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Sean Summers: Okay. Good morning, and welcome, everybody, to our H1 FY '26 results presentation, a special warm welcome Mrs. Ackerman, Wendy, good morning. Welcome, Gareth, and all my colleagues from Pick n Pay. And everybody, both online and here, in the auditorium, it's great to have you with us this morning. As part of the introduction, I just want to quickly flip over and just to give a little bit of an overview of where we find ourselves now on our journey in Pick n Pay. It's been quite an interesting 24 months since I returned and it's been a bit of a compacted time period. In some dimension, it feels like I never ever left Pick n Pay, but the last 2 years have really, really flowed and gone by fast. And the great thing for us is that, if we have to sit and really be truly honest with ourselves, and we cast our minds back about 18 months ago, not even 18 months, maybe 15, 16 months. When we put forward the business plan in May of what we were going to do in terms of restoring the fortunes of Pick n Pay. I can say with all honesty that there is not much that we would have done differently. And for me, honestly, as you know, it's the only thing that you can deal with in life and we continually are asking ourselves a question, are there any other levers we can find or are there any other levers we can pull, and they certainly are not. So all of the levers that we have identified, all of the levers that we are busy pulling and pushing and juggling are absolutely on track at this stage. Would we like things to be faster? In fact, I was sharing with my colleagues when we were here yesterday, preparing for this. I would rather have been racing up the hill in Cape Town and the hill climb than being in the room over here because that's how I like life. I like things to be much faster. But certainly, one needs to be considered as well because otherwise, you don't get to the top of the hill. And that's our journey that we're on. So I think very importantly, let's jump straight into the numbers. So I'd like to call on Lerena. Please come up, Lerena. Thank you. Lerena Olivier: Thank you, Sean. Good morning, everybody, and thank you for joining us here in person and also online. Following the completion of the successful recapitalization program in our previous financial year, our focus is now squarely on operational execution. So I'm very happy in this result to focus on operational metrics. The group delivered a solid result for this half. We have successfully executed across various strategic priorities. The group's turnover grew 4.9%, 4.7% on a like-for-like basis. We delivered meaningful improvement on all of the key metrics. We've improved our headline loss by 45%. This improvement was driven by trading profit improvement of ZAR 227 million coming from both Boxer and Pick n Pay, and it was definitely supported by the positive swing in interest of ZAR 537 million. We ended on a balance sheet that is strong with ZAR 5.1 billion of cash. We've again increased our segmental disclosures in this result. We've expanded some lines on the P&L that we do per segment. And we've also added for your benefit into Appendix 1, EBITDA and trading profit after leases per segment. For the purpose of this result, Boxer has already presented their results 2 weeks ago. So I will briefly touch on Boxer, but the focus will be Pick n Pay. Both Sean and I will focus on the Pick n Pay result. This is our primary goal to turn the business successfully around. Our strategic priority remains growing our like-for-like sales growth across both our franchise and our own stores. For this half, our company-owned stores grew 4.8% on a like-for-like basis and our franchise business 1.7%. What is important is that we now have 3 consecutive periods of continuous growth improvement. We've delivered positive like-for-like growth of 2.2%, and our internal selling price was contained at 2.1%, well below CPI Food of 4.6%. I'm also happy to report that this momentum does carry through into the second half. Of specific importance for me is the improvement in our franchise issues, up 1.7% compared to the decline of 1.4% in the preceding half. Our franchise business is extremely important to us. They remain a critical growth driver for us, and the improvement in franchise issues reflects the improvements we are making in our franchise model. Our omnichannel grew 34%, 44% up in asap! and Mr D. Our clothing business continues to grow. They're up 12% in a very, very tough market. Hazel and her team opened 9 more stores in this half, bringing the total estate to 424 stores. The Pick n Pay segment itself delivered ZAR 36.3 billion worth of turnover. That is the same number than last year. This is notwithstanding the closing of 59 stores as part of our Store Estate Reset program. Sean will give more detail on this, but this is now largely completed with only a few more stores coming through in the second half. The actual turnover achieved reflects our relentless focus on operational and customer-facing initiatives. The Pick n Pay business is not smaller year-on-year. And as the store closures are now largely in the base, we will continue to grow into the future. As I've mentioned in my opening remarks, we have again segmented Pick n Pay and Boxer and we'll be presenting the results separately in this presentation. I will now take you through the results of each of them individually. The group now owns 65.6% of Boxer post the IPO in November 2024. Our Boxer business grew turnover by 13.9% and delivered a trading profit improvement as consolidated by the group of 16.2%. They maintained a trading margin at 4.1%, aligned with the business philosophy to reinvest any gains in their customer offer. Marek and David presented the results on the 13th of October, and I would really like to congratulate them on a job well done. They are now looking like seasoned results professionals. The full Boxer result is available on their website. There we go. The Pick n Pay key metrics reflects progress across all our strategic initiatives. All of these are needed to achieve our goal of getting the business back to profit and cash flow breakeven. There were 2 main drivers of the improvement in the Pick n Pay result. There is an interest benefit year-on-year as a result of the recapitalization program. The number in the Pick n Pay segment is ZAR 598 million. And we had an improvement in our trading loss of ZAR 97 million. I will unpack these 2 individually in the following slides. The ZAR 97 million improvement in a trading loss delivered a trading loss of ZAR 621 million. Our trading margin improved by 30 basis points. This was supported by a 40% improvement in our gross profit margin, and I will unpack that in the next slide. A slight increase in our trading expenses, up 20 basis points as a percentage of turnover and a pleasing increase in our other income, up 2.7%, supported by our increase in commissions and other income of 6.3%. This is very pleasing for us given the fact that the group's turnover was flat year-on-year. We have successfully executed our Store Reset program. There's only a number of stores that will still come in the future. We have avoided losses of close to a ZAR 100 million in this result. These were reinvested to support building the muscle we need to create retail excellence for our Pick n Pay turnaround plan. It is very important to note that to achieve this remarkable like-for-like improvement, we needed to make sure that we've got the right skills on a store and operational level. That is what we need to ultimately deliver on our turnaround plan. In this half, we've delivered on the like-for-like sales growth. We've delivered on our gross profit margin improvement. We have reinvested the savings we've made out of the successful Store Reset plan in key retail skills in our business. As a result, our like-for-like expenses grew 6.2% compared to our turnover of 4.4%. That is the reason why the progress on the strategic plan is not yet making a material improvement on the trading loss in the business. We have made great progress, but we have more to do, and it will take time. We are focused on building a sustainable business. We will not chase quick wins just to make the results stronger in the short term. We are building a long-term profitable business. As a result of this, the improvement in the trading expenses will come, but it will take time as we execute our Future Fit strategic initiatives. The gross profit margin increased by 40 basis points, as I've mentioned, up to 16.9%. This was supported by key improvements in category mix, specifically in general merchandise, clothing and our fresh range. We had a notable reduction in our waste, specifically in Fresh as in-store operations improved. We've also improved our buying and our logistic efficiencies. Notwithstanding these improvements, we also made investments. Pick n Pay is price competitive. We have achieved this while improving our customer offer. We now offer an increased range at better prices without compromising on our inventory control. We have also invested in our franchise model. We have reduced the sales margin to our franchisees to ensure that these very important partners improve their underlying profitability. The improvement of the 40 basis points on this line item is therefore a very strong achievement considering the investments that we made during the period. Our trading expenses are up only 0.9%. This reflects the impact of the Store Reset plan. On a like-for-like basis, the increase is up 6.2%. The increase in like-for-like expenses were driven by the building blocks of the Future Fit business. We continued selective hiring in key skills to drive turnover. We have increased store training in a focused and effective manner. We've increased brand investment, I'm sure most of you would have noticed. While we are focusing on spending in the right areas, the remaining expenses remains well controlled. As I've mentioned before, we are acutely aware of the need to ensure that our like-for-like expenses increases by a rate less than our like-for-like turnover growth, and this remains a key focus area for us. Pick n Pay's net finance costs reduced by 60% for the period. This as a result of the FY '25 debt paydown. This, alongside a reduction in our net lease interest of 2.2%, reflecting the successful Store Reset plan has really supported the year-on-year profitability of this result. The group's headline earnings per share showed significant improvement, up 56.2% This, as I've mentioned before, was supported by the interest swing on a group level of ZAR 537 million. Two additional items impacted year-on-year comparability. We've got a 25% increase in our weighted average number of shares as a result of the Rights Offer in August 2024. We also now have a controlling interest of Boxer of 34.4% post the IPO in November last year -- not last year, November 2024. Excluding these items, alongside the interest saving, our headline earnings per share increased 27.8%, reflecting the trading result improvement in both Boxer and Pick n Pay. Pick n Pay ended the half with ZAR 3.9 billion of cash on balance sheet. The cash utilized from operations of ZAR 0.8 billion is in line with what we've done last year. The improvements delivered through the Store Reset plan were reinvested and, therefore, it's reflective in the year-on-year EBITDA number being flat. To build retail excellence, we need to deliver this plan. We absolutely have to invest in these skills to drive top line across FY '27 and FY '28. Interest received for the year was just over ZAR 100 million, reflecting the improvement of ZAR 0.5 billion year-on-year. The working capital and CapEx movements, I will unpack in the next slides. The net result was a free cash flow utilization of ZAR 0.3 billion for the year, in line with our plans. I guided at the full year FY '25 result that we are aiming to half the cash burn for the Pick n Pay segment of last year of ZAR 2.6 billion. We are now forecasting that the cash burn for this year will be approximately ZAR 1.6 billion. The group released working capital of ZAR 1.7 billion for the half. This is across both Boxer and Pick n Pay. This is in line with our normal H1, H2 seasonality, and this benefit will be absorbed during the second half of the year. There is some cutoff as well, but both the cutoff and the seasonality will unwind in the second half of the year. What is important to note is Pick n Pay's continued working capital improvement. Our inventory declined by 3.5%, notwithstanding the fact that our turnover year-on-year were flat, and we reinvested in our ranges. There has been a continuous focus on optimizing inventory in the business. We've also seen a continued improvement in our franchise debt as the impact of the new franchise model is supporting our franchisees. I am very comfortable with the working capital levels of both Pick n Pay and Boxer. The group invested ZAR 0.9 billion during the first half of this year. Both Boxer and Clothing continues to invest to support their growth ambitions. Pick n Pay forecasted spend for the full year is just under -- apologies, Pick n Pay's forecasted spend for the full year is ZAR 0.9 billion. This is an increase from the ZAR 500 million of last year. The Pick n Pay spend remains measured. We are spending on key revamps where we know we can get the maximum ROI and critical repairs and maintenance. Our focus remains an investment in OpEx and the skills we need to drive our like-for-like turnover growth. The group ended with cash reserves of ZAR 5.1 billion, ZAR 3.9 billion in Pick n Pay and ZAR 1.1 billion in Boxer. Pick n Pay itself has got ZAR 3 billion worth of working capital facilities. These are unutilized, unsecured and not guaranteed by Boxer. Our balance sheet is strong. It will support Boxer's growth and Pick n Pay on its turnaround path. I now hand over to Sean to take you through the operational review. Sean Summers: Thanks, Lerena. So as we see, it's definitely work in progress. And as I've said, it's a case of just steadily putting one foot in front of the other as we continue on our journey. And there are just a couple of specific call-outs that I would like to make in this regard. So we said that in terms of strengthening our core customer offer that we would apply a lot of our energy and effort in terms of ranging in the store. And we can see that the ranges are dramatically improved and enhanced at store level. And it's one of the reasons why we are driving our like-for-like sales growth because when you look at our absolute numbers in the total stores that we've closed over the period of time in the last 2 years, 18 months that we've been going at this project. We have -- while we've been taking some sales out of the business in the closed stores, we've managed to reinject like-for-like sales growth back into the stores again with enhanced ranging. On a quality basis, we've applied a lot of our energy and attention as to what happens at store level operationally with skills and injecting knowledge back into the business again. We can see that on the value front from a marketing perspective that we have really, really put our strong foot forward in terms of marketing. Our relationship with FNB eBucks continues to be a fantastic relationship that we have. And all of the work that we've been doing with the Burger Fridays and the work that we do on Saturdays and Sundays and all of these promotions that we're doing has really been driving a good value proposition across the business. And then on the service front, we have been applying a lot of our energy and effort into training of our people again and actually getting and creating schools for blockman, bakers and regetting these skills back into the company again because these skills are not just freely available. It takes time to train these people up. A lot of focus, and if you go back, Pick n Pay was always known as the fresh food people. And to a large degree, we had lost that. And this is one of the major journeys that we're on at the moment, is reinvigorating our whole fresh offering in the company and getting back on to this virtuous circle, and we're starting to see the rewards coming out of this now in terms of the work that's been done under Peter and the Fresh food team. In terms of online and what we do with asap!, we relaunched the asap! app this year, and we have consolidated everything into the one app to make it far more user-friendly, and we're now up to a range of 35,000-odd products in asap!. asap! continues to be a very important part of the offer that we have in the company. And for those customers who want their goods delivered home, we will do it gladly with the greatest of pleasure. But our primary focus as a retailer still remains, number one, on having great stores with great product, great people and great shopping experience as the backbone of what we do. Franchise. I'm pleased to report that our franchise has moved positively into -- I think this one was about minus 1.4%, now up to 1.7% like-for-likes in franchise, and that's moved forward strongly. And we had a fantastic franchise conference 2 weeks ago in Johannesburg. And I'm pleased to say that our relationship with our franchisees today is as strong as it's ever been. The changes that we've made on the franchise model are working very, very well. And just in general, you just get a good feeling when you go around the company and you visit with the franchisees. And it's just extraordinary. We had 2 of our great franchisees this year that won the awards came from Stutterheim and [indiscernible]. And if you look at Stutterheim, I mean, our franchise family in the area of Stutterheim, they almost run that town in terms of the work that they do with council and community and everybody. It's just extraordinary to see how these families really, really operate in these marketplaces. It's just too beautiful. Our hypermarkets is another key area of focus for us where we are really putting the real essence of hypermarkets back into hypermarket again, and we're seeing great success in this regard. So some of our larger stores where we sort of got a 6,000 square meter -- where we're not GLA, we've got 6,000 square meter trading on the floor, 5,000 square meters on the floor that we're converting this over to hypermarkets. We're putting enhanced GMD ranges back in there again, and we're getting extraordinary success with this format. And I see Jarett sitting over there, well done. We're really getting good traction there. So if we look at where we are and we have a look at our acceleration in like-for-like sales, it really is extraordinary in a very, very constrained market. And I think one needs to be realistic in life about the marketplace that we do operate in. And it's interesting in this marketplace because at the moment, we have a retail space where we're still seeing a lot of doors being opened by our competitors. One of them alone is over 300 new doors in the last year. And you take that against us closing 50, 60-odd stores over 18 months. So if you just have a look at the dynamic of optionality for consumers to shop elsewhere, it really is extraordinary that we managed to grow the like-for-like sales to the degree that we have. And I'm always realistic about these things. If you ask me what is one of the real pleasant surprises that's really surprised me, it's actually been our ability to show this level of like-for-like sales growth. And again, I'm realistic about these things because you can never ever fool yourself and end up in a sort of a fool's paradise because people tell you what you want to hear. Sometimes when you sit with suppliers, vendors, landlords, they also tell you what they think you want to hear. So you need to keep your feet in the ground. But we have various ways that we can read markets. There are certain market surveys and stuff that are done out there. And I'm just really so astounded by the fact that our continual market share decline that we were in has, in fact, bottomed out, started to solidify and starting to move in the right direction again. And that's in the market, and that's total market. And that's moving into a market where we're just seeing so much other optionality that's available out there. So it's extraordinary in this regard. And hopefully, this trend will continue to move forward in this direction. We obviously have some challenges in this marketplace as well. We're now coming to annualize on the [ two-pot ] release that happened last year. So it's going to be interesting to see what effect that's going to have in the next weeks and months as that starts to annualize and move through. And then obviously, a very tough market that we're in. But in terms of establishing a future-fit business, as I said at the opening, if we went back with the benefit of hindsight and looked at what we've done in the company, what would we do differently, there would not be much that we would actually be doing differently. And so in all of these metrics that are over here, there are 2 that I'd like to specifically call out. And the first one is the Store Estate reset, which is nearing completion. Now it's always fascinated me how Pick n Pay closing stores has predominated in all of the media and everything you read is Pick n Pay is closing, Pick n Pay is closing, no. We got rid of stores that were no good. That's just the simple truth of it. And it is something that every single retailer does. We hadn't done enough for a long, long period of time. The journey is done. There will be a few more left that we're going to mop up at the end. The great thing here is if you have a look at 27 of the stores that were originally identified have actually either turned to profit or coming back, getting close to turning to profit again. And even at a breakeven level, at a store level, it still contributes to the center. So this thing is neither -- it's a very dynamic process, and it's not necessarily linear or binary. So this journey is done. And from here on in, as we review leases as they come up, we will continue to assess each lease on a store-by-store basis because in some places, demographics change, the center of what's happening, the taxi rank moves, stores now are rendered no longer in the right place, and that will just be part and parcel of what we do. So I'm pleased to say that this is basically done, which is fantastic. The other really great one is our strategic supplier partnership that we have here. And as we know, our Eastport distribution center, which is the most extraordinary facility. And as I've said to Marcel, I think Marcel, I saw you walking in earlier. There's Marcel sitting there. As I said to Marcel in the beginning, don't be defensive of this, Marcel, because in the brief that you were given, you achieved 11 out of 10. You built a magnificent facility there, unfortunately, for the wrong company. It was too big, way too big. So I'm pleased to say that we've signed our MOU with DP World and the Eastport facility has now moved off to DP World, and we will be getting those savings and start to get those savings almost with immediate effect. So it's an extraordinary job of work that has been done. And I'm pleased to say that Eastport is now currently almost fully utilized because they have the ability to put some of their existing clients that they have into the building. And some of those people are, in fact, Pick n Pay suppliers. So it's even more efficient because the stock is now actually in the building. So it's a win-win across all the pieces of work that we're doing there. So that's another fantastic huge piece of work that we've got done and ticked off. Our digital transformation. And the reason why I call this out is just simply that there is a lot of talk around what is going on in this marketplace in terms of digital transformation and retail media and all of this. We have been in this for ages. In fact, we started selling our data at the end of my days in my previous life at Pick n Pay already. So this is nothing new. It continues to evolve. It's a very, very important part of the business, and we will continue to grow this. But in all of these areas, retail media and data analytics for our suppliers, this we will continue to grow. As we do, Smart Shopper, very, very important to us. It's a key part of our business, as I said before. And then obviously, our value-added services. We've received quite a lot of rewards and awards and accolades for the advertising and marketing that we've done. I think you will see in the company that our marketing is a lot crisper. It's a lot clearer, and it's a lot more targeted and directed than it used to be. Clothing. Our Clothing continues to perform fantastically and just extraordinary, where Pick n Pay has really found a segment in the marketplace that Hazel, and her team, have clearly really been able to identify what it is that their customers are looking for in terms of value and in terms of fashion, and it continues to grow strongly. Boxer, Marek and his team has -- they've just done the most extraordinary, extraordinary job of work. As you say, Lerena, they are now experienced results and roadshow presenters. Marek phoned me this morning to wish me well because he had a week like I'm going to have 2 weeks ago. But Boxer truly is an absolute, absolute gem. I mean they're just in the right spot and their virtuous circle is incredible. So to Marek, to you and your entire team, all I can say is, well, well done, my friend. We're very, very proud of you, and very privileged to have you as a part of us. Supporting our communities, notwithstanding the fact that we are busy working our way back into the sunshine and busy working our way back into profit, we have doubled down on our efforts in terms of what has always made Pick n Pay what it is. When Raymond and Wendy started Pick n Pay, there was always the fundamental belief that this is a company for the people, by the people and that you invest in society, you invest in community, and it is something that we have doubled down. We have a CSI WhatsApp Group. And I'm just astounded every week, every weekend, during the week at the updates that just continually get flicked through where right across the length and breadth of this country, our people just do the most extraordinary acts of help, of reaching out to community and supporting people in need. It's really magnificent. This has been one of the really wonderful things for us and a great privilege for us to be a sponsor of the Springboks. And at the start, it was always a case of the Springboks being the one thing in this country that unites South Africa and pull South Africa together because if ever this country needed to start pulling together, it's now. And that's why for us, in the first instance of the Springboks, it was more than just about sponsoring the Springboks. It was a symbolism of actually taking what it is that unites this country and brings it together and also making a statement that Pick n Pay is here. Pick n Pay is going nowhere. And as we say, South Africa, we've got your back. And hopefully, South Africa has got ours, and is starting to show in the footfall in the stores. But more importantly, it's not just about sponsoring the Springboks. It's about the work that's been done at grassroots level in Rugby. We don't realize just how important Rugby is amongst the youth in this country today. And you can go across the length and breadth of South Africa and see how Rugby is really becoming a force for good and a force for getting the country together. So we're massively involved down at the grassroots level in Rugby as well. So that's fantastic. So just a couple of closing remarks here. And as I said in the beginning, our strategic priorities that we put in place, we're kind of working our way through them, and we've got most of it ticked away. When we look at leadership and people, there's still obviously the issue of succession. I'm still here for another 2.5 years, and it is something that is top of mind for us. And we're busy working at all of our succession programs in that regard. And then also about building leadership within the company from within the company again because that's what retail is. It's about growing your own people. Accelerating our like-for-like sales, as I said, we're still working hard at that, and we'll continue to work hard at that. We continue to strengthen our partnerships across the board and to work with our landlords very, very importantly and to make sure that, that moves in the right direction as well as our supplier base. We reset the Store Estate that's kind of done. And the Future Fit structure is still work that is underway. And that's having a look at what is our store OpEx structures, what are our support OpEx structures. And those are things that are just work in motion as we go forward day-to-day. So I really just want to thank all my colleagues in the company that I'm privileged to work with and to be a part of. I can feel -- I had to -- I had an interview with Alec Hogg, before I came here earlier this morning. And Alec asked me, what does it feel like, Sean, when you go into the company and when you go into the stores compared to when you came back 2 years ago? I think that I can say without any fear of doubt that this is a different company today. Are we where we want to be? Hell, no. But are we well on the way on this journey? Absolutely. And I've said before, this is like climbing Mount Everest. I said, our journey is at Mount Everest. So Alec asked me this morning, well, if you think of Table Mountain and not Mount Everest, where are you in Table Mountain? I said, Alec, we are solidly at the cable station at the bottom there. We bought our ticket, and the cable car is on the way. We know where we're going, but we've got a journey to get there. But we know what it looks like. We know how to get there. And I want to thank everybody for their support, not only the people inside this company, but very, very importantly, the investors in this company who stay the haul with us, stay the long haul with us, the family, Wendy, Gareth, the Ackerman family for the support that they've given to both myself and the company. And it's a great privilege to stand here as the CEO of this wonderful organization. So thank you very much. I don't know if there are any questions. Unknown Analyst: [indiscernible] I'll speak for now. Sean Summers: Yes. Unknown Analyst: Sean, Lerena, well done on the great work you've done so far [indiscernible]. Well, the first one, you mentioned a lot of -- you want to add new skills into the -- reintroduce the skills into the business. Can you elaborate on what skills you're looking for, what positions, and how far along that journey are you? Have you like got more people to hire? Sean Summers: Yes. So the whole issue of skill, retail is -- it's a beautiful business. But when you ask yourself the question, where do you find retailers? I mean, you can't go to a college, you can't go to a university and go and find retailers. So retail by its very nature is something that you learn on the job. We had for a protracted period of time, done away with all of our training modules and our training manager programs that we had in place and Thembi is over here. Thembi heads up People for the group. So we've reinstated all of these things back in. And one day, Wendy asked me the question, just put in sort of not simple terms, Wendy, but Wendy said, Sean, just try and give me an understanding of what's really happened in Pick n Pay? And I said, I'll give you an analogy that Raymond would understand because he was a keen golfer. In years by, if we went to our stores, our leadership teams and store levels were all good single handicap golfers. Today, you're going to stores and there are most probably 16, 18 handicaps, 20 handicap golfers. Now you can't blame the people. Because everybody starts, if you play golf, you start with a really lousy handicap and then you work on improving it. And it's exactly the same in retail. So it takes time to reinstill and reinstate these skills at store level. So it's an operational thing at store level. It's a case of ownership that managers truly understand. This is my store. I take total responsibility for it. But then you've got to find great bakers, great butchers, good blockman because these are the skills and the artisans that one needs to put back into the business again. Otherwise, what are you? You're not really doing a great job. So we have to reinstate and rebuild all of those skills back into the business. And we're making really good solid progress now of creating these bases where we've taken in every single region now, we have identified stores where we're doing butchery training, bakery training. And so you've got to train these people and then you've got to make sure that they stay. So you have to create an environment that makes sure that it's conducive for them not only to learn the schools, the skills, but that they don't get poached and leave. So you've got to create an environment where they want to stay as well. Somebody said to me once that you spend a lot of money on training. Is it like really sort of worth it? And I said, well, yes, I think so. They said, well, what happens if you train them and they leave? Well, I said, what happens if you don't train them and they stay. So it's an investment that one needs to make. And we're on that journey. Unknown Analyst: And just on the franchise. The franchise started to revamp. We heard there was a new agreement that came in about 1.5 years ago. Now there's another new agreement. What are the changes you've been making to reinforce that... Sean Summers: So the changes fundamentally for the franchise in that agreement really is just dealing with widening their margin. So it's giving them more of a margin or profit for the individual franchisees and operators. And when we have a look at our aging debt and stuff in franchise, we've got hold of that. It's in a much better way around than it has been for a long, long time. And that's all to do with the health of their income statement at franchise level. So that's where we've been applying a lot of attention. No further questions. Anything online? [ Tam, ] yes? Unknown Executive: A question from Paul Steegers. What is your outlook for Pick n Pay internal inflation for the remainder of the financial year? Sean Summers: So we're sitting at the moment at about 2.1%. Lerena, is that right? The figure? Lerena Olivier: Yes. Spot on. Sean Summers: So many numbers in my head at the moment. So we're sitting at about 2.1% at the moment. I think that one may see that there are certain commodities like rice and maize are, in fact, coming down, which means that poultry prices should also come down. I think that inflation may actually go down. I think it may get closer to 1%. I think in some of the basic categories, you may even see it getting closer to a bit of deflation. If you look at the GDP, what is the GDP? It's about 0.6%? You clever people in the room should know this. And I think that the forecast was to be circa 2%, 2.2% or 2.3%. So we can look just from that perspective as well as not only inflation down, which obviously creates another level of challenge for us, but the GDP is also down. So I come back to this really, really constrained market. This market is tough. And here again, when you sit and speak to the major manufacturers, and I spend a lot of time talking to the big suppliers, all suppliers. For them, they look at the total market. So I mean, if you speak to the 2 sugar suppliers, you basically got sugar done. And then when you have a look at the total market and the dynamics that are there, there are certain categories in this country where people are trading down dramatically. We can see it in Boxer, where we can have a look at the profiles of what protein is being bought there. And you can see the things like Russians, viennas, polonies. You can see how those are just soaring in terms of sales because people are just battling to afford normal protein, red meat and chicken. So these are dynamics. The market is really constrained. And inflation, I think, will actually go down, not up, would be my prediction. Unknown Executive: Another question from Paul Steegers. Please could you explain how you calculate your like-for-like growth for Pick? Do you strip out those stores that are ought to be closed or converted to Boxer? Sean Summers: Yes. Those come out. And like-for-like sales is purely like-for-like stores. So that gets stripped out. Sorry, Lerena, you can... Lerena Olivier: Correct, Sean. You passed the test. Sean Summers: Checking with the head -- just checking with the -- my Chief Sales Prevention Officer. This is... Unknown Executive: Question from [ Titanium Capital ]. The Pick n Pay gross margin is 16.9%. Can you please provide a separate gross margin percentage for corporate and franchise operations? Sean Summers: No. There's levels when we come to segmental disclosure, there's levels that one goes to. And I know that you'd like to have the P&L for every single service area and every single store and build it up from there, but that won't be happening anytime soon. Lerena Olivier: But noted. Unknown Executive: From Reuters. Could you please explain when the group expects to reach breakeven and how this will be done? Lerena Olivier: I mean our guidance is for us to get to those objectives by FY '28. And it will be done through the initiatives that actually is still projected on the slide. It effectively looks to growing the business through like-for-like sales as a first step. As I think both Sean and I have mentioned, the store closures is now largely in the base. So from now on, one would start to see positive sales growth momentum. And we have just improved our gross profit margin, and we do believe there is more to be had as we go on the journey. And then there is the initiatives across the entire expense base. I mean the MOA that we've just signed with DP World is a very, very important strategic pillar. We expect to see those efficiencies coming through over the next 24 months as they unfold. So it literally is driven by each of our Future Fit initiatives. Sean Summers: I think important, Lerena, to add to that, our margin has widened this year by the amount that it has. We've given more margin to our franchisees, and we're absolutely price competitive in the marketplace. So if you look at the independent pricing surveys that have been done, they all absolutely bear that out. So it's not us marking our own homework, which would show you that when 18-odd months ago, when I returned here 24 months ago, our buyers and merchants in the company were more focused on recovering money than actually trading. And I said this must come to an end. We must get back to trading and buying and selling and doing what buyers should be doing. So I think that this is most probably the greatest manifestation of the success that's been had in that regard. We're just back to being good basic retailers again when it comes to buying and selling. Unknown Executive: Question from David Fraser at Peregrine. From a strategic point of view, do you envisage holding on to the Boxer stake indefinitely? Or would you consider an unbundling down the line? Lerena Olivier: We are very, very happy with the Boxer performance, and we are very, very happy to own 65.6% of Boxer. As a matter of fact, we would have loved to have still 100%. So we are definitely very happy with the performance and what the team is delivering for PIK shareholders. Unknown Executive: Another question from Kabelo Moshesha. Post the completion of the hiring process, will the like-for-like employee cost growth revert closer to inflationary levels? Is there more investment required post this period? Lerena Olivier: I think the way you need to think about it is our objective to get our like-for-like expense growth below our like-for-like turnover growth. That is what our key initiatives will deliver, and that will include efficiencies in employee cost stores. Sean spoke to support office initiatives, looking at efficiencies in store, et cetera. So as this unfold over the period of the plan, you would see that like-for-like number coming down. Unknown Executive: Question from [indiscernible] from Verition Fund Management. Would you be willing to consider a Pick n Pay share buyback as the turnaround strategy continues delivering results? Lerena Olivier: I think where we are currently, we are focusing on our target to get the business to cash flow breakeven. And once we have achieved that, one will consider future options. Sean Summers: And I think one must also add to that, that as we get back into a stronger financial health and cash generative again that we need to continue investing inside the company and getting our state back to the condition that it needs to be in. Unknown Executive: Question from Cobus Cilliers from Value Capital Partners. I wanted to know something about the overlaps between Pick n Pay and Boxer. Given the procurement processes for the 2 companies are independent, are there any specific important overlaps between the 2 entities? Sean Summers: No. It's one of the things that we did is drew a real clear line between what Boxer does and what Pick n Pay does. Boxer's philosophy, how they buy, how they go to market is so far away from what Pick n Pay does. And we don't want to mix. We don't want to confuse that in any way, shape or form. So on a piece of paper, sometimes these things look like they make sense. But in reality, when you actually come to implement it, it doesn't work. Unknown Executive: Another question from Paul Steegers. Please talk to the additional investments you have to make that cause Pick segment loss to not improve in FY '26 versus FY '25? Lerena Olivier: I mean I think we have discussed them now in the Q&A. Largely, a lot of them will definitely be the key skills we need in an operational level to ensure that the in-store execution keeps on driving our like-for-like sales. Unknown Executive: Question from Ya'eesh Patel at SBG Securities. Please, can you speak to the CapEx cadence in the Pick n Pay stable? Is there not an element of underinvestment, which could bite over the medium term? How should we think about this? Lerena Olivier: We are very, very careful to ensure that we spend where we get returns. I mean the question is a very valid one, but we also need to make sure that our operational excellence on ground level is established to ensure that we get the returns. So we are measured still in our spending, but we have got the ZAR 3.9 billion on balance sheet and where we believe that it can unlock returns, we will definitely spend the money. Sean Summers: And I think another point to that, Lerena, is it's not just about spending money on stores. You can build the greatest brand-new swanky store, but if you don't have the right people in the store and the product is not there, you're still not going to do the business. So it's not that the whole of the Pick n Pay real estate is broken, not at all. I mean we have a lot of great stores in this company. Certainly, there are some key stores that need some work done to them. That is an absolute fact. But I mean, there's also a big chunk of our state that's great. So we mustn't have a look at Pick n Pay and think that the whole thing is broken. It ain't. Unknown Executive: Another question here. What is your view on the amount that is being spent on online gambling and its impact on disposable income? Sean Summers: This is a really, really current topic, and one can see that there's been commentary from virtually every financial institution. There's been so much talk about it. But I think context is always important. So if we have a look at the, I don't know, ZAR 1.6 trillion or ZAR 1.7 trillion that is turned over in the space of gambling in South Africa. There's somewhere north of about ZAR 70 billion that has been taken out of this market at the moment in terms of profits that have been taken in the gambling industry, the bulk of which is in the online gaming space, not in the casinos and horse racing and the likes, where employment is created. At least in casinos, you've got hotel rooms and [ crew peers] and cleaners and all of that. And in the horse racing industry, you've got a whole industry there. If one looks at online gambling, they don't create new jobs. These program writers are all sitting in other places offshore. ZAR 70 billion a year. I mean, if you think of ZAR 70 billion a year, that's basically Pick n Pay's total revenue, we're still a big company. It's the equivalent of everything that's sold by Pick n Pay is taken out by a few people in profit every year in a highly constrained market. It's over ZAR 1 billion a week has just been hoovered out of the economy. It's difficult. I mean a lot of the research work that's been done by some of the institutions, it would appear that north of 20% of SASSA bonds are going straight into gambling. It's horrendous. It's horrendous. Now how does one deal with it? Smoking was a cancer. And then one of the ways that they dealt with it was that they banned all marketing and promoting of cigarette products and tobacco products. I think we need to give serious consideration in this country to a similar move that all marketing and advertising should be banned forth with, the same as you did with smoking. It's not a crazy thought. You look in Europe, I mean, in Belgium, Holland, Italy, there's no marketing of gambling, it's illegal. Even if you look in the United Kingdom from next year, now will be not possible to put a gambling logo on the front of a soccer jersey. So even in countries like the U.K., it's starting to move. So I think this is an industry that is totally out of control. I think that the poor and the vulnerable and you know even kids, I mean, all you need is your mom and dad's ID number, sign up on the app, put in the ID number and you're off to the races. I mean, I speak to people that are teachers at schools and what have you, and they tell me about the stress that's happening amongst kids where kids are sitting in school gambling on the apps on the phone. It's a problem. It's a huge problem. So I think a serious consideration needs to be given to what is actually happening inside society in this regard. It's not just about the greed of chasing the profit. Unknown Executive: It's a question from Nick Webster at HSBC. There's no mention of liquor performance in the presentation. Could you give us some color here and if it's accretive to the Pick n Pay like-for-likes? Sean Summers: Yes, our Pick n Pay liquor like-for-like sales continue at a similar pace as the rest of our like-for-like sales and liquor continues to grow. It's also a fantastic category for us. We just want in this presentation not to get too granular in terms of calling out everything and just really get to the headline stuff that really people want to know about, and that is what's happening to the core underlying Pick n Pay at a top line level. Unknown Executive: Another question from Johannesburg. What is your opinion on Walmart entering the South African market? What do you believe will be the impact on SA Retail in the short term? Sean Summers: I think it came about 17 years ago. 16 years ago, didn't they? They arrived, yes, 16 or 17 years ago, so it's not like they've just arrived and cleared customs. I know it's quite slow to get through the airport, but they've been here for a while. It would appear at this stage and one is never sanguine about these things because they obviously are a mighty force clearly. From the stores that we've seen that have been identified, it's more a rebranding exercise than anything else. So it would appear that there's some of the real estate that they'll rebrand, and we'll keep an eye on them. But they've always been here, always been here. Unknown Executive: And then another question from Ya'eesh Patel at SBG. Please, can you speak to any dynamics over the past 6 months in the chicken category? Any shortages for Pick n Pay experienced? Sean Summers: Yes, we had the problem with the MDM issue and out of Brazil because a lot of product that comes into this country, MDM is the backbone of what happens for the lower-end proteins, Russians, viennas, polonies and all of that. So that has a profound effect on that. Obviously, chicken feeds as well is a massive piece of the market for Boxer and the like and even in some of our Pick n Pay stores. And then on poultry in general, we had the foot and mouth issue on red meat. So we had a spike in red meat prices, which obviously then put more pressure on poultry, then we had poultry shortages. So the poultry market has been under a lot of pressure as well. Unknown Executive: Question from Keenon at Investec. Are you seeing a highly promotional environment in Pick Clothing? Sean Summers: The clothing market is interesting because obviously, you've got our friends from SHEIN and the like that are sort of playing silently in this space, but growing enormous volumes in this country, absolutely enormous volumes. But if we have a look at our clothing offer within Pick n Pay, we're really not that promotional because I mean, we have -- when I say we're not that promotional, we have a value proposition, and we present fair value to the consumer. So our clothing is not massively price driven. But the textile market, as you know, you can see from the result of the other retailers has been under pressure in the last while. And it's going to be interesting to see, as I say, as we annualize through the two-pod system now because a lot of the two-pot spending that actually went back into the market didn't really go into food. A lot of it went more into sort of clothing and housewares. So let's see how that annualizes out. Unknown Executive: Question from Thishan Govender at Truffle Asset Management. Any guidance on when core Pick n Pay is expected to be free cash flow neutral? And what is the top line like-for-like gross profit margin and OpEx needed to get there? Lerena Olivier: Shall I just pull out my spreadsheet, Sean. Sean Summers: Yes. It's an addiction we are under in. Lerena Olivier: Our guidance remain on the full cash burn for the Pick n Pay segment towards FY '28. And ultimately, the way you need to think about it is that we need to get our trading profit after lease margin to 0. And to do that, about half, we believe, will come from our gross profit and the other half from our trading expenses. Unknown Executive: A question from Citi. Can you provide some color on clothing post-period trade? Sean Summers: Clothing post period trade. continues to show the similar trend pre. We haven't seen any marked drop off from before. So yes, we're really, really happy with the progress that Hazel is making, the new stores that are opening. We've -- from an excess merchandise markdown perspective, we've really done a great job of getting ourselves a lot more efficient and cleaner in that area. So we're very positive about where we are at the moment in our clothing business. And then obviously, the Springbok apparel and merchandise is another great thing for us in that area. We do an unbelievable amount of business in Springbok apparel and merchandise. Unknown Executive: I have 2 more questions. One from Daniel at Ashburton. Could you speak to the outlook for cost growth into H2, including Boxer? Lerena Olivier: Boxer will continue to grow as they're opening their store estate. So you will see similar levels of growth in the Boxer business. And I think the Pick n Pay shape will also reflect the first half. Unknown Executive: And a last question from Nick Webster at HSBC. Could you comment a bit more on your enhanced private label offering in terms of categories and current penetration to Pick n Pay? Sean Summers: Yes, certainly. We've done a lot of work in the last while of cleaning out a lot of house brand product that was in store. That was not particularly well conceived at the point in time when those ranges are put together. We've taken No Name brand again. And again, we've cleaned up the No Name brand range. We've got rid of a lot of items that should never have been in No Name brand. No Name brand was always understood to be in certain categories and in certain commodity groups and present a certain value profile to our customers. So we're busy refocusing that again at the moment. We've got new packaging that's going to be coming forward that will be taking us and really putting No Name brand back as the hero that it should be and a very, very well-known house brand in the country, one of the leading ones. And then on the Pick n Pay brand specifically and Live Well. There's work that's been done behind the scenes there as well. So as I say, we've been getting cleared of a lot of product that was just -- that was not really serving the purpose that it should serve. So I think within the next 12 to 18 to 24 months, you will see quite a radically revamped and repositioned house brand range in the market. But -- our front door always in this company has been branded goods you know at prices really low. That's always been the key hallmark of our success in the company, and that's our backbone. And then your house brand sits on the side of that and performs a very, very important function. And then obviously, on the other side of that is Fresh, which obviously a lot of that is house brand just by nature, but a massive amount of energy and effort going into Fresh. So a lot of stuff happening. Unknown Executive: From David Fraser at Peregrine. Is Pick n Pay core profitability during or at the end of 2028? Lerena Olivier: During. Sean Summers: Morning, David. Chris Logan: It's Chris Logan. Very well done on all the notable improvements. If we consider the tough competitive environment you're faced with, and your trading expenses as a percentage of sales at 22.2%. They're very high historically, and they're high in relation to your GPU of 16.9%. Are you not going to need to take more radical steps to get your trading expenses in line? Sean Summers: You see the critical thing, and thanks for that question because, I mean, that's the vital journey that we're on. So the 2 key metrics in this business, obviously, is your top line sales and then your margin. And then obviously, your trading expenses. But your trading expenses, okay, if you look at your trading expenses, a lot of them are not that variable. When you take cost of occupancy and rates and taxes and rents and all of those kind of things. So a lot of that outflow, the only real variable you got there is kind of sort of your wages and stuff that you can flex. So yes, it's absolutely the nub of where we are. And top line is everything because if you lose the momentum on the top line, there's no way that you can cut your expenses as a rate to offset loss of momentum at the top line level. And that's why one of the constraints currently in this marketplace is top line sales. Now I don't sit here -- we don't sit here in Kenilworth and have this set of circumstances, the macro economy looking at us and our colleagues down over the hill over there or nearer to that side of the mountain on the other side over there, they have a different set of dynamics. They're operating in the exact same market that we're operating in. So these things are common to all. So the pressures we feel, they feel as well. So you see our expenses, if we can get our top line growing at the rate that can continue to show these trends, your expenses -- your wage expense and your fixed cost expense all comes down as a proportion of it. So the work that we are doing currently to do the OpEx reset, to have a look at the store labor reset and all of that stuff that we're doing, this is all work that's happening quietly behind the scenes, and it's ongoing. It's ongoing. We just need your support in the store shopping with us, and then it will help us get there. Unknown Executive: Sorry, Sean, one more question. Is the group breakeven including Boxer for the full year? Lerena Olivier: It's specifically focused on Pick n Pay. Unknown Executive: Okay. And then the last question, can you clarify if the full year guidance for F '26 is on the trading profit pre-leases level? Lerena Olivier: It is on the trading profit pre-leases level. Unknown Executive: And that's it from... Sean Summers: Okay. Yes, sir. Unknown Attendee: One of the important slides you presented of the social welfare benefits you bring to the country, why isn't this more promoted? I mean, with all the problems you're resolving, don't you think we should be more aware of the benefits you're bringing to the society? Sean Summers: A good question from one of our faithful long-term shareholders, private shareholders. We appreciate it. And I appreciate that question. There's a famous saying in life that the hand of the receiver should never know the hand of the giver. And it's something that we also believe in, in the company. So I think just to continually quietly investing in community and doing what you do, creates far more long-term loyalty and sincerity with the communities that we deal with because I know that we're there for them. And it's always been a philosophy of ours and a belief of ours that we just quietly get on with it, and we just change lives in communities. In fact, we've got Suzanne sitting here, who's been at the forefront of a lot of this, and a lot of that instilling that culture into the company. And doing good is good business as our Chairman taught us, Chairman and Founder. Okay. Thank you very much, indeed. Wish you all of the best. Have a great week. Mine is going to be spectacular. Lerena Olivier: Thank you.
