. And we ended the quarter with a net leverage ratio of 0.8 pointing to our robust balance sheet that leaves ample room for capital deployment optionality. Now let me share some additional details on the outlook for next year and the guidance for our first quarter. We expect FY '26 revenue to be in the range of $7.3 to $7.4 billion on a reported basis. This represents an increase of 4% to 6% on a core basis as currency is expected to be a 1% tailwind during the year. To help with your models, I want to provide you with additional details on expectations for growth in our end markets during the year. Starting with pharma, we anticipate high single-digit growth improving market conditions, and the strength of our offerings in key high-demand applications create a favorable environment. The applied markets, we expect mid-single-digit growth in chemical and advanced materials, low single-digit growth in environmental and forensics, and flat growth from food, where we have especially difficult year-on-year compare against a strong China stimulus tailwind FY '25. In Diagnostics And Clinical, We Anticipate Mid Single Digit Growth In Academia And In Government, We Are Guiding To A Low Single Digit Decline, As We Don't Foresee Meaningful Recovery In The US. By business segment, we are guiding both the life science and diagnostics markets group, and the Agilent CrossLab's group to grow mid-single digit and the applied markets group to grow low single digit in FY 2026. Finally, by geography, we expect The Americas to lead the way with mid to high single-digit growth while Europe and Asia ex China grow mid-single digits. Building on the momentum we saw in the back half of the year. In China, we are incorporating a flat assumption for FY 2026, consistent with what we saw in China this year. Based on our latest expectations around stimulus timing, we are taking a prudent approach and substantially moving stimulus benefits from our FY 2026 revenue guidance. Moving down the P&L, we expect to deliver 75 basis points of operating margin expansion in FY 2026 at the midpoint. We anticipate a more gradual start given typical seasonality and the lack of tariff headwinds in the '25. With momentum building through the year. Reflecting the latest global tax regulations, we see our tax rate increasing to 14.5%, a 2.5% increase compared with last year. We also expect $30 million in other income and we are planning any dilutive repurchases to maintain 284 million diluted shares outstanding for the year. Putting this all together, FY '26 non-GAAP earnings per share are expected to be between $5.86 and $6. Representing earnings growth of 5% to 7%. For your P&L modeling, let me share some additional expectations we have incorporated into our guidance for the year. Because of Ignite, we expect pricing to continue to improve. With an opportunity to grow well above 100 basis points. This guidance also incorporates achieving full mitigation of existing tariffs over the course of the year. Using cost savings, and pricing actions. As is typical, we expect to see substantial sequential improvement in operating margins over the course of the year. Finally, we anticipate operating cash flow will be in the range of $1.6 to $1.7 billion and expect to invest $500 million in capital expenditures. To help with phasing, we are expecting revenue seasonality similar to FY '25. Meanwhile, earnings will be slightly more biased towards the second half given the tariff impact on the P&L in the first half. Now moving to the first quarter, we expect our reported revenue to be in the range of $1.79 to $1.82 billion. This represents an increase of 4% to 6% on a core basis, while currency is expected to be a 2.5% tailwind. First-quarter EPS guidance is $1.35 to $1.38, with 285 million diluted shares outstanding. Now I'd like to turn the call back to Padraig for closing comments. Padraig? Padraig McDonnell: Thanks, Rodney. As you've heard, we built excellent momentum across FY '25 in a dynamic environment. Our distinct growth drivers under the Ignite operating system are fuel for success. We are poised to benefit from a broadening end market recovery, win share, and deliver resilient above-peer growth and margin performance over the long term. With our innovation engine accelerating, our focus on customers intensifying, and our best-in-class commercial team executing, we are entering FY '26 from a position of strength. Thank you all for your attention, I'll turn it back over to Tejas for Q&A. Tejas? Tejas: Thanks, Padraig. Operator, can you please share the instructions for the Q&A? Regina: At this time, I would like to remind everyone in order to ask a question, press star, then the number one on your telephone keypad. Our first question will come from the line of Tycho Peterson with Jefferies. Please go ahead. Tycho Peterson: Hey, thanks. Padraig, I'm wondering if you can comment on BioVectra. You guys had guided, I think, closer to $35 