Nathan Ryan: Good morning and welcome to the Perseus Mining Investor Webinar and Conference Call. I'll now hand over to Perseus Mining Managing Director and Chief Executive, Craig Jones. Thank you, Craig. Craig Jones: Yes. Thanks, Nathan, and welcome to the Perseus Mining quarterly webinar to discuss our September quarter results. Firstly, it's an honor to assume the role of CEO of Perseus Mining following Jeff Quartermaine's retirement, and he's left a lasting legacy at Perseus. And I'm joined here on the call today by our CFO, Lee-Anne de Bruin. So thanks, Lee-Anne. And also, let me just start by acknowledging the exceptional efforts of our teams across the globe who worked tirelessly to deliver another strong quarter of performance for Perseus. So the September quarter marked another solid performance for Perseus in a year where all of our sites are transitioning into new mining areas. Amongst the change, we delivered strong operational results and continue to generate robust cash flows at the same time as marking meaningful progress on our growth initiatives. Firstly, our 12-month rolling average TRIFR is currently sitting at 0.6, which is a very credible performance. From a safety perspective, we're continuing to focus on our fatal risk management process and our Safely Home each day engagement program as the key pillars for our safety approach. Our gold production for the quarter was just under 100,000 ounces at an all-in site cost of $1,463 per ounce. So whilst our production is lower than the previous quarter, it's in line with our expectations and in line with our full year guidance. Combined gold sales from all 3 operations totaled 102,000 ounces sold at an average sales price of $3,075 per ounce, delivering a robust cash margin of $1,612 an ounce, capitalizing on strong market conditions. The notional cash flow for the quarter was $161 million, and we continue to build on our cash position with the quarter ending with a net cash and bullion of $837 million. The September quarter marked significant transitions for mining locations at Yaouré and Edikan. Yaouré transitioned from the CMA open pit to the lower grade Yaouré open pit, and Edikan's focus moved to the higher-grade Nkosuo pit following the completion of mining at the AG and Fetish pits. And I'll provide further details on this as we progress through each site's performance for the quarter. Starting with Yaouré. As mentioned, Yaouré gold mine operations have transitioned from the CMA open pit to the Yaouré open pit during the quarter. Yaouré open pit is geologically more complicated than CMA open pit, and there's been a strong focus on improving grade control practices to improve reconciliation to account for the shift in geology. We saw a significant improvement in reconciliation over the quarter with September's reconciliation being in line with normal tolerances. For the quarter, Yaouré produced just over 55,000 ounces of gold, which was 21% down on the previous quarter, but in line with our expectations. This reduction reflects the lower grade Yaouré ore consistent with the mine plan, and we can expect to see lower grades associated with the Yaouré pit for the remainder of the year. Production cost for the quarter was $829 an ounce with an all-in site cost of $1,110 per ounce. The all-in site cost decreased by 6% compared to the previous quarter, notably due to a decrease in sustaining capital associated with the timing of ongoing works on the tail storage facility, which was higher in the June '25 quarter -- FY '25 quarter. 57,000 ounces of gold was sold at a weighted average sale price of $2,959 per ounce, which delivered an average cash margin of $1,829 per ounce. Notional operating cash generated by Yaouré during the quarter was $102 million, so continuing to generate strong cash flows at Yaouré. Mill run time was steady at 94% with gold recovery remaining stable as per the previous quarter at 94%. Reconciliation between the block model and the mill for the last 3 months is 17% positive tonnes and 10% negative on grade for a 5% overall increase in contained ounces. A final goodbye cut was taken in the CMA open pit with the pit now being used as the access for the CMA underground development, which began during the quarter. The CMA underground will be the first mechanized underground mine in Côte d'Ivoire. And I'll speak further to the CMA progress later on in the presentation. At Edikan, during the quarter, Edikan produced 33,000 ounces of gold. Majority of the mining during the quarter was conducted at the Nkosuo pit following the completion of the AG and the Fetish pits. The land access of Nkosuo pit was mostly resolved during the quarter with mining of the footprint progressing. There were some challenging wet conditions from sustained rainfall that impacted the ore handling and dilution, resulting in processing of some of the lower-grade stockpiles during the quarter. Stripping was higher due to face positions and access sequencing of the pit as mining areas became available. Production cost for the quarter was $1,232 per ounce and an all-in site cost of $1,603 per ounce, which is $121 per ounce higher than the previous quarter, and the increase is mainly due to mining costs resulted from higher stripping waste stripping at Nkosuo. 31,000 ounces of gold was sold at a weighted average price of $3,337 an ounce, resulting in an average cash margin of $1,734 per ounce and a notional operating cash generation of $57 million. Mill run time and recovery were 94% and 87.7%, respectively, largely in line with the targeted key performance indicators. Reconciliation between the block model and the mill for the last 3 months is 11% negative on tonnes and 6% negative on grade for a 16% reduction in contained ounces. And this is mainly associated with the commencement of the Nkosuo pit and some of the challenging conditions that were experienced during the quarter. Plans are progressing to commence further cutbacks at the Fetish and Esuajah North pits in the next calendar year, consistent with the plans that we articulated in the 5-year outlook in June. During the quarter, Sissingué complex produced 12,000 ounces of gold and the Sissingué complex results were attributed to mining and processing operations at the Sissingué Gold mine and mining operations at the Fimbiasso pits located 65 kilometers from the Sissingué processing facilities. Production cost for the quarter was $2,458 per ounce and an all-in site cost of $2,745 per ounce. The increase in all-in site cost was a combination of increased royalties linked to gold price and higher production costs resulting from scheduled mill reline and surge bin apron feeder maintenance and an increase in waste stripping at Fimbiasso West, Sissingué Stage 4 and Airport West to access high-grade ore. 13,000 ounces of gold was sold at a weighted average sale price of $2,953 per ounce, resulting in an average cash margin of $208 per ounce and a notional operating cash flow of $2 million for the quarter. Mill run time was 91%, which was down from the previous quarter's 96% due to maintenance activities and gold recovery improved marginally to 90.9% from 88.3% in the previous quarter. Reconciliation between the block model and the mill for the last 3 months is 4% negative on tonnes and 14% negative on grade for an 18% reduction in contained ounces. The lower gold grade performance reflects the continuation of higher dilution than anticipated when mining the narrow variably mineralized structures of Sissingué Main, Fimbiasso West and Airport West pits. The 6- to 12-month trends demonstrate improving correlation with gold contained now tracking within 7% of the block model over an annual period and work is ongoing to -- on operational controls to minimize dilution. Ore grade is expected to increase with the mining of the Antoinette deposit at Bagoé, which is scheduled to commence in Q2 of FY '26. Construction of the site infrastructure is progressing well and remains on schedule. All major contracts have been awarded, and key contractor mobilization is proceeding as planned. So looking ahead for FY '26, our guidance remains unchanged. Gold production will be in the range of 400,000 to 440,000 ounces with production weighted to the second half of the year. Our all-in site costs will be between $1,460 and $1,620 per ounce. So our guidance includes Yaouré production reducing from this quarter, as we mentioned before, with all of the ore now coming out of the Yaouré pit. And Sissingué will increase production with access to the higher-grade material at Bagoé. Edikan also increasing production with the main source of the ore from the higher grade Nkosuo pit. So now I'll pass over to Lee-Anne, and she can talk about the financial aspects of the quarter. Lee-Anne de Bruin: Thanks, Craig, and hi, everyone, on the call again. As mentioned by Craig, we have ended this quarter strongly with $837 million of cash and bullion on the balance sheet, slightly up on the June '25 quarter. The balance is after operating margin generated by our sites of USD 170 million. We've also spent on continued investment in organic growth at the sites about $14 million. Capital expenditure was in the region of $67 million for the period, which included $48 million that's been spent on the progression of the Nyanzaga development project, and about $12 million on the CMA underground at Yaouré. There's been continued investments in our host countries through the payment of a USD 29 million dividend payment, which was made to our government partner in Ivory Coast in relation to Yaouré and their 10% shareholding and ongoing payment of taxes in the country. Included in this cash flow was also $11 million on the previous share buyback program, where we purchased back AUD 84 million in total of the AUD 100 million share buyback commenced in September '24. The share buyback was renewed in September '25 for another AUD 100 million. We remain debt-free with the USD 100 million facility undrawn in place. Looking at our hedge position. As previously advised, Perseus continues to evaluate its hedging strategy in the current gold price environment. Our hedging program focuses on maintaining downside protection whilst retaining as much upside opportunity as possible while still observing as we do, prudent cash management practices. Giving consideration to the rising gold price environment we're in, during the year and particularly during the quarter, we have continued to roll off existing forward contracts, reducing our committed hedge position. Since the end of March '25, we have reduced our committed hedge position from 24% to 14% of our 3-year forecast production. In addition, during the quarter, we spent USD 1.7 million purchasing uncommitted put options at about -- at a strike price of about $2,600 per ounce as part of our capital allocation strategy, which seeks to maintain balance sheet resilience under a range of trading conditions. With that, I'll hand back to Craig to now talk about our organic growth across the group. Craig Jones: Thanks, Lee-Anne. So moving on to the organic growth now, and there's been some fantastic development of our Nyanzaga project and CMA projects over the quarter, but we'll start off with Nyanzaga. So during the quarter, there were several important milestones achieved at our Nyanzaga project in Tanzania. We announced the signing of the critical elements of -- the critical agreements between the Tanzanian government and Perseus, mining subsidiary, Nyanzaga Mining Company Limited, locking in the key fiscal arrangements related to the project. We've been very active with our drilling program. And during the quarter, activities consisted of resource definition drilling on the Nyanzaga's Tusker and Kilimani deposits, along with sterilization and exploration drilling within the Nyanzaga mining license. Reconnaissance drilling on a cluster of exploration targets within the exploration tenements surrounding the Nyanzaga mining lease was also undertaken. This drilling continues with encouraging results that could support the potential for a resource and reserve update later this financial year. In terms of construction activities on the ground, you can see from the photos that we've been very busy. There's blinding, formwork and steel fixing commenced on the primary crushing, milling and CIL circuits and a second contract -- concrete contractor has been mobilized to site to provide additional capacity. Fabrication of the SAG and Ball mills are progressing well and are ahead of schedule. Both of which are on the project critical path. We've completed the bulk earthworks at both camp accommodation and treatment plant work areas and the roofing has been installed on the first accommodation blocks. The other buildings are progressing well as we work towards occupancy later this quarter or this coming quarter. Contracts have been awarded for the installation of the transmission line and transformers for the tie-in of the permanent power supply. We also continue to make great progress on the resettlement housing project with 163 of the total 262 houses have been delivered to project affected families. And as of the end of 19th of October, the number has risen to [ 181 ] homes. So overall, the Nyanzaga project remains on budget and on schedule with first gold anticipated in January 2027. As we announced during the quarter, a Presidential Decree Was granted authorizing the development of the -- and operation of the CMA underground at Yaouré. The first cuts of the Pauline decline were taken on Monday, the 29th of September, marking a significant milestone for the CMA underground project. You can see from the photos it's starting to look like a mine. And as of today, the Pauline decline has progressed to 69 meters. Phase support of the remaining 3 portals continued and mining of all 3 will commence early in quarter 2 of this current quarter. The administration building and fit out of the support buildings is complete. Other surface infrastructure, including camp facilities, electrical and maintenance areas to support the underground operations also continued during the quarter. With the commencement of mining of the decline, the next major milestone for the CMA underground project will be first ore production scheduled for Q3 of FY '26 with commercial production scheduled for Q3 of financial year '27. So great progress at CMA. So with sustainability. So alongside our financial and operating performance, Perseus continues to deliver tangible value to our host communities and governments, and this slide captures the breadth of our contributions. In the first quarter of FY '26, our total economic contribution reached $215 million across our host countries. This includes $141 million in local procurement, which directly supports national supply chains and local business development. We also contributed $58 million in taxes and royalties and $1.87 million in community contributions as we continue to support local development funds and key community initiatives. Our workforce overwhelmingly comes from the regions in which we operate with 95% of our employees from our host countries, and this is a reflection of our commitment to build local capability and building the skill base that we need for our future growth. Safety remains at the core of how we operated and achieving a TRIFR of 0.6 and an LTIFR of 0, making the full year without a lost time injury. That's a significant milestone and a testament to the safety culture that's embedded within our organization. We've also published our FY '25 Sustainable Development Report, which includes a refreshed sustainability strategy and a double materiality assessment. This ensures that our ESG priorities reflect both our business risks and the issues that matter most to our stakeholders, and I encourage you to read that on our website. Sustainability is at the core of our purpose and guides how we deliver results, creating value and building resilience. This is what makes Perseus a trusted partner in achieving its mission of creating material benefits for all stakeholders in fair and equitable proportions. So we continued -- so the September quarter capped off another successful quarter for Perseus. We continue to deliver solid operating performance, generate strong financial returns and progress our strategic growth projects, all while maintaining high safety and ESG standards. With a strong balance sheet, high-margin operations and clear growth path, we deliver -- we believe that we're well positioned to continue delivering long-term value for our shareholders. So thank you, and I'll now open the floor to questions. Nathan Ryan: [Operator Instructions] Your first question comes from Reg Spencer at Canaccord. Reg Spencer: Congrats on another good quarter. My first question is just in relation to Sissingué. Those -- that delay that you mentioned with respect to the mining conventions, is that got more -- does that delay more to do with the elections or the changes that were recently made to the mining code? Just trying to get a handle on the overall environment in Côte d'Ivoire. Craig Jones: I mean the elections were held on Saturday in Côte d'Ivoire. And while accounts seems to have progressed pretty well, we obviously keep watching that over the next couple of days. In terms of the mining convention, that's -- we're just working through the process of obtaining those. It takes a little bit of time. Lee-Anne de Bruin: Yes. I think, Reg, to your question, I think, no, it's unrelated to the mining code. But it's just -- as you know, during election time, it's hard to get people to put pen to paper. That said, we're quite progressed, and it's likely we'll get it sorted out. The mining convention, however, is not relevant to us commencing mining, however. It's just a matter of making sure we've signed up to all the fiscal arrangements that are agreed. Reg Spencer: Understood. And last one, feel free, Lee-Anne or Craig to answer this, but I'd be interested to get your views on hedging. Gold price clearly very high at the moment. You've got a relatively low percentage of hedging, and I suppose that's good for cash flow at this point in time. But the outlook, is there an argument to put more hedges in place to lock in gold prices? Lee-Anne de Bruin: Yes. I mean if I had a crystal ball and I knew where gold price was going, I'd be much richer than I am now, Reg. That said, as you know, we're always focused on disciplined cash management, and that's why we've shifted to the structure of paying some of our capital towards buying puts, which are relatively cheap at the moment. So although our committed hedging has come down, which is our forward book and our calls, the shift to puts allows us to protect the downside. So we still have -- we're still maintaining that downside protection through putting the puts in place. But those puts are not committed hedging. So we don't have to deliver them, but they are then allowing us to make sure that if gold price drops below $2,600 that we're relatively protected there. Nathan Ryan: Your next question comes from Richard Knights at Barrenjoey. Richard Knights: Just a quick one on Edikan. Obviously, production was down a little bit quarter-on-quarter. Just wondering about the access issues at Nkosuo. And I think you mentioned they're largely resolved. What is remaining? And is that going to have any impact over the rest of the year? And I suppose how should we think about the run rate at Edikan over the rest of the year? Craig Jones: I think the way to think about the run rate for Edikan at the end of the year is, as we've said, it will increase to -- continue to increase in production as we get deeper into the Nkosuo pit. We've -- when I say largely complete, we've got the majority of access to the entire footprint now and continuing to mine down, which we do get a little bit out of sequence with the access issues we were having. So hence, the stripping that we talked about being a little bit more. And so we're just getting back into sequence now in the pit and don't expect to see any constraints for us moving forward. Nathan Ryan: Your next question comes from Levi Spry at UBS. Levi Spry: Maybe just at Yaouré, can you just maybe talk us through the profile over the remainder of the year as the underground ramps up? Craig Jones: Yes. So obviously, we talked last quarter about the delays we were having in getting our Presidential Decree. So that's now resolved and behind us, and we're basically ramping up our mining progress for the CMA underground. And as I mentioned before, we're quite a way down the Pauline decline now, and we'll continue to get our rhythm and cycle times refined as we move forward. We're pretty confident that, that's going to progress well, and we should recover some of that time. But obviously, we need a little bit more time of mining before we can really go out and say that we are going to do that. So that's our primary focus at the moment is to get the mining operations efficient and turning over the heading so that we can recover that time. Lee-Anne de Bruin: And Levy, I mean, just high level, as you know, as we happily mentioned it is because we're entering the Yaouré pit, your production that will come off slightly for Yaouré over the next 2 or 3 quarters given that you're in the lower-grade Yaouré pit and ramping up the underground. Craig Jones: So we're essentially -- the majority of the gold for the year comes out of the CMA pit. There's only a small contribution from the underground. Lee-Anne de Bruin: Yes, from the Yaouré pit. Craig Jones: Sorry, the Yaouré pit. So that's our primary focus now is continuing, but the grades are lower. Levi Spry: Yes. Okay. And if I can just ask one about Nyanzaga. So I think you mentioned the reserve and resource update coming this year. How do we think about the materiality of that, I guess, given the stage it's at, potential upside and then even the pricing assumptions that were used in the last cut? Craig Jones: I think we'll have to wait and see for that work to be completed before we can give you any sort of indication on the materiality of that. But as we continue to do the drilling, we'll continue to update our models. We'll look at our assumptions around prices and so forth. And -- but everything seems to be going in the right direction at the moment. Levi Spry: Yes. Okay. Maybe just on that. So the updates we get on the grade reconciliation across the operations, is there anything that has caught your eye in the time you've been in the seat when it comes to that? Craig Jones: Look, I mean, that's obviously a core focus for us. I talked about Sissingué, trying to close the gap on that. There's been some good progress in terms of Yaouré, closing the gap on the reconciliation and tightening up our processes and mining practices, and we've seen some positive movements in that regard. So it's something that we'll be continuing to focus on. I mean there's a reason we put it in the report so that we can demonstrate that we are -- we have reliability in our ore bodies, and we have to mine them reliably as well. So very much a key focus for us. Nathan Ryan: Your next question comes from Andrew Bowler at Macquarie. Andrew Bowler: Just following on from the hedging questions. I'm not sure if you mentioned it earlier, Lee-Anne, but just the cost of those puts. I'm assuming that's caught up in the working capital and other line on the waterfall chart and just [indiscernible] that and how much you're willing to spend, I guess, every quarter from now? Lee-Anne de Bruin: Yes. I mean we spent about, as I said, USD 1.7 million in the quarter. We've got a mandate from the Board to spend -- to not overspend on it, and we're continually looking at the cost of it, but puts at the moment are relatively cheap. I think we're paying between $40 and $70 an ounce or something is what we've been paying. Andrew Bowler: No worries. And just another one, interesting comments on Sudan just talking about gradual improvement in security recently. I'm just wondering if that's going to affect the rate of spend for that project. Will we see an uptick for the remainder of the year? Or is the budget and it doesn't really matter if security improves, that's all we'll see -- excuse my voice, I should say? Craig Jones: Well, I mean, look, the reports coming out of Sudan are positive, which is a good thing. Obviously, there's a little way to go before we see how all that pans out. But we'll keep watching that. In terms of our current plans, our current plans are as per our budget. And if things change to the point where we think that, that would change, then we'll let the market know. But at this point in time, we're continuing to progress towards our budget. Lee-Anne de Bruin: Yes. And remember, Andrew, we've always said the security issues are quite minor for us given where we're located. The thing for us to make a decision there is to make sure the supply chain and logistics pieces are working because that's the most critical part probably to the project over and above security of our people. Nathan Ryan: Your next question comes from David Radclyffe at Global Mining Research. David Radclyffe: So it's early days for the question, maybe a little bit premature. But look, any thoughts on the opportunities you might have identified in the business so far? And then when you think to the overall strategy, are you sticking to this? Or have you thought of any way you might sort of think to tweak this in the future? Craig Jones: Yes. Thanks for the question, David. Look, the plan is still the plan. So there's a solid platform that Jeff and the team have built over the years, and the company has enormous optionality in it. I think for us moving forward, we'll be focusing on delivering the 5-year outlook that's been presented to the market. And that means we need to continue to deliver on our operating performance. We need to focus on the delivery of the Nyanzaga project and ramp that up in the March quarter of 2027. We need to build and operate the CMA project. So that's a shift, the first underground mine in Côte d'Ivoire. But we'll also be focusing on extending the life of our existing assets and doing more exploration in the exploration space. So a lot of focus on near-mine exploration. We're also doing some greenfield work as well. And then beyond that, if any other options come our way, then we'll assess them on their relative merits. But the plan is to continue to run safe and efficient operations to continue to generate strong cash flows, continue to return capital to shareholders and continue our growth options at the same time. And we think that we're in a position that we can do that. So that's how we're thinking -- well, I say that's how I'm thinking about it, and we're thinking about it at the moment. David Radclyffe: Great. That was very clear. Then maybe a follow-up on Edikan. So Nkosuo is ramping up a lot of volume of low-grade stocks processed this quarter. So is that going to be -- is that going to flow through to next quarter? And then when do the other cutbacks start to deliver ore? Craig Jones: Yes. So the -- let's start with Nkosuo. A lot of the reason for the low-grade stocks at Nkosuo was the wet season, obviously, in Côte d'Ivoire at the moment, and that finishes pretty much this month. So we're expecting conditions to improve substantially for the rest of the year, and that will just really get us into the rhythm in Nkosuo and starts to deliver the higher grade that we're expecting. So you should see that grade improve throughout the year. With the other 2 pits, we'll start that stripping activities in the next half. And there's a fair bit of stripping before we get into the ore there. So it's more focused on next year's grade than this current year. Nathan Ryan: Thank you. There are no further questions at this time. So I'll now hand back to Craig for closing remarks. Craig Jones: Thanks, everyone. We're very pleased with the quarter that we've delivered. We're pleased that we're continuing to deliver strong operating performance and create strong financial returns. And really thankful for the hard work of our people across the globe who do put a lot of effort in, and that's one thing I've noticed about this company is there's a huge amount of personal ownership and discretional effort that sits within the organization, and that's what helps create the kinds of results that Perseus is known for. So thanks very much for your time, and have a good day.