million and came in around $22 million. So maybe just talk about dynamics there. And then you're taking CapEx up $100 million. Is that all CDMO? Padraig McDonnell: Yeah. So we're very pleased with the BioVectra coming in strong for the year, driven by GLP business. So Q4 growth was a good was a was an easy compare but pleasing nevertheless. So we came in against, what we thought for the year. We have key molecules planned for 2026. We're very, very happy about the book of business we have for BioVectra, and it was an outstanding integration from our side, which bodes well for the future for future M&A as well. But on the CapEx side, Adam, do you wanna give some color? Adam Alanoff: Sure. Thanks. So the incremental $100 million investment is really around incremental NASD capacity as well as incremental consumable expansion. Tycho Peterson: Okay. And then follow-up on margins. You know, obviously, a focal point especially coming out of last quarter. Maybe just talk on the 75 basis points you're guiding to the gives and takes there. And if the top line ends up at the high end, could you do better? Padraig McDonnell: Yeah. So on margin, I think, you know, we have a prudent margin for 26 set in, and we're gonna go through some of the differences on the call. But, Adam, do you wanna go through some of the ideas you have on margin? Adam Alanoff: Sure. So if you think about the margin for 26, at the midpoint, we're guiding 75 bps improvement on a year-over-year basis. And that's really driven by Ignite, pricing optimization, some operational efficiencies that you see in the number, and that includes some of the tariff mitigations. And then volume growth. The other piece which I think is important, which I wanna highlight as this more than offsets inflationary impact, and we're making incremental investments in growth and innovation as well as adding strategic capacity. So let me just quickly talk about those incremental investments in growth because I think it's something that Padraig talked about with our capital allocation strategy. So one, we're making digital advancements for our commercial teams and customers. The second, adding AI across the enterprise, and we're really being focused there on a number of projects. And then importantly, we're continuing to invest in our core R&D portfolio for our products. And with August coming on, we're trying to make sure that we're investing in the most high-impact projects. Tycho Peterson: Okay. I'll leave it at that. Thanks. Regina: Our next question will come from the line of Patrick Donnelly with Citi. Please go ahead. Patrick Donnelly: Hey, guys. Thank you for taking the questions. Padraig, maybe just on the general tone from biopharma customers in recent months. Obviously, there's some big announcements. It sounds like things ticked up a little bit both on pharma and biotech. Can you talk about maybe specifically on the instrument side, what you've been seeing? Again, it does sound like biotech is loosening up a little bit for you guys. Sounds like pharma is maybe a little more constructive. Maybe just talk about what you're seeing there. And then even if you get into year-end here, is there already signs of what the budget flush could look like? What are you guys seeing there? Could that be a little more normal than past years? What are the conversations look like there? Padraig McDonnell: Yeah. Thanks, Patrick. So pharma, largest market, grew 12% overall in the quarter. And what we're seeing is the MFN tariff deals have really reduced uncertainty for our customers. You know, our biotech grew in the low twenties or, I would say, low double digits ex CDMO. And the US biotech recovery is starting in well-funded large caps releasing capital spend. Think what you're seeing in the small to mid biotech, you're seeing improved funding backdrop. And you're seeing that with, like, recent M&A exits, although it really is too early to call an inflection point on that side. But what's driving this is really, I would say, our really strong momentum and our innovation around Infinity 3. It's coming in extremely well, and ProIQ LCMS resonating extremely well. We had 50% growth for the single quad in Q4. And all of these things bode well for the future, and that was backed up with our Alturo BioInert column. So I would say in terms of the budget flush, we have good visibility and it's more of a typical calendar year-end budget push. So we're expecting that to be more normalized. Patrick Donnelly: Okay. That's helpful. And then maybe on the NASD business, it sounds like that's doing well, double-digit growth, pretty safe for 26%, I guess, given what you're seeing. You just talk about the visibility there? Is that fully booked out through '26? And then you talked about the expansion, the capacity expansion plan as the year goes. Can you talk about, I think it's Train C and Train B, when those come online, where those are leaning towards in terms of market need, marketing indication, is there an impact to margins of those ramp? I know NASD is accretive on the op margin side. But as those trains open up, does that change anything? I know there's few questions on ASP in there, that color would be great. Thank you, guys. Adam Alanoff: Yeah. Padraig McDonnell: Thanks, Patrick. So I'm gonna start off and hand it over to Simon. So we're really pleased with CDMO results in FY '25, and we're excited about how the book of business is building for '26 with recent wins and we're seeing movements towards commercial programs. But, Simon, do you want to give some more color on that? Simon May: Yeah. Again, I think we've had a very strong year here in FY '25. We've been very pleased with the execution, very pleased with the way the order book has been developing. We've seen a lot of further reasons to validate the siRNA modality. Just in the last couple of weeks, there was another FDA approval. So we think that we are really well positioned here in coinciding the strength of the modality, the future outlook of the modality, and our competitive position in the market. So as we look ahead to FY 2026, I'd say we've got a very robust order book as we enter the year for pretty much the full year. So I think it's mainly a case of execution on existing capacity in FY '26. But then as the question indicated, we've got the capacity expansion starting to see the finish line coming to sight there towards the end of '26, and we're looking to go live in '27 with Train C. As is always the case with the capacity expansion, there'll be dynamics there around amortization and growing into the skin. I think we've got the basis pretty well covered there in '26. And we're well ahead in our thinking where that's in that respect in '27. Regina: Our next question will come from the line of Dan Leonard with UBS. Please go ahead. Dan Leonard: Thank you. My first question is on China. Can you talk about the downside variance on China in the quarter? Were the drivers of that and performance by end market perhaps? Padraig McDonnell: Yes. Thanks, Dan. So, yes, Q4 in China was down 4%, and that was below our low single-digit August guide. But all markets were down low to mid singles except A&G, which was up five benefiting from some academic stimulus. But a comp with peers, I think, was in line with key peers. But mix, I think, is an important factor, Dan. So first of all, we saw growth in biopharma and CAM. But we saw declines in food and environmental. And we say pharma small molecule was stable. But overall, you know, it's a very stable business. You're gonna have quarters, some swings or variance between quarters, but we're seeing sustainable $300 million per quarter as we go forward, and we expect FY '26 to be flat, like FY 2025 was flat. I will say, though, if you look at our business given our long-standing customer relationships, our recent win rate scale and our scale and our visibility into our direct channel, we're very confident in terms of what our market share being stable in '25. And, of course, we're gonna continue with that in '26. Dan Leonard: Appreciate that. And then a follow-up, Padraig. I think you mentioned that there were some pharma reshoring assumptions in your guidance for 2026. How important is that to your forecast? Any way to put some context or dimensions around that? Thank you. Padraig McDonnell: Yeah. So we're in a lot of conversations with some key pharma companies around reshoring and talking about what it means for their R&D and tech investments. They're focusing on shovels in the ground under lab equipment needs, and we expect by the '26 that we'll get some orders in that area. So we're estimating the opportunity of about $1 billion by 2030. But we're limited in seeing the order benefited at the '26. We see an overall $1 billion addressable market opportunity for Agilent about in '20 by 2030, and we expect about one-third of that. But overall, I think so there's upside in the forecast around reshoring. Dan Leonard: Thank you very much. Regina: Our next question comes from the line of Doug Schenkel with Wolfe Research. Please go ahead. Doug Schenkel: Afternoon, and thank you for taking the questions. I just wanted to start on GLP-1s. How big is this business? I'm thinking it's probably around $100 million coming out of last year. And then I guess if that's right, how much of it is LC versus services? What's your positioning with generics coming online in different geographies, like in India and China, Canada, just to name a few? And should we think about the growth outlook for '26? Padraig McDonnell: Yeah. Thanks, Doug. So Agilent's GLP benefit really comes from two forms, our CDMO business, largely around BioVectra, where we're working on synthetic peptide manufacturing, and our analytic tools like our LCMS and Altura columns supporting QA, QC solutions. And so we're actively involved with many of the GLP-1 manufacturers, and of course, on the analytical tool side, Infinity 3 is a really key component. If you look at Q4, revenue was about $40 million for GLP-1. That split about 60% for BioVectra and 40% for the analytical lab. And BioVectra added about $25 million. If you look overall in '25, and I would say we saw about a 20% growth rate in the analytical lab in Q4. I think the GLP-1 revenue is about $130 million. 