Nathan Ryan: Good morning and welcome to the Perseus Mining Investor Webinar and Conference Call. I'll now hand over to Perseus Mining Managing Director and Chief Executive, Craig Jones. Thank you, Craig. Craig Jones: Yes. Thanks, Nathan, and welcome to the Perseus Mining quarterly webinar to discuss our September quarter results. Firstly, it's an honor to assume the role of CEO of Perseus Mining following Jeff Quartermaine's retirement, and he's left a lasting legacy at Perseus. And I'm joined here on the call today by our CFO, Lee-Anne de Bruin. So thanks, Lee-Anne. And also, let me just start by acknowledging the exceptional efforts of our teams across the globe who worked tirelessly to deliver another strong quarter of performance for Perseus. So the September quarter marked another solid performance for Perseus in a year where all of our sites are transitioning into new mining areas. Amongst the change, we delivered strong operational results and continue to generate robust cash flows at the same time as marking meaningful progress on our growth initiatives. Firstly, our 12-month rolling average TRIFR is currently sitting at 0.6, which is a very credible performance. From a safety perspective, we're continuing to focus on our fatal risk management process and our Safely Home each day engagement program as the key pillars for our safety approach. Our gold production for the quarter was just under 100,000 ounces at an all-in site cost of $1,463 per ounce. So whilst our production is lower than the previous quarter, it's in line with our expectations and in line with our full year guidance. Combined gold sales from all 3 operations totaled 102,000 ounces sold at an average sales price of $3,075 per ounce, delivering a robust cash margin of $1,612 an ounce, capitalizing on strong market conditions. The notional cash flow for the quarter was $161 million, and we continue to build on our cash position with the quarter ending with a net cash and bullion of $837 million. The September quarter marked significant transitions for mining locations at Yaouré and Edikan. Yaouré transitioned from the CMA open pit to the lower grade Yaouré open pit, and Edikan's focus moved to the higher-grade Nkosuo pit following the completion of mining at the AG and Fetish pits. And I'll provide further details on this as we progress through each site's performance for the quarter. Starting with Yaouré. As mentioned, Yaouré gold mine operations have transitioned from the CMA open pit to the Yaouré open pit during the quarter. Yaouré open pit is geologically more complicated than CMA open pit, and there's been a strong focus on improving grade control practices to improve reconciliation to account for the shift in geology. We saw a significant improvement in reconciliation over the quarter with September's reconciliation being in line with normal tolerances. For the quarter, Yaouré produced just over 55,000 ounces of gold, which was 21% down on the previous quarter, but in line with our expectations. This reduction reflects the lower grade Yaouré ore consistent with the mine plan, and we can expect to see lower grades associated with the Yaouré pit for the remainder of the year. Production cost for the quarter was $829 an ounce with an all-in site cost of $1,110 per ounce. The all-in site cost decreased by 6% compared to the previous quarter, notably due to a decrease in sustaining capital associated with the timing of ongoing works on the tail storage facility, which was higher in the June '25 quarter -- FY '25 quarter. 57,000 ounces of gold was sold at a weighted average sale price of $2,959 per ounce, which delivered an average cash margin of $1,829 per ounce. Notional operating cash generated by Yaouré during the quarter was $102 million, so continuing to generate strong cash flows at Yaouré. Mill run time was steady at 94% with gold recovery remaining stable as per the previous quarter at 94%. Reconciliation between the block model and the mill for the last 3 months is 17% positive tonnes and 10% negative on grade for a 5% overall increase in contained ounces. A final goodbye cut was taken in the CMA open pit with the pit now being used as the access for the CMA underground development, which began during the quarter. The CMA underground will be the first mechanized underground mine in Côte d'Ivoire. And I'll speak further to the CMA progress later on in the presentation. At Edikan, during the quarter, Edikan produced 33,000 ounces of gold. Majority of the mining during the quarter was conducted at the Nkosuo pit following the completion of the AG and the Fetish pits. The land access of Nkosuo pit was mostly resolved during the quarter with mining of the footprint progressing. There were some challenging wet conditions from sustained rainfall that impacted the ore handling and dilution, resulting in processing of some of the lower-grade stockpiles during the quarter. Stripping was higher due to face positions and access sequencing of the pit as mining areas became available. Production cost for the quarter was $1,232 per ounce and an all-in site cost of $1,603 per ounce, which is $121 per ounce higher than the previous quarter, and the increase is mainly due to mining costs resulted from higher stripping waste stripping at Nkosuo. 31,000 ounces of gold was sold at a weighted average price of $3,337 an ounce, resulting in an average cash margin of $1,734 per ounce and a notional operating cash generation of $57 million. Mill run time and recovery were 94% and 87.7%, respectively, largely in line with the targeted key performance indicators. Reconciliation between the block model and the mill for the last 3 months is 11% negative on tonnes and 6% negative on grade for a 16% reduction in contained ounces. And this is mainly associated with the commencement of the Nkosuo pit and some of the challenging conditions that were experienced during the quarter. Plans are progressing to commence further cutbacks at the Fetish and Esuajah North pits in the next calendar year, consistent with the plans that we articulated in the 5-year outlook in June. During the quarter, Sissingué complex produced 12,000 ounces of gold and the Sissingué complex results were attributed to mining and processing operations at the Sissingué Gold mine and mining operations at the Fimbiasso pits located 65 kilometers from the Sissingué processing facilities. Production cost for the quarter was $2,458 per ounce and an all-in site cost of $2,745 per ounce. The increase in all-in site cost was a combination of increased royalties linked to gold price and higher production costs resulting from scheduled mill reline and surge bin apron feeder maintenance and an increase in waste stripping at Fimbiasso West, Sissingué Stage 4 and Airport West to access high-grade ore. 13,000 ounces of gold was sold at a weighted average sale price of $2,953 per ounce, resulting in an average cash margin of $208 per ounce and a notional operating cash flow of $2 million for the quarter. Mill run time was 91%, which was down from the previous quarter's 96% due to maintenance activities and gold recovery improved marginally to 90.9% from 88.3% in the previous quarter. Reconciliation between the block model and the mill for the last 3 months is 4% negative on tonnes and 14% negative on grade for an 18% reduction in contained ounces. The lower gold grade performance reflects the continuation of higher dilution than anticipated when mining the narrow variably mineralized structures of Sissingué Main, Fimbiasso West and Airport West pits. The 6- to 12-month trends demonstrate improving correlation with gold contained now tracking within 7% of the block model over an annual period and work is ongoing to -- on operational controls to minimize dilution. Ore grade is expected to increase with the mining of the Antoinette deposit at Bagoé, which is scheduled to commence in Q2 of FY '26. Construction of the site infrastructure is progressing well and remains on schedule. All major contracts have been awarded, and key contractor mobilization is proceeding as planned. So looking ahead for FY '26, our guidance remains unchanged. Gold production will be in the range of 400,000 to 440,000 ounces with production weighted to the second half of the year. Our all-in site costs will be between $1,460 and $1,620 per ounce. So our guidance includes Yaouré production reducing from this quarter, as we mentioned before, with all of the ore now coming out of the Yaouré pit. And Sissingué will increase production with access to the higher-grade material at Bagoé. Edikan also increasing production with the main source of the ore from the higher grade Nkosuo pit. So now I'll pass over to Lee-Anne, and she can talk about the financial aspects of the quarter. Lee-Anne de Bruin: Thanks, Craig, and hi, everyone, on the call again. As mentioned by Craig, we have ended this quarter strongly with $837 million of cash and bullion on the balance sheet, slightly up on the June '25 quarter. The balance is after operating margin generated by our sites of USD 170 million. We've also spent on continued investment in organic growth at the sites about $14 million. Capital expenditure was in the region of $67 million for the period, which included $48 million that's been spent on the progression of the Nyanzaga development project, and about $12 million on the CMA underground at Yaouré. There's been continued investments in our host countries through the payment of a USD 29 million dividend payment, which was made to our government partner in Ivory Coast in relation to Yaouré and their 10% shareholding and ongoing payment of taxes in the country. Included in this cash flow was also $11 million on the previous share buyback program, where we purchased back AUD 84 million in total of the AUD 100 million share buyback commenced in September '24. The share buyback was renewed in September '25 for another AUD 100 million. We remain debt-free with the USD 100 million facility undrawn in place. Looking at our hedge position. As previously advised, Perseus continues to evaluate its hedging strategy in the current gold price environment. Our hedging program focuses on maintaining downside protection whilst retaining as much upside opportunity as possible while still observing as we do, prudent cash management practices. Giving consideration to the rising gold price environment we're in, during the year and particularly during the quarter, we have continued to roll off existing forward contracts, reducing our committed hedge position. Since the end of March '25, we have reduced our committed hedge position from 24% to 14% of our 3-year forecast production. In addition, during the quarter, we spent USD 1.7 million purchasing uncommitted put options at about -- at a strike price of about $2,600 per ounce as part of our capital allocation strategy, which seeks to maintain balance sheet resilience under a range of trading conditions. With that, I'll hand back to Craig to now talk about our organic growth across the group. Craig Jones: Thanks, Lee-Anne. So moving on to the organic growth now, and there's been some fantastic development of our Nyanzaga project and CMA projects over the quarter, but we'll start off with Nyanzaga. So during the quarter, there were several important milestones achieved at our Nyanzaga project in Tanzania. We announced the signing of the critical elements of -- the critical agreements between the Tanzanian government and Perseus, mining subsidiary, Nyanzaga Mining Company Limited, locking in the key fiscal arrangements related to the project. We've been very active with our drilling program. And during the quarter, activities consisted of resource definition drilling on the Nyanzaga's Tusker and Kilimani deposits, along with sterilization and exploration drilling within the Nyanzaga mining license. Reconnaissance drilling on a cluster of exploration targets within the exploration tenements surrounding the Nyanzaga mining lease was also undertaken. This drilling continues with encouraging results that could support the potential for a resource and reserve update later this financial year. In terms of construction activities on the ground, you can see from the photos that we've been very busy. There's blinding, formwork and steel fixing commenced on the primary crushing, milling and CIL circuits and a second contract -- concrete contractor has been mobilized to site to provide additional capacity. Fabrication of the SAG and Ball mills are progressing well and are ahead of schedule. Both of which are on the project critical path. We've completed the bulk earthworks at both camp accommodation and treatment plant work areas and the roofing has been installed on the first accommodation blocks. The other buildings are progressing well as we work towards occupancy later this quarter or this coming quarter. Contracts have been awarded for the installation of the transmission line and transformers for the tie-in of the permanent power supply. We also continue to make great progress on the resettlement housing project with 163 of the total 262 houses have been delivered to project affected families. And as of the end of 19th of October, the number has risen to [ 181 ] homes. So overall, the Nyanzaga project remains on budget and on schedule with first gold anticipated in January 2027. As we announced during the quarter, a Presidential Decree Was granted authorizing the development of the -- and operation of the CMA underground at Yaouré. The first cuts of the Pauline decline were taken on Monday, the 29th of September, marking a significant milestone for the CMA underground project. You can see from the photos it's starting to look like a mine. And as of today, the Pauline decline has progressed to 69 meters. Phase support of the remaining 3 portals continued and mining of all 3 will commence early in quarter 2 of this current quarter. The administration building and fit out of the support buildings is complete. Other surface infrastructure, including camp facilities, electrical and maintenance areas to support the underground operations also continued during the quarter. With the commencement of mining of the decline, the next major milestone for the CMA underground project will be first ore production scheduled for Q3 of FY '26 with commercial production scheduled for Q3 of financial year '27. So great progress at CMA. So with sustainability. So alongside our financial and operating performance, Perseus continues to deliver tangible value to our host communities and governments, and this slide captures the breadth of our contributions. In the first quarter of FY '26, our total economic contribution reached $215 million across our host countries. This includes $141 million in local procurement, which directly supports national supply chains and local business development. We also contributed $58 million in taxes and royalties and $1.87 million in community contributions as we continue to support local development funds and key community initiatives. Our workforce overwhelmingly comes from the regions in which we operate with 95% of our employees from our host countries, and this is a reflection of our commitment to build local capability and building the skill base that we need for our future growth. Safety remains at the core of how we operated and achieving a TRIFR of 0.6 and an LTIFR of 0, making the full year without a lost time injury. That's a significant milestone and a testament to the safety culture that's embedded within our organization. We've also published our FY '25 Sustainable Development Report, which includes a refreshed sustainability strategy and a double materiality assessment. This ensures that our ESG priorities reflect both our business risks and the issues that matter most to our stakeholders, and I encourage you to read that on our website. Sustainability is at the core of our purpose and guides how we deliver results, creating value and building resilience. This is what makes Perseus a trusted partner in achieving its mission of creating material benefits for all stakeholders in fair and equitable proportions. So we continued -- so the September quarter capped off another successful quarter for Perseus. We continue to deliver solid operating performance, generate strong financial returns and progress our strategic growth projects, all while maintaining high safety and ESG standards. With a strong balance sheet, high-margin operations and clear growth path, we deliver -- we believe that we're well positioned to continue delivering long-term value for our shareholders. So thank you, and I'll now open the floor to questions. Nathan Ryan: [Operator Instructions] Your first question comes from Reg Spencer at Canaccord. Reg Spencer: Congrats on another good quarter. My first question is just in relation to Sissingué. Those -- that delay that you mentioned with respect to the mining conventions, is that got more -- does that delay more to do with the elections or the changes that were recently made to the mining code? Just trying to get a handle on the overall environment in Côte d'Ivoire. Craig Jones: I mean the elections were held on Saturday in Côte d'Ivoire. And while accounts seems to have progressed pretty well, we obviously keep watching that over the next couple of days. In terms of the mining convention, that's -- we're just working through the process of obtaining those. It takes a little bit of time. Lee-Anne de Bruin: Yes. I think, Reg, to your question, I think, no, it's unrelated to the mining code. But it's just -- as you know, during election time, it's hard to get people to put pen to paper. That said, we're quite progressed, and it's likely we'll get it sorted out. The mining convention, however, is not relevant to us commencing mining, however. It's just a matter of making sure we've signed up to all the fiscal arrangements that are agreed. Reg Spencer: Understood. And last one, feel free, Lee-Anne or Craig to answer this, but I'd be interested to get your views on hedging. Gold price clearly very high at the moment. You've got a relatively low percentage of hedging, and I suppose that's good for cash flow at this point in time. But the outlook, is there an argument to put more hedges in place to lock in gold prices? Lee-Anne de Bruin: Yes. I mean if I had a crystal ball and I knew where gold price was going, I'd be much richer than I am now, Reg. That said, as you know, we're always focused on disciplined cash management, and that's why we've shifted to the structure of paying some of our capital towards buying puts, which are relatively cheap at the moment. So although our committed hedging has come down, which is our forward book and our calls, the shift to puts allows us to protect the downside. So we still have -- we're still maintaining that downside protection through putting the puts in place. But those puts are not committed hedging. So we don't have to deliver them, but they are then allowing us to make sure that if gold price drops below $2,600 that we're relatively protected there. Nathan Ryan: Your next question comes from Richard Knights at Barrenjoey. Richard Knights: Just a quick one on Edikan. Obviously, production was down a little bit quarter-on-quarter. Just wondering about the access issues at Nkosuo. And I think you mentioned they're largely resolved. What is remaining? And is that going to have any impact over the rest of the year? And I suppose how should we think about the run rate at Edikan over the rest of the year? Craig Jones: I think the way to think about the run rate for Edikan at the end of the year is, as we've said, it will increase to -- continue to increase in production as we get deeper into the Nkosuo pit. We've -- when I say largely complete, we've got the majority of access to the entire footprint now and continuing to mine down, which we do get a little bit out of sequence with the access issues we were having. So hence, the stripping that we talked about being a little bit more. And so we're just getting back into sequence now in the pit and don't expect to see any constraints for us moving forward. Nathan Ryan: Your next question comes from Levi Spry at UBS. Levi Spry: Maybe just at Yaouré, can you just maybe talk us through the profile over the remainder of the year as the underground ramps up? Craig Jones: Yes. So obviously, we talked last quarter about the delays we were having in getting our Presidential Decree. So that's now resolved and behind us, and we're basically ramping up our mining progress for the CMA underground. And as I mentioned before, we're quite a way down the Pauline decline now, and we'll continue to get our rhythm and cycle times refined as we move forward. We're pretty confident that, that's going to progress well, and we should recover some of that time. But obviously, we need a little bit more time of mining before we can really go out and say that we are going to do that. So that's our primary focus at the moment is to get the mining operations efficient and turning over the heading so that we can recover that time. Lee-Anne de Bruin: And Levy, I mean, just high level, as you know, as we happily mentioned it is because we're entering the Yaouré pit, your production that will come off slightly for Yaouré over the next 2 or 3 quarters given that you're in the lower-grade Yaouré pit and ramping up the underground. Craig Jones: So we're essentially -- the majority of the gold for the year comes out of the CMA pit. There's only a small contribution from the underground. Lee-Anne de Bruin: Yes, from the Yaouré pit. Craig Jones: Sorry, the Yaouré pit. So that's our primary focus now is continuing, but the grades are lower. Levi Spry: Yes. Okay. And if I can just ask one about Nyanzaga. So I think you mentioned the reserve and resource update coming this year. How do we think about the materiality of that, I guess, given the stage it's at, potential upside and then even the pricing assumptions that were used in the last cut? Craig Jones: I think we'll have to wait and see for that work to be completed before we can give you any sort of indication on the materiality of that. But as we continue to do the drilling, we'll continue to update our models. We'll look at our assumptions around prices and so forth. And -- but everything seems to be going in the right direction at the moment. Levi Spry: Yes. Okay. Maybe just on that. So the updates we get on the grade reconciliation across the operations, is there anything that has caught your eye in the time you've been in the seat when it comes to that? Craig Jones: Look, I mean, that's obviously a core focus for us. I talked about Sissingué, trying to close the gap on that. There's been some good progress in terms of Yaouré, closing the gap on the reconciliation and tightening up our processes and mining practices, and we've seen some positive movements in that regard. So it's something that we'll be continuing to focus on. I mean there's a reason we put it in the report so that we can demonstrate that we are -- we have reliability in our ore bodies, and we have to mine them reliably as well. So very much a key focus for us. Nathan Ryan: Your next question comes from Andrew Bowler at Macquarie. Andrew Bowler: Just following on from the hedging questions. I'm not sure if you mentioned it earlier, Lee-Anne, but just the cost of those puts. I'm assuming that's caught up in the working capital and other line on the waterfall chart and just [indiscernible] that and how much you're willing to spend, I guess, every quarter from now? Lee-Anne de Bruin: Yes. I mean we spent about, as I said, USD 1.7 million in the quarter. We've got a mandate from the Board to spend -- to not overspend on it, and we're continually looking at the cost of it, but puts at the moment are relatively cheap. I think we're paying between $40 and $70 an ounce or something is what we've been paying. Andrew Bowler: No worries. And just another one, interesting comments on Sudan just talking about gradual improvement in security recently. I'm just wondering if that's going to affect the rate of spend for that project. Will we see an uptick for the remainder of the year? Or is the budget and it doesn't really matter if security improves, that's all we'll see -- excuse my voice, I should say? Craig Jones: Well, I mean, look, the reports coming out of Sudan are positive, which is a good thing. Obviously, there's a little way to go before we see how all that pans out. But we'll keep watching that. In terms of our current plans, our current plans are as per our budget. And if things change to the point where we think that, that would change, then we'll let the market know. But at this point in time, we're continuing to progress towards our budget. Lee-Anne de Bruin: Yes. And remember, Andrew, we've always said the security issues are quite minor for us given where we're located. The thing for us to make a decision there is to make sure the supply chain and logistics pieces are working because that's the most critical part probably to the project over and above security of our people. Nathan Ryan: Your next question comes from David Radclyffe at Global Mining Research. David Radclyffe: So it's early days for the question, maybe a little bit premature. But look, any thoughts on the opportunities you might have identified in the business so far? And then when you think to the overall strategy, are you sticking to this? Or have you thought of any way you might sort of think to tweak this in the future? Craig Jones: Yes. Thanks for the question, David. Look, the plan is still the plan. So there's a solid platform that Jeff and the team have built over the years, and the company has enormous optionality in it. I think for us moving forward, we'll be focusing on delivering the 5-year outlook that's been presented to the market. And that means we need to continue to deliver on our operating performance. We need to focus on the delivery of the Nyanzaga project and ramp that up in the March quarter of 2027. We need to build and operate the CMA project. So that's a shift, the first underground mine in Côte d'Ivoire. But we'll also be focusing on extending the life of our existing assets and doing more exploration in the exploration space. So a lot of focus on near-mine exploration. We're also doing some greenfield work as well. And then beyond that, if any other options come our way, then we'll assess them on their relative merits. But the plan is to continue to run safe and efficient operations to continue to generate strong cash flows, continue to return capital to shareholders and continue our growth options at the same time. And we think that we're in a position that we can do that. So that's how we're thinking -- well, I say that's how I'm thinking about it, and we're thinking about it at the moment. David Radclyffe: Great. That was very clear. Then maybe a follow-up on Edikan. So Nkosuo is ramping up a lot of volume of low-grade stocks processed this quarter. So is that going to be -- is that going to flow through to next quarter? And then when do the other cutbacks start to deliver ore? Craig Jones: Yes. So the -- let's start with Nkosuo. A lot of the reason for the low-grade stocks at Nkosuo was the wet season, obviously, in Côte d'Ivoire at the moment, and that finishes pretty much this month. So we're expecting conditions to improve substantially for the rest of the year, and that will just really get us into the rhythm in Nkosuo and starts to deliver the higher grade that we're expecting. So you should see that grade improve throughout the year. With the other 2 pits, we'll start that stripping activities in the next half. And there's a fair bit of stripping before we get into the ore there. So it's more focused on next year's grade than this current year. Nathan Ryan: Thank you. There are no further questions at this time. So I'll now hand back to Craig for closing remarks. Craig Jones: Thanks, everyone. We're very pleased with the quarter that we've delivered. We're pleased that we're continuing to deliver strong operating performance and create strong financial returns. And really thankful for the hard work of our people across the globe who do put a lot of effort in, and that's one thing I've noticed about this company is there's a huge amount of personal ownership and discretional effort that sits within the organization, and that's what helps create the kinds of results that Perseus is known for. So thanks very much for your time, and have a good day.
Operator: Thank you for standing by, and welcome to the Sandfire Resources September 2025 Quarterly Report. [Operator Instructions] I would now like to hand the conference over to Mr. Brendan Harris, Chief Executive Officer and Managing Director. Please go ahead. Brendan Harris: Good morning, everyone, and welcome to our September quarterly call, which we hope is a slightly quieter day for a number of you. Our executive team is here with me today, as usual, for the Q&A, which we'll get to very shortly. But before we start, I'd just like to acknowledge the traditional custodians of the lands on which we stand, the Whadjuk people of the Noongar Nation as well as the First Nation's peoples of the lands on which Sandfire conducts its business. We pay our respects to their elders and leaders, past, present and emerging. As we always do, let's start with safety. We finished the period with a group TRIF of 1.4 and no recordable injuries across the group. Obviously, a very welcome result. The safety of our people is paramount. And as our Asset President at MATSA, Rob Scargill likes to put it, it's all about achieving and sustaining safe production. And that's why we're working hard to raise awareness of the need to report and learn from high potential incidents and further strengthen our control environment. At our full year results in August, we noted copper equivalent production for FY '26 would be weighted towards the second half with a circa 48-52 skew anticipated. We also noted that copper equivalent production skew in the first half would be even more acute at a 45-55 split across the September and December quarters. Pleasingly, copper equivalent production for the group is tracking almost 5% ahead of that plan at 35,500 tonnes and remains on track to achieve the midpoint of annual guidance of 157,000 tonnes. At MATSA, we delivered copper equivalent production of 21,800 tonnes, which represents 23% of FY '26 guidance of 96,000 tonnes as our mine plan navigated grade variability, which is I might add typical of polymetallic ore bodies such as MATSA. As in the past, recoveries were also impacted as our poly lines processed a high proportion of ore with elevated pyrite from the Castillejito zone within Aguas Teñidas. As importantly, we have maintained discipline with MATSA's underlying operating unit cost of $85 per tonne coming in marginally lower than full year guidance. Motheo has also continued to run to plan, achieving 13,600 tonnes of copper equivalent production for 22% of annual guidance, noting FY '26 production for Motheo will also be weighted towards the second half of the year, as we said in August. And pleasingly, we're set up well as our team has made strong progress, dewatering the A4 pit such that mining recommenced in Stage 1 in recent days, and we're already mining low-grade ore in Stage 2. This is what underpins the planned surge in high-grade material from A4 in the second half and the building production profile across the year. Despite softer metal production in the quarter, we had 5 shipments depart the port of Walvis Bay in Namibia, which certainly bolstered operating cash flow, something Megan can talk to in the Q&A. From a broader perspective, Motheo's underlying operating costs came in 4% below full year guidance at $42 per tonne, but please don't get too excited. This is precisely what we anticipated as costs will rise across the year, consistent with full year guidance as we extract more ore from A4 and incur additional haulage and handling costs as this high-grade pit is, as you'd recall, around 8 kilometers from the processing plant, which sits adjacent to T3. From a strategic perspective, in Q1 FY '26, we invested $7 million in regional and $6 million in near mine and extension exploration programs in the Iberian Pyrite and Kalahari Copper Belt. And our investment in regional exploration in the Motheo hub will accelerate with the imminent recommencement of drilling activity. As you would expect, we took advantage of the recent pause in activity in Botswana to increase the coverage of our induced polarization data set in the Motheo hub and have further enhanced our targeting approach such that we have detailed plans for 20 kilometers of target drilling, which will be undertaken across the next 9 to 12 months. And while we're back at A1 testing down dip of no mineralization, we're still on track to release a maiden reserve in Q4 of this financial year. Turning back to MATSA. We were extremely pleased to receive the final regulatory approval for the new tailings storage facility and the team has already commenced early works such as land clearance and fencing to secure the site. Separately, we expect our closure plan for the existing TSF to be approved shortly, which will allow the team to complete the final incremental raise to establish a sustainable land form. The support we received from government in both Spain and Botswana is not taken for granted. It is greatly appreciated. And lastly, to Black Butte, we still expect an updated resource and reserve statement and new pre-feasibility study to be released by Sandfire America in Q2 FY '26, paving the way for the group to determine its longer-term strategic fit in the portfolio. So bringing this all together, our team's unrelenting focus on the basics continues to feed into our balance sheet, where net debt declined by a further $61 million to finish the period at $62 million for a cumulative $283 million reduction in net debt across the past 12 months. The combination of our modern mining complexes, preferred commodity exposure, talented people, the consistent and predictable performance they deliver and of course, our increasingly strong balance sheet ensures we are strategically well positioned for the future. So with that, let's go to questions. Thank you. Operator: [Operator Instructions] Your first question comes from Kaan Peker from RBC. Kaan Peker: Just two from me. Just on MATSA, the Magdalena volumes dipped about 10% this quarter, and that appears to have driven much of MATSA's lower copper output. Can you maybe give us an update on the sequencing through 2Q? And are you getting to the higher grade zones? Are they accessible now? And should we see a recovery in both throughput and copper recoveries? Brendan Harris: Okay. So maybe going to that one first. let me go back to 37,000 feet. As I mentioned in August, we talked to a 48-52 sort of ratio for group copper equivalent production. Look, the reality is there will always be a level of variability. Indeed, we mentioned we're tracking 5% ahead of plan. That is sort of the tolerance for error in trying to forecast production from these types of assets on a 3-monthly basis. We continue to expect that 48-52 skew across the first half and second half. So I think when you're working through your numbers, we'd really encourage you to sort of back solve towards that. With regards to Magdalena, the mining rate, of course, is dependent on a number of variables, which I'll get to in a moment. But I would just highlight to you that if you look back over a 2- to 3-year period, it's been quite common for Magdalena volumes to sit below 500,000 tonnes in a quarter, and it's even seen production lower than 450,000 tonnes. Really, what this is a function of, as always, is stope design, ground conditions and ore grade. And of course, we react and resequence. And so you see that the usual timing differences and the differentials that appear in the quarterly today. So from our perspective, we're not seeing anything that's atypical. What is important is the work we've done to invest in the underground continues to mean that we have a number of faces open, so we have significant degrees of freedom. I mentioned that depending on where we're drawing the ore from in the mine or the mine complex itself across the 3 operations, that will impact, obviously, in terms of recovery when we got higher levels of pyrite, and that's obviously more of a challenge to suppress in the flotation circuit. And so you see that feed through. So again, nothing that's overly unusual. And as I've mentioned, the full year guidance on track and the skew across the first half, second half should be broadly as we've said in the past. But maybe, Jason, if you can just pull that apart even a bit further. Jason Grace: Right. Thanks, Kaan. And really just drilling down on Brendan's comments there as well. So if we look at it in late July and early August, right, we were mining down in Masa 2 West and Magdalena in a very high-grade section of the ore body where we do longitudinal stoping. So the access to -- for that production is along the track of the ore body. So we did see some ground conditions very localized in there. But due to this material being extremely high grade, the team at MATSA made the conscious decision to actually slow down that mining rate to make sure that we could do it safely and also retain the integrity of not only the recovery of that ore in a localized way, but also retain the integrity of the sequence. So from my point of view, they've done a very good job to manage those conditions. We've got all of the ore out as planned, right? It's slightly later in some of those areas. But in terms of production rate, we have got that integrity of the sequence, and we'll continue to mine according to plan throughout the year. So from where I sit, this is certainly not unexpected. It's part of mining, and it's certainly part of mining at Magdalena, and we see no issues with the full year coming out in production rates at Magdalena. Kaan Peker: Sure. I appreciate the detail. And then the second one is on Motheo. As A4 ore sort of progressively replaces T3 feed through the second half, does the higher grade or higher mineralogy -- harder mineralogy limit the throughput? Brendan Harris: So look, I'll take that. Of course, remember that we run a blend, and we've set the plant up such that the planned rates of production that we have the capacity in the back end of the plant. Now of course, with the potential from period to period to see at times even a higher grade average blend grade. We don't want to be constrained, and that is why we are investing in some of that tank capacity at very modest capital across this year. And that's really just to, if you like, provide somewhat of insurance at the back end of the plant. So again, that will be alleviated in terms of a potential bottleneck. But Jason, anything I've missed there? Jason Grace: Yes, absolutely right. So we're spending USD 6 million in capital to make sure that this is not an issue for us for the future. That project is now well advanced, and we're doing most of the modifications that are required over the next 2 planned shutdowns. So I expect that we've got all of those upgrades and the debottlenecking works associated with that completed by the end of Q3 and ready to go when we're seeing high-grade A4 ore going through the plant. Operator: Your next question comes from Levi Spry from UBS. Levi Spry: Just a quick one on Black Butte. So what exactly can we expect? So reserves and resources a pre-feasibility study. When? And can you give us a bit of context around the update, I guess, given how strategic these kind of minerals are in that part of the world now? Brendan Harris: Yes. Look, I think from our perspective, not a lot has changed in terms of the direction of travel. I think you've seen some of these things firming up in recent weeks and months in Washington. But again, I think that's fairly consistent with the trend that's been in place now for some while, Levi. Look, again, being mindful that we're talking for Sandfire America, which is a separately listed entity on the Toronto Exchange. What we expect, of course, our team supports that work, our technical team. We anticipate that there will be an updated pre-feasibility study coming through just prior to Christmas. I think it could be in the days or week to weeks prior to Christmas. And we also expect an updated reserve and resource estimate. Now of course, the drilling of the Lower Copper zone very much increased its lateral extent. The work that we're going to be focused on, and we're yet to see the outcomes is when we obviously put the mine plan around that is what are the levels of dilution that one sees. What is the mineable grade and what does that mean for the economics. And so we're obviously as focused on that as you. I think from my perspective, I've said before, when the company bought into Black Butte, the market cap of the organization was less than $1 billion. Today, it's obviously at a point in time, much higher than that. We have no doubt that the Black Butte project is obviously very close to shovel-ready. It's one of the rare fully permitted options in that part of the world. The question is not whether Black Butte gets built in our mind. Of course, we're waiting on these updated economics to firm that up, but it's really more about how does it fit strategically in our portfolio. So no real change there, Levi. And obviously, all of these materials as they become public, provide us with a whole lot of different alternatives as an organization. So yes, we're as eager as anyone to see the outcome of this work. Operator: Your next question comes from Paul Young from Goldman Sachs. Paul Young: Brendan, a quick question on MATSA and around the low recoveries in the poly circuit. Was this just a really unique quarter where you had a lot of higher production from Aguas Teñidas, which just offset or just swamped, I should say, Magdalena and Sotiel? Or could we actually -- within the mine plan, is there -- going forward, is there another quarter which might look like this? Brendan Harris: Yes, Paul, thank you. I know you love your processing plants and obviously, the chemistry that goes with it. You'd be absolutely aware that if you go through a zone where you've got a far higher proportion of pyrite, it changes the chemistry and how you work to suppress that. And that's obviously challenging and more challenging than a number of other areas and Castillejito certainly provides us with a more, I guess, challenging and pyrite feed of ore typically. And that's really what we're seeing. Of course, across the rest of the year, as Jason has alluded to, we expect to see the production in MATSA to play out as we've, I guess, provided guidance for. And so as a result of that, you would expect to see grades and recoveries, particularly recoveries improve across the year, commensurate with the plan. Jason? Jason Grace: Yes. Just building on that again. And Paul, I think you've nailed it. So if we look at it, there's 2 key reasons there. So we've got the usual decrease in recovery, which is a result of lower head grades. So if we look at poly ore in particular, copper grades there were 1.5% for Q1, which is down from 1.9% in the prior quarter. And zinc grades were at 3.8%, down from 4.3% once again in Q4 FY '25. So Brendan is absolutely right, though. So when you put on top of that, the fact that we've been producing and processing a significant amount of Castillejito ore, which was planned to be processed throughout the year. It is very complex metallurgically. As Brendan touched on, it's very high in pyrite content. And we get lower recoveries, particularly associated with -- it ends up generating a lower pH in the pulp chemistries and in the flotation plant there as well, which we're working actively to keep that under control. So in particular, if I look at going forward, we still have ore remaining in this part of the ore body. But I think from memory, it's about 350,000 tonnes left of this material. So going forward, it's not a significant part of our mine plan, particularly for the remainder of this year and beyond that. Paul Young: Okay. That's good to know. And then, Brendan, maybe turning to the U.S. and Black Butte. Yes, studies coming, as you just outlined, et cetera. Just curious around the potential offtake on the concentrate there, considering that Bingham Canyon smelter is -- has a lot of spare capacity and the mine seems to be underperforming. Just curious around if you had any conversations with that smelter and offtake and how that might improve the economics considering I think that concentrate should be highly sought after. Brendan Harris: Yes. Thanks, Paul. Look, excellent question. I probably don't want to go into specifics of any discussions that may or may not be occurring on a confidential basis. But look, I think the reality is more broadly, in the United States, as is the case in most places you operate, if you can process your ore closer to the home, clearly, there are numerous benefits. So of course, that is something that the team is working on and obviously supporting Sandfire America with is obviously the potential to find a home for that concentrate that is certainly much closer than putting on a ship and sending it to Asia. But of course, that's the fallback position, and we'll see where that lands over the coming weeks. But that's an important value driver and also could be important strategically for the project. But nothing really more I can add at this stage other than noting your point about potentially the logic of sending this to a smelter such as Bingham. Operator: Your next question comes from Daniel Morgan from Barrenjoey. Daniel Morgan: You mentioned that you were 5% ahead of target during the quarter. And obviously, there's a variation around your budgets, which I think you said the tolerance is about 5% as well. I'm just wondering if you could outline what went better during the quarter? Does any benefits travel further than this quarter? Obviously, you haven't changed your guidance. Does it potentially mean we brought into this quarter some benefits to future quarters? Or is it just you've started well and not willing to uplift guidance here? Brendan Harris: Yes. I think the reality is we're 3 months into a year. We know the variability that we see in these operations. Of course, throughput at Motheo was particularly strong. MATSA is going well, albeit we absolutely recognize and hear some of the challenges around specific issues that we expect to obviously evolve through the course of this year. To give you a sense, MATSA Poly Line 3 is in-plan maintenance just at the moment, just a short shut. So there's all these sorts of things that flow through. And we would just really caution people against becoming any more optimistic at this early stage in the year. And as I said, we still think that you'll see that relative production skew play out. So look, not much more I can add, Dan. It's better than being behind at this time of year, but still a long way to go. Daniel Morgan: And then maybe somewhat related, the dewatering activities at A4, pleasing to see, but is that best view through the lens of production outcomes, business plans this year have been derisked by that? Is that the best way to think about it? Brendan Harris: Look, I think clearly, the year is, to some extent at Motheo contingent upon being able to accelerate production out of A4. Its high grade is clearly something that we cherish, and it's been somewhat frustrating to obviously be impacted by 1 in plus 200-year event as we were last year. But equally, it's proven that the team is match fit. They've done some excellent work in terms of how they've responded. The work and the capital we put in to build contingency, I think, has paid off and it leaves us now in a position where, as I said, I think we're very, very well set up. The irony is with the dewatering. It goes very well once you get below those initial sands and the Cow Creek layers. It's amazing how quickly the water levels start to drop. We've got enormous amounts of pumping capacity, sprinkler capacity now in place that really assist us with that. And Jason and I were remarking the other day, we'll inevitably, like most mines, probably go from a situation where we've got way too much water to worrying about where we're going to get our water. So that's something that's not unusual and something we're monitoring very, very closely. But -- and Jason did remind me that they had some heavy rains there earlier or late, I should say, late last week, which also means that we're starting to get back into the wet season in the Kalahari. So all of these things have potential to impact us in the very short term. But I think the way you put it is arguably the right way to think about it is the fact that we're now back in Stage 1, the fact that we know the water level has been drawn below the mining level and considerably below sets us up well and hopefully, to some extent, derisk the outlook for the rest of the year. But of course, there's a whole lot of other variables that we need to be mindful of. Operator: Your next question comes from Ben Lyons from Jarden. Ben Lyons: Maybe just staying with Botswana. I note the commentary in the release about the new Mining Act coming into law and the increased option for government or citizen ownership. Now obviously, T3 and A4 sit on granted MLs, which will be grandfathered. But I'm just interested in how extensive those MLs stretch. For example, does A1 fall within the envelope? Or does that one potentially require the issuance of a new mining lease? Brendan Harris: Yes. Good one, Ben. Thank you. As you know, prior to the recent election, the revisions to the act went through the parliament. And obviously, they've recently been gazetted, which was good to see. Good to see in the context that progress is being made, but also that there were no substantive changes in any respect that came through. You're absolutely right, T3 sits on a granted ML. What I would just remind people on the call is that A4 was not covered by that ML initially, but the government actually saw that there was logic to extend the ML to cover A4 and the associated haul road. And we don't know precisely what the plan will be and how we'll work through approvals for A1. First step, obviously, is to complete the current drilling program. We've got additional drilling underway, as I mentioned, targeting a deeper zone in the hinge of the fold, which is showing some interesting and encouraging results in terms of grade and thickness. So we'll see how that plays out. But we need to complete that. We need to understand the economics. It's obviously much more distal from the processing plant. And then we would work with government. I think what would be from our side, something that will be really important to work through with this is, well, firstly, logically, the same approach to A4 would make sense for a number of reasons. But I think the two that come most specifically to my mind is the value now once you build a processing facility arguably sits as much in the processing facility as it does in ore. So how you actually think about ownership and the value of the ore without a processing facility, particularly for an ore body that's of the size of A1 at the moment, circa -- if you look at the resource that was stated, it was just around about a year of processing capacity. We'll see how that plays through as we work to convert to reserve. And of course, the second thing is that the material would always be blended. You wouldn't want A1 to be supporting the whole of the feedstock given its distant location. And so when you think about those things, how you actually attribute value to A1 as a stand-alone asset would be really, really difficult. So again, I go back to the point that A4 was really a function of an ML that was extended, expanded, if you like, to cover that new development. And certainly, it would be our position to argue strongly that a similar approach is warranted. But again, it would be a healthy discussion with government. And I would just note that our engagement with government right from the Minister for Mines and Energy, the Honorable Bogolo Joy Kenewendo, very, very strong relationship and good direct discussions. And they're certainly very supportive of