50 split evenly between both the bio and the analytical lab. And if you think about the analytical lab, we grew 40% in the analytical lab in GLP-1. Alturo columns really helping towards the end and, of course, the Infinity 3. So overall, it's a really important business for us, and we're seeing a long runway into '26 both on both sides of the business. India is a particularly part of where you see the GLP-1, where you see the patent cliffs coming. We've been doing a lot of investment in India around our experience center for customers. Workflow helper customers. So we expect in India we're gonna take a lot share as it goes into '26. Doug Schenkel: Alright. Super, super helpful, Padraig. One more on a completely unrelated topic, the academic and government end market. I think you guys were down 10% constant currency in the quarter, if I updated the model right. You know, I think this is a little bit surprising given seasonality and the fact that there was a little more certainty about the funding environment. Maybe the ops was the government shutdown. I'm just curious if you could tell us a little bit about what you saw over the course of the quarter and heading into calendar year-end? Thanks again, and happy Thanksgiving, everyone. Padraig McDonnell: Yeah. Thanks, Doug. So academia and government declined about 10% for Q4. That was a slightly bigger decline than we put out in guidance. I would say ex US, very stable sequentially, and, however, we faced tougher year-over-year comps with Americas down mid-teens, and I would say the rest of the world was down mid-single digits. US federal spending reductions were really the material impact. You know, the instruments were down mid-twenties for the Americas. While I would say, chemistries and cons or chemistries and services were resilient, at low single digits for the Americas. So we're seeing reasonable lab usage. I would say on the US government shutdown that you described there, Doug, we saw no material impact from that. We're expecting continued softness in FY '26 in Americas as US federal spending reductions continue. As we go forward. But I will say it's our smallest market and it's about 1% of our overall business in the US and the NIH spending. Regina: Our next question will come from the line of Brandon Couillard with Wells Fargo. Please go ahead. Brandon Couillard: Hey, thanks. Good afternoon. Padraig, I mean, if we look at the ACG business, you said all regions ex China grew high single digits in the fourth quarter, but I think you only talked about mid-single-digit growth in '26. Do you expect to see a halo benefit as the instrument cycle continues to escalate next year? Or are you just sort of being conservative here to kind of unpack how you're thinking about HCG in 2016? Padraig McDonnell: Yeah. Thanks for the question. I'm gonna kick it off, and I'm gonna hand it over to Angelica. So we saw healthy high single-digit growth ex China in ACG. We continue growth in our installed base and ramping attachment rates and we're confident that ACG is well-positioned to really sustain the long-term recurring revenue ramp. It was really a solid quarter, and we saw 6% growth in Q4. At the high end of our guidance, and that was 8% ex China. But, Angelica, you wanna give some more color? Angelica Riemann: Yeah. Sure. Hi, Brandon. So, you know, we're very excited by the continued growth that we're seeing in ACG, largely by the size of our installed base, but also the customer's utilization of assets in their laboratory. We've seen some great adoption of our recent chemistry's launch, the Altura column. We also launched recently a remote plus services offering, which allows us to support customers and build stronger relationships with customers that may have capabilities in-house. But want to leverage the capabilities and the know-how of the Agilent field service engineers to be able to get them back up and running when they have unplanned or unexpected downtime. And we're still seeing a great amount of interest in improving lab productivity. We're seeing continued adoption of our open lab chromatography data system and our enterprise content management capabilities as customers are looking to better manage the data coming out of their instruments, and we're seeing some good growth in our automation. So when you look across the port we have a lot of things to take as momentum going into FY '26. And, certainly, we see tech refresh and see we see replacements of instruments in the laboratory, those provide long-term growth as those instruments continue to be used in we'll be