what we're doing. And obviously, for us, we need to continue to show the benefit of Motheo that goes well beyond the immediate direct employment into other areas. So that's something we're very, very mindful of. So look, good relationship, Ben. As I said, probably right at the start, the most important thing for us when the revisions were enacted, there were no changes from what went through, nothing of any substantive nature prior to the election. Operator: [Operator Instructions] The next question comes from Adam Baker from Macquarie. Adam Baker: Maybe just following up on Ben's question. And I did see the comment on the regulatory environment about the 10,000 kilometers cap on the area that can be held by companies in country. It appears to be something new. And obviously, you've got over 13,000 meters under licenses at the moment. Can you just walk us through how you're thinking about when it comes to reducing that landholding, what you're kind of thinking about? Is it getting rid of tenure, which is furthest away from your processing facilities? Or are you thinking about other things to reduce that? Brendan Harris: Yes. Look, thanks, Adam. And just to be clear, that's certainly not new to us. That's something that has been understood for some time. Certainly was part of the proposal that went through ultimately the parliament prior to the election and remains on foot. And we've had, as I think I mentioned on this call, very, very healthy dialogue with government and the various departments around a number of things. Firstly, we believe we have the most extensive geophysical database of the Kalahari Copper Belt. We believe that having opened up 2 open pits that we are the best placed player to make the next discovery. And of course, with our modern processing complex, we've got the best chance of ensuring it's economic and can win capital. And so of course, first and foremost, I think the key line of discussion that we have is that it's very important that we maintain that strategic stronghold in terms of our large tenure holding. And so that's a very healthy discussion. I think it's well understood. Equally, though, as I've mentioned before on this call, we've got a process as we work through and really refine our targeting approach that we continue to apply for renewals, but then also we've been working to reduce our position, and that's been something that's been ongoing, and you can expect will be ongoing for the foreseeable future, and we have every intention of moving back to meet that requirement, and it's important that we do. If you look at the areas that we have relinquished over recent years, it's typically been out to the West in the deeper areas where you've got very, very thick cover that it's fair may host meaningful opportunities. But for us, we believe it's going to be much higher cost and lower certainty of success. And so again, our focus has been very much around the Motheo hub and then in some of the southern areas that you should start to see more activity over the coming months. Jason, anything I've missed there? Jason Grace: No. I think really the only points I'd add to that are as we've been in constant communication, not just at a ministerial level, but also at a regulatory level, right? We've been engaging and our team over there have been engaging very proactively with the regulators that will be tasked with overseeing these new -- the changes to the Mining Act. Now all indications are that they will -- and they have to date been working very proactively with us to do whatever reduction that we do need to in a controlled and structured manner. So we've seen -- in recent history, all of our tenements that required renewals have all been approved, and we don't expect to see that to change. And we'll continue to engage with these regulators to make sure we're doing it in that controlled manner that I talked about before. And as Brendan said, it's about a technical basis for relinquishments as well. So we've been doing a lot of work, particularly on prospectivity in certain areas, and there's certain areas that are now low priority, and they'll be the first to go. Brendan Harris: Yes. I think reality is we want to spend our capital where we think we have the highest likelihood of success, where it's the most capital-efficient form of exploration. And so we're working hard on that. And maybe just to even further emphasize Jason's comment, the last major renewal that we went through was prior to last Christmas obviously, after the amendments have been obviously publicized and gone through parliament. And we actually managed to renew all of our critical tenure, particularly tenure that sits in and around the Motheo hub. So of course, it's important we follow through. We've got, hopefully, as you can hear, a very, very focused approach to that process of progressive relinquishment. But good question, Adam. Appreciate it. Operator: Your next question comes from Anthony Barich from Platts. Anthony Barich: Just regarding the Black Butte, I know that when the other analysts asked you about the strategic nature of it, you said that those kind of geopolitical talks around critical minerals have been ongoing for quite a while there. But just wondering whether you've had any talks with U.S. authorities about whether they've shown a lot of support for the project either on a funding or regulatory level or any of that? I'll come back for a second. Brendan Harris: Yes, Anthony, thanks for your question. I think the one difference to really flag perhaps for Black Butte is it's a fully permitted project. So I think if you look at some of the examples that you might be thinking of, there are projects that either haven't got their permits or they need support for other associated infrastructure to then enable the said mine to develop. Black Butte sits literally kilometers out of the lovely town called White Sulphur Springs. It sits on private land. It's fully permitted, and it's not in of itself, a large capital project. It's circa 1.2 million tonne per annum throughput rate, very, very concentrated site. And if you look at the tailings facility that's planned, it's effectively a cemented tailings. And the reason for that is to make sure you're managing any of your risk, particularly around water. Water is the big issue in Black Butte, given the sensitivity of that environment as it should be. So yes, look, very, very different. You'd expect we have ongoing discussion with a range of parties, but it's not like we're looking for a major enabling piece of infrastructure or some support through the permitting process. Anthony Barich: Just on a macro level, which sometime [indiscernible] support copper macro pricing that. What do you see, if anything, that Trump's critical minerals deal with Albanese, I know you're okay for funding and stuff. But just on a macro level, I mean, is that -- what do you think that deal -- do you think it will support copper pipelines, which have traditionally been -- we've seen a lack of discoveries and that kind of thing. But -- and I think there was some warning from Australian Minerals Council around the warning around the potential for increased costs, which probably wouldn't be just for Australia. I mean, are you seeing any potential benefits or impacts on a macro level or cost level or impact otherwise from that kind of deal being done just in the copper space broadly? Brendan Harris: Yes. Look, thank you. There's a lot in that. We probably need 2 or 3 calls to cover it. But look, what I would say was at LME Week with a number of people on this call, no doubt, just 2 weeks ago, the move there was probably as buoyant as I've seen it in a number of years, particularly for copper and obviously, some other commodities, precious metals and some of the other critical minerals. I think one of the benefits for copper is it's a very large market. I think in these smaller markets when governments are supporting projects, one's got to really focus and understand what that means for the supply-demand balance over not just the next year, but the next 5, 10, 15 years. The good thing about the copper market is that, as you've mentioned, there's been arguably a lack of exploration and/or exploration success over recent years. We're starting to see some of that come through now, but really a lack of activity and success. The major fleet and when I say the major fleet, I'm talking the larger mines in our industry. You've all heard this before. They're all over 20 years old. And I think personally that the market still overestimates the likelihood that they'll supply to plan. I think what we're seeing now is a function of age and the complexity that comes with age in mining and the likelihood, therefore, that supply will continue to fail to meet expectations and therefore, markets will be tighter and the prices will need to be on average firmer to support investment into the industry. And look, it has been pleasing that copper is now starting to, if you like, capture some of the headlines. I felt that sometimes we've been focusing on the tail of the tail of the dog. The reality is that copper is the commodity that is required for the world to electrify and decarbonize and much more needs to be done over time to ensure that we have adequate, obviously, mining capacity, but also processing capacity around the world. So it is pleasing from our perspective that I think other than the people on this call and probably keen industry observers, I think more of, if you like, the average person is starting to understand the role that copper is going to play and the importance of copper to our future. Operator: There are no further questions at this time. I'll now hand back to Mr. Harris for closing remarks. Brendan Harris: Thanks again. Look, it's good to catch up with everyone. We obviously only spoke reasonably recently on the back of our full year results. Our AGM is on Friday. I'd just remind people, 3 months certainly doesn't make a year, but we're very pleased to have started fairly much as we would have hoped and expected. We're slightly ahead, a lot of hard work to go. And you can be sure that as a team, we're continuing to very much focus on the basics. Safe, consistent and predictable production is our motto, and we're working very hard to make sure we continue to build that reputation. So thank you for your time today. Hopefully, a day where you've had a few less companies report. And I know Dave Wilson and Tom are very eager to, on a day when hopefully, you've got a bit more time, give you as much time as you need to work through the numbers. So thank you again, and we look forward to seeing you all again soon. Have a good day. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Sean Summers: Okay. Good morning, and welcome, everybody, to our H1 FY '26 results presentation, a special warm welcome Mrs. Ackerman, Wendy, good morning. Welcome, Gareth, and all my colleagues from Pick n Pay. And everybody, both online and here, in the auditorium, it's great to have you with us this morning. As part of the introduction, I just want to quickly flip over and just to give a little bit of an overview of where we find ourselves now on our journey in Pick n Pay. It's been quite an interesting 24 months since I returned and it's been a bit of a compacted time period. In some dimension, it feels like I never ever left Pick n Pay, but the last 2 years have really, really flowed and gone by fast. And the great thing for us is that, if we have to sit and really be truly honest with ourselves, and we cast our minds back about 18 months ago, not even 18 months, maybe 15, 16 months. When we put forward the business plan in May of what we were going to do in terms of restoring the fortunes of Pick n Pay. I can say with all honesty that there is not much that we would have done differently. And for me, honestly, as you know, it's the only thing that you can deal with in life and we continually are asking ourselves a question, are there any other levers we can find or are there any other levers we can pull, and they certainly are not. So all of the levers that we have identified, all of the levers that we are busy pulling and pushing and juggling are absolutely on track at this stage. Would we like things to be faster? In fact, I was sharing with my colleagues when we were here yesterday, preparing for this. I would rather have been racing up the hill in Cape Town and the hill climb than being in the room over here because that's how I like life. I like things to be much faster. But certainly, one needs to be considered as well because otherwise, you don't get to the top of the hill. And that's our journey that we're on. So I think very importantly, let's jump straight into the numbers. So I'd like to call on Lerena. Please come up, Lerena. Thank you. Lerena Olivier: Thank you, Sean. Good morning, everybody, and thank you for joining us here in person and also online. Following the completion of the successful recapitalization program in our previous financial year, our focus is now squarely on operational execution. So I'm very happy in this result to focus on operational metrics. The group delivered a solid result for this half. We have successfully executed across various strategic priorities. The group's turnover grew 4.9%, 4.7% on a like-for-like basis. We delivered meaningful improvement on all of the key metrics. We've improved our headline loss by 45%. This improvement was driven by trading profit improvement of ZAR 227 million coming from both Boxer and Pick n Pay, and it was definitely supported by the positive swing in interest of ZAR 537 million. We ended on a balance sheet that is strong with ZAR 5.1 billion of cash. We've again increased our segmental disclosures in this result. We've expanded some lines on the P&L that we do per segment. And we've also added for your benefit into Appendix 1, EBITDA and trading profit after leases per segment. For the purpose of this result, Boxer has already presented their results 2 weeks ago. So I will briefly touch on Boxer, but the focus will be Pick n Pay. Both Sean and I will focus on the Pick n Pay result. This is our primary goal to turn the business successfully around. Our strategic priority remains growing our like-for-like sales growth across both our franchise and our own stores. For this half, our company-owned stores grew 4.8% on a like-for-like basis and our franchise business 1.7%. What is important is that we now have 3 consecutive periods of continuous growth improvement. We've delivered positive like-for-like growth of 2.2%, and our internal selling price was contained at 2.1%, well below CPI Food of 4.6%. I'm also happy to report that this momentum does carry through into the second half. Of specific importance for me is the improvement in our franchise issues, up 1.7% compared to the decline of 1.4% in the preceding half. Our franchise business is extremely important to us. They remain a critical growth driver for us, and the improvement in franchise issues reflects the improvements we are making in our franchise model. Our omnichannel grew 34%, 44% up in asap! and Mr D. Our clothing business continues to grow. They're up 12% in a very, very tough market. Hazel and her team opened 9 more stores in this half, bringing the total estate to 424 stores. The Pick n Pay segment itself delivered ZAR 36.3 billion worth of turnover. That is the same number than last year. This is notwithstanding the closing of 59 stores as part of our Store Estate Reset program. Sean will give more detail on this, but this is now largely completed with only a few more stores coming through in the second half. The actual turnover achieved reflects our relentless focus on operational and customer-facing initiatives. The Pick n Pay business is not smaller year-on-year. And as the store closures are now largely in the base, we will continue to grow into the future. As I've mentioned in my opening remarks, we have again segmented Pick n Pay and Boxer and we'll be presenting the results separately in this presentation. I will now take you through the results of each of them individually. The group now owns 65.6% of Boxer post the IPO in November 2024. Our Boxer business grew turnover by 13.9% and delivered a trading profit improvement as consolidated by the group of 16.2%. They maintained a trading margin at 4.1%, aligned with the business philosophy to reinvest any gains in their customer offer. Marek and David presented the results on the 13th of October, and I would really like to congratulate them on a job well done. They are now looking like seasoned results professionals. The full Boxer result is available on their website. There we go. The Pick n Pay key metrics reflects progress across all our strategic initiatives. All of these are needed to achieve our goal of getting the business back to profit and cash flow breakeven. There were 2 main drivers of the improvement in the Pick n Pay result. There is an interest benefit year-on-year as a result of the recapitalization program. The number in the Pick n Pay segment is ZAR 598 million. And we had an improvement in our trading loss of ZAR 97 million. I will unpack these 2 individually in the following slides. The ZAR 97 million improvement in a trading loss delivered a trading loss of ZAR 621 million. Our trading margin improved by 30 basis points. This was supported by a 40% improvement in our gross profit margin, and I will unpack that in the next slide. A slight increase in our trading expenses, up 20 basis points as a percentage of turnover and a pleasing increase in our other income, up 2.7%, supported by our increase in commissions and other income of 6.3%. This is very pleasing for us given the fact that the group's turnover was flat year-on-year. We have successfully executed our Store Reset program. There's only a number of stores that will still come in the future. We have avoided losses of close to a ZAR 100 million in this result. These were reinvested to support building the muscle we need to create retail excellence for our Pick n Pay turnaround plan. It is very important to note that to achieve this remarkable like-for-like improvement, we needed to make sure that we've got the right skills on a store and operational level. That is what we need to ultimately deliver on our turnaround plan. In this half, we've delivered on the like-for-like sales growth. We've delivered on our gross profit margin improvement. We have reinvested the savings we've made out of the successful Store Reset plan in key retail skills in our business. As a result, our like-for-like expenses grew 6.2% compared to our turnover of 4.4%. That is the reason why the progress on the strategic plan is not yet making a material improvement on the trading loss in the business. We have made great progress, but we have more to do, and it will take time. We are focused on building a sustainable business. We will not chase quick wins just to make the results stronger in the short term. We are building a long-term profitable business. As a result of this, the improvement in the trading expenses will come, but it will take time as we execute our Future Fit strategic initiatives. The gross profit margin increased by 40 basis points, as I've mentioned, up to 16.9%. This was supported by key improvements in category mix, specifically in general merchandise, clothing and our fresh range. We had a notable reduction in our waste, specifically in Fresh as in-store operations improved. We've also improved our buying and our logistic efficiencies. Notwithstanding these improvements, we also made investments. Pick n Pay is price competitive. We have achieved this while improving our customer offer. We now offer an increased range at better prices without compromising on our inventory control. We have also invested in our franchise model. We have reduced the sales margin to our franchisees to ensure that these very important partners improve their underlying profitability. The improvement of the 40 basis points on this line item is therefore a very strong achievement considering the investments that we made during the period. Our trading expenses are up only 0.9%. This reflects the impact of the Store Reset plan. On a like-for-like basis, the increase is up 6.2%. The increase in like-for-like expenses were driven by the building blocks of the Future Fit business. We continued selective hiring in key skills to drive turnover. We have increased store training in a focused and effective manner. We've increased brand investment, I'm sure most of you would have noticed. While we are focusing on spending in the right areas, the remaining expenses remains well controlled. As I've mentioned before, we are acutely aware of the need to ensure that our like-for-like expenses increases by a rate less than our like-for-like turnover growth, and this remains a key focus area for us. Pick n Pay's net finance costs reduced by 60% for the period. This as a result of the FY '25 debt paydown. This, alongside a reduction in our net lease interest of 2.2%, reflecting the successful Store Reset plan has really supported the year-on-year profitability of this result. The group's headline earnings per share showed significant improvement, up 56.2% This, as I've mentioned before, was supported by the interest swing on a group level of ZAR 537 million. Two additional items impacted year-on-year comparability. We've got a 25% increase in our weighted average number of shares as a result of the Rights Offer in August 2024. We also now have a controlling interest of Boxer of 34.4% post the IPO in November last year -- not last year, November 2024. Excluding these items, alongside the interest saving, our headline earnings per share increased 27.8%, reflecting the trading result improvement in both Boxer and Pick n Pay. Pick n Pay ended the half with ZAR 3.9 billion of cash on balance sheet. The cash utilized from operations of ZAR 0.8 billion is in line with what we've done last year. The improvements delivered through the Store Reset plan were reinvested and, therefore, it's reflective in the year-on-year EBITDA number being flat. To build retail excellence, we need to deliver this plan. We absolutely have to invest in these skills to drive top line across FY '27 and FY '28. Interest received for the year was just over ZAR 100 million, reflecting the improvement of ZAR 0.5 billion year-on-year. The working capital and CapEx movements, I will unpack in the next slides. The net result was a free cash flow utilization of ZAR 0.3 billion for the year, in line with our plans. I guided at the full year FY '25 result that we are aiming to half the cash burn for the Pick n Pay segment of last year of ZAR 2.6 billion. We are now forecasting that the cash burn for this year will be approximately ZAR 1.6 billion. The group released working capital of ZAR 1.7 billion for the half. This is across both Boxer and Pick n Pay. This is in line with our normal H1, H2 seasonality, and this benefit will be absorbed during the second half of the year. There is some cutoff as well, but both the cutoff and the seasonality will unwind in the second half of the year. What is important to note is Pick n Pay's continued working capital improvement. Our inventory declined by 3.5%, notwithstanding the fact that our turnover year-on-year were flat, and we reinvested in our ranges. There has been a continuous focus on optimizing inventory in the business. We've also seen a continued improvement in our franchise debt as the impact of the new franchise model is supporting our franchisees. I am very comfortable with the working capital levels of both Pick n Pay and Boxer. The group invested ZAR 0.9 billion during the first half of this year. Both Boxer and Clothing continues to invest to support their growth ambitions. Pick n Pay forecasted spend for the full year is just under -- apologies, Pick n Pay's forecasted spend for the full year is ZAR 0.9 billion. This is an increase from the ZAR 500 million of last year. The Pick n Pay spend remains measured. We are spending on key revamps where we know we can get the maximum ROI and critical repairs and maintenance. Our focus remains an investment in OpEx and the skills we need to drive our like-for-like turnover growth. The group ended with cash reserves of ZAR 5.1 billion, ZAR 3.9 billion in Pick n Pay and ZAR 1.1 billion in Boxer. Pick n Pay itself has got ZAR 3 billion worth of working capital facilities. These are unutilized, unsecured and not guaranteed by Boxer. Our balance sheet is strong. It will support Boxer's growth and Pick n Pay on its turnaround path. I now hand over to Sean to take you through the operational review. Sean Summers: Thanks, Lerena. So as we see, it's definitely work in progress. And as I've said, it's a case of just steadily putting one foot in front of the other as we continue on our journey. And there are just a couple of specific call-outs that I would like to make in this regard. So we said that in terms of strengthening our core customer offer that we would apply a lot of our energy and effort in terms of ranging in the store. And we can see that the ranges are dramatically improved and enhanced at store level. And it's one of the reasons why we are driving our like-for-like sales growth because when you look at our absolute numbers in the total stores that we've closed over the period of time in the last 2 years, 18 months that we've been going at this project. We have -- while we've been taking some sales out of the business in the closed stores, we've managed to reinject like-for-like sales growth back into the stores again with enhanced ranging. On a quality basis, we've applied a lot of our energy and attention as to what happens at store level operationally with skills and injecting knowledge back into the business again. We can see that on the value front from a marketing perspective that we have really, really put our strong foot forward in terms of marketing. Our relationship with FNB eBucks continues to be a fantastic relationship that we have. And all of the work that we've been doing with the Burger Fridays and the work that we do on Saturdays and Sundays and all of these promotions that we're doing has really been driving a good value proposition across the business. And then on the service front, we have been applying a lot of our energy and effort into training of our people again and actually getting and creating schools for blockman, bakers and regetting these skills back into the company again because these skills are not just freely available. It takes time to train these people up. A lot of focus, and if you go back, Pick n Pay was always known as the fresh food people. And to a large degree, we had lost that. And this is one of the major journeys that we're on at the moment, is reinvigorating our whole fresh offering in the company and getting back on to this virtuous circle, and we're starting to see the rewards coming out of this now in terms of the work that's been done under Peter and the Fresh food team. In terms of online and what we do with asap!, we relaunched the asap! app this year, and we have consolidated everything into the one app to make it far more user-friendly, and we're now up to a range of 35,000-odd products in asap!. asap! continues to be a very important part of the offer that we have in the company. And for those customers who want their goods delivered home, we will do it gladly with the greatest of pleasure. But our primary focus as a retailer still remains, number one, on having great stores with great product, great people and great shopping experience as the backbone of what we do. Franchise. I'm pleased to report that our franchise has moved positively into -- I think this one was about minus 1.4%, now up to 1.7% like-for-likes in franchise, and that's moved forward strongly. And we had a fantastic franchise conference 2 weeks ago in Johannesburg. And I'm pleased to say that our relationship with our franchisees today is as strong as it's ever been. The changes that we've made on the franchise model are working very, very well. And just in general, you just get a good feeling when you go around the company and you visit with the franchisees. And it's just extraordinary. We had 2 of our great franchisees this year that won the awards came from Stutterheim and [indiscernible]. And if you look at Stutterheim, I mean, our franchise family in the area of Stutterheim, they almost run that town in terms of the work that they do with council and community and everybody. It's just extraordinary to see how these families really, really operate in these marketplaces. It's just too beautiful. Our hypermarkets is another key area of focus for us where we are really putting the real essence of hypermarkets back into hypermarket again, and we're seeing great success in this regard. So some of our larger stores where we sort of got a 6,000 square meter -- where we're not GLA, we've got 6,000 square meter trading on the floor, 5,000 square meters on the floor that we're converting this over to hypermarkets. We're putting enhanced GMD ranges back in there again, and we're getting extraordinary success with this format. And I see Jarett sitting over there, well done. We're really getting good traction there. So if we look at where we are and we have a look at our acceleration in like-for-like sales, it really is extraordinary in a very, very constrained market. And I think one needs to be realistic in life about the marketplace that we do operate in. And it's interesting in this marketplace because at the moment, we have a retail space where we're still seeing a lot of doors being opened by our competitors. One of them alone is over 300 new doors in the last year. And you take that against us closing 50, 60-odd stores over 18 months. So if you just have a look at the dynamic of optionality for consumers to shop elsewhere, it really is extraordinary that we managed to grow the like-for-like sales to the degree that we have. And I'm always realistic about these things. If you ask me what is one of the real pleasant surprises that's really surprised me, it's actually been our ability to show this level of like-for-like sales growth. And again, I'm realistic about these things because you can never ever fool yourself and end up in a sort of a fool's paradise because people tell you what you want to hear. Sometimes when you sit with suppliers, vendors, landlords, they also tell you what they think you want to hear. So you need to keep your feet in the ground. But we have various ways that we can read markets. There are certain market surveys and stuff that are done out there. And I'm just really so astounded by the fact that our continual market share decline that we were in has, in fact, bottomed out, started to solidify and starting to move in the right direction again. And that's in the market, and that's total market. And that's moving into a market where we're just seeing so much other optionality that's available out there. So it's extraordinary in this regard. And hopefully, this trend will continue to move forward in this direction. We obviously have some challenges in this marketplace as well. We're now coming to annualize on the [ two-pot ] release that happened last year. So it's going to be interesting to see what effect that's going to have in the next weeks and months as that starts to annualize and move through. And then obviously, a very tough market that we're in. But in terms of establishing a future-fit business, as I said at the opening, if we went back with the benefit of hindsight and looked at what we've done in the company, what would we do differently, there would not be much that we would actually be doing differently. And so in all of these metrics that are over here, there are 2 that I'd like to specifically call out. And the first one is the Store Estate reset, which is nearing completion. Now it's always fascinated me how Pick n Pay closing stores has predominated in all of the media and everything you read is Pick n Pay is closing, Pick n Pay is closing, no. We got rid of stores that were no good. That's just the simple truth of it. And it is something that every single retailer does. We hadn't done enough for a long, long period of time. The journey is done. There will be a few more left that we're going to mop up at the end. The great thing here is if you have a look at 27 of the stores that were originally identified have actually either turned to profit or coming back, getting close to turning to profit again. And even at a breakeven level, at a store level, it still contributes to the center. So this thing is neither -- it's a very dynamic process, and it's not necessarily linear or binary. So this journey is done. And from here on in, as we review leases as they come up, we will continue to assess each lease on a store-by-store basis because in some places, demographics change, the center of what's happening, the taxi rank moves, stores now are rendered no longer in the right place, and that will just be part and parcel of what we do. So I'm pleased to say that this is basically done, which is fantastic. The other really great one is our strategic supplier partnership that we have here. And as we know, our Eastport distribution center, which is the most extraordinary facility. And as I've said to Marcel, I think Marcel, I saw you walking in earlier. There's Marcel sitting there. As I said to Marcel in the beginning, don't be defensive of this, Marcel, because in the brief that you were given, you achieved 11 out of 10. You built a magnificent facility there, unfortunately, for the wrong company. It was too big, way too big. So I'm pleased to say that we've signed our MOU with DP World and the Eastport facility has now moved off to DP World, and we will be getting those savings and start to get those savings almost with immediate effect. So it's an extraordinary job of work that has been done. And I'm pleased to say that Eastport is now currently almost fully utilized because they have the ability to put some of their existing clients that they have into the building. And some of those people are, in fact, Pick n Pay suppliers. So it's even more efficient because the stock is now actually in the building. So it's a win-win across all the pieces of work that we're doing there. So that's another fantastic huge piece of work that we've got done and ticked off. Our digital transformation. And the reason why I call this out is just simply that there is a lot of talk around what is going on in this marketplace in terms of digital transformation and retail media and all of this. We have been in this for ages. In fact, we started selling our data at the end of my days in my previous life at Pick n Pay already. So this is nothing new. It continues to evolve. It's a very, very important part of the business, and we will continue to grow this. But in all of these areas, retail media and data analytics for our suppliers, this we will continue to grow. As we do, Smart Shopper, very, very important to us. It's a key part of our business, as I said before. And then obviously, our value-added services. We've received quite a lot of rewards and awards and accolades for the advertising and marketing that we've done. I think you will see in the company that our marketing is a lot crisper. It's a lot clearer, and it's a lot more targeted and directed than it used to be. Clothing. Our Clothing continues to perform fantastically and just extraordinary, where Pick n Pay has really found a segment in the marketplace that Hazel, and her team, have clearly really been able to identify what it is that their customers are looking for in terms of value and in terms of fashion, and it continues to grow strongly. Boxer, Marek and his team has -- they've just done the most extraordinary, extraordinary job of work. As you say, Lerena, they are now experienced results and roadshow presenters. Marek phoned me this morning to wish me well because he had a week like I'm going to have 2 weeks ago. But Boxer truly is an absolute, absolute gem. I mean they're just in the right spot and their virtuous circle is incredible. So to Marek, to you and your entire team, all I can say is, well, well done, my friend. We're very, very proud of you, and very privileged to have you as a part of us. Supporting our communities, notwithstanding the fact that we are busy working our way back into the sunshine and busy working our way back into profit, we have doubled down on our efforts in terms of what has always made Pick n Pay what it is. When Raymond and Wendy started Pick n Pay, there was always the fundamental belief that this is a company for the people, by the people and that you invest in society, you invest in community, and it is something that we have doubled down. We have a CSI WhatsApp Group. And I'm just astounded every week, every weekend, during the week at the updates that just continually get flicked through where right across the length and breadth of this country, our people just do the most extraordinary acts of help, of reaching out to community and supporting people in need. It's really magnificent. This has been one of the really wonderful things for us and a great privilege for us to be a sponsor of the Springboks. And at the start, it was always a case of the Springboks being the one thing in this country that unites South Africa and pull South Africa together because if ever this country needed to start pulling together, it's now. And that's why for us, in the first instance of the Springboks, it was more than just about sponsoring the Springboks. It was a symbolism of actually taking what it is that unites this country and brings it together and also making a statement that Pick n Pay is here. Pick n Pay is going nowhere. And as we say, South Africa, we've got your back. And hopefully, South Africa has got ours, and is starting to show in the footfall in the stores. But more importantly, it's not just about sponsoring the Springboks. It's about the work that's been done at grassroots level in Rugby. We don't realize just how important Rugby is amongst the youth in this country today. And you can go across the length and breadth of South Africa and see how Rugby is really becoming a force for good and a force for getting the country together. So we're massively involved down at the grassroots level in Rugby as well. So that's fantastic. So just a couple of closing remarks here. And as I said in the beginning, our strategic priorities that we put in place, we're kind of working our way through them, and we've got most of it ticked away. When we look at leadership and people, there's still obviously the issue of succession. I'm still here for another 2.5 years, and it is something that is top of mind for us. And we're busy working at all of our succession programs in that regard. And then also about building leadership within the company from within the company again because that's what retail is. It's about growing your own people. Accelerating our like-for-like sales, as I said, we're still working hard at that, and we'll continue to work hard at that. We continue to strengthen our partnerships across the board and to work with our landlords very, very importantly and to make sure that, that moves in the right direction as well as our supplier base. We reset the Store Estate that's kind of done. And the Future Fit structure is still work that is underway. And that's having a look at what is our store OpEx structures, what are our support OpEx structures. And those are things that are just work in motion as we go forward day-to-day. So I really just want to thank all my colleagues in the company that I'm privileged to work with and to be a part of. I can feel -- I had to -- I had an interview with Alec Hogg, before I came here earlier this morning. And Alec asked me, what does it feel like, Sean, when you go into the company and when you go into the stores compared to when you came back 2 years ago? I think that I can say without any fear of doubt that this is a different company today. Are we where we want to be? Hell, no. But are we well on the way on this journey? Absolutely. And I've said before, this is like climbing Mount Everest. I said, our journey is at Mount Everest. So Alec asked me this morning, well, if you think of Table Mountain and not Mount Everest, where are you in Table Mountain? I said, Alec, we are solidly at the cable station at the bottom there. We bought our ticket, and the cable car is on the way. We know where we're going, but we've got a journey to get there. But we know what it looks like. We know how to get there. And I want to thank everybody for their support, not only the people inside this company, but very, very importantly, the investors in this company who stay the haul with us, stay the long haul with us, the family, Wendy, Gareth, the Ackerman family for the support that they've given to both myself and the company. And it's a great privilege to stand here as the CEO of this wonderful organization. So thank you very much. I don't know if there are any questions. Unknown Analyst: [indiscernible] I'll speak for now. Sean Summers: Yes. Unknown Analyst: Sean, Lerena, well done on the great work you've done so far [indiscernible]. Well, the first one, you mentioned a lot of -- you want to add new skills into the -- reintroduce the skills into the business. Can you elaborate on what skills you're looking for, what positions, and how far along that journey are you? Have you like got more people to hire? Sean Summers: Yes. So the whole issue of skill, retail is -- it's a beautiful business. But when you ask yourself the question, where do you find retailers? I mean, you can't go to a college, you can't go to a university and go and find retailers. So retail by its very nature is something that you learn on the job. We had for a protracted period of time, done away with all of our training modules and our training manager programs that we had in place and Thembi is over here. Thembi heads up People for the group. So we've reinstated all of these things back in. And one day, Wendy asked me the question, just put in sort of not simple terms, Wendy, but Wendy said, Sean, just try and give me an understanding of what's really happened in Pick n Pay? And I said, I'll give you an analogy that Raymond would understand because he was a keen golfer. In years by, if we went to our stores, our leadership teams and store levels were all good single handicap golfers. Today, you're going to stores and there are most probably 16, 18 handicaps, 20 handicap golfers. Now you can't blame the people. Because everybody starts, if you play golf, you start with a really lousy handicap and then you work on improving it. And it's exactly the same in retail. So it takes time to reinstill and reinstate these skills at store level. So it's an operational thing at store level. It's a case of ownership that managers truly understand. This is my store. I take total responsibility for it. But then you've got to find great bakers, great butchers, good blockman because these are the skills and the artisans that one needs to put back into the business again. Otherwise, what are you? You're not really doing a great job. So we have to reinstate and rebuild all of those skills back into the business. And we're making really good solid progress now of creating these bases where we've taken in every single region now, we have identified stores where we're doing butchery training, bakery training. And so you've got to train these people and then you've got to make sure that they stay. So you have to create an environment that makes sure that it's conducive for them not only to learn the schools, the skills, but that they don't get poached and leave. So you've got to create an environment where they want to stay as well. Somebody said to me once that you spend a lot of money on training. Is it like really sort of worth it? And I said, well, yes, I think so. They said, well, what happens if you train them and they leave? Well, I said, what happens if you don't train them and they stay. So it's an investment that one needs to make. And we're on that journey. Unknown Analyst: And just on the franchise. The franchise started to revamp. We heard there was a new agreement that came in about 1.5 years ago. Now there's another new agreement. What are the changes you've been making to reinforce that... Sean Summers: So the changes fundamentally for the franchise in that agreement really is just dealing with widening their margin. So it's giving them more of a margin or profit for the individual franchisees and operators. And when we have a look at our aging debt and stuff in franchise, we've got hold of that. It's in a much better way around than it has been for a long, long time. And that's all to do with the health of their income statement at franchise level. So that's where we've been applying a lot of attention. No further questions. Anything online? [ Tam, ] yes? Unknown Executive: A question from Paul Steegers. What is your outlook for Pick n Pay internal inflation for the remainder of the financial year? Sean Summers: So we're sitting at the moment at about 2.1%. Lerena, is that right? The figure? Lerena Olivier: Yes. Spot on. Sean Summers: So many numbers in my head at the moment. So we're sitting at about 2.1% at the moment. I think that one may see that there are certain commodities like rice and maize are, in fact, coming down, which means that poultry prices should also come down. I think that inflation may actually go down. I think it may get closer to 1%. I think in some of the basic categories, you may even see it getting closer to a bit of deflation. If you look at the GDP, what is the GDP? It's about 0.6%? You clever people in the room should know this. And I think that the forecast was to be circa 2%, 2.2% or 2.3%. So we can look just from that perspective as well as not only inflation down, which obviously creates another level of challenge for us, but the GDP is also down. So I come back to this really, really constrained market. This market is tough. And here again, when you sit and speak to the major manufacturers, and I spend a lot of time talking to the big suppliers, all suppliers. For them, they look at the total market. So I mean, if you speak to the 2 sugar suppliers, you basically got sugar done. And then when you have a look at the total market and the dynamics that are there, there are certain categories in this country where people are trading down dramatically. We can see it in Boxer, where we can have a look at the profiles of what protein is being bought there. And you can see the things like Russians, viennas, polonies. You can see how those are just soaring in terms of sales because people are just battling to afford normal protein, red meat and chicken. So these are dynamics. The market is really constrained. And inflation, I think, will actually go down, not up, would be my prediction. Unknown Executive: Another question from Paul Steegers. Please could you explain how you calculate your like-for-like growth for Pick? Do you strip out those stores that are ought to be closed or converted to Boxer? Sean Summers: Yes. Those come out. And like-for-like sales is purely like-for-like stores. So that gets stripped out. Sorry, Lerena, you can... Lerena Olivier: Correct, Sean. You passed the test. Sean Summers: Checking with the head -- just checking with the -- my Chief Sales Prevention Officer. This is... Unknown Executive: Question from [ Titanium Capital ]. The Pick n Pay gross margin is 16.9%. Can you please provide a separate gross margin percentage for corporate and franchise operations? Sean Summers: No. There's levels when we come to segmental disclosure, there's levels that one goes to. And I know that you'd like to have the P&L for every single service area and every single store and build it up from there, but that won't be happening anytime soon. Lerena Olivier: But noted. Unknown Executive: From Reuters. Could you please explain when the group expects to reach breakeven and how this will be done? Lerena Olivier: I mean our guidance is for us to get to those objectives by FY '28. And it will be done through the initiatives that actually is still projected on the slide. It effectively looks to growing the business through like-for-like sales as a first step. As I think both Sean and I have mentioned, the store closures is now largely in the base. So from now on, one would start to see positive sales growth momentum. And we have just improved our gross profit margin, and we do believe there is more to be had as we go on the journey. And then there is the initiatives across the entire expense base. I mean the MOA that we've just signed with DP World is a very, very important strategic pillar. We expect to see those efficiencies coming through over the next 24 months as they unfold. So it literally is driven by each of our Future Fit initiatives. Sean Summers: I think important, Lerena, to add to that, our margin has widened this year by the amount that it has. We've given more margin to our franchisees, and we're absolutely price competitive in the marketplace. So if you look at the independent pricing surveys that have been done, they all absolutely bear that out. So it's not us marking our own homework, which would show you that when 18-odd months ago, when I returned here 24 months ago, our buyers and merchants in the company were more focused on recovering money than actually trading. And I said this must come to an end. We must get back to trading and buying and selling and doing what buyers should be doing. So I think that this is most probably the greatest manifestation of the success that's been had in that regard. We're just back to being good basic retailers again when it comes to buying and selling. Unknown Executive: Question from David Fraser at Peregrine. From a strategic point of view, do you envisage holding on to the Boxer stake indefinitely? Or would you consider an unbundling down the line? Lerena Olivier: We are very, very happy with the Boxer performance, and we are very, very happy to own 65.6% of Boxer. As a matter of fact, we would have loved to have still 100%. So we are definitely very happy with the performance and what the team is delivering for PIK shareholders. Unknown Executive: Another question from Kabelo Moshesha. Post the completion of the hiring process, will the like-for-like employee cost growth revert closer to inflationary levels? Is there more investment required post this period? Lerena Olivier: I think the way you need to think about it is our objective to get our like-for-like expense growth below our like-for-like turnover growth. That is what our key initiatives will deliver, and that will include efficiencies in employee cost stores. Sean spoke to support office initiatives, looking at efficiencies in store, et cetera. So as this unfold over the period of the plan, you would see that like-for-like number coming down. Unknown Executive: Question from [indiscernible] from Verition Fund Management. Would you be willing to consider a Pick n Pay share buyback as the turnaround strategy continues delivering results? Lerena Olivier: I think where we are currently, we are focusing on our target to get the business to cash flow breakeven. And once we have achieved that, one will consider future options. Sean Summers: And I think one must also add to that, that as we get back into a stronger financial health and cash generative again that we need to continue investing inside the company and getting our state back to the condition that it needs to be in. Unknown Executive: Question from Cobus Cilliers from Value Capital Partners. I wanted to know something about the overlaps between Pick n Pay and Boxer. Given the procurement processes for the 2 companies are independent, are there any specific important overlaps between the 2 entities? Sean Summers: No. It's one of the things that we did is drew a real clear line between what Boxer does and what Pick n Pay does. Boxer's philosophy, how they buy, how they go to market is so far away from what Pick n Pay does. And we don't want to mix. We don't want to confuse that in any way, shape or form. So on a piece of paper, sometimes these things look like they make sense. But in reality, when you actually come to implement it, it doesn't work. Unknown Executive: Another