connecting to those with our recurring revenue stream accordingly. Brandon Couillard: That's great. Thanks. And then, I'm not sure if this is better for Rodney or Adam. Just a clarification. What was net pricing in the fourth quarter? And I think you talked about 100 basis points in fiscal '26, but that there could be upside to that. Maybe from some of the AI tools. Can you just clarify what you're penciling in for pricing next year? Thanks. Rodney Gonzalez: North of 100 basis points. Brandon Couillard: In the fourth quarter, Rodney? Rodney Gonzalez: In the fourth quarter, we were closer to 150 basis points. Regina: Our next question will come from the line of Vijay Kumar with Evercore ISI. Please go ahead. Vijay Kumar: Hi, Padraig. Thanks for taking my question, and congrats on the nice sprint here. Hey, my first one on order commentary here in the quarter. How did orders in a backlog grow? I'm curious. I know last quarter you were speaking about stimulus, China-related stimulus, maybe some pharmacopoeia updates out there. So I'm curious if any of that is showing up in orders? Padraig McDonnell: Yeah. So I can talk, you know, our book-to-bill was greater than one, you know, orders continue to, I would say, continue to be positive. As we go through the quarter. It's been very stable through the quarter in terms of our order rate. And of course, a win-loss ratio, etcetera. I will talk a little bit about Syminas. You know, the first one, the SAMR tender, it shifted, I would say, from Q1 to later in the year in '26, and we're expecting roughly about $10 million GACC orders in '26, which was smaller than expected, but that is excluded from our '26 guide. Anything on the I think in the abundance of caution, we're excluding it from the '26 guide. So if anything comes in on that side, it will be upside. And I will say that we have a very strong track record and a win rate with stimulus in China. Winning 50% of the first-round tenders. So we're seeing how the year plans out and staying very close to our customers on that. Vijay Kumar: That's helpful. Then maybe my follow-up on margins. Gross margins were a little light in. What are you assuming for gross margins in fiscal 2026? Should we see gross margin expansion? Could you just quantify what is tariff versus FX dynamics on gross margins? Padraig McDonnell: Rod, do you want to take this one? Rodney Gonzalez: Yeah. I'll take this one. So we're not guiding gross margins, but we should see gross margin expansion. Again, from a tariff standpoint, we do think we'll be fully mitigated on tariffs in the second half, and that'll be a mix of both pricing and cost reduction activities. So that in itself will be helping help the margin picture along with pricing and leverage. The other thing that we the other thing that was impact for this year has been BioVectra now that that's been annualized. It won't be a it won't be necessarily the impact a drag to the gross margin line. Vijay Kumar: Understood. Thank you. Regina: Our next question will come from the line of Jack Meehan with Nephron Research. Please go ahead. Jack Meehan: Thank you. Good afternoon. I had a couple of questions. Just wanted to unpack some of the competitive dynamics going on in the LC business. So the first one is in LDG. Were a few stats thrown around. I think I heard double-digit growth in the second half. Or LCLS CMS instruments. What was the fourth-quarter number? Was it also double-digit? And I heard the pharma data point. Can you just talk about how that business is doing and some of the other end markets? Padraig McDonnell: Yeah. So in the fourth quarter, we saw low double-digit growth in LC and, actually mid-teens growth in LCMS, so a very strong performance. And as we talked about the replacement cycle before, we're in the early innings of a replacement cycle, and that accelerating with a lot of adoption of the Infinity 3 some initial purchases a number of quarters ago, and customers coming back for more on that one. I would say when you look at the independent market share data, we're gaining share in both those areas, so that's very good to see as we go forward on it. And I would say, overall, it's the new innovation, but execution by the team, but also an improving pharma sentiment, particularly with having reduced incentive certainty around the MFN and tariffs. The other thing that we're really seeing in pharma across the globe is reshoring is not just happening in the US, but supply chains are being consolidated in different People are looking for capacity expansion. We're the benefact of that in QAQC downstream testing, and that will continue, I think, through the year. And, of course, as reshoring comes online in '27. But I don't know if you wanna add any more color on that, Simon? Simon May: Yeah. I think you covered pharma really well. Padraig, a few other key end markets, mid-single-digit growth in food. We saw declines in academia and government consistent with what we've been seeing elsewhere. Environmental and forensics was growth in the twenties. And, again, in terms of the growth drivers, all the key things that we've talked about already, the continuing traction we see with Infinity 3 is just phenomenal. Likewise, the ProIQ market acceptance is really terrific. And in terms of replacement cycle, we still see that we're kind of early to mid-inning here. I think we've knocked off the lowest hanging fruit. But as we continue to iterate the productivity features of our lab assist software, we see that the Infinity 3 value proposition will continue to be very strong, and we think there's still plenty more legs left in that. Jack Meehan: Great. Regina: Next question will come from the line of Dan Brennan with TD Cowen. Please go ahead. Dan Brennan: Great. Congrats on the quarter. Maybe for Padraig, just when you think about the guide, for 26 at a high level, the 4% to 6%, you've given a lot of color on segmenting. And customers. But if you zoom out, you finish this year around 5%. The guide next year incorporates that at the midpoint again. You've discussed a lot of momentum building. So do you feel like the guide fairly balances the puts and takes around the globe, or do you think there's some conservatism more so baked in? Just can you give a sense on kind of the overall kind of four to six guide? Padraig McDonnell: Yeah. So I think, first of all, we're set up for success really by innovative products coming online, and the ones that have come online are unified sales and service connection with the customers. The winning team at Ignite wrapping together. So I just said we have good momentum coming out of the year. Key markets are improving. The top line four to six is prudent, but I think is appropriate given macro uncertainty. And, of course, we're coming into some tougher compares. And I would say, you know, if you look at the high end of our guide, if you see the expecting biopharma recovery to continue and broaden, that's gonna be positive. As I said before, the China stimulus is not in the guide, so that would be positive as well. And we're making investments in the business. Right? We've invested a lot in the business, and we're gonna continue to do that. Particularly in innovation and digital, as Adam talked about. So, you know, but we wanna see, small to midsize cap biotechs to continue to improve. We're seeing the early shoots on that one. And, of course, A&G is academia and government is an area that we're watching. We wanna see that stabilize and relative to our current expectations of the low single-digit decline. So overall, when you put it together, strong momentum come out of 25, and in '26, we're watching the different portions of it. Dan Brennan: Great. Thanks for that. And then maybe just one on the GC upgrade cycle. Just your 10% growth in the quarter overall, which was solid. I think you said mid-single-digit for '26. And you gave some color. Just any more color on the upgrade cycle as it progressing versus expectations. Is it ratable in '26? Just what's, you know, what's kind of assumed on that front? Thank you. Padraig McDonnell: Yeah. No. Thanks. I'm gonna start off and hand over to Mike here in the room. So first of all, I think we had high single-digit growth in GC, which was really great. We talked in the quarter about the start of a GC replacement cycle, which is generally longer replacement cycle than LC. But, Mike, do you wanna give some color on the replacement cycle? Mike Zhang: Yeah. For Edgar, first of all, thank you, Dan, for your question. The replacement cycle for the GC and the GCMS is very important for us. And here's what we've seen. The first four, I think the cycle is being normalized. It was under pressure for the last few years because of the global challenges and certainty. We've seen the pace is coming back and normalized. That's number one. Number two, I just wanna let you know we are the market leader. We have a very large install base. And as you can imagine, it's actually aging, and we have a lot of, you know, kind of demand. Which will create a sustainable tailwind for us. In the coming, you know, year. Last thing I wanna highlight, now under Ignite Transformation, we accelerate our innovation. Very excited about the new product coming out, and that will further sustain this revenue cycle. So in short, I think there are big opportunities, and the cycle has been normalized. And we have tremendous innovation come out. I went to sustain it. Dan Brennan: Great. Thank you. Regina: Our next question will come from the line of Michael Ryskin with BofA. Please go ahead. Michael Ryskin: Great. Thanks for taking the question. Maybe first one on tax rate. You talked about the higher tax rate for 2026, talking about global tax. Curious, we've been talking about tax rate potentially drifting higher. For a while. It seems like it's a pretty big jump this year. Is this something new that's developed recently? Or