question from Paul Steegers. Please talk to the additional investments you have to make that cause Pick segment loss to not improve in FY '26 versus FY '25? Lerena Olivier: I mean I think we have discussed them now in the Q&A. Largely, a lot of them will definitely be the key skills we need in an operational level to ensure that the in-store execution keeps on driving our like-for-like sales. Unknown Executive: Question from Ya'eesh Patel at SBG Securities. Please, can you speak to the CapEx cadence in the Pick n Pay stable? Is there not an element of underinvestment, which could bite over the medium term? How should we think about this? Lerena Olivier: We are very, very careful to ensure that we spend where we get returns. I mean the question is a very valid one, but we also need to make sure that our operational excellence on ground level is established to ensure that we get the returns. So we are measured still in our spending, but we have got the ZAR 3.9 billion on balance sheet and where we believe that it can unlock returns, we will definitely spend the money. Sean Summers: And I think another point to that, Lerena, is it's not just about spending money on stores. You can build the greatest brand-new swanky store, but if you don't have the right people in the store and the product is not there, you're still not going to do the business. So it's not that the whole of the Pick n Pay real estate is broken, not at all. I mean we have a lot of great stores in this company. Certainly, there are some key stores that need some work done to them. That is an absolute fact. But I mean, there's also a big chunk of our state that's great. So we mustn't have a look at Pick n Pay and think that the whole thing is broken. It ain't. Unknown Executive: Another question here. What is your view on the amount that is being spent on online gambling and its impact on disposable income? Sean Summers: This is a really, really current topic, and one can see that there's been commentary from virtually every financial institution. There's been so much talk about it. But I think context is always important. So if we have a look at the, I don't know, ZAR 1.6 trillion or ZAR 1.7 trillion that is turned over in the space of gambling in South Africa. There's somewhere north of about ZAR 70 billion that has been taken out of this market at the moment in terms of profits that have been taken in the gambling industry, the bulk of which is in the online gaming space, not in the casinos and horse racing and the likes, where employment is created. At least in casinos, you've got hotel rooms and [ crew peers] and cleaners and all of that. And in the horse racing industry, you've got a whole industry there. If one looks at online gambling, they don't create new jobs. These program writers are all sitting in other places offshore. ZAR 70 billion a year. I mean, if you think of ZAR 70 billion a year, that's basically Pick n Pay's total revenue, we're still a big company. It's the equivalent of everything that's sold by Pick n Pay is taken out by a few people in profit every year in a highly constrained market. It's over ZAR 1 billion a week has just been hoovered out of the economy. It's difficult. I mean a lot of the research work that's been done by some of the institutions, it would appear that north of 20% of SASSA bonds are going straight into gambling. It's horrendous. It's horrendous. Now how does one deal with it? Smoking was a cancer. And then one of the ways that they dealt with it was that they banned all marketing and promoting of cigarette products and tobacco products. I think we need to give serious consideration in this country to a similar move that all marketing and advertising should be banned forth with, the same as you did with smoking. It's not a crazy thought. You look in Europe, I mean, in Belgium, Holland, Italy, there's no marketing of gambling, it's illegal. Even if you look in the United Kingdom from next year, now will be not possible to put a gambling logo on the front of a soccer jersey. So even in countries like the U.K., it's starting to move. So I think this is an industry that is totally out of control. I think that the poor and the vulnerable and you know even kids, I mean, all you need is your mom and dad's ID number, sign up on the app, put in the ID number and you're off to the races. I mean, I speak to people that are teachers at schools and what have you, and they tell me about the stress that's happening amongst kids where kids are sitting in school gambling on the apps on the phone. It's a problem. It's a huge problem. So I think a serious consideration needs to be given to what is actually happening inside society in this regard. It's not just about the greed of chasing the profit. Unknown Executive: It's a question from Nick Webster at HSBC. There's no mention of liquor performance in the presentation. Could you give us some color here and if it's accretive to the Pick n Pay like-for-likes? Sean Summers: Yes, our Pick n Pay liquor like-for-like sales continue at a similar pace as the rest of our like-for-like sales and liquor continues to grow. It's also a fantastic category for us. We just want in this presentation not to get too granular in terms of calling out everything and just really get to the headline stuff that really people want to know about, and that is what's happening to the core underlying Pick n Pay at a top line level. Unknown Executive: Another question from Johannesburg. What is your opinion on Walmart entering the South African market? What do you believe will be the impact on SA Retail in the short term? Sean Summers: I think it came about 17 years ago. 16 years ago, didn't they? They arrived, yes, 16 or 17 years ago, so it's not like they've just arrived and cleared customs. I know it's quite slow to get through the airport, but they've been here for a while. It would appear at this stage and one is never sanguine about these things because they obviously are a mighty force clearly. From the stores that we've seen that have been identified, it's more a rebranding exercise than anything else. So it would appear that there's some of the real estate that they'll rebrand, and we'll keep an eye on them. But they've always been here, always been here. Unknown Executive: And then another question from Ya'eesh Patel at SBG. Please, can you speak to any dynamics over the past 6 months in the chicken category? Any shortages for Pick n Pay experienced? Sean Summers: Yes, we had the problem with the MDM issue and out of Brazil because a lot of product that comes into this country, MDM is the backbone of what happens for the lower-end proteins, Russians, viennas, polonies and all of that. So that has a profound effect on that. Obviously, chicken feeds as well is a massive piece of the market for Boxer and the like and even in some of our Pick n Pay stores. And then on poultry in general, we had the foot and mouth issue on red meat. So we had a spike in red meat prices, which obviously then put more pressure on poultry, then we had poultry shortages. So the poultry market has been under a lot of pressure as well. Unknown Executive: Question from Keenon at Investec. Are you seeing a highly promotional environment in Pick Clothing? Sean Summers: The clothing market is interesting because obviously, you've got our friends from SHEIN and the like that are sort of playing silently in this space, but growing enormous volumes in this country, absolutely enormous volumes. But if we have a look at our clothing offer within Pick n Pay, we're really not that promotional because I mean, we have -- when I say we're not that promotional, we have a value proposition, and we present fair value to the consumer. So our clothing is not massively price driven. But the textile market, as you know, you can see from the result of the other retailers has been under pressure in the last while. And it's going to be interesting to see, as I say, as we annualize through the two-pod system now because a lot of the two-pot spending that actually went back into the market didn't really go into food. A lot of it went more into sort of clothing and housewares. So let's see how that annualizes out. Unknown Executive: Question from Thishan Govender at Truffle Asset Management. Any guidance on when core Pick n Pay is expected to be free cash flow neutral? And what is the top line like-for-like gross profit margin and OpEx needed to get there? Lerena Olivier: Shall I just pull out my spreadsheet, Sean. Sean Summers: Yes. It's an addiction we are under in. Lerena Olivier: Our guidance remain on the full cash burn for the Pick n Pay segment towards FY '28. And ultimately, the way you need to think about it is that we need to get our trading profit after lease margin to 0. And to do that, about half, we believe, will come from our gross profit and the other half from our trading expenses. Unknown Executive: A question from Citi. Can you provide some color on clothing post-period trade? Sean Summers: Clothing post period trade. continues to show the similar trend pre. We haven't seen any marked drop off from before. So yes, we're really, really happy with the progress that Hazel is making, the new stores that are opening. We've -- from an excess merchandise markdown perspective, we've really done a great job of getting ourselves a lot more efficient and cleaner in that area. So we're very positive about where we are at the moment in our clothing business. And then obviously, the Springbok apparel and merchandise is another great thing for us in that area. We do an unbelievable amount of business in Springbok apparel and merchandise. Unknown Executive: I have 2 more questions. One from Daniel at Ashburton. Could you speak to the outlook for cost growth into H2, including Boxer? Lerena Olivier: Boxer will continue to grow as they're opening their store estate. So you will see similar levels of growth in the Boxer business. And I think the Pick n Pay shape will also reflect the first half. Unknown Executive: And a last question from Nick Webster at HSBC. Could you comment a bit more on your enhanced private label offering in terms of categories and current penetration to Pick n Pay? Sean Summers: Yes, certainly. We've done a lot of work in the last while of cleaning out a lot of house brand product that was in store. That was not particularly well conceived at the point in time when those ranges are put together. We've taken No Name brand again. And again, we've cleaned up the No Name brand range. We've got rid of a lot of items that should never have been in No Name brand. No Name brand was always understood to be in certain categories and in certain commodity groups and present a certain value profile to our customers. So we're busy refocusing that again at the moment. We've got new packaging that's going to be coming forward that will be taking us and really putting No Name brand back as the hero that it should be and a very, very well-known house brand in the country, one of the leading ones. And then on the Pick n Pay brand specifically and Live Well. There's work that's been done behind the scenes there as well. So as I say, we've been getting cleared of a lot of product that was just -- that was not really serving the purpose that it should serve. So I think within the next 12 to 18 to 24 months, you will see quite a radically revamped and repositioned house brand range in the market. But -- our front door always in this company has been branded goods you know at prices really low. That's always been the key hallmark of our success in the company, and that's our backbone. And then your house brand sits on the side of that and performs a very, very important function. And then obviously, on the other side of that is Fresh, which obviously a lot of that is house brand just by nature, but a massive amount of energy and effort going into Fresh. So a lot of stuff happening. Unknown Executive: From David Fraser at Peregrine. Is Pick n Pay core profitability during or at the end of 2028? Lerena Olivier: During. Sean Summers: Morning, David. Chris Logan: It's Chris Logan. Very well done on all the notable improvements. If we consider the tough competitive environment you're faced with, and your trading expenses as a percentage of sales at 22.2%. They're very high historically, and they're high in relation to your GPU of 16.9%. Are you not going to need to take more radical steps to get your trading expenses in line? Sean Summers: You see the critical thing, and thanks for that question because, I mean, that's the vital journey that we're on. So the 2 key metrics in this business, obviously, is your top line sales and then your margin. And then obviously, your trading expenses. But your trading expenses, okay, if you look at your trading expenses, a lot of them are not that variable. When you take cost of occupancy and rates and taxes and rents and all of those kind of things. So a lot of that outflow, the only real variable you got there is kind of sort of your wages and stuff that you can flex. So yes, it's absolutely the nub of where we are. And top line is everything because if you lose the momentum on the top line, there's no way that you can cut your expenses as a rate to offset loss of momentum at the top line level. And that's why one of the constraints currently in this marketplace is top line sales. Now I don't sit here -- we don't sit here in Kenilworth and have this set of circumstances, the macro economy looking at us and our colleagues down over the hill over there or nearer to that side of the mountain on the other side over there, they have a different set of dynamics. They're operating in the exact same market that we're operating in. So these things are common to all. So the pressures we feel, they feel as well. So you see our expenses, if we can get our top line growing at the rate that can continue to show these trends, your expenses -- your wage expense and your fixed cost expense all comes down as a proportion of it. So the work that we are doing currently to do the OpEx reset, to have a look at the store labor reset and all of that stuff that we're doing, this is all work that's happening quietly behind the scenes, and it's ongoing. It's ongoing. We just need your support in the store shopping with us, and then it will help us get there. Unknown Executive: Sorry, Sean, one more question. Is the group breakeven including Boxer for the full year? Lerena Olivier: It's specifically focused on Pick n Pay. Unknown Executive: Okay. And then the last question, can you clarify if the full year guidance for F '26 is on the trading profit pre-leases level? Lerena Olivier: It is on the trading profit pre-leases level. Unknown Executive: And that's it from... Sean Summers: Okay. Yes, sir. Unknown Attendee: One of the important slides you presented of the social welfare benefits you bring to the country, why isn't this more promoted? I mean, with all the problems you're resolving, don't you think we should be more aware of the benefits you're bringing to the society? Sean Summers: A good question from one of our faithful long-term shareholders, private shareholders. We appreciate it. And I appreciate that question. There's a famous saying in life that the hand of the receiver should never know the hand of the giver. And it's something that we also believe in, in the company. So I think just to continually quietly investing in community and doing what you do, creates far more long-term loyalty and sincerity with the communities that we deal with because I know that we're there for them. And it's always been a philosophy of ours and a belief of ours that we just quietly get on with it, and we just change lives in communities. In fact, we've got Suzanne sitting here, who's been at the forefront of a lot of this, and a lot of that instilling that culture into the company. And doing good is good business as our Chairman taught us, Chairman and Founder. Okay. Thank you very much, indeed. Wish you all of the best. Have a great week. Mine is going to be spectacular. Lerena Olivier: Thank you.
Operator: Greetings, and welcome to the Simpson Manufacturing Co. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to introduce your host, Kim Orlando of Investor Relations. Thank you. You may begin. Kimberly Orlando: Good afternoon, ladies and gentlemen, and welcome to Simpson Manufacturing Co.'s Third Quarter 2025 Earnings Conference Call. Any statements made on this call that are not statements of historical fact are forward-looking statements. Such statements are based on certain estimates and expectations and are subject to a number of risks and uncertainties. Actual future results may vary materially from those expressed or implied by the forward-looking statements. We encourage you to read the risks described in the company's public filings and reports, which are available on the SEC's or the company's corporate website. Except to the extent required by applicable securities laws, we undertake no obligation to update or publicly revise any of the forward-looking statements that we make here today, whether as a result of new information, future events or otherwise. On this call, we will also refer to non-GAAP measures such as adjusted EBITDA, which is reconciled to the most comparable GAAP measure of net income in the company's earnings press release. Please note that the earnings press release was issued today at approximately 4:15 p.m. Eastern Time. The earnings press release is available on the Investor Relations page of the company's website at ir.simpsonmfg.com. Today's call is being webcast, and a replay will also be available on the Investor Relations page of the company's website. Now I would like to turn the conference over to Mike Olosky, Simpson's President and Chief Executive Officer. Michael Olosky: Thanks, Kim. Good afternoon, everyone, and thank you for joining today's call. I'm joined by Matt Dunn, our Chief Financial Officer. Today, I'll share highlights from our third quarter performance, key developments across our end markets and progress on our strategic initiatives. Matt will then walk through the financials and our updated fiscal 2025 outlook. We are pleased to report net sales of $623.5 million, a 6.2% increase year-over-year, primarily driven by our June 2nd price increase and a positive impact from foreign exchange. This growth reflects the ability of our business model to navigate a challenging macroeconomic environment even as residential housing markets in the U.S. and Europe remains soft. In North America, net sales rose to $483.6 million, up 4.8% from the prior year. This includes an estimated $30 million contribution from our June price increase. North American volumes were modestly lower. This reflects broader market conditions, including significantly lower housing starts, both in the southern and western regions of the United States, where we have more content per unit as a result of stronger building codes. As a reminder, our volume calculations exclude contributions from software, services and equipment. While comparative data versus U.S. housing starts was unavailable for Q3 and due to the government shutdown, we remain confident in our ability to outperform the market over the long term. Our focus on innovation, customer service and operational excellence continues to drive solid results. Highlighting some developments from our key end markets, our volume performance was mixed, though we're seeing positive momentum across several key areas. The OEM business delivered high single-digit volume growth led by mass timber solutions and new product introductions. Direct sales to manufacturers of material handling and data center equipment also posted solid gains. In the component manufacturer business, we achieved low single-digit volume growth supported by our new customer wins and expanded product offerings. We recently launched CS Producer. It's our first cloud-based truss production management software. CS producer gives floor and roof truss manufacturers powerful ways to schedule and manage daily operations. It's also a major milestone in our software road map and received enthusiastic feedback at the Building Component Manufacturers Conference. In our national retail business, volume was slightly down, while point-of-sale performance improved mid-single digits. We saw continued strength in Outdoor Accents, fastener solutions, e-commerce and Pro initiatives with our two largest retail partners. Expanded shelf space and new products introduced last year are contributing positively. In the residential business, volumes declined slightly. However, we secured new business through dealer conversions and growth in outdoor living solutions. Multifamily demand remains a bright spot, especially in the northwest, northeast and Canada. In the commercial business, volumes declined mid-single digits, reflecting an overall weak commercial market, but we saw growth in cold-formed steel connectors and adhesive anchor lines driven by strong field engagement and specification efforts. I'm also proud to highlight that our commitment to customer service was recognized with two supplier awards from Do it Best and SouthernCarlson during the third quarter. In Europe, net sales reached $134.4 million, up 10.9% year-over-year or a solid 4.3% on a local currency basis. Growth was driven by increased volumes, resulting in performance that outpaced the market. As we look ahead, we are undertaking proactive strategic cost savings initiatives to align our operations with evolving market demand and position the company for long-term success. This is in response to a downturn in the housing market that started in 2022. While these decisions are not easy, we are committed to supporting our team and ensuring we do not compromise on what we're known for, which is delivering best-in-class service to our customers. These actions are designed to drive efficiencies, preserve profitability and unlock future growth opportunities in what's expected to be a continued soft market. As a result of these actions, we expect to generate annualized cost savings of at least $30 million with onetime charges of approximately $9 million to $12 million that will be realized in fiscal 2025. We remain committed to supporting our team in delivering exceptional customer service. Matt will provide further detail on the financial impact shortly. Turning to consolidated gross margin, which was 46.4% and slightly below last year. This reflects higher input costs, including tariffs and labor costs. Our June price increase helped partially offset rising costs, and we've taken further pricing actions, effective October 15, to address additional tariffs announced subsequent to our prior price increase. These increases are expected to contribute approximately $100 million in annualized sales. We expect continued deceleration in our gross margins as the impact of tariffs flow through our inventory. Third quarter operating margin was 22.6%, up 130 basis points year-over-year including a $12.9 million gain from the sale of our Gallatin, Tennessee facility and approximately $3 million in restructuring costs. Adjusted EBITDA totaled $155.3 million, a 4.5% increase year-over-year. Next, I'd like to highlight progress on our financial ambitions. First, continuing above-market volume growth relative to U.S. housing starts. We're updating our 2025 outlook for U.S. housing starts. We now expect them to decline mid-single digits compared to 2024. In Europe, housing starts in 2025 are expected to remain relatively consistent with 2024. We remain focused on growing above the market. Second, maintaining an operating income margin at or above 20%. Considering the cost savings initiatives we are taking in a growing market, we remain confident in our ability to deliver 20-plus percent operating margins. And third, as a growth-focused company with industry-leading margins, we believe we can consistently drive EPS growth ahead of net sales growth. Year-to-date EPS has increased approximately 510 basis points above revenue growth, demonstrating our ability to deliver shareholder value. In summary, we delivered solid results in a challenging housing environment. Our pricing actions, cost savings initiatives and market share gains are positioning us for continued success. We're optimistic about the future and believe in our ability to drive growth, improve profitability and capitalize on a market recovery. Thank you to our incredible team for their dedication, resilience and relentless customer focus. With that, I'd like to turn the call over to Matt, who will discuss our financial results and outlook in greater detail. Matt Dunn: Good afternoon, everyone. Thank you for joining us on our earnings call today. Before I begin, I'd like to mention that unless otherwise stated, all financial measures discussed in my prepared remarks refer to the third quarter of 2025, and all comparisons will be year-over-year comparisons versus the third quarter of 2024. Now turning to our results, our consolidated net sales increased 6.2% year-over-year to $623.5 million. Within the North America segment, net sales increased 4.8% to $483.6 million. In Europe, net sales increased 10.9% to $134.4 million due to increased sales volumes as well as the positive effect of approximately $8.1 million in foreign currency translation. Globally, Wood Construction products sales were up 5% and Concrete Construction product sales were up 12.8%. Consolidated gross profit increased 5.2% to $289.3 million resulting in a gross margin of 46.4%, down 40 basis points from the third quarter of 2024. On a segment basis, our gross margin in North America was 49%, slightly lower than the 49.5% reported in the prior year due to factory and overhead as well as higher warehouse costs as a percentage of net sales. Our gross margin in Europe increased to 37.9% from 36.6%, primarily due to lower material costs as a percentage of net sales. From a product perspective, our third quarter gross margin was 46.2% for wood products compared to 46.3% in the prior-year period. For concrete products, gross margin was 48% compared to 49.7% a year ago, with the reduction partly due to increased tariffs on imports. Now turning to expenses, while SG&A head count is down over 4% year-over-year, total Q3 operating expenses increased 9% to $162.3 million, primarily driven by higher variable compensation on improved profitability, severance costs related to our strategic cost savings initiatives, foreign exchange and employee health care costs. As a percentage of net sales, Q3 operating expenses were 26% compared to 25.4% last year. Our third quarter operating expenses included approximately $3 million in severance-related costs associated with our strategic cost savings initiatives, which we anticipate will deliver annualized cost savings of at least $30 million. To further detail our third quarter SG&A, our research and development and engineering expenses increased by 1.2% to $20.8 million. Selling expenses increased by 5.9% to $56.1 million, primarily due to higher variable compensation and commissions, personnel and severance costs related to our strategic cost savings initiatives, partially offset by a decrease in travel-related costs. On a segment basis, selling expenses in North America were up 6.8%, and in Europe, they were up 2.8%. General and administrative expenses increased by 13.3% to $85.4 million due to increases in variable compensation, software costs, including development for our component manufacturing business as well as negative foreign exchange effect. As a result, our third quarter consolidated income from operations totaled $140.7 million, an increase of 12.7% from $124.9 million. Our consolidated operating income margin was 22.6%, up from 21.3% last year. Income from operations included a $12.9 million gain on the sale of the existing Gallatin, Tennessee facility. In North America, income from operations increased 1.6% to $125.2 million, driven by an increase in gross profit, partly offset by higher variable incentive compensation, personnel costs, severance costs related to our strategic cost savings initiatives and software-related costs. Our third quarter operating income margin in North America was 25.9% compared to 26.7% last year. In Europe, income from operations increased 27.6% to $16.1 million due to an increase in gross profit, partly offset by increases in operating expenses due to the negative effect of approximately $2.1 million in foreign currency translation. Our third quarter operating income margin in Europe was 12% compared to 10.4% last year. Our third quarter effective tax rate was 25.3%, approximately 80 basis points below the prior-year period. Accordingly, net income totaled $107.4 million or $2.58 per fully diluted share, compared to $93.5 million or $2.21 per fully diluted share. Adjusted EBITDA for the third quarter was $155.3 million, an increase of 4.5%, resulting in a margin of 24.9%. Now turning to our balance sheet and cash flow. Our balance sheet remained healthy with cash and cash equivalents totaling $297.3 million at September 30, 2025, up $106.9 million from June 30, 2025. Our debt balance was approximately $369.2 million, net of capitalized finance cost, and our net debt position was $71.9 million. We have $450 million remaining available for borrowing on our primary line of credit. Our inventory position as of September 30, 2025, was $591.9 million which was up $5.3 million compared to June 30, 2025, with lower pounds of inventory on hand. Our disciplined approach to capital allocation keeps our investments aligned with evolving market conditions and focused on driving sustainable value. We generated strong cash flow from operations of $169.5 million for the third quarter. This enabled us to invest $35.9 million for capital expenditures, pay $12.1 million in dividends to our stockholders and pay down $5.6 million of our term loan. In addition, we repurchased 158,865 shares common stock at an average price of $188.84 per share for a total of $30 million. On October 23, our Board amended our share repurchase program, authorizing an additional $20 million of our common stock for repurchases through year-end, resulting in $30 million remaining under our authorization. In addition, the Board authorized a new share repurchase program for 2026 to repurchase up to $150 million worth of our shares through year-end 2026. This reflects our confidence in the long-term prospects of the business and our commitment to returning capital to shareholders. In regard to our investments, our new Gallatin, Tennessee facility opened during the third quarter. As a reminder, this facility will play a critical role in helping to support growth and enhance operational efficiency across our fastener product lines. Next, I'll turn to our 2025 financial outlook. Based on business trends and conditions as of today, October 27, we are updating our guidance for the full year ending December 31, 2025, as follows: we expect our operating margin to now be in the range of 19% to 20%. Additional key assumptions include: our expectation for U.S. housing starts to be down in the mid-single-digit range from 2024 levels, a slightly lower overall gross margin based on the addition of new facilities as well as the recently imposed tariffs, which we anticipate will be partly offset by the price increases that went into effect on June 2 and October 15. Our outlook also assumes nonrecurring severance costs from our strategic cost savings initiatives in North America and Europe of approximately $9 million to $12 million. And finally, our margin guidance includes the benefit of $12.9 million from the gain on the sale of our existing Gallatin, Tennessee property. Next, interest expense on our term loan, which had borrowings of $369.2 million as of September 30, 2025, is expected to be approximately $5 million. The benefits from interest rate and cross-currency swaps and interest income on our cash and money markets are expected to substantially offset the expense. Our effective tax rate is estimated to be in the range of 25.5% to 26.5%, including both federal and state income tax rates based on current loss. And finally, our capital expenditures outlook is expected to be in the range of $150 million to $160 million, which includes approximately $75 million to $80 million for the completion of both the Columbus facility expansion and the recently opened Gallatin fastener facility. In summary, despite a challenging market backdrop, we delivered solid third quarter results and continue to execute with discipline. Our pricing actions helped offset rising costs from tariffs, helping our margins remain resilient even as we navigate cost headwinds. While SG&A was elevated this quarter, the strategic cost savings initiatives we implemented in late September and early October will drive meaningful efficiencies and support future earnings growth. Gains on asset sales also contributed positively to operating income and EPS. Looking ahead, we remain focused on disciplined capital deployment and returning value to stockholders through our expanded share repurchase authorization and our commitment to return at least 35% of our free cash flow. With that, I will now turn the call over to the operator to begin the Q&A session. Operator: [Operator Instructions] Our first question comes from the line of Dan Moore with CJS Securities. Dan Moore: To start with, 6% revenue growth in Q3, certainly very solid in light of the current housing environment. Obviously, it was mostly pricing strategic actions. Just give us a flavor for kind of the organic volume declines in North America and what did volume growth look like in Europe? Matt Dunn: Sure. Dan, this is Matt. Let's break it down on a global basis first. So the 6.2% sales growth for the quarter, a little more than 5 points of that was from pricing, a little more than 1 point from foreign exchange, less than 0.5 point of help from acquisitions that were acquired in 2024 that had not anniversaried yet. And then volume was down 1 point. So that's on a global basis. If you look at volume on a North America basis in the quarter. Yes. I think... Michael Olosky: Dan, Year-to-date volume growth is down 1.4% versus prior year. Matt Dunn: Yes. North America. Michael Olosky: North America. Dan Moore: Got it. That's really helpful. Obviously, just sticking with kind of the macro housing demand proving to be more tepid this year than perhaps we had hoped or expected when we started the year. The rental rates coming down, affordability remaining challenged, you're taking some meaningful cost actions, and that will be my follow-up question. But do you see any catalysts that could kind of stem the tide and give a trajectory next year? Do you foresee continued declines in the housing market, and that's why you're taking the actions? I know it's early to be crystal balling '26, but just kind of beyond the next -- where do you see things going? Michael Olosky: Dan, when we look at this year, again, probably down mid-single digits. And I think that's a bit of a surprise for a lot of people. When we were coming into the year, we were thinking it was going to be up low single digits. And it does look like it's certainly decelerating in the second half of the year. When we look at all of the various market forecasts and not getting specific to market, most of them are coming in on the flat range. And when I talk with our customers, affordability is certainly an issue, but a lot of the bigger builders are already subsidizing mortgage rates. So a lot of people that are going to these big production builders are already getting a 4% loan. So certainly, lower interest rates will help the small- to medium-sized builders that really can't subsidize things, the way the bigger builders are. But I guess we're focusing on the things within our scope of control. We're absolutely committed to being in that 20% operating income level, and that's why we had to make the really difficult decision to make the strategic cost savings initiatives and get our cost structure in line with what we think is going to be a little bit more of an extended slow market. Matt Dunn: Yes, Dan, I would just add, as Mike said, tough decisions looking ahead toward what looks like is going to be a flattish market next year. We took these actions to stay on track against our financial ambitions. We believe that they'll deliver at least $30 million of annualized cost savings in 2026, really through a combination of workforce reduction and portfolio management. And then as we mentioned on the call, we expect $9 million to $12 million of onetime costs during 2025, of which $3 million are already in the Q3 results, but the full $9 million to $12 million is included in our updated outlook for the year. Dan Moore: Really helpful. And then I was -- I think you just touched on it, but I was going to dig a little deeper into the targeted cost savings. Any kind of general breakdown between North America and Europe? And then it sounds like you've already incurred $3 million, the $9 million to $12 million is not incremental to that. But I assume the balance is likely going to be in Q4. Is that the right way to think about it from a modeling perspective? Matt Dunn: Let's take the second part first. Yes, from a modeling perspective, you could assume that the $6 million to $9 million is going to come in Q4 and then the $3 million we already had in Q3 would get you to that $9 million to $12 million. In terms of the breakdown, regionally, I'm not going to provide all that, as you can assume. Not all of it's done yet, certainly given some of it still to come in Q4. Dan Moore: Got it. Last one, and I'll jump back in queue. But that entire $30 million cost savings earmarked for bottom line improvement or at least is sort of bottom line maintenance and getting back to that 20% operating margin target? Is it the right way to think about it versus reinvesting back into the business? Michael Olosky: Yes. We're not guiding yet, Dan, obviously, for 2026. But our assumption in the market is going to be flattish from everything we've heard and we are committed to making sure we get back to that 20% operating income level. Operator: Our next question comes from the line of Tim Wojs with Baird. Timothy Wojs: Maybe just on that last point, Mike, is basically what's changing on the cost side, the expectation that the market is just going to stay slower? I mean if we look back a year ago when you guys had that question or 2 years ago when you had that question, it was kind of like, hey, the market is going to get better and we'll lever those costs. Is it basically that, or is there something kind of worse happening in the market? I just kind of want to make sure I understand the drivers of the cost reductions. Michael Olosky: Yes. Good question, Tim. It's pretty much in line with what you're hearing about the market. So the census data came through August, which is the last report we had basically said that housing starts were up 1%, which was a little inconsistent with some of the results we've seen in the industry. We've definitely seen things slow down in the second half. We've certainly heard that from our customers. I believe they're all feeling the same thing. You're probably hearing that from other clients as well. And then we think that, that's just going to carry over into a flat year next year. Matt Dunn: Yes. I think, Tim, we just wanted to make sure that we could see our way to delivering our financial ambition on the operating margin side of 20%, even if the market is flattish or a little bit down next year. Again, I'm not giving the formal guide yet, but just need to take some cost choices to make sure we can get there next year. Timothy Wojs: Okay. Okay. No, that's helpful. I guess on gross margins, when do you -- I guess, two questions on the trajectory. So when do you fully kind of expect the tariffs to kind of flow through the gross margin line? And then is there a noticeable impact in gross margins from turning on the Gallatin facility? Or are there other cost offsets? Matt Dunn: Yes, I'll take the second part first, not a noticeable impact on turning on the Gallatin facility on gross margin, certainly in the short term or even the next year or so. I think some of that will depend on what happens with tariffs and what we do with sourcing and are we in-sourcing more maybe than we thought from the start. A lot of that depends on where we net out on tariffs. In terms of gross margin impact of tariffs, if you look at our product segment breakdown on gross margin that we talked about, you can see the gross margin on concrete construction products is down quite a bit more than wood construction products. That's largely where the anchor business falls, which is subject to the most tariffs and some of our fastener business falls there as well. I would say that from a gross margin standpoint, we continue to see erosion over the next quarter or so, a couple of quarters as the tariffs are fully rolled in, but you're seeing an impact in Q3 certainly. And so incrementally, a little bit more in Q4 and then maybe a little bit in Q1, but from that standpoint, then they should essentially be rolled in everywhere. But I would say -- if I had to pick a percentage on it now, I would say 80% rolled in already in what you see in the Q3 results. Michael Olosky: Tim, remember, we're talking about Gallatin, we're also in-sourcing coding and heat treating processes. So it's not just moving production and adding additional cold-forming equipment. It's ramping up kind of a full end-to-end process. So that's why it's going to take us a little bit of time to get that fully going. Timothy Wojs: Okay. Okay. No, that's helpful. And then I guess just to kind of put a finer point on the volume trajectory. So I think we were down a little bit in North America in Q2. I think we're down a little bit again in Q3. Is -- are you seeing things even out? Or would you expect your volume performance to get weaker in the first quarter and into early next year? Matt Dunn: So if you just look at Q3, Tim, volume was down 2.7% versus prior quarter. And if you look year-to-date, as I mentioned, down 1.4% for the full year. So definitely trajectory-wise getting a little bit worse. Again, a lot of things can happen over the next couple of months. So let's see how the rest of the year plays out before we talk about 2026 too much. Timothy Wojs: Okay. And you should still outperform the mid-single digits. That would be the expectation, right? Michael Olosky: I mean our ambition is to drive above-market growth. As you know, historically, we've been about 300 basis points above that. Now, it's not always been a straight line over the last 9, 10 years. We've had a couple of years of volume growth was below the market, but we certainly want to grow above the market and ideally above that long-term average. Operator: Our next question comes from the line of Kurt Yinger with D.A. Davidson. Kurt Yinger: Great. Just wanted to follow up on the cost savings target. I apologize if I missed this, but is that $30 million expected to be kind of achieved on a run rate basis, I guess, in early 2026 there? And I guess as we think about the sources of savings, how would you kind of have us split that between the cost of goods and kind of the operating expense segments? Matt Dunn: Yes, Kurt, the $30 million would be a realized number in 2026 kind of throughout the course of the year. We are going to see a little bit of savings in 2025, but it's more than offset by the severance costs. So from an incremental savings standpoint, net-net, the full $30 million should show up in 2026. So in terms of how that splits versus SG&A and COGS, I would say 90-plus percent of it is in SG&A. There's a little bit in the COGS side, but the bulk of it is SG&A. Kurt Yinger: Okay. Okay. That makes sense. And then I believe, Mike, you had mentioned kind of the residential market was down low single digit for you guys this quarter, which, in light of some of the pressures in Florida and California and other parts of your business that are maybe more exposed or higher content per start seems pretty good still. I guess, has that performance surprised you at all? Do you feel like you're actually potentially gaining some share there relative to the impacts of certain regions? How would you just kind of frame that for us? Michael Olosky: So Kurt, just to be clear, the volume for the total North American business was down 2.7% for the year. Our residential... Matt Dunn: For the quarter. Michael Olosky: For the quarter. For the residential business, it is down mid-single digits for the quarter. We do believe that -- and we see this with our customers, and we continue to pick up share at some of our lumber yards and pro dealers. We tend to -- we're still getting more shelf space that we think eventually leads to more positive sell-out. So we continue to feel good about our ability to grow above market. If you look at the digital mix, so the regional mix is a big deal for us. So the south and the west, when you look at the census data through August, they're down mid-single digits. If you look at the Midwest and Northeast, again look at the housing data -- census housing data, they're up double digits. And remember, a house built in a seismic or a hurricane area can have 10x the content of a house built in the middle of the U.S. with a pretty standard building code. So that definitely has a mix. We don't have great visibility all the way to the end builder, as you know, because we're going through a bunch of lumber yards and pro dealers and contractor distributors. So it's hard to say exactly how that's impacting us, but that's definitely a headwind. Kurt Yinger: Okay. Okay. Perfect. And then just thinking about the guide at a higher level, your starts assumption for the year ticked down a little bit. The outlook kind of now contemplates the onetime cost to achieve the targeted reductions. Is there anything beyond the October price increase that's been better than expected? Or is it maybe kind of incremental on the positive side, just thinking about the operating margin guide moving up to the higher end? Matt Dunn: Yes. I think we narrowed up the guide to a 100 basis point range from a 200 basis point range. We've included the onetime costs. I think the -- our volume development has been maybe better than what you hear if you listen to some of the market forecast, whether it's a Zonda or a John Burns. If you look at our volume, year-to-date down -- or sorry, in the quarter, down 2.7%. I think there's a lot worse numbers out there from the folks that are forecasting the market, although there hasn't been official census data published. So I think holding steady on volume, doing what we can on the cost front. And then obviously, we had the onetime gain that was known, but certainly, just still felt needed to take these actions on cost savings to ensure we can get where we want to go in 2026. Operator: Our next question comes from the line of Dan Moore with CJS Securities. Dan Moore: Yes. Just a quick follow-up, and I appreciate the color on the gains you're making in some of those targeted end markets that are a key focus for growth and continuing to outpace. When you look to '26 and beyond, if not rank ordering, just kind of maybe would you call out two or three that you see a little bit more opportunity here in the near term that could help you to continue to outpace those end markets if we do remain a little bit softer? Michael Olosky: Yes, Dan, so we -- let me start with Europe because we're very pleased with the development that Europe has made over the last 2 quarters, profitability improving, we believe above market growth. So -- and we expect the growth there to continue. And Dan, we think, literally, we have plenty of opportunities in all five of our market segments. We've got very specific plans in each segment to try to gain share. When you kind of add all that up, there are a lot of singles and doubles, meaning a lot of small applications, digital self space, shelf space, new products that we're launching and small games with customers that we do think will add all up and help us continue to drive above-market growth. If you talk about the bigger ones, we continue to think all things component manufacturing is a good opportunity for us. That has been one of our strongest growth drivers in the last couple of years. And then we think ramping up the new product innovation activities, we are making good progress there, and we expect to continue to make good progress on that going forward. Dan Moore: Very helpful. And then lastly, obviously, you've been aggressively returning cash to shareholders and very consistently. Just the language around 2026 share repurchases up to $150 million, absent meaningful M&A opportunities? Is it how we should sort of think of that as kind of a target, just balancing, especially given CapEx probably starts to wind down a little bit after some of these projects? Matt Dunn: Yes. I think as we've talked before, we've been in a pretty heavy CapEx cycle with the two facility expansions in Gallatin and Columbus, and that's going to normalize quite a bit next year, and we'll issue that formal guidance in January, but definitely going to free up some capital and certainly want to be continuing to return cash to shareholders. So I would plan on, barring unforeseen events or significant M&A or something like that, that's a good target number for 2026 on share repurchase. Dan Moore: Perfect. I look forward to seeing you down in McKinney in a couple of weeks. Michael Olosky: Yes, looking forward to it. Operator: Our next question comes from Tim Wojs with Baird. Timothy Wojs: I just had a couple of follow-ups. On pricing, can you -- how much of carryover pricing would you have next year? I think you mentioned $30 million you saw this quarter. I guess what would you expect in the fourth quarter? And how much carries into '26? Michael Olosky: Yes. So big picture, Tim, tariff story, roughly $100 million. Price increases specific to tariffs, a little bit over $50 million. Both of those are on an annualized level. We also implemented our first price increase in roughly 4 years on our U.S.-made products, roughly $52 million impact on an annualized level. Matt Dunn: Yes. And then just if you recall from Q2's release, Tim, we had a little bit of pricing in Q2 from the June price increase, about $30 million in Q3, as we've said, based on volume, probably another $25 million or so in Q4. And then so that leaves you with probably about, doing the math in my head, $30 million, $35 million of carryover pricing in 2026. Timothy Wojs: Okay. Okay. Great. And then just on the fourth quarter, like the 100 basis points is still pretty wide for the year for the EBIT margin guide, and it is a seasonally weaker quarter. So just any -- would you put any finer point on that? Or just kind of how we're thinking about the fourth quarter because that could be up a couple of hundred, down a couple of hundred basis points in that specific quarter. So just anything that could help us there? Matt Dunn: Yes, I mean I think the biggest variable is volume, right? I think if you look at market forecasters on what fourth quarter is going to look like from a housing start standpoint, there's some pretty dire forecasts out there to get to the numbers that they're saying on an annual basis based on where we are year-to-date. So that's probably the single biggest variable. And then from the cost savings initiative, just in terms of exactly how much we're able to execute on which timing in Q4, we have a little bit of a read there. But I think it really comes down just to volume. I think the rest of it is largely locked in, but volume is a big enough variable in this case, given what's happening and what is already a pretty low volume seasonal quarter for us, which is Q4, typically. Timothy Wojs: Okay. And then just a last clarification. The $30 million of annualized savings, is that in addition to the severance costs? So it's not $10 million of severance and $20 million of savings, it's $30 million of actual savings. Matt Dunn: Yes. Michael Olosky: Yes. Matt Dunn: At least $30 million. Operator: And we have reached the end of the question-and-answer session. And this also concludes today's conference, and you may disconnect your lines at this time. Thank you, and have a great day.