is this just sort of the same global tax codes we've been talking about for a while? And then just any potential to offset that as you go through the year? Just how do we think about that going forward? Padraig McDonnell: Yeah. Thanks, Michael, for the question. I'm gonna hand this one over to Adam for some commentary. Adam Alanoff: Sure. And thanks. So tax rate's increasing 250 basis points and it's really driven by a combination of things that, you know, they take time to come together, and now they have. One of them is pillar two. The other is OB three. Then there's other jurisdictional changes. And so as we've kind of put them together, in our tax provision, we've now solidified on this 250 basis point increase. I would you know, as you think about it going forward, you know, we have no information that this would change meaningfully going forward. But the thing I wanna highlight and point out is that we're more than offsetting this incremental tax burden, and that's really through operating performance above the line. So we'll continue to seek ways to further mitigate the P&L impact via Ignite in our global network strategy. So if you think about the business, being able to offset such an impact below the line, above the line, is really something that gives me a lot of confidence in this organization and shows the agility of the organization. To navigate. Uncertainty. Michael Ryskin: Okay. Thanks. And then, for the follow-up, I wanna touch on M&A and capital deployment. Patrick, you talked about the health of the balance sheet and maybe looking to do a couple of more deals, bolsters from the portfolio. Could you just talk about what the deal funnel looks like now, appetite for deploying cash next year, sort of what kind of deals you're looking at in terms of size and any specific areas you're focused on? Thanks. Padraig McDonnell: Yeah. So we, I'm gonna start off and then hand over to Adam here. So our capital allocation priorities are not changing. And if you think about M&A, you know, we have capacity to do M&A, but we're gonna remain very disciplined. Linked with our strategy. And we don't talk really about size. We talk about fit and shareholder return on M&A about how it's going to drive us forward. What I will say about our M&A target list, it's very it's a shorter, very high-quality list that we continue to develop. And, of course, we continue to keep everybody updated as we go through the year, and we're looking for growth opportunities where we have a right to win. And, of course, the BioVectra integration, having been such a great integration this year, bodes extremely well for the future. But, Adam, do you wanna give some broader capital allocation color? Adam Alanoff: Sure. Thank you. So our capital allocation priorities aren't changing as Padraig said, and I think that's very important. We're gonna continue to invest in innovation as you hear in our guide. We're gonna use our balance sheet to invest in M&A and then make strategic capacity in expansion. The other piece I'd highlight is we're gonna continue to return excess capital to shareholders as you see in our guide as well. And then the one note I would highlight in addition to what Padraig said about remaining disciplined, it's about the right opportunity. It's about making sure we understand the value drivers and how we can maximize on those. Then it comes down to making sure that we pay the right price so that we're disciplined about price. Then focusing on integration upfront. In my experience, I've lived through integrations. And the best are those that you plan for upfront, and it's not an afterthought. And I can assure you it won't be here. The Ignite operating system, as I've dug into it, gives me a lot of confidence. And then as Padraig said, the recent experience with BioVectra gives me more confidence. So I think we're ready to go, and you should expect to see consistency with what we've said on our capital allocation priorities. Tejas: Regina, to help us get to as many analysts as possible, could we please limit it to one question per analyst for the remainder of the call? Regina: Our next question will come from the line of Dan Arias with Stifel. Please go ahead. Dan Arias: Good afternoon, guys. Thanks for the questions. Padraig, you mentioned upside potential for the Omnis franchise. Is that more of a placement comment or a pull-through comment? Where do you think the opportunity is strongest there? Padraig McDonnell: Thanks. On the Yeah. So, I'm gonna hand it over to Simon for some color on the Omnis franchise. Simon May: Yeah. It's a bit of both. We've recently launched the Omnis family, and we've been very happy with the uptake from those systems. And if we look year over year across the entire Omnis Instruments franchise, we've seen double-digit growth in instrument placements. We're also focused on menu expansion. That's a key product development initiative. Here over the next twelve to twenty-four months. And I think we're gonna see momentum from both of those. We see momentum already on the instrument placements. So I think it bodes well for the future. We've talked a few times about this franchise now, how we see really durable mid-high single-digit growth through a combination of these portfolio investments, but also the very strong macros that underpin this business with aging populations, cancer incidents, and so on, not to mention the emerging therapeutics that are supporting diagnosis and therapy guidance. So we put all that together, and we're bullish about the future. Regina: Our next question will come from the line of Casey Woodring with JPMorgan. Please go ahead. Casey Woodring: Awesome. Thanks for fitting me in, guys. Appreciate it. I guess, within pharma in the quarter, excluding the CDMO, could you break down large molecule versus small molecule growth? Last quarter, you talked about you did biopharma spend ex NASD. Sounds like that got a lot better this quarter, specifically in biotech. And then, you know, maybe what's factored into the guide for large molecule versus small molecule in 2026? Excluding the CDMO? Thanks. Padraig McDonnell: Yeah. So I think we saw growth on both sides. I would say, you know, we're equally placed both large, large molecule was about 10% growth, small molecule in around the same area in around the same growth rate. It's roughly a 50-50% split for Agilent. We saw that in the quarter. We expect that to continue. Regina: Our next question will come from the line of Catherine Schulte with Baird. Please go ahead. Catherine Schulte: Hey, guys. Thanks for the question. I guess I'll ask the annual Lunar New Year timing question. I think that was a two-point headwind in the first quarter last year, but it's back to falling in 4% to 6% guide for 1Q, does that mean more like two to four ex Lunar New Year and know, if so, what's kinda driving that sequential slowdown there? Thanks. Padraig McDonnell: Yeah. So I think, you know, if you look at our Q1 guide or we're assuming low single digits growth for China on a reduced stimulus volume. That's about a negative 700 basis point year-over-year impact and that's offset by the favorable lunar year timing, which about 800 basis points. But the Q2 will be, I would say, meaningful impact by Lunar New Year timing and, I would say, a tougher comp. But overall, I think it balances out over those quarters. Regina: Our next question comes from the line of Luke Surgatt with Barclays. Please go ahead. Luke Surgatt: Great. Thanks for squeezing me in. I just wanna follow-up on Donnelly's question earlier in the call about and you guys were talking about, you know, keeping the flywheel going and investing back in the R&D as the top line continues to accelerate or be strong. So, you know, after you're pretty much done, you've you guys had a pretty big launch here across many different platforms. So give us an up where are you looking to deploy that R&D? Know, where are the new high-growth areas that you guys would like to be bigger in, or is this just kind of updating parts of the portfolio that have been underinvested? Padraig McDonnell: Yeah. What I would say is that we have, you know, a very key innovation focus with our new CTO, August. And what we're looking at is really looking at our portfolio of innovation across the company. We simplified the company structure where we went from, you know, about 20 product lines to nine. So the ability to get the right innovation dollars into the right place is much clearer and faster now. What you're gonna see is that you're gonna see that in a number of platform launches, and next coming years, but also areas where we need to accelerate in certain areas like oligos, GLP-1s, and workflows around that side. And I would say software is a key area for us. It's an area where we have a lot of focus across the company in the ACG group. We're gonna be asymmetrically investing in our software products and also making sure we have the right software for particular workflow. So overall, I would say it's refocusing but I would very a very agile refocusing of our R&D dollars. Luke Surgatt: Hey. Just how turn the go ahead, Regina. Regina: I'll turn the call back to you, Tejas. Tejas: Thank you. Thanks, everyone, for joining us. And, happy holidays and happy Thanksgiving. Regina: This concludes today's conference call. You may now disconnect.
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‘The Big Money Show' panel discusses the Trump administration's focus on affordability and the economy and the latest stock market projections. #fox #media #breakingnews #us #usa #new #news #breaking #foxbusiness #thebigmoneyshow #trump #donaldtrump #inflation #economy #finance #markets #stocks #gasprices #energy #affordability #business #money #daganmacdowell #panel #administration #government #politics #political #politicalnews #policy
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