Simon Hinsley: Good morning, and welcome to ikeGPS First Half Financial Year 2026 Performance Update as released on the NZX and ASX this morning. [Operator Instructions] Glenn Mills, Managing Director and CEO's presentation. But with that, Glenn, I might just hand it over to you for the performance. Thanks. Glenn Milnes: Great. Thanks, Simon, and thank you, everyone, for taking the time to meet today. We want to be very efficient with your time. First thing, though, I'm pleased to introduce Paul Cardosi. Paul is based in our Colorado headquarters alongside the leadership team. So introducing Paul, he started right at the end of September. Paul Cardosi: Hello, everyone. It's good to meet everyone today. Thanks, Glenn. Glenn Milnes: Great. So look, what we'll do for today's session is go through the performance and the numbers themselves. It's been a very strong quarter for the business, which has been pleasing. I want to talk about the market because market timing is everything in terms of, I think, our growth prospects and where we're sitting and also introduce some of the go-to-market and also the new product functionality that we've introduced that we think should materially impact our subscription revenue base. So please take note of this important notice for this presentation. It's the agenda we just talked to. I won't -- Paul will take you through the numbers in terms of the following charts. Just covering those last 3 points, I think it's important for our shareholders to understand that we've maintained our cash operating expenses are materially flat versus the prior calendar period. So we've been able to grow the business and scale without adding additional people costs, in particular. We've got a strong balance sheet now with $34 million on the balance sheet. We've got no debt. We are fortunate to be very well supported through a capital raise process in the second quarter, both institutional -- new and existing institutional support and also a high level of support from our retail investors. And the last point is tied to the ASX All Ordinaries Index. We were promoted there towards the end of September, which tracks the 500 largest companies on the ASX by market cap. So with that, I'll hand over to Paul, and he'll take you through some of the headline numbers. I think actually, before we transition there, we are reiterating guidance in terms of platform subscription revenue. This is going to be at approximately 35% or greater through this year. We're in good shape to deliver that. We're still committed to EBITDA breakeven on a run rate basis within the second half of this year, which we're now into -- well into October. Paul, over to you. Paul Cardosi: Thanks, Glenn. I'm going to start with the exit annualized run rate of our platform subscription revenue. We're very pleased at the 47% growth rate that you see on the slide. Key takeaways around our platform subscription revenue growth are really the strength and the continued growth we see around our IKE Office Pro and IKE PoleForeman subscription products. So great growth there. You can see here on the 47% growth for the latest subscription revenue. If you go to the next slide, Glenn, the next slide represents our 6-month year-to-date subscription revenues, and this has given you a look at our first half performance. You can see on a compounded annual growth rate, we're at 30%. But faster than that, you can see our year-over-year growth year-to-date versus the year-to-date prior calendar period was a 35% growth rate. So really reiterating that guidance Glenn mentioned earlier, continuing to see 35% plus growth rates across our subscription business. If we go to the next slide, Glenn, I'll talk a bit about seat growth. These are the user seats that we sell for our subscription products. 55% growth over prior calendar period. I would say as we continue launching products as well as the products we have launched, we do sell on a per seat basis, a per user basis. So you can see -- really, I see this as seat adoption, user adoption and really strength in the number of users we have across our subscription products. So 55% growth rate there for our subscription business. Moving to the next slide, Glenn. This is our transactions revenue. This is a services business that's heavily influenced by the number of poles that we manage for customers. Our customers perform themselves. This business is down. It's a lower-margin business for us. You can see that the 32% decline in transaction revenue. There's volatility in this business. There's a lot going on with the new U.S. administration around fiber or high-speed communication in rural networks. I would say there's some volatility in this market right now in terms of the timing of the funding. We do expect this to rebound. The time line is, I would say, in the medium term. But again, a lot can happen that's really in the macro U.S. economy. So overall, this business is down. It is impacting our overall revenue growth. But again, we expect as legislation moves through, we'll see a rebound at some point in the, I would say, the medium term here. I don't know, Glenn, if you want to comment on this or you want to just keep going. Glenn Milnes: Yes. No, that's a good summary. We're seeing the Tier 2 fiber and Tier 3 fiber folks have been asked by the new government administration to rebid for the contracts that they had been awarded. And that's created some uncertainty, but this infrastructure has to be built. So we're confident it comes back. It's just -- it's difficult for us to predict when we stay in very close contact with our core customers here. Again, this business has generated just under $3 million of revenue through the first half of the year, and we're able to adjust our cost base and make sure it stays profitable and has a good margin profile. Paul Cardosi: This is a revenue mix slide. So again, looking at the different sections of this chart, you can see that we're now at 90% of our revenue coming from both our recurring revenue streams and reoccurring revenue streams. And I would highlight that the subscription portion of this hit 69% of our revenue. So you can see the purple -- hopefully, you can see it on the screen. The subscription makes up a much larger portion of our revenue. It's a very highly profitable portion. We're around about 93% margin on that subscription revenue. Again, that is the focus that the business has had and has, and you can see it's really taking effect with the amount of subscription revenue that's really dominating the mix of our revenue. So it's nice to see that. If I move on, Glenn to the next one. I'll wrap up with -- these are the key metrics we typically show. It's really a summary table for you to digest comparing our first half this year versus last year. One thing I would note is the third line down, the subscription customer count. It grew only 2%. But I would point out that we had about 40 very small customers that didn't convert yet to PoleForeman. So we've counted those as temporarily lost. But if you compare the 2% subscription customer growth with a 35% revenue growth, the takeaway from that is the customers we are adding are higher annual contract value customers. So again, a small customer count really leading to that 2% growth. But overall, with the customers we are adding and the price we're getting per customer is really growing significantly well. And I think with that, Glenn, I'll hand it over for the update. Glenn Milnes: Great. Yes. And I think just on that number of subscription customers, you see prior year actually dropped down when we took out those tiny little legacy PoleForeman products. So it's going to bounce right back in terms of that percent change. What I wanted to do is we've got quite a number of slides here, and I do want to be respectful of time and get to Q&A quickly. But there's just some new market data that I think matters looking at what's happening across the North American electric utility space and communications market, which I wanted to touch on. Again, just the size of the market opportunity over the next decade is enormous, more than $2 trillion of capital coming into grid modernization. And to do this successfully with an aging workforce, aging infrastructure, it does require technology and digital grid intelligence. That's what IKE focuses on as a business. So there's some data here to absorb as appropriate. And again, the numbers are quite staggering, more than 130 million wooden distribution assets getting to almost 50 years and at failure thresholds. And again, we help design and engineer and maintain these distribution assets. So it's a really interesting time and a pretty monumental engineering task to achieve what the U.S. has to achieve over the next decade or 2. And a lot of the -- it's not just -- there's a lot of private capital coming into this market for grid resilience. There's a lot of federal funding coming in, and it is focused heavily on distribution network capacity, more power on the network and capacity and hardening, which is where IKE plays. Again, the broadband industry has had this slowdown with regulatory uncertainty where the Trump administration was looking to make some of these decisions technology neutral was potentially going to favor Musk and the satellite industry. I think that's reversing pretty fast just because of performance for customers. But again, a lot of capital coming in -- these fiber and small cell attachments go on to distribution networks. And again, we help that process go much faster and more efficiently. And this is what we're, in essence, building in terms of capability as a company. So looking to be able to engineer a network right through its life cycle. So to go out and digitize and to see what matters in a power network, then to assess what's at risk, how vulnerable is your network, how can you make sure you meet code compliance and keep the network safe for your customers and for the environment and then to be able to design and engineer with confidence. And that's the way that we're building our product portfolio today. I think everyone knows about some of the macro factors just the power requirements from having to charge electric vehicles, AI data centers, et cetera, just so much engineering that needs to be achieved. And then with climate change, we've got wildfires, storms. These things are happening just much, much, much more regularly. And so you need a hard power network that doesn't fail and cause the next wildfire or takes a city out from a power supply perspective. And the market in North America, we've published this slide previously. The market is really large. If you just look at our top 8 customers, it's almost 4x the size of the Australian market in terms of the number of homes and businesses that these groups are delivering to. So it is a really profoundly large market opportunity in terms of the networks that we're supporting and starting to get alongside as a partner for these customers. Again, maps that we've published previously, there's 106 investor-owned utilities across the country. These are the really big networks that are all interconnected, but they serve their own service territory. They're generally publicly traded companies. And then more than 2,800 municipality and cooperative electric companies, but they all represent quite large customer opportunities for us, and they deal with the same problems. So we've just started to really scratch the surface in terms of customer penetration and also new logo acquisition. Again, I'll go fast through here because I think many of you are familiar with much of this information. Again, how do you help a customer follow the bouncing ball in terms of engineering a network through its life cycle, go and assess the asset, design the asset, be able to -- at really high scale, be able to assess your entire network using technology, so you understand where your vulnerabilities are. And then we have our IKE Analyze service just to help customers get some scale. And we focus a lot also on training and education, not because we want to be a services training and education business, but it lets us get in front of our target customers, and we get in front of hundreds and hundreds and thousands of engineers and help teach them around best practice for the distribution grid. So we really, I think, understand where we're going. We're extremely focused on North America and distribution grid assets. And we've got some clear goals in terms of being the most trusted company delivering software solutions into the distribution grid over the next 10 years. And what is interesting, this is actually a global private equity firm went and surveyed 40 of our customers. They didn't actually ask us to do it, but they came back and gave us the results. Our NPS score is 91%. It goes from minus 100 to plus 100. It's a Boston Consulting framework that's pretty common these days. So it's working in terms of our go-to-market process. We focus very hard on customer experience and leading with people and process as well as obviously, technology. We're winning and of the 10 largest investor-owned utilities. We're adding new logos consistently. We've got 5 of the 10 largest communications companies at different stages of adoption on the communications side. We're now -- our software is in every state in the United States in terms of its use. And we're managing more than 20 million overhead assets now in our system. And that doesn't mean there's 200 million distribution assets. It doesn't mean 10% of the market is done. These assets get engineered over and over and over again for different purposes and different requirements. So again, we're sort of early in terms of market development. And growth is going to come from winning new logos. We've got about 6% of the logos in North America today. And we think we're about 20% penetrated in the 6% we've got. So it's account development and it's new logo acquisition. Just some examples here around how we're getting to market. And we focused heavily on education and training. We've got a program that looks at the National Electric Safety Code and how customers can make sure that they're applying best practice. And we've trained more than 800 organizations over the last 1.5 years, more than 3,000 attendees. We run other webinars, and we IKE certify engineers across utilities. So I think more than 1,700, it's close to 2,000 attendees have been IKE certified in terms of OSHA training and National Electric safety training. And again, the natural conversation leads to, well, how do you do this work with technology? And that's obviously how we cross-sell the software part of what we're doing. Again, I'll go fast because I think there was a separate release that covered this topic quite well. But we're really excited in the second quarter to introduce some new AI-enabled capability inside of IKE Office Pro. So that's our core product. And simplistically, if you look at that photograph on the right, that's a pretty complicated power asset. That's all the communications infrastructure at the bottom, it's all the power assets at the top and there's a street light. There's a transformer and there's a whole bunch of drop points, et cetera. And this -- when an engineer is assessing this asset and they're trying to build more capacity on a line or whatever it might be or they're trying to figure out if it meets the National Electric Safety Code for compliance, it's a very manual process typically. And we've built this automation capability that a computer with a click of a button, it's able to find and identify everything on that asset. So the level of productivity gain for these very expensive engineers that are sitting in the back office is quite profound. And so we're really excited to get this into market. It's been well received by customers that have, a, went through the trial process with us to make sure we sort of had product market fit correctly. But also now that we've got it -- it's embedded in the product. It's not an opt-in option. This is additional ARPU and it's compulsory if you're using IKE Office Pro. So yes, just into market towards the end of September, but we think really exciting, and we're going to add more and more capability in and around this product. IKE PoleForeman continues to expand extremely positively. Again, it's been in market about 18 months. I know that there are questions around what's the ARR driving to for PoleForeman for this year. It will be something close to 10 million by the end of this year, which is that's 20x the level from when we rebuilt the product a couple of years ago. So that's traveling really well. I think we're going to keep winning some big and important customers. We're going to add more capability and increase pricing. So I will pause there. I know there's a lot of slides, but I think it's some important items. And Simon, I can hand over to you for -- if there's any questions. Simon Hinsley: Thanks for that, Glenn. First up, we've got a question from James Lindsay at Forsyth Barr. If we can get to it. I might just pause on that one. But the submitted question, Glenn, that we've got how much more penetration can you get out of existing customers? Glenn Milnes: Yes, about -- we think we're about 20% penetrated inside of the customer footprint if we take a holistic view. So there's probably another 80% potential. We're not saying we're going to get all of it, but that's the potential. Simon Hinsley: And James Lindsay at Forsyth Barr should be able to talk, please go ahead. James Lindsay: Well done on the update. I was just wondering, I know it's sort of still early birds with regard to the R&D progress on the new products. Just keen if there's any sort of change in your timing. I think you mentioned it was about sort of 12 months away for the first of the 2 products to come into a trial. Would that still be in place? Glenn Milnes: Yes. We're making really strong progress, James, on essentially the bolt-on module for IKE PoleForeman can be sold stand-alone to any participant in the market, but also we will integrate with PoleForeman. -- and that's progressing well. James Lindsay: Okay. Cool. And then just with regard to the sort of continuation of net adds in the quarter, which I think was about 12 or so, so good progress there. Just interested in where it's coming from, if it's sort of in the core IKE Office product or in PoleForeman itself specifically? Glenn Milnes: Yes. PoleForeman is going faster in terms of adds. And it's actually -- it's an important item. We focused initially on winning the biggest investor-owned utilities in the country. And the interesting ecosystem effect now is they're mandating IKE PoleForeman to anyone that touches their network. So if you're an engineering firm doing work for the utility or if you're a communications company coming in and putting fiber on their assets, they're requiring PoleForeman. So we start -- we're really seeing that kind of ecosystem flow through. And next quarter, because I know it's something folks are asking for is just more visibility into the latest pro forma numbers, ARR, total contract value, et cetera. So we'll provide that in 3Q. James Lindsay: And then obviously, with the capital raise business in a lot better financial position, I was wondering if sort of an increase in sales and marketing sort of number of people on the ground with regard to sales is likely in the next quarter or 2? Glenn Milnes: Yes. there will be over time, but we're very committed to the EBITDA target. And we've got a very efficient sales and marketing team at the moment. We're growing at these kind of rates in terms of subscription level, spending less than 30% on sales and marketing. So those metrics are tracking well for us. So we're in quite a scalable position. We're also -- like every other company in the world at the moment, we're working really hard on being AI-enabled, not just putting AI inside of your products, but driving important business processes with some of these pretty remarkable tools. So we've got a whole of company training and education program tied to AI enablement as well from an operations perspective. James Lindsay: And then good to have the PolePilot new product out there. Can you just add a little bit more maybe just to the pricing constructs. You talked about it being as part of Office Pro. Is it going to be done on a subscription basis or a seat basis and potential for sort of ARPU uplift once sort of as it goes through the network? Glenn Milnes: Yes. The launch pricing is adding $200 per seat per annum. And as I say, it's not an opt-in item. It just is inserted into the pricing model. And as we add more capability and as we get better fuller data on productivity benefits for customers, that price point will go up in terms of the ARPU uplift. James Lindsay: And then obviously, on the transactional side, probably a little disappointing, but hard on the politics to get that working. Can you just give us an update when you think the recontracting will sort of get firmed up and potential for later in the year? Or is it likely next year or the year after that transactions recover? Glenn Milnes: Look, James, I'd just get it precisely wrong, but I do -- I mean we do have a view, and we're talking to our customers a lot actually and talking to some of the bigger industry participants as well. And again, what the federal government has required is they froze every rural fiber contract that was in place across the country and asked market participants to rebid. And it's tough for them to land on some hard dates. We haven't lost any of those customers. They're just waiting to get working again. And then I believe that will pick back up. What we have been able to do, though, is we have really adjusted the associated OpEx costs with that business. So it's generating positive margin at the levels it's operating at now. And it adds value for our customers. They love having the additional capacity when they require it. So yes, it remains something that we'll continue to pursue. Simon Hinsley: Next up, we've got James Bisinella from Unified Capital Partners. James Bisinella: On the result and welcome, Paul, to the group as well. Maybe just a couple for me. Just looking at subscription ARR, if I back out FX, just on my numbers, it looked like kind of a record quarter, around a couple of million bucks of net adds. So I guess, firstly, can you confirm that I'm directionally accurate there? And then secondly, just confirm, was there any like larger wins or anything as part of that number, just given it was a pretty strong result? Glenn Milnes: No, you're right. That's almost exactly correct, James, in terms of the numbers. it was across a whole range of customers. There wasn't -- there were some really interesting ads for groups like Exelon. So Exelon run 5 investor-owned utilities they delivered power to all of Chicago and Illinois and various other states. And they had been an early adopter of IKE PoleForeman and then they added another 130 licenses just as they get it more embedded across the business. Really interesting because, again, these guys are signing up for 3-year or 5-year terms. So it is really sort of long-term partnership business. But mostly, it was just a consistent flow of sort of similar level contracts versus any single big item. James Bisinella: Okay. Excellent. And maybe just one more on PolePilot, the AI product sounds really exciting. You mentioned that being a driver of platform adoption. So I guess, can you just confirm, is this more than an add-on? Like are you getting inbounds from potential new logos on the back of it? Or is it more just an upsell to existing customers? Glenn Milnes: No. It has caused a bit of a stir. If you can make an engineer fully loaded cost maybe $100 an hour, you can make these folks go, say, 20%, 25% faster and better. And really -- and it's amazing how you can remove the training burden to bring on new engineers to do this work when a computer gets you 30% of the way through an engineering task. Some of those benefits are quite compelling. So yes, we're excited. And we're going to do more in terms of detections and automation, et cetera. So it's going to become more and more powerful over time. And then if you fast forward and we're processing bulk data captured from Google Street View or whatever it might be, then all of a sudden, you're really sort of shifting the needle on some of this workflow, which I think is going to matter a lot. Simon Hinsley: Next up, we have Jules Cooper from Shaw Partners. Jules Cooper: Glenn and Paul, well done on a great result. So just sort of following up on James' question there. In U.S. dollar terms, the ARR added in the period was a record. I just wondered, when we look back over the last year, Glenn, we saw like the fourth quarter was particularly strong. Now we've got a strong sort of 2Q. How do we -- how should we think about seasonality? And you've obviously said here that the sales pipeline remains robust. But as you look into 3Q and 4Q, when you're cycling some stronger numbers from last year, how do you see it sort of landing maybe relative to this year -- sorry, this quarter, is this a sort of new level for the business? Or just want to get your perspective on how you see the third and fourth quarter shaping up and seasonality? Glenn Milnes: Yes, it's a good question. There's a little seasonality in our business, and it's because of the winter. So some parts of the U.S. up on the East Coast or in the North, there's a lot of bad weather, snow and ice and you can't get outside and engineer and build in some of those conditions. It doesn't tend to have a huge impact. And then Q4 for us, which is from January through to the end of March, tends to be very strong because all of our customers, their financial year end is the end of the year. So they're budgeting to deploy new technology and new tools from the start of the next year, which is why we typically see that lift if that helps. Jules Cooper: Okay. No, no, that does. Good perspective. And if we just sort of pick up on PolePilot, you sort of mentioned, I think it was $200 a seat incremental. I just wanted to sort of catch what you said around how your customers can adopt it. Is it just there and they can turn it on themselves? Or is there a selling motion behind it? Just if you could just go through that again, how they actually sort of pick up the product and start using it? Glenn Milnes: Yes. It's just delivered into IKE Office Pro and pricing has increased automatically. And we spend a lot of time running educational programs. And for anyone interested, if you subscribe to our LinkedIn channel like GPS, you'll just see the velocity and volume of training and education. So one of the programs at the moment is a lot of PolePilot education in terms of best practice and best use. So yes, it goes straight into the product. And we're just measuring at the moment elasticity just to understand the level of acceptance of higher price points or b, where you potentially can have churn if people don't see the value. So we're literally a couple of weeks into that pricing optimization assessment. Jules Cooper: Okay. No, that's good color. And then just lastly, cash operating expenses, you said, materially the same as the PCP. When should we expect that to start increasing as you sort of put the investment into the new products? When should we start to see that running through the business? Glenn Milnes: We do. We've got 2, I think, extremely compelling new subscription product modules that we're building. Much of that investment will be capitalizable. So it won't be as visible from an OpEx perspective, but we will be investing, obviously, in the process to build these new product modules. And then I think the go-to-market investment will flow just on the back of continued revenue growth. And as we hit these certain capacity breakpoints, if you keep adding dozens and dozens, dozens of new large infrastructure companies, you do have to have the people to be able to service those folks because we serve the market directly, which I think is a really important part of competitive advantage and why we've got those kind of NPS scores, et cetera. It's people and process, not just tech. So yes, it will happen through Q3, Q4 into the following year. But we're -- obviously, we're very well positioned balance sheet-wise to do that. Jules Cooper: Yes, absolutely. And just lastly, on those NPS numbers, some of the highest I've ever seen. So well done to you and the whole team. Glenn Milnes: Yes. Thanks. It was a surprise to us as well, Jules, to be honest. But it's good to see, and it's just one data point. We measure it internally ourselves, and we don't ever publish it because it's an internally measured thing. But we typically see 45% to 60%, which again is exceptionally good in our industry. But it was -- yes, it was great to see that sort of independent set of numbers. Simon Hinsley: We've got a couple more submitted questions that we'll churn through, Glenn. What's the expected timing for existing customers to further penetrate? How long will it take you to access the 80% you don't have? And what are some of the unlocks that would get you to that access? Glenn Milnes: I think the cross-sell component of what we do is very important. I think some of these automation tools that we're introducing matters a lot to these customers. And then if we think about next-generation products, which we are building is having a fully integrated stack. Again, it's an extremely exciting time to be a software growth company without extensive legacy products, and that's the opportunity for us. All of our products can be to be sold separately, but integrated in a platform with a thin UX layer sitting over the top in terms of these AI tools. I mean that's the big opportunity, I think, and that's what we're pursuing. And I think that will help a huge amount with cross-selling. Simon Hinsley: And just last question from Sinclair Currie at MA Australia. Thinking about growth opportunities as either from ARPU growth or winning new customers, is one a greater opportunity than the other? Glenn Milnes: The biggest dollar opportunity is new logos. We've got 94%, 93% of the market still go get. So we have focused on the largest in terms of the biggest network operators. But there's another 85 investor-owned utilities that we're not in today. And yes, it does take time to develop them, but that's the biggest opportunity. We've got teams -- I mean, go-to-market, we've got teams. One is focused on account development and expanding inside the customers we're in another group that's focused on new logos. So it's sort of a separate process. Simon Hinsley: Thanks, Glenn. Thanks, Paul. I just hand it back to you for closing remarks, Glenn, and we'll finish up there. Glenn Milnes: No, thank you. No further closing remarks. Paul and I are available always for e-mail questions or calls. So happy to pick anything up as useful. Simon Hinsley: Perfect. Thanks very much all for attending, and thanks, Glenn and Paul. Have a good day. Glenn Milnes: Thanks.
Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cadence Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Thank you. And I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead. Richard Gu: Thank you, operator. I would like to welcome everyone to our third quarter of 2025 earnings conference call. I'm joined today by Anirudh Devgan, President and Chief Executive Officer; and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com. Today's discussion will contain forward-looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent Forms 10-K and 10-Q, CFO commentary and today's earnings release. All forward-looking statements during this call are based on estimates and information available to us as of today, and we disclaim any obligation to update them. In addition, all financial measures discussed on this call are non-GAAP unless otherwise specified. The non-GAAP measures should not be considered in isolation from or as a substitute for GAAP results. Reconciliations of GAAP to non-GAAP measures are included in today's earnings release. [Operator Instructions] Now I'll turn the call over to Anirudh. Anirudh Devgan: Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. Cadence delivered excellent results for the third quarter of 2025, with strong operational and financial performance across all product categories and geographies as we continued the disciplined execution of our strategy. Bookings exceeded our expectations with backlog growing to over $7 billion, underscoring our continued technology leadership and reaffirming Cadence as the trusted partner enabling customer success. Given the ongoing strength of our business, we are raising our full year outlook to approximately 14% revenue growth and 18% EPS growth. John will provide more details on our financials shortly. The accelerating AI megatrend is fueling an unprecedented wave of design activity across industries ranging from hyperscaler infrastructure to fast-growing physical AI realm of autonomous driving, drones and robotics to the emerging domain of sciences AI. As AI drives exponential design complexity and new system architectures, Cadence is uniquely positioned to capture this generational opportunity with a differentiated and comprehensive portfolio spanning EDA, IP, 3D-IC, PCB and system analysis. The Cadence.Ai portfolio embodies our strategy of design for AI and AI for design, empowering customers to build out the global AI infrastructure, while we infuse AI into our own products to deliver breakthrough automation and productivity. With deep partnerships across AI innovators, foundries and system leaders and a comprehensive chip-to-systems portfolio, Cadence is driving transformative PPA and productivity gains, positioning us well for sustained growth in the AI era. In Q3, we meaningfully expanded our partnership with Samsung through a wide-ranging proliferation of our core EDA software as well our system software across PCB, advanced packaging and system analysis. We also deepened our long-standing partnership with a leading semiconductor company in Q3 through a broad proliferation of our core EDA, IP and systems portfolio and are closely collaborating on next-generation agentic AI EDA solutions. We expanded our long-standing partnership with TSMC to power next-gen AI flows supporting TSMC's N2 and A16 technologies. Our Integrity 3D-IC solution provides comprehensive support for the latest TSMC 3DFabric die-stacking configurations. And our design-in-ready IP, including HBM4 and LPDDR6 on N3P-enabled next-generation AI infrastructure. At TSMC's OIP conference, Broadcom highlighted Integrity 3D-IC full flow deployment success for hyperscaler high-capacity ASICs. Our IP business maintained strong momentum in Q3, driven by global accelerating IP demand and increasing customer proliferation of our expanding IP portfolio. Our profitable, scalable IP strategy focused on AI, HPC and automotive verticals positions us well for continued growth. Increasing complexity of interconnect protocols driven by AI and chiplet architectures, along with new foundry opportunities are providing strong tailwinds to our IP business. Bookings were strong and tracked ahead of our expectations. Our design IP portfolio secured several competitive wins at top AI and memory customers. For instance, we won a highly competitive engagement at a marquee memory company that embraced our HBM4 and DDR5 IP for its new AI design. The recently completed acquisition of the Arm Artisan Foundation IP further augments our design IP portfolio with standard cell libraries, memory compilers and IOs optimized for advanced node at the leading foundries. Our Tensilica audio and vision DSPs and Neo AI accelerator NPUs scored multiple design wins with leading customers in U.S. and Asia for mobile, automotive and data center verticals. Our core EDA business delivered strong results, driven by growing adoption of our AI-driven design and verification solutions. In digital, Cadence Cerebrus AI Studio, the industry's first agentic AI, multi-block, multiuser design platform continues to deliver unparalleled PPA and productivity benefits. Samsung U.S. taped out a SF2 design using Cadence Cerebrus AI Studio to achieve a 4x productivity improvement. In another instance, Samsung used Cadence Certus, Tempus and Innovus to rapidly close and sign off a multibillion instance AI design on SF4, with 22% power reduction and first-pass silicon success. Our Virtuoso Studio and Spectre platforms saw strong momentum, with their AI-driven features and workflows gaining rapid traction as the customers leverage the automated design migration and optimization capabilities. Our hardware verification platforms have become the de facto choice for AI designs, offering industry-leading performance, capacity and scalability. Hardware had a record Q3 with several significant expansions, especially at AI and HPC customers. We deepened our overall collaboration with OpenAI, as they expanded their commitment to our Palladium emulation platform in Q3. Verisium SimAI saw growing adoption as it delivered dramatic debug productivity, test bench efficiency and accelerated coverage closure. NVIDIA, Samsung and Qualcomm, all presented SimAI success stories at CadenceLIVE India, highlighting 5x to 10x improvement in verification throughput. Our system design and analysis business achieved another solid quarter, driven by expanding set of innovative solutions and growing adoption across a broadening customer base. In Q3, we significantly expanded our Cadence Reality Digital Twin Platform library, with NVIDIA DGX SuperPOD model and DGXGB200 systems to accelerate AI data center deployment and operations. Three major memory providers significantly increased their clarity and security usage as they transition to a full Cadence flow for advanced IC packaging, displacing competitive solutions. BETA CAE continued its momentum with multiple competitive displacements, underscoring its accuracy and performance advantages, including a significant competitive win at a large Tier 1 automotive company in China. In Q3, Infineon Technologies standardized its PCB design workflow on the Cadence AI-driven Allegro X platform for their future designs. Last month, we signed a definitive agreement to acquire Hexagon's D&E business, including its MSC software business to bring industry-leading structural analysis and multi-body dynamics technologies to Cadence. Complementing our multiphysics portfolio, this will accelerate our expansion in SDA and put us at the forefront in unlocking new opportunities across automotive, aerospace, industrial and the rapidly emerging world of physical AI. In summary, I'm pleased with our Q3 results and the strong momentum across our businesses. The AI era offers massive market opportunities and through the co-optimization of our entire portfolio with AI and accelerated computing, Cadence is uniquely positioned to be the trusted partner to deliver AI-centric transformational solutions across multiple industries. Now I will turn it over to John to provide more details on the Q3 results and our updated 2025 outlook. John Wall: Thanks, Anirudh, and good afternoon, everyone. I'm pleased to report that Cadence delivered strong results for the third quarter of 2025 with broad-based momentum across all our businesses. We exceeded our guidance for Q3 revenue, operating margin and EPS and are raising the full year outlook across these key metrics. With the updated outlook and at the midpoint, we now expect our 2025 revenue to grow approximately 14% year-over-year on track to achieve double-digit growth across all our product categories for the year. Third quarter bookings were strong, resulting in a backlog of $7 billion. Here are some of the financial highlights from the third quarter, starting with the P&L. Total revenue was $1.339 billion. GAAP operating margin was 31.8% and non-GAAP operating margin was 47.6%. And GAAP EPS was $1.05, with non-GAAP EPS $1.93. Next, turning to the balance sheet and cash flow. Cash balance at quarter end was $2.753 billion, while the principal value of debt outstanding was $2.5 billion. Operating cash flow was $311 million. DSOs were 55 days, and we used $200 million to repurchase Cadence shares. Before I provide our updated outlook, I'd like to highlight that it contains the usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year. With that in mind, for Q4, we now expect revenue in the range of $1.405 billion to $1.435 billion, GAAP operating margin in the range of 32.5% to 33.5%, non-GAAP operating margin in the range of 44.5% to 45.5%, GAAP EPS in the range of $1.17 to $1.23 and non-GAAP EPS in the range of $1.88 to $1.94. As a result, our updated outlook for 2025 is revenue in the range of $5.262 billion and $5.292 billion, GAAP operating margin in the range of 27.9% to 28.9%, non-GAAP operating margin in the range of 43.9% to 44.9%, GAAP EPS in the range of $3.80 to $3.86, non-GAAP EPS in the range of $7.02 to $7.08, operating cash flow in the range of $1.65 billion to $1.75 billion, and we expect to use at least 50% of our annual free cash flow to repurchase Cadence shares. As usual, we published a CFO commentary document on our Investor Relations website, which includes our outlook for additional items as well as further analysis and GAAP to non-GAAP reconciliations. In conclusion, I'm pleased with our Q3 results, strong 2025 as we continue to deepen strategic partnerships across the ecosystem. As always, I'd like to close by thanking our customers, partners and our employees for their continued support. And with that, operator, we will now take questions. Operator: [Operator Instructions] And our first question comes from the line of Vivek Arya with Bank of America Securities. Vivek Arya: Your IP business is now, I think, tracking to over 20% growth for the second year. Anirudh, I was just hoping you would give us some sense for what's driving this growth because your competitor expressed a lot of concerns about their IP business, whether it is in China or at Intel or just IP visibility in general. And I think they were talking about a new business model. So how do we square that with the growth you are seeing? How sustainable is this growth? And what is your visibility in your IP business? Anirudh Devgan: Yes. Thanks, Vivek, for the question. I'm actually quite pleased with the performance of our IP business. And we don't look at any one quarter. But even if you look how we performed last year, of course, this quarter was exceptional, but overall, how we performed this year and what we see backlog and activity going into next year, overall IP business is performing quite well. And there are multiple reasons for it. First, our IP business is different. I think it's much more profitable, even though the profitability is less than our EDA business, but I think it's more profitable than general IP business because we also have Tensilica, which is almost like software-like profitability. But a lot of the growth is coming in design IP. And the reason for that is our IP business is focused on AI and HPC at the most advanced nodes. Since we got started later in the IP business, we focused it where the future is going, which is AI, HPC and chiplet-based architecture. So a lot of the -- like SerDes and PCIe and HBM4 IPs. And that part of the market is doing well actually across the world. And then the second reason is, as you know, there is more and more foundries entering and especially at advanced nodes. And we have a long-standing partnership with TSMC, but also Samsung, Intel and now Rapidus. So there are at least 4 major foundries now at leading nodes. So that's, I think, a second reason for our IP business to be well positioned. And as the performance of our IP business has improved, the PPA and we are -- our PPA is comparatively better in design IP and a lot of customers want to shift over to Cadence. So the customer demand, I think, is the third reason as our IP business strengthened that we are seeing strength in the IP business. So I think for these 3 main reasons, I'm pretty optimistic about the IP business. And going to next year, we're not getting into next year, but just to give an indication, I would be surprised if our IP business does not grow better than Cadence average, which it should, given the profitability profile. We want that to happen. If the profitability is slightly lower than EDA, then the growth should be higher than Cadence average. So overall, I think that would make like 3 years trend. And overall, I'm pleased by our IP performance. Operator: And our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Jason Celino: Great. Last quarter, I think you mentioned the second half having good renewal opportunity with some of your large customers. With the uptick in backlog, I imagine some of that strength was from some of these renewals. But as we think about Q4, do you still have renewals on the docket? Anirudh Devgan: Yes. Thanks for the question. I'll let John comment on the timing of the renewals. But overall, I do think that our performance in Q3 is much -- is better than we expected. And the primary reason -- and this is true in all geographies. But I think the primary reason is that the AI infrastructure build-out, as you know, is accelerating, okay? And we are essential to the design and build-out of the AI infrastructure. Of course, we -- I have said publicly, there are 3 big phases of AI in my mind, AI infrastructure being the first one, physical AI being the second one and sciences AI being the third one. But most of our focus and investment is, of course, on the first one. And as you see in the last 6 months, it is accelerating. And also the -- we are privileged to work with all the Mag 7s and also investment in internal chip design is accelerating along with, of course, the big merchant silicon companies like NVIDIA and Broadcom and AMD. So I think that is coming through in our booking activity in Q3. And so far, we see that strong demand continuing in the future. John Wall: Yes, Jason, I would just like to add that the mix as well is healthy across EDA, IP, hardware and SDA. And the core EDA and IP backlog is weighted towards multiyear recurring arrangements, and that supports durable double-digit growth. Operator: And our next question comes from the line of Joe Vruwink with Baird. Joseph Vruwink: Great. I guess I'm struck by the number of times the word acceleration has already been used on the call so far. And I guess the third quarter bookings much stronger than we were expecting, and it would support a future acceleration. I know it's atypical to kind of get 2026 comments, but Anirudh already did for the IP business. I'm just wondering if you can maybe start to frame expectations for next year based on what you have in hand and it certainly seems like things are setting up well. Do you have the type of visibility at this point to maybe comment on it? Anirudh Devgan: Yes. I think what I would like to say is that we always look at our business in terms of how well our products are doing, okay? And we report like 5 lines of businesses, as you know. And I would say, at this point, all 5 lines of business are performing very well. And you can see that in this year, I think we will grow double digits in all 5 lines of business. And also, we are performing well in all geographies. So in terms of products and geographies, which is our main focus, are we aligned with the leading companies? Are we trusted partner of the market-shaping companies? So if you look at products, geographies and customer alignment, I think we are well positioned. Of course, as you know, as we enter a new year, we are always prudent in our outlook, and we will give you update about next year when we come to January, February time frame. But I think Cadence is very well positioned -- better positioned than it has been, I think, for last -- compared to the last several years, and we look forward to working with our customers in the future. John Wall: Yes. Joe, we won't guide FY '26 today. But exiting FY '25 with probably record backlog and broad-based momentum from deepening strategic and trusted partnerships across the ecosystem positions us well for next year. You can expect our framework will remain disciplined. We typically aim for double-digit top line ambition, continued operating leverage and balanced capital allocation. And that's all underpinned by secular AI demand across chip to systems. Operator: And our next question comes from the line of Lee Simpson with Morgan Stanley. Lee Simpson: Great. Congratulations on another great quarter. I just wanted to ask around about China, really. The -- it looks as though you're up about 53% year-on-year, doing well in the mix, up to 18%. That feels more than just a sort of return of business post the restrictions on the BIS letter last quarter. It feels though there's genuine momentum there. So I wonder if you can talk me through what is driving this. Is it IP? Is it hardware? Is it core EDA? What are the vectors here? John Wall: Thanks for the question, Lee. Yes, I mean, we saw broad-based strength and China design activity remains very strong. The region returned to business as usual for us in the second half that with the lifting of the export regulations that changed for EDA in early July. But Q3 really was only slightly better than we expected, and we now expect China to be up year-over-year for fiscal '25. Anirudh, do you want to add anything to what's happening in China? Anirudh Devgan: Yes, Lee, that's a good question on China. I mean, overall, I would say the behavior in China, from what I can tell, is back to normal. Of course, there was a disruption in Q2 for obvious reasons, given the policy in Q2. But the behavior that we are seeing is back to normal in Q3. And a lot of it was driven by like us prioritizing hardware deliveries that we could not do in Q2 into Q3. But overall, design activity is strong in China across -- I mean, semiconductors are essentials to every country, and China continues to invest in semis. But overall, I would say our strength is broad-based, not particularly tied to any one geography. And there was some makeup from Q2 to Q3. Now it's difficult to predict the future, but what I see, I don't see any unusual activity in China. Like question may be like is there any pull-in from future quarters. We don't see that in terms of what we see, and we see overall broad-based strength in other geographies as well. Operator: And our next question comes from the line of Siti Panigrahi with Mizuho. Sitikantha Panigrahi: Great. Congratulations on another strong execution. Anirudh, I want to ask you about on your system design, mainly the simulation analysis market. Help us understand your strategy. You made acquisition last year, BETA CAE and this year, again, you've announced MSC software. Help us understand how you're going to position yourself against your competitor in that market. This is definitely a growing market. I would appreciate any color on that. Anirudh Devgan: Yes, Siti, thanks for that question. I mean, I'm pretty pleased with the overall performance of SD&A. And I mean, just to remind everybody, Cadence is the one started this whole thing in 2017, 2018. Now it is considered obvious that silicon and systems are going to come together. I mean we have been talking about this for a very long time. Now I think what the acquisition that we did this quarter is more forward-looking in the sense that, like I mentioned, these 3 horizon technologies, horizon 1 being infrastructure AI, horizon 2 being physical AI, horizon 3 being sciences AI. And that's how we are focused. Most of our investment in horizon 1, but of course, like maybe 70%, 80% is horizon 1, about 20% horizon 2 and a few percent horizon 3. But horizon 2 of cars, drones and robots can be a very, very big market in the future. And what happens is AI is going to change also for horizon 2. As you see, there's a lot of reports that the world is going to move from LLM-based AI to a word model-based AI, in which robots, you have to -- it's no longer the text data that trains the robot, it is the physical movement and all that. And one of the key challenges in training robots or cars is that there is not enough data that is available. When you train an LLM model, basically, the data is available on the Internet and as well -- language data is available, whereas training a robot, the data is not available, okay? So the data either has to be generated manually, like they put sensors on a human and the person picks up the object, that could be data. But that's a very slow form of getting data. The best way to generate data for a word model is through simulation. And this is what we have talked about also for a very long time of the 3-layer cake. So then the fundamental simulation of multi-body dynamics becomes essential in horizon 2 physical AI. And Hexagon had a leading simulator for multibody dynamics along with structured simulation, which helps in all kinds of electronics and automotive. So I think I'm pretty optimistic that this can position us well for the second horizon, which is physical AI. And so what that will do for our SD&A business, the way I look at it, our SDA business, once we complete this acquisition, we will have 2 strong pillars. And it will -- actually, the run rate should cross $1 billion in 2026 if the acquisition closes. And one pillar will be driven by 3D-IC and chiplets. Allegro is in our SD&A business. Allegro is a de facto standard for package design in the world. And so if you take Allegro, combine Sigrity and Clarity and Celsius, our kind of electromagnetics and electrothermal tools, that's one key area of this merger of silicon and system. And we will be very, very strong in that. And our partnership with TSMC, our partnership with all the leading AI players like NVIDIA positions us very well with Allegro and 3D-IC. So that will be roughly 1/2 of our SD&A business, because there's going to be a lot of growth in this chiplet-based architecture. And the second part will be this physical AI, structural analysis and the combination of BETA, which was the leader in pre-post processing with Hexagon, which has a lot of solvers like multibody dynamics structural. And then we acquired a great new CFD solver from Stanford a couple of years ago. So if you put all the solvers together with BETA, that will be roughly half of our SD&A business and really well positioned for the physical AI. So if you put it all together, the benefit of Hexagon is that it will give us 2 strong pillars in SD&A in the areas that are going to grow the most in the future, one is 3D-IC and HPC, the other is physical AI and connected technologies. Operator: And our next question comes from the line of Jim Schneider with Goldman Sachs. James Schneider: I was wondering if you can maybe frame for us some of the tailwinds you expect you might see over the next couple of years as a result of inclusion of AI features into your products on the core EDA side. Maybe talk about any kind of productivity metrics you can give us in terms of time to market or developer productivity and how that might translate into either revenue or adoption rates of that technology and features. Anirudh Devgan: Absolutely. Great question. As we have said before, there are 2 parts to our AI strategy, which we call design for AI and then AI for design, okay? I think the first part is the build-out of the AI ecosystem, whether it's infrastructure or physical AI. And that we are very well positioned with all the leading players, all the Mag 7 companies. And now I think your question is on the second one, which is, of course, applying AI to design. So even this time, we highlighted several examples. So we have at least 5 major platforms. And some of the big examples are, for example, SimAI, which is using AI to accelerate verification. Verification is almost an exponential task in chip design. And we are seeing with SimAI, 5 to 10x improvement in logic simulation efficiency and coverage, which is one of the mostly heavily used tools in verification. And even in CadenceLIVE, Samsung and Qualcomm and NVIDIA highlighted this. So these are demonstrated benefits at customer sites being highlighted by the customer themselves, okay? The other area is in physical design, the back-end physical design with Cerebrus AI Studio. Again, we had Samsung code 4x improvement in productivity and also 22% improvement in PPA. By the way, this is huge numbers because when you go from like 5- to 3-nanometer, 3-nanometer to 2-nanometer, typically, a node migration, which the industry is spending like billions and billions of dollars, will give like 10% to 20% PPA improvement. And if we can get that with better optimization, with better AI, that's a huge value for our customers. So the good news is that I think the adoption of AI tools is almost taken as a de facto. All the big customers are adopting our AI tools. And I've said even before that the monetization of that takes some time. It always takes 2 contract cycles. And I think we should be able to do that or slightly better. So -- but the productivity is huge by applying AI to EDA. And the reason I think it is different in EDA than other things is, first of all, there are multiple reasons. One is we have done automation for 30 years. The chip design process is highly automated. About 80%, 90% of it is already automated. So we have a lot of history of automation and then AI is the next 10x that automation that can happen. I mean we have probably improved chip design 100x in the last 20 years, and AI can give the next 10x. And the other thing that is different in chip design versus other industries, I believe, is because the workload is exponential. The chips in 5 years from now will be like 5, 10x bigger. The complexity will be 20, 30x more, given software and chiplet. So AI productivity is needed just to keep up. So our workload is exponential. It's very different than a workload is not exponential. So the customers are expecting us to deliver more productivity and are accepting of deploying that in their designs. Operator: And our next question comes from the line of Harlan Sur with JPMorgan. Harlan Sur: Great job on the quarterly execution as always. On the third-generation upgrade cycle on your emulation and prototyping platforms, you're about 5 quarters into the upgrade cycle, drove record revenues in Q3. If I rewind back to your second-generation launch, right, the team drove 3 years of record revenues post launch. You still have the same drivers in place, right, design, software complexity increasing exponentially, the Cadence of new chip program introductions, accelerating addition of new customers like OpenAI, as you mentioned on the call today, and proliferation of all of these challenges into new markets like automotive and software-defined vehicle. Given the lead times for your Protium and Palladium systems, I assume you're already booking into next year. What's the demand curve look like? And do you anticipate continued momentum and growth in 2026 for the hardware platform? Anirudh Devgan: Yes, Harlan, as always, you're always very perceptive in the overall trends in the market. Yes, hardware is doing phenomenally well, and I expect the trend to continue. So will '26 be better than 25%? That's what we would think. Now how much better? We are always prudent in that because hardware, you don't have like a full year visibility like we would have in the software business. So when we go into any given year, we only have a 6-month visibility. So we are always prudent in our hardware guide. And then if the business comes in as expected, just like this year, we can improve our guide for the rest of the year. But that's on the -- that's more on the guiding discipline, which we want to be -- we want to derisk our guide for our investors. Now in terms of fundamental technology trends and market trends, I mean, this is a great setup for hardware because, first of all, we are the only company that builds our own systems. We build our own chips at TSMC that are full reticle chips. You should see these things. These racks have 144 liquid cooled chips connected by InfiniBand and optical and the customers will connect like 16 racks together. That can emulate like 1 trillion transistor designs. I mean there is no other platform that can compete with that. And also the demand for hardware is increasing not just because of there are more AI designs, but as we go from 3-nanometer to 2-nanometer to 1.4 to 1, which will take next 7, 10 years, the size of the chips only increases, and so there is more and more demand for hardware. So overall, competitively and market trend-wise, I think we are well positioned in hardware. But of course, for any given year, we are prudent in the guide. John, I don't know if you want to add. John Wall: Yes, yes. Harlan, what I'd add there is demand remains very strong, particularly across AI, HPC and auto markets. We've seen scaling -- we've been scaling manufacturing capacity and trying to improve lead times. We've also had hardware gross margins become more healthy. We remain focused on throughput to meet the elevated need from AI designs. And if you look at our financials this quarter, you'll see that we've been building inventory to try and meet the demand that's reflected in the pipeline for the next 6 months. Operator: And our next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Jay Vleeschhouwer: Anirudh, you gave several examples of customer activity, customer engagements and so forth. And I would like to ask you about the recent announcement of the joint work that NVIDIA and Intel are going to be doing. Would it be fair to presume that combined GPU and CPU work would necessarily lift up demand and capacity requirements for multiple types of EDA tools, also IP, probably hardware as well. So there would be a general uplift as a result of that combined work. But at the same time, would it also necessitate your increasing your investments, for example, in AEs as you did when you had that breakthrough with Intel several years ago? Anirudh Devgan: Yes. Jay, that's a good observation in terms of CPU, GPU together. By the way, I've said this for almost 15, 20 years that the CPU, GPUs need to work together because EDA is a very well-optimized workload. And it is computational software, mathematical software, which is very similar to AI. And what happened in the history of EDA is that, of course, there are a lot of SIMD tasks like which can be done in a GPU kind of machine, but there are also a lot of conditional tasks which need to be done on a CPU kind of machine. So we always wanted both CPU and GPU. And we also wanted CPU and GPU to be close to each other. And actually, to NVIDIA's credit and Jensen's credit of Grace Hopper and then Grace Blackwell, I mean, they are one of the first people to track to kind of watch this trend. And now if you look at all the major designs from other companies, too, there is a combination of CPU and GPU together. And that's the reason for the last several years, we are already working on porting our workload to CPU plus GPU. And a perfect example was when we announced Millennium earlier in the year, so we are moving not just system analysis workload, which are more GPU friendly, but also EDA workload, which are critical for accelerating EDA and 3D-IC to CPU, GPU combination. So what I would like to say is I'm actually very pleased to see that the whole industry now is going towards this combination of CPU plus GPU, whether you look at Apple's chips or AMD chips and of course, NVIDIA, amazing platform. And this partnership with NVIDIA and Intel is good for us in terms of gives us a new kind of x86 plus GPU. And also, we have a long-standing partnership with NVIDIA. And then as Intel does more work with NVIDIA, it's also good for our overall discussions with Intel, which I think are proceeding well. And I think Intel has to invest both in its ecosystem for foundry and also its own products. And I think Lip-Bu knows that, and it's good to see the investment on both sides. Jay Vleeschhouwer: Just to be clear, aside from the porting that you have to do internally for your own tools, you are presuming that in terms of demand that this customer activity would necessarily increase the consumption of EDA. Anirudh Devgan: The customer activity should -- I mean, I think, first of all, if the EDA tools get better because of CPU, GPU system being optimized, typically, the customers will adopt. We are always looking at ways to improve our tools, and this gives another vehicle to improve the performance of our tools. So that's good for all customers. And then I think in this particular partnership, there are specific design activity that needs to be done without getting into too much details, NVLink-based IP. And so yes, we are working with the particular companies on design to make this design happen, just like we would work with any of the leading designs. So yes, there is a specific customer activity connected to NVIDIA and Intel. And in general, there is customer benefit if our tools are optimized better on this platform. Operator: And our next question comes from the line of Gianmarco Conti with Deutsche Bank. Gianmarco Conti: Congrats on another great quarter. Maybe just going back towards China, especially given the amazing quarter you guys have had, of course, part of it was recouped from Q2. But how should we think about a sustainable growth rate in the region beyond what was recouped last quarter? And potentially, if you could give some color on if there's any real risk from yet another ban in the region. Obviously, there was some news flow going on. And I think investors want to be a bit wary about like what was real in terms of potential risk to EDA or what is sort of like a broader macro level impact? Any commentary there would be great. Anirudh Devgan: Yes. I think China, like I said, the design activity seems back to normal to me. And I think we mentioned -- of course, when we started the year, we were very prudent because I said before, when I went to China last year, I mean, they were expecting very tough kind of macro environment -- geopolitical environment, which turned out to be true in '25. So we were very prudent in our guide of China in the beginning of the year, which turned out to be correct. Now I think at this point, like John also mentioned last time and this time, we expect China to grow. How much it grows will depend. We'll have a better idea. It's very difficult to predict. We'll have better idea end of the year. But I do expect China to grow this year. And then it's good to see -- I mean, it's very difficult to predict the geopolitical environment, and I definitely don't want to do that. But it's good to see that there is a lot of discussions between the 2 presidents and through big economies. So any stability there and certainty is good for our business. So we look forward to that. But I do expect that design activity is strong. And if there is no unforeseen development and the environment is stable, it should help our business. And I just want to remind you that our strength in Q3 is helped by performance in China, but it's very broad-based, given like all the reasons we mentioned of the build-out of the AI infrastructure, the emerging design of physical AI, the overall AI megatrend. So we are pleased. So we are not indexed to any particular country, but it's good to see that the environment is improving in China. John Wall: Yes. And Gian, I'd like to remind you that our Q4 and full year outlook assumes today's export regime remains substantially similar. And we always incorporate prudence for regulatory variability. And we'll continue to comply rigorously with -- while supporting customers globally. And as Anirudh says, we're seeing strength right across all businesses and across all geographies. Operator: And our next question comes from the line of Joe Quatrochi with Wells Fargo. Joseph Quatrochi: I was wondering if you could just maybe help us understand like the OpEx dynamics. I think 3Q is a bit better than expected, but 4Q is a bit worse than expected. Is that related to just the Artisan deal timing of closing that? Or just any sort of help there would be helpful. John Wall: Sure. Yes. But yes, I mean it's really just the timing of some hardware delivery shifting between Q3 and Q4. But overall, the year is slightly ahead of what we were expecting, and we're pleased by the broad-based execution, strong demand across all product categories. Core EDA software is performing very well. Hardware continues to be strong. We're continuing to make progress in SDA, and we've continued IP momentum and healthy renewals set up for Q4. Joseph Quatrochi: I guess maybe just a question on the OpEx... John Wall: Sorry, can you repeat the question? Joseph Quatrochi: The question was on the OpEx side, like the OpEx timing? John Wall: Yes. So on the OpEx side, we did a small restructure that benefited Q3. The hardware gross margins were very healthy in Q3. And then it's offset a little in Q4 by some new expenses we're picking up from new acquisitions. Operator: And our next question comes from the line of Charles Shi with Needham. Yu Shi: Anirudh, congrats on the nice results, and John, similarly here. The question, I look at your growth rate for the overall company for the last 3 years, it has been maintaining around that 40%-ish plus/minus range, truly remarkable. Look feels like you didn't really skip a bit at all. But when I look under the hood, there are lots of moving parts, right? Like let's compare last year versus this year. Last year, China was bad. Hardware was kind of decelerating. I think that was largely due to your hardware transition into the Z3, X3. I mean I'm looking at the upfront revenue as to inform me about your hardware growth. But this year, both things kind of turned much more net positive, like your upfront revenue is probably going to grow somewhere closer to 50%. China looks like at least it's going to grow above the corporate average. So I wonder, when we look at -- think about next year, do you think both hardware and China can maintain the current momentum? Maybe especially on hardware, based on the observation of the Z2, X2 cycle, I believe that was somewhere in between '21 and '24. When you go into like a third year-ish, the growth rate in the Z2, X2 cycle, it kind of decelerated a little bit. So my question is, is this time can be a little bit different in terms of the hardware growth rate going forward? And could any fear from your customers regarding hardware transition to, let's say, Z4, X4 in the maybe the next 1 to 2 years causing some of the deceleration of hardware revenue? I know this is a long question, but I think that this is the most important when we think about the Cadence outperformance going into next year. John Wall: Thanks for the question, Charles. We're trying to unpack it. So I think I wouldn't focus too much on any one quarter or even any one half in terms of results. If you recall last year, the shape of the revenue curve was kind of back-end loaded. And Q3 over Q3 comps can be a bit skewed, particularly as well with China, given that we had that temporary restriction in China from May to early July. But generally, when you're talking about hardware, demand is very, very strong, but -- and we're seeing a secular trend in hardware demand for many years now because the growth in complexity continues unabated. But we're seeing a very strong pipeline for the next 6 months. And we're ramping up on inventory for some large orders that we have to fill in the next couple of quarters. But -- so we're seeing lots of momentum. And we expect to -- I mean if I go back, I think the last 5, 6 years, and it's typical of Cadence, Q4 bookings would exceed Q4 revenue. So we just finished with $7 billion of backlog at the end of Q3, which is a new record for us. Given renewal timing in Q4 and the visibility we have, we'd expect to end '25 at a fresh high. And with that mix being so healthy across all of the different businesses, I think it bodes well for next year. Yu Shi: So maybe a quick follow-up. So Anirudh, from your perspective, the current hardware Z3, X3 enough to support 1 trillion transistors, but with AI really like moving really fast, do you foresee like when you probably need to like do another hardware refresh? And is there any light you can shed on this? Anirudh Devgan: Charles, yes, I'm very confident in our hardware position. We talked about Palladium. We're the only company that designs our own chips and also Protium with FPGA systems, and that's also doing well with the Dynamic Duo. And like John said, we see good demand. Now I just want to remind you that when we guide, we always are prudent given hardware is not as predictable as software, but it has almost -- even though we reported kind of upfront revenue, but what has happened is that all these big customers are almost buying every year. It's not that they're buying -- so the buying behavior is different than 4, 5 years ago because they're doing so much design that all the really big customers, it has almost become like an annual kind of subscription, even though financially, it is reported, of course, as upfront. So now will the hardware trend continue? I mean, right now, I don't see any reason that it won't. And so I think '26 will be stronger than '25. How much stronger, we'll have a better idea. Now in terms of our next generation, we are always investing in R&D. We have a huge investment in R&D, as you know, 35% of our revenue is invested in R&D. And -- but if you look at our expense side, almost 65% of our expense is invested in R&D and about 25% is invested in application engineering. So more than 90% of our investment and headcount is in engineering, customer support and R&D. And that's true for hardware. So we are -- we don't want to get into all the details, but you can assume we are well in our way designing the next generation of hardware systems, and they will come in time. One thing, good thing is about our current systems already support 1 trillion transistor designs, and that is supposed to happen by 2030. But before 2030, we will have a next generation of hardware, which will support it for next 5 years. So I think I'm pretty confident in our hardware road map. And the demand itself, I think because, Harlan, you know all this area well, I mean, AI, the chips are only getting bigger. And also what's happening is like even with like Blackwell, it's not just one chip now, you have multiple chips and then Grace together. So the customers are also not emulating just one chip, which is growing 2x every node. They're emulating systems of chips like Grace and Blackwell together or if you have chiplet architectures. So the demand for hardware may move faster than just Moore's Law or technology scaling because of this 3D-IC. But again, we will see that. We are well positioned. We'll see how it progresses. But systemically, there is no issue in demand for hardware and our competitive position. John Wall: Charles, there was a lot in your question. I think you referred to upfront recurring revenue as well. I mean we continue to frame '25 around 80-20 recurring to upfront on a rolling 4-quarter basis. And I think as you mentioned in your question, the variability quarter-to-quarter is driven mainly by strong upfront businesses like hardware and IP and the timing of China ratable revenue earlier in the year. But with core EDA growing so well, we're comfortable that 80-20 is probably the right kind of mix of business for the foreseeable future. Operator: And our next question comes from the line of Gary Mobley with Loop Capital. Gary Mobley: Let me extend my congratulations. I really just had a clarification or a question to get to a clarification. So if I recall correctly, given the timing of the export control repeal, which I believe is July 2, your China backlog was not in your June quarter ending backlog, but I presume now that it is. So given that $600 million revenue or $600 million delta in your backlog, how much of that was a function of the inclusion of China backlog versus the prior quarter? Anirudh Devgan: Yes. Let me take a crack at it and then -- I think you're right, our backlog grew from $6.4 billion to $7 billion. So there's a growth of $600 million. So I think about -- I would say, about 25% of that about $150 million is catch-up from Q2 to Q3, and the rest growth is growth strength across our business. John? John Wall: Yes, that's right. No, that's exactly right. Operator: And our next question comes from the line of Clarke Jeffries with Piper Sandler. Clarke Jeffries: Anirudh, I appreciate the comments on the mechanics of the strength in the IP business and specifically the demand for design IP you're seeing for AI projects. I wanted to follow up with just how the wallet opportunity is changing with those AI projects. Specifically, do you see any potential for growing pains or lower profitability to serve the industry as they make more customer bespoke technologies with chiplet or custom memory designs incorporated into those AI and HPC designs. Has Cadence changed its investment plan or selling motion to serve that more custom nature required by the industry? Or is that even needed at all? Anirudh Devgan: Yes. Great question. I mean this is a big trend, right, design of custom silicon. I mean, we have talked about it for years, system companies doing silicon. And as you know, about 45% of our business is coming from system companies and 55% is coming from semi companies. And so with this -- especially with AI, there is acceleration of custom silicon. And I think one different from 6 months ago or 1 year ago to now is when I look at these big system companies, they are more and more committed to custom silicon. And of course, we have great partnership with NVIDIA and NVIDIA is going to do phenomenally well, but so will custom silicon, and we can see from Broadcom results, and we also work very closely with Broadcom and the customers themselves. So -- and there's opportunities because the demand is so high in terms of -- if you look at all these big customers, they're projecting AI compute demand to grow like 2x every year for next several years. So I think there is growth for everyone involved in that. And the benefit of doing custom silicon, at least for the inference part, can be so high that they are willing to invest in EDA internal chip design. So I think the financial and the customization benefit for our customers, and these are, of course, the biggest companies in the world is significant doing custom silicon. You can look at all the big ones like Google and Meta and all the others like Microsoft, Amazon, Tesla. So I think there's going to be acceleration of that. And as they do more internal design, of course, they need to invest in EDA and IP and hardware. So I think the trend is healthy there. Profitability questions are similar. We want to have discipline on our pricing. So our profitability is similar, but the benefit to our system companies is high as they do their own chips. Operator: And our next question comes from the line of Ruben Roy with Stifel. Ruben Roy: Anirudh, I had a quick question, I hope on a comment you made during your prepared remarks about collaborating with a customer on next-generation agentic AI solutions. I'm wondering, is that something that you're seeing across a wide swath of your end customers? And if so, just wondering if you could walk through maybe some of the implications of that, whether it's how some of those collaborative efforts on that type of solution might be monetized longer term? And how you're thinking about agentic AI overall relative to specific -- it almost sounds like custom solutions by customer versus a broader agentic AI solution set that cadence might offer to the broader ecosystem. Anirudh Devgan: It's a great question. We could talk for a while on this one. And we are privileged to have the partnership with several companies on AI. I mean not just the design of AI, but AI for design in our solutions and especially on agentic AI because this is a new emerging area. We have like 5 major AI platforms. But what is unique about agentic AI is, of course, all the gen AI stuff. And if you look at even one of the biggest applications of AI is kind of vibe coding or software development. Well, if you look at it, part of the chip design is also coding. We have automated, like I mentioned earlier, 90% of the workflow for chip design. But one part of workflow, which is not automated is the customers still have to write RTL. RTL is like a language, register transfer language that describes the chip. And this happens in the very beginning part of the chip design process. So that process is still manual. But the algorithm that is helping wipe coding or C++ coding for general software development, kind of these agenting methods can also help for RTL development, okay? And it can provide a lot of benefit to this 10% of the workflow that is not automated. So therefore, we have a massive investment in agentic AI, which you will see as we announce more products going forward. And we already have several partnerships in there, and we are highlighting one of them. And the way we are going to market there is, this is longer -- is through JedAI. I've talked about JedAI before. So JedAI is joint enterprise data and AI platform. So it does have some standardized components. The database is standard. All the models are available. AI models has interface to all our AI tools. So part of JedAI is standard across all customers, and we work with foundries and all to kind of train our models. Now part of it could be customer-specific, okay? And in that case, the data is held at the customer site. And that's where we architected JedAI from the very beginning to be both on-prem and cloud-based, because sometimes the customers want it cloud-based, but sometimes if they want data to be localized, they want it on-prem. So that's why for years, we have invested in this kind of unique platform, JedAI that allows us not just to build unique solutions like RTL development and verification plan development, but also deploy it either in a general way or more specialized to a particular big customer. But I'm pretty optimistic in how agentic AI can automate the remaining kind of part that was manual and again, focus our customers to do higher-level tasks and remove some of the mundane task of RTL coding, verification plan generation, things like that. Operator: And our final question comes from the line of Joshua Tilton with Wolfe Research. Joshua Tilton: Congrats on a very strong quarter. Given the time, I'm just going to actually ask a pretty direct clarification question. John, I think it's pretty much for you. In the event that you do see some impacts in the China region, given the ongoing tariff negotiations this coming quarter, do you feel or can you help us understand how you kind of handicap the updated guidance for some, if any, potential negativity in the region? John Wall: Josh, I mean, that's a great question. I'd love to be able to tell the future. The -- I mean, as always, we incorporate prudence for all kinds of regulatory variability. And we base our guidance assuming that today's export regime remains substantially similar going forward through the end of 2025. But it's very, very hard to predict what's going to happen. But by all reports that we've heard that we believe that geopolitical tensions are lower than people expect. Operator: And I will now turn the call back to Anirudh Devgan for closing remarks. Anirudh Devgan: Thank you all for joining us this afternoon. It's an exciting time for Cadence with strong business momentum and growing opportunities with semiconductor and system customers. With a world-class employee base, we continue delivering to our innovation road map and working hard to delight our customers and partners. On behalf of our Board of Directors, we thank our customers, partners and investors for their continued trust and confidence in Cadence. Operator: And ladies and gentlemen, thank you for participating in today's Cadence Third Quarter 2025 Earnings Conference Call. This concludes today's call, and you may now disconnect.
Chethan Mallela: Good morning, and welcome, everyone. We appreciate you taking the time to join us today, both in-person in New York City and over the webcast. Before walking through the agenda, let me first draw your attention to the slide in recognition of the forward-looking statements we'll make today. Please also keep in mind that we will be citing non-GAAP financial measures throughout our remarks and in the presentation that is posted on our website. Now let's discuss what to expect during our time together. Our Chairman, Bob Gamgort, will kick off the formal presentation with welcome remarks, followed by our CEO, Tim Cofer, discussing our value creation framework and the strategic rationale for the JDE Peet's acquisition and our planned separation. Tim and Olivier Lemire, our newly appointed President of U.S. Coffee, will then walk through our future Global Coffee Co business in more detail. After a short break, Eric Gorli, our President of U.S. Refreshment Beverages, will discuss the future Beverage Co; SVP of Finance, Jane Gelfand, will provide an update on financials and capital structure; and Roger Johnson, our Chief Transformation and Supply Chain Officer, will walk through our integration and separation plans. Finally, Tim will provide an overview of Q3 earnings and share some final thoughts. In total, the prepared remarks portion of the day should take around 2.5 hours. We'll then break for 45 minutes to allow the in-person attendees to explore our product showcase, and then we'll return for a Q&A panel. We expect to conclude our event and the webcast at around 1:00 p.m. Eastern Time. We hope it will be a productive and insightful session for you. Let me kick things off by welcoming our Chairman, Bob Gamgort, to the stage, and he will introduce the rest of the Board members joining us today. Over to you, Bob. Robert Gamgort: Good morning. It's great to see everyone. Thanks for joining us here. We've got updates to provide on KDP in general on the transaction that we announced in August. We also have some great Q3 results to talk about. So we don't want to forget those either. As Chethan mentioned, we've got a number of directors here today. And what I'd like to do is just take a minute to introduce them. They are mostly are all located to our right over here. Pam Patsley is our Lead Independent Director. She chairs our Remuneration Committee. She's our longest-standing director, having been at Dr. Pepper Snapple Board prior to joining KDP. Tim Cofer, our CEO, you're going to hear a lot from him today. Juliette Hickman, right over there. Juliette serves on our Audit Committee and one of our very newest directors, Mike Van de Ven, who also serves on our Audit Committee. And the directors are going to be available to interact with you during breaks and during the product demonstration, so please engage with them. Pam and I are going to come back on stage with the management team at the end of the day and answer questions as part of the formal Q&A session. So my purpose today is really to represent the perspective of the Board, and I want to kick off today by offering five points that I think the Board would like to emphasize at the start here. And first of all, KDP has a long and consistent track record of delivering strong results. Since formation, 6% revenue CAGR, 11% EPS CAGR, and that places us in the top tier of CPG peers. But from a Board perspective, our job is not to look backwards and congratulate ourselves on good results. It's really to position the company for future success. And that's why we have conviction in this acquisition and separation. What's important is for you to have more detailed information, more insight in our thought process. And that's what we want to do today so that you can come along with us on our journey on how we came to that conclusion and why we continue to have great confidence in the value creation potential of the transactions. Having said that, we heard your feedback. We certainly noted the market reaction and they made it really clear to us that we needed a day like today to better explain the strategy and the thought process behind it, as I said. We also recognized we needed to change some of the executional elements of the transaction. You saw the press release today. Those are good developments, and we'll talk about more optionality going forward. And we really think that we're on the right track and are being very responsive to your feedback. So going from today to this future end state requires great execution. So in addition to talking about the end state, we need to give you confidence in execution. And we'll do that today by showing you our integration plans. But I think more importantly, we're going to give you exposure to more people on our management team who are actually responsible for that and for running the company and making sure that we continue to deliver great results like we just did in Q3. So you'll meet them. And then we're going to be flexible. I mean, you've seen that we've been flexible since announcement. We're going to look for other opportunities to maximize value. And we'll talk about some of the areas where we're thinking about flexibility going forward throughout this presentation. So I think there are three points that I would like to comment on before I turn it over to Tim because I'm in a unique position to do this. So, first of all, is the global coffee category. So you'll find it interesting, but the left-hand side there is my trophy from 1985. This was an on-campus competition sponsored by General Foods, and it was called the Maxwell House brand management challenge, and it was about the coffee category. And my team won it, which is why we have the trophy. It sparked my career in CPG. It also is how I entered General Foods, and it also started a 40-year relationship with the coffee category. So I've seen it over an extended period of time. So, there's no question in the post-COVID period, we saw a slowdown in the global coffee category. We also are beginning to see signs of recovery. And what typically happens is a three-year window starts to become reality. We never thought that this was anything more than temporary or cyclical. It's not structural. And if you look at the category over 40 years, you will see periods of time where the category slowed down only to accelerate rapidly afterwards. And that's exactly where we think we are right now. We're in the beginning of a recovery period. Over that 40-year period, the volume growth of coffee is a 2% CAGR. And we know that in CPG, volume growth, real growth is scarce and important. But it's undeniable when you look at a 40-year trend on coffee, the trajectory continues to be going in the right direction. Actually, Tim has a chart that will show you that very, very clearly. So let's think about this. If you believe it's cyclical, and we're in the beginning of a recovery. We have a strong business in KDP coffee anchored by Keurig. We really believe to succeed going forward in coffee, you got to be global. We'll talk a bit about that. So if you want to form a global coffee powerhouse, the best partner is JDE Peet's. This is a scarce and valuable asset. It's a high quality, and honestly, there is no alternative other than matching these two businesses together. And when you see the fit, it is striking how much each business complements each other. And we're confident that together, we will form a formidable global coffee competitor. So that gets to another question that came up from time to time in the past couple of weeks, which is what happened to the investment thesis? How has it changed? So I'll start with a real obvious comment, which is since we put the companies together seven years ago, a lot has changed in the world. Competitors, consumers, our customers in the way they think about it. Certainly, the macro environment is different. So I think it's natural and necessary to evolve our strategy as well. In 2018, the play was a really good insight at that point in time. We took two subscale beverage companies who are solely focused on North America. We brought them together to create a beverage challenger of scale, and it was wildly successful. If you take a look at what's happened over the past seven years, I gave you the aggregate financial performance. But beyond that, the strength of each individual company enhanced significantly over that time. So if we're going to put together these two companies to form a global coffee competitor, and we'll talk about why global is important later, we could run them together. It is an option to run them as one company, but we think it is optimal to separate them. One company focused on a global opportunity, which is a very different management mindset. Obviously, on one category, coffee across the entire world of all forms and the other to continue to run this very valuable North American refreshment beverage growth machine that has significant runway still in front of it. It also gives investors a choice in two different styles of running these companies. More to come on that, but it really shows that there was this natural evolution that started in 2018 and is our choice to run them separately. You're going to hear from a number of speakers. And I think the third area where I can offer unique perspective is my confidence in the management team. Tim, who you're going to hear from right after me, will run the combined businesses. And then upon separation, he will be the CEO of our stand-alone beverage company. Olivier, Eric and Roger, I have worked with since the take private of Keurig in 2016. My experience with Jane goes back further than that. Jane was at Barclays in 2012, and she was part of the team that supported the IPO of Pinnacle Foods, where I was CEO. And the reason I give you that time period of my experience is I have seen this team deliver across a wide variety of challenging situations time and time again. I have the highest level of confidence in their ability to execute, and that gives me confidence that we can get from where we are today to an outstanding end game when we separate these companies. So, with that, let me turn it over to Tim Cofer, our CEO. He'll take you through a significant amount of content along with all these other presenters. And as I said upfront, I look forward to being back up here at the end with Pam, and we'll be happy to answer your questions at that time. So, Tim? Over to you. Timothy Cofer: All right. Good morning, everyone. Great to see all of you again. I hope you've had a chance already to enjoy some of the amazing beverages that we have across these stations for those of you that are here live with us at NASDAQ. I can imagine the coffee stations were hit pretty hard it being a Monday morning and all. So, building on Bob's comments, we have strong conviction in the strategic and financial merits of this acquisition of JDE Peet's and the subsequent separation into these two pure-play companies. We are creating North America's most agile beverage challenger and a true global coffee powerhouse. At the same time, as Bob said, I have spent the last two months absorbing shareholder feedback, and of course, the initial market reaction post the announcement. And I recognize that there are a few areas of concern as well as some open questions that would benefit from more explanation. That is why we're here today. So, in my discussions with each of you, I think the questions have largely spanned these four areas. Why is JDE Peet's the right acquisition? What does the separation into Beverage Co and Global Coffee Co. uniquely enable? How will we optimize KDP's capital structure post the acquisition and establish appropriate balance sheets for each of these separate entities? And how will we ensure that KDP delivers with success throughout this process. Over the next couple of hours, we will answer these questions and more. Now before diving into these topics, let's reground you in our business and our strategy. We operate with a sole focus on beverages. I truly believe this is the best sector in CPG. It's large. It generates $1 trillion at a global level. It's growing. We expect a mid-single-digit CAGR in the coming years, supported by structural tailwinds to sustain that momentum. It's dynamic with ever-evolving consumer preferences that create endless opportunities to drive consistent growth through innovation, through mix management, through premiumization. It's financially attractive, strong profitability, compelling industry return profiles. So we understand this beverage industry very well, and we have a proven and successful value creation strategy. At the core of this, as you see on this slide, our five pillars. They serve as our blueprint for how we drive sustainable, consistent, compelling performance over time. The first three of those are commercial priorities, broadly geared around the top line. The true enterprise enablers support that growth in a profitable, efficient and high-return way. Let me touch very briefly on each one, championing consumer-obsessed brand building. This means being consumer-led, consumer-centric as we nurture and expand our iconic brands, shaping our now and next beverage portfolio to access growth accretive white spaces via our flexible build, buy or partner model, amplifying our route-to-market advantage, strengthening our multichannel leadership with differentiated distribution capabilities, generating fuel for growth by reinforcing a continuous productivity mindset and a lean overhead operating model and, of course, dynamically allocating capital to support that long-term value creation. How have we applied that to our businesses? Let's start with Refreshment Beverage. Our results speak for themselves. Our flagship Dr. Pepper, we've turned this into the CSD category's innovation and marketing leader. We've driven nearly a decade of consistent market share gains, and we've established ourselves as the #2 market share position in the category. We've thoughtfully built out meaningful incremental growth platforms in white spaces that we previously didn't compete in like energy and sports hydration. And we've strengthened our competitively advantaged route-to-market DSD network through capital-efficient territory expansions through brand partnerships and capability investments. The result of the efforts you see at the bottom of the page, a high single-digit net sales CAGR since 2018. And we're just getting started with business momentum that should support continued sustained growth into the future. What about in coffee? Look, we know the operating backdrop in U.S. Coffee has been more dynamic over the last few years, particularly in that post-COVID world and the multiple commodity cycles like the one we're in now. And yet, we've made important strides. We've reinforced Keurig's position as the #1 North American single-serve system across both brewers and pods. We've extended our portfolio into exciting growth areas like cold and super premium. We've continued to expand the number of households that brew Keurig every morning now at 47 million strong and growing. And we are preparing to catalyze the next chapter of our growth agenda with disruptive innovation. We've invested in unique assets that drive competitive advantage, including our differentiated and highly profitable direct-to-consumer e-commerce capabilities. All of these initiatives have supported a steady low single-digit sales CAGR in recent years, consistent with our go-forward expectations. So through these commercial achievements as well as robust productivity and thoughtful cash deployment, we've delivered strong results at an enterprise level. Since KDP's formation in 2018, as you see on this slide, we've grown net sales at a 6% CAGR. We've grown adjusted EPS at an 11% CAGR, while also returning meaningful cash to our shareholders. Now at the same time, both our businesses and the external environment have changed in significant ways since 2018. Just as Bob discussed earlier, the original merger thesis was really predicated on combining what at the time was two subscale businesses. We did that to create a North American beverage challenger. What's happened in the last seven years? Our refreshment beverage business is no longer subscale. In fact, it is the same size today as total KDP at merger. Our actions to evolve our ref bev portfolio to strengthen our route to market have also structurally raised the organic profile of this business relative to 2018. And in coffee, while we've made progress, we acknowledge that the category growth trend has fallen short of our expectations in recent years. And while we're the clear leader in North American single-serve, that business is arguably subscale in particular, relative to our global competitors that can leverage broader advantages in technology, in sourcing and who can participate across the entire global coffee category. So as a Board and a management team, we observed these changes since 2018. We discussed these and we reached a couple of conclusions. First, our refreshment beverage business has both the scale and the advantaged positioning to succeed, as Bob said, either as a combined company or a stand-alone. And second, while our coffee business has clear strengths, it is not yet optimized to reach its full potential in current form. And we decided as a Board that it needed further assessment, and it could benefit from potential enhancement. So the first step in that assessment was to step back and take a fresh look at the coffee category. You've heard Bob's story 40 years ago, the Maxwell House Award. I've also spent a lot of my career in coffee in a past life, different employer. We're long-term believers in the attractiveness of the global coffee category. We believe in the structural tailwinds supporting future growth, but we did the analysis once again to underwrite our confidence. Let's start with the consumer lens. Coffee remains a preferred way to address the universal human need for energy, and it's ever more important these days. Coffee is a highly emotional category. It evokes passion. It's artisanal. Craft specialization plays a key role in premiumizing the category, which is a clear growth tailwind. Coffee is habitual. Coffee has unmatched global frequency of consumption. And coffee is healthy, even as defined by regulators, both in this country and globally. Simply put, coffee is the #1 beverage American consumers cannot live without, and I am certainly one of them. And it enjoys a similar status in so many markets around the world. Now to see the evidence of this category's essential nature, look at the long-term trend on the chart. Bob mentioned this in his opening remarks. What you'll see over 40 years is a low single-digit global volume growth. And in dollar terms, recent growth trends are even faster. thanks to premiumization and innovation. Importantly, the structural factors supporting consumption growth remain as powerful as ever. And I would highlight that increased adoption, especially in emerging markets as younger generations embrace coffee culture and begin to shift versus historic tea culture is yet another growth tailwind long term. Now as with many categories, coffee goes through cycles, including most recently this post-COVID lull that we've experienced. But as Bob said, and as this chart, I think, pays off nicely, the historic pattern is that these lulls are temporary and the category recovers to its long-term growth trajectory. We're seeing signs of this -- right now in the United States, this post-COVID recovery is underway. Category volume trends bottomed out in 2022. They've been stabilizing ever since. And encouragingly, this dynamic also holds true this year, year-to-date 2025, even as this high inflation has fueled significant price increases. You see here that the elasticities on an absolute basis compare favorably to the historic trend. So that was our assessment, our step back assessment on the coffee category. With renewed confidence in the attractiveness of that global coffee category, our challenge was then to determine how do we optimize our coffee business. Our goal here was to create an even stronger business with higher growth prospects, greater resilience and improved operational efficiencies. And look, we considered all options. All options were on the table, sell the business, spin it off as a stand-alone, continue to operate it as part of KDP. But ultimately, after thorough diligence, our management team and our Board of Directors determined that the acquisition of JDE Peet's represented the most attractive and actionable path for maximizing the value of our coffee business. Here's the reality. Scale matters in coffee. The category addresses a universal need state. Common formats, common consumer trends, similar premiumization opportunities across markets. This means that consumer insights, innovation, technologies can be leveraged and reapplied across markets. And of course, in coffee, there are clear economies of scale in operations and costs. Bob said it in his opening remarks, JDE Peet's is one of the very few assets of global scale in this category, and it will step change Keurig in several ways. You see it on this chart. Our coffee net sales will more than triple to $16 billion, making us the second largest global coffee player and the largest pure play. We'll gain access to additional geographies, including many high-growth markets. We'll become a significantly larger manufacturer and the #1 coffee buyer in the world. These elements are critical to fortifying Keurig as an even stronger coffee player. In JDE Peet's, we also see a unique fit with the Keurig business. Through this combination, we can bring together the best of both companies. Keurig's North American leadership, know-how, innovation prowess and JDE Peet's global reach, leading brands and full format expertise. The resulting Global Coffee Co. will enjoy an advantaged and complementary portfolio, incremental revenue opportunities, visible, actionable, achievable cost synergies and greater resilience. Let's unpack each of these four. Starting with advantaged and complementary portfolio. The combined company will be able to benefit from global category growth, given its strong brand portfolio, including $4 billion-plus trademarks, broad participation across every coffee subsegment and geographic diversification. Moving to enhanced revenue potential. We see upside potential from scaling Keurig's system expertise and JDE Peet's format capabilities across more brands and more markets, capitalizing on the growth runway for Peet's here in the United States and extending Keurig's next-generation coffee systems beyond North America. The third is clear and actionable cost synergies. We will discuss this in more detail, but we have identified clear and actionable efficiencies that we know will generate $400 million in savings in the next three years. These synergies can fund reinvestment while also supporting earnings growth. And finally, increased resilience. Obviously, as a larger company with greater supply chain capabilities, we will be much better positioned to navigate external volatility like tariffs and commodity fluctuations. Together, the union of JD Peet's and Keurig will create a stronger business that is more efficient and more capable of delivering consistent, profitable growth. So, upon closure of the JDE Peet's acquisition, we will, for the first time, have scaled advantage platforms in both Refreshment Beverages and coffee. Through the subsequent separation, each of these businesses will become that focused pure play with attractive yet distinct profiles. Beverage Co., a growth-oriented player, supported by a leading brand portfolio, a competitively advantaged route to market. The business will be disruptive. The business will be entrepreneurial, and it will deliver an attractive growth profile with potential upside from strategic optionality over time. Global Coffee Co. will be a steady grower with strong and resilient cash flow, enhanced by near-term synergy capture opportunities. Performance will be supported by differentiated deep coffee capabilities and expertise. And as we've said earlier, while we could conceivably run these two businesses together, we believe the separation will provide clear benefits to both entities. What are those benefits? First, focus. Each company will tailor its strategy, its operating model, its capital allocation priorities to align with distinct category and geographic exposures. Culture. The respective leadership teams will have strategic clarity, and we can structure and incentivize our organizations accordingly. Strategic optionality. Each stand-alone entity can think creatively and flexibly in pursuing additional value creation opportunities. And finally, shareholder benefits. Investors will be offered the opportunity for two very attractive yet distinct investment opportunities. Now as I said at the beginning of my remarks, we have conviction in these transactions, and we have a clear view of the compelling destination once this is complete. It's now on us to execute with excellence. And that all begins with a robust plan and the right team. So we've recently established a transformation management office or a TMO. To drive this comprehensive integration program. Bob mentioned it earlier, it will be led by our newly appointed Chief Transformation and Supply Chain Officer, Roger Johnson. You'll hear more from Roger in a minute. The TMO structure is designed to establish the processes and the workflows to guide our integration teams while also importantly, freeing up the rest of the KDP organization to focus on maintaining that great base business momentum that you've seen us deliver again in Q3. The TMO will be comprised of a dedicated internal team in partnership with key advisers that will be responsible for the integration planning, the future company design for the value capture. Our Board of Directors and my executive steering committee will obviously provide support and oversight. Importantly, many of these leaders, team members, advisers, obviously have significant experience in executing complex transactions like this. As just one example, among others, I was fortunate enough to have a central role in the Kraft acquisition of Cadbury and the subsequent separation into Mondelez International and Kraft Foods Group. Many of the other leaders, including those you'll hear from today, have had similar experience with complex transactions like this. We will draw upon those collective experiences to further derisk the next steps. So one important element of executing these transactions is ensuring that we have the appropriate capital structures for KDP at acquisition close and importantly, for each independent entity upon separation. We are well aware that some investors were uncomfortable with our initially proposed post-transaction leverage. And as you've seen today in the press release, we've taken meaningful action to address those concerns. So we've announced two cost-efficient transactions, a minority investment into a newly created coffee manufacturing [ JDE ] and a private convertible investment into our future Beverage Co. These two equity-like instruments will help to shore up our balance sheet. As you see on this slide and in the release, we now expect net leverage to be below 5x when the acquisition closes, and we're also targeting initial leverage ranges for Bev Co. in a range of 3.5x to 4x and Global Coffee Co. in a range of 3.75x to 4.25x. Based on the anticipated cost of this new financing, we continue to expect very attractive returns on our JDE Peet's acquisition, including year-one EPS accretion of approximately 10%. These capital raises also have the benefit of partnering and aligning KDP with sophisticated strategic investors, including Apollo and KKR, who understand and appreciate our vision. Let me walk you through the key acquisition, integration and separation milestones from here. We said this back when we announced the deal in late August. We continue to expect that the JDE Peet's deal will close in the first half of 2026. Our path to separation will be milestone-based with a plan for us to be operationally ready by the end of 2026. But before separating, we want the following conditions to be in place. First, a quick start to synergy capture; second, balance sheet readiness for both companies. Third, an independent Board of Directors and experienced leadership team for each stand-alone company; and finally, market conditions that are conducive. But as we've said all along, we will be flexible in our approach to secure the best outcome. In that spirit, as we optimize from here, one element where we're taking a refreshed approach is to our leadership. We've made the decision to not name the leader of Global Coffee Co. at this time, and we no longer intend for Sudhanshu Priyadarshi to serve in that future role. We will name full leadership teams of both new companies at a future date closer to separation. So, before we unpack both Global Coffee Co. and Beverage Co., let me conclude with three priorities to maximize value creation. First, maintaining base business momentum. As you saw this morning, we reported strong Q3 results. In fact, we raised net sales outlook, and we reaffirmed our full year EPS guidance. You should have also seen that JDE Peet's this morning reaffirmed its full year guidance. Indeed, we are initiating this transformation from a position of strength. Second priority, integrating with excellence to achieve our key deal objectives. You'll hear more from Roger about the processes and the plans we're putting in place to underwrite successful outcomes. And third, setting up each company for success with focused strategies, tailored operating models, purposeful capital allocation. After the separation, we expect both companies will offer their shareholders quality, consistency, simplicity and be viewed as world-class leaders in their sectors. Okay. With that, let's move to Global Coffee Co. We're going to bring this new company to life in a couple of sections. First, I'll invite Olivier Lemire to stage. He's our recently appointed President of U.S. Coffee, and he'll give an overview of the attractive Keurig Coffee business. I'll then return to talk about JDE Peet's specifically and then the combined Global Coffee Co. Real quick additional intro on Olivier. He is a tremendous leader. He's been with KDP for 14 years. The last four, he was President of our KDP Canada business. And I can tell you, in that capacity, he led KDP Canada to significant coffee outperformance, consistently growing pod volume, brewer volume, net sales and operating income. Indeed, Olivier knows the coffee business. He has deep experience with integrations as well, including steering the former Keurig Canada and Canada Dry, Mott's integration. Overall, he built a very strong Canadian organization, and we're very excited for him to take this U.S. coffee desk. Olivier, over to you. Olivier Lemire: Thanks, Tim. Good morning, everyone. So after 14 years in the coffee and beverage industry, I've seen firsthand the unique power of coffee to bring people together, whether it's friends, families, colleagues, there's just no other beverage like it. And from my time in country of origin with coffee farmers to walking the floor of our different coffee labs and manufacturing facilities to building strong relationship with our many brand partners, my passion for coffee and strong conviction about the future of our coffee business has only grown. So it's a real honor to now lead our U.S. coffee business and the amazing team behind the Keurig system. And with this system, we've created and now drive a highly profitable subsegment of the coffee category. Over the last 12 months, we've driven $4.6 billion in net sales and $1.4 billion in adjusted EBITDA. We are trusted by some of the best coffee brands in the world with unmatched capability, quality and scale. Brand names like Starbucks, Lavzza, Dunkin', Peet's, McCafé, La Colombe and Tim Hortons and many more. And it goes as well for our own powerhouse coffee brands, Green Mountain Coffee, The Original Donut Shop and Van Houtte. Keurig is -- and it's all driven by the Keurig brand. Keurig is a beloved brand with 94% brand awareness. It is truly the undisputed leader in single-serve coffee. Keurig is one of those handful of businesses that have become synonymous with their categories. People don't say, I hope our vacation rental as a single-serve coffee maker. They say, I hope our Airbnb has a Keurig. And we don't take that lightly. Since 2019, we've added 13 million active households, reaching 47 million in North America by 2024. We've gone from being one in four coffee makers sold at retail to being one in three today. And the Keurig system over these years continue to gain market share in both the coffee makers but also the coffee categories, with K-Cup pods now being the largest coffee format and actually driving twice the retail sales to the next closest format. And from the start, the Keurig system was designed to offer variety and choice to our consumer. And this open system drives significant value for all of our stakeholders. Our consumer love us for quality, our convenience and the variety of brands and beverages they can enjoy. Our partners value our quality, our system expertise and coffee know-how. And the retailers would recognize that we've driven premiumization in the coffee category with single-serve and K-Cup pods driving more revenue per every cup of coffee. So this creates a very strong growth engine. More brands, more variety, appeals to more households, generating more profit to be reinvested in the system. We also have a very strong track record of building and accelerating coffee brands, starting with our very own Green Mountain Coffee, now realizing more than $800 million in retail sales annually and holding the #2 position in the Keurig system. It is part of a robust owned and licensed portfolio of brands that drives strong distribution and obviously, retail activation. Here are a few examples. McCafé was a brand in decline when it transitioned over in our system mid-2020 and has been growing share every year since. Lavazza is the fastest-growing brand since we took over the selling rights, and we see acceleration in distribution and retail activation. And finally, the original doughnut shop, we know flavored coffee is actually growing faster than black coffee and is the leader in flavored coffee growth with unique partnerships and beverage types. In addition, we have a very powerful asset in our business with keurig.com. The keurig.com consumer consumed twice the daily average and has a 5x lifetime value versus the average household. With Keurig -- while keurig.com is an excellent sales channel for our coffee business, it is also a significant driver of household penetration being the fourth largest sales channel for brewers in volume. The site enables us to have a one-on-one relationship with more than 1.5 million consumers each month. If it were to be part of our retail channels, Keurig.com would be amongst our top five with other industry giants. For those that know our brand history, know that Keurig was actually founded in the workplaces, delivering a fresh brewed solution over the dreaded still pot of office coffee. And on that foundation, we've built a very strong business in away-from-home with now 650,000 workplaces with active brewers and 1.2 million hotel rooms. And we actually see significant upside in large away-from-home areas, primarily corporate workplaces, manufacturing, health care, construction. There is a powerful synergistic relationship between our out-of-home and at-home channels. with workplaces serving as a great trial environment for both the Keurig system and our many brands in the portfolio. Our coffee business has actually delivered meaningful productivity over the last five years, averaging 4% in year-over-year cost saving through a series of initiatives ranging from tactical to strategic. These programs include brewer-direct import, [ large nested compact ], lightweight cups and meaningful reductions across process and product waste. Our productivity initiatives usually serve dual purpose of generating cost savings and advancing our sustainability agenda, reducing packaging, eliminating waste and driving a more efficient logistics. So by being cost conscious and driving a productivity mindset throughout the organization, we unlock fuel to reinvest in our business. And with that fuel, we can actually drive and accelerate our strategic imperatives. We know our business is strong, and we know we can improve. And over the last year, we've actually refined our consumer-centric strategy, and we're focused on four key areas: driving household penetration, growing premium coffee, scaling cold coffee solution and defining the future coffee system. In terms of Keurig, we're excited about our new marketing campaign hitting in Q4. It will have strong in-market presence, and we believe that with consumer insights and strong data-driven campaigns, we will be able to continue to unlock household penetration. With premium coffee, we are on the eve of launching our first-ever coffee brand with the Keurig name, the Keurig Coffee Collective. It will be our first scaled and premium owned premium brand. It features elevated packaging will -- sorry, elevated packaging. It will have 30% more coffee within each cups and will have distinctively delicious blends. And we're leaning into cold coffee solutions with innovations across brewers, pods and ready-to-drinks. We've actually recently launched new refreshers based on TikTok trends, and we found new ways to offer consumer the way to customize their favorite cold beverages. And as you would have seen in the product showcase and invite you to do so at the break, we are getting ready to disrupt once again the coffee category with the launch of a breakthrough system, Keurig Alta. Alta uses K-round plastic-free and aluminum-free pods. It is designed to offer a large range of barista-style beverages, including rich cups of coffee, authentic espresso and a variety of coffee shop style beverage, either hot or cold. We have completed multiple rounds of in-home testing with the Keurig Alta system, supported by pilot production of the K-rounds. And we are looking forward to sharing this innovative format with consumers soon. And while it's early days, we are excited to think about scaling this innovation in the future. So, with that, I'd like to welcome Tim back up to speak to JDE Peet's and how these two complementary businesses will be even stronger together. Thank you. Timothy Cofer: All right. I will put in a plug for those last two coffees that Olivier shared with you. If you've not tried our new Keurig Coffee collective, for those of you in the room, it's in that station belt back there, my favorite new K-Cup pod, outstanding cup of coffee. And then Alta, please be sure and try Alta before you go today. So I will start this next section with thoughts on JDE Peet's, including an overview of the business, why we think it's such a compelling asset and some of the recent strategic changes that are underway at that management team. Then I'll discuss Global Coffee Co. and highlight how the complementary nature of JDE Peet's and Keurig creates this attractive pure play that's truly positioned to win. So if you're wondering, what am I doing here? Why am I the guy talking about JDE Peet's? The answers are, number one, I will be responsible for it while we run for a period of time as a combined company. Number two is I do have an up close perspective on this, having spent months of diligence on this acquisition and getting to meet and interact with this leadership team. And number three is, believe it or not, I used to run some of these brands back in the past life, brands like Jacobs, Tassimo, Kenco, Gevalia and others. So I actually think I know firsthand the strength of these brands and the roles that they play in the lives of our consumers and our customers. I also want to tell you, we are very pleased that we actually have the CEO of JDE Peet's, Rafa Oliveira, in the room. Rafa, you can give a quick wave. There he is. He's in the audience. Rafa and I, as you might imagine, have gotten to know each other pretty well over the last few months, and he's actually here stateside for a couple of days. Tomorrow, he'll be at our Boston headquarters as we're advancing our integration and transformation agenda. So let's talk about JDE Peet's. JDE Peet's is a unique asset. It's large. It's profitable. It is a global pure-play coffee company, $11 billion in net sales, nearly $2 billion in adjusted EBITDA. The company holds the #1 or the #2 share position in dozens of markets around the world, reflecting an enviable portfolio of leading coffee brands. The business is anchored by billion-dollar icons like Peet's, L'OR, Jacobs, but it also boasts a sizable regional and local portfolio, brands like Pilão, Moccona and Friele, among others. JDE is also distinguished by its rich coffee heritage. This company has deep, deep coffee expertise. Its participation in coffee dates back to the 1700s with the founding of Douwe Egberts in the Netherlands, and its capabilities are quite strong. As one example, we put it on this chart, the company has the ability to produce over 1,000 distinct coffee blends. You can imagine that's a skill and capability, especially useful in times of extreme coffee inflation and the tariff volatility. For me, one of the simplest ways to understand this company's strength is by looking at a map of the world. Many countries have large and vibrant coffee categories, and JDE Peet's is present in most of those countries, often with a leading position. Coffee is a category in which the market leader is frequently a regional or local favorite, not necessarily a global brand. Consumers are fiercely loyal to their local brands, particularly in the largest and most developed coffee markets. And JDE Peet's has a portfolio aligned to that reality. So in the Netherlands and Belgium, Douwe Egberts is the category standard. In the U.K., it's Kenco. In Brazil, it's Pilão. In Germany and actually much of Central and Eastern Europe, it's Jacobs. And in France, it's L'OR. And that's just scratching the surface of their market leadership. So we recognize that this company's brands may be less familiar to an American audience. But as you can see, they're powerful equities with strong resonance in their core markets. And I'd be remiss to say that these brands also produce a very good tasting cup of coffee, each very individualized kind of taste of the nation qualities. Again, for those of you that are here, there's a station on my back left there that will give you a nice assortment of their brands, and I highly recommend, if you haven't had enough coffee already, please try it at the next break. Another hallmark of JDE Peet's is the broad category participation. The company has an offering spanning all major coffee formats, from whole bean, roast and ground, single-serve, liquid, ready-to-drink concentrate. The portfolio also captures the full price tiers from mainstream to super premium. The channel diversity is universal, including all major at-home and away-from-home channels where coffee is consumed. You can imagine there are significant strategic benefits to this broad category participation. Now given its advantaged brand portfolio and strong capabilities, it's probably no surprise that JDE Peet's is also a leading partner to retailers across the globe. I'll give you one example. This chart here of a retailer -- major retailer in France. L'OR actually holds the distinction as the #1 brand in all of CPG, driving growth for the retail trade in France over the last 10 years, ahead of even the biggest global trademarks like Coca-Cola. These photos that you see on the slide underscore the level of in-store activation that retailers support because of the power of these coffee brands and the central role that they play in building shopper basket and driving category growth. JDE Peet's Pet's brand strength also extends to the consumer. Its portfolio has beloved trademarks, obviously evidenced by those strong market shares I showed you. But what's equally important and I think encouraging for future growth prospects is the brand's particular resonance among younger consumers. In some markets, here are three examples, the sub-30-year-old demographic prefers the leading JDE Peet's brand by nearly a 2:1 margin relative to the next largest player. That type of brand loyalty among the next generation is priceless. As younger consumers grow their spending and influence in coffee as they age, JDE Peet's appeal to these groups should represent a growth tailwind. The company also has brands with a demonstrated ability to stretch. And I'll give you two examples on this chart. Take L'OR. L'OR began as a roast and ground coffee staple, but it's now expanded into basically all other consumable formats, including into appliances. And these adjacencies now account for a meaningful percent of total L'OR brand sales. The other example, Jacobs. Jacobs started as a German icon. But over the last couple of decades has successfully established #1 positions across Central and Eastern Europe, in fact, in 19 markets. Now more than half the sales of Jacobs is outside of its home country of Germany. I think this is notable because one of the incremental revenue opportunities from combining Keurig and JDE Peet's is the pairing of our technology and our innovation with JDE Peet's brands. We believe the stretch potential of these JDE Peet's trademarks can create intriguing growth opportunities down the road. Beyond the commercial success, the JDE Peet's business has also demonstrated resilient financial performance. I'm sure I don't need to tell anyone in this room. In fact, a few chats I did prior to the start reflect this, that the last few years has been marked by quite a bit of unusual level of green coffee inflation, triple-digit cumulative cost pressure on Arabica and Robusta. You see the numbers on this chart. And yet, even as a coffee pure play, this business has delivered steady and consistent gross profit growth. I think another indication of brand strength. Bringing it all together, it's clear for us that JDE Peet's has a strong structural foundation. This is a good business. It's got iconic brands. It's got significant capabilities. Yet it's also true that it's a business with significant value creation potential that has yet to be fully realized. To be clear, JDE Peet's management team recognized this, and they've already begun the important work to begin to capture that potential upside. They hosted a Capital Markets Day back in July, and they set a path to become a more agile, more focused, more commercially capable organization. I visited Amsterdam a few times with Rafa and team, and I can already see the early stages of this important cultural shift taking hold. The centerpiece of their approach is an evolved strategy, and they aptly call it reignite the amazing. Now there are many elements to the plan, but I'll just highlight a few notable points. an emphasis on fewer, bigger bets with resources and management attention going towards the largest brands, greater consumer centricity and commercial excellence and a stepped-up productivity flywheel to unlock savings, flexibility and agility. The strategy makes sense, and it's definitely aligned with CPG best practices and operating principles. And upon integrating JDE Peet's with Keurig, we would expect to continue this work and harmonize it into a combined strategic playbook for Global Coffee Co. It remains early days as they've embarked on this new strategy, but I would tell you, there's already some initial proof points showing up from this refined strategic approach. I'll give you a couple of examples. On big bets, JDE Peet's is prioritizing leveraging insights and infrastructure to launch compelling innovations and ideas across multiple brands and multiple geographies in a highly efficient and profitable way. As one example, right now, there's a hot trend out there called Dubai Chocolate. JDE Peet's was able to quickly launch a Dubai Chocolate coffee mix across multiple brands in 20 markets this year using this platforming approach. Less visibly, but no less critically, the company has also made progress in refining its marketing approach and building capabilities in key areas like revenue growth management. We certainly know from experience, the payback from these investments can be very high when you get it right. And finally, JDE Peet's is also beginning to progress its productivity program that they unveiled on their Capital Markets Day. The plan targets EUR 500 million in savings through 2032 with roughly half being reinvested in the business. Four primary areas underpinning this target. Portfolio simplification across brands and SKUs and the manufacturing and distribution footprint, simplified ways of working, which involves removing complexity and generating savings accordingly, continuous improvement in sourcing, in design and plant level productivity and driving improvements in the company's asset-light route-to-market system. As you can imagine, we carefully vetted this program as part of our diligence, and we're confident that the savings are achievable. JDE Peet's has already begun to implement this program, including some plant closures and other operating efficiencies that they announced this morning in their press release. So you've now heard Olivier talk about the strengths and our future growth plans for Keurig. You've now heard me walk through the virtues of JDE Peet's. Let's now talk about what happens when we put these businesses together. So let's start with some background. These businesses are strong in their own right. They've proven resilient, and they've delivered solid performance in a very challenging operating backdrop the last few years. You see on this chart, sales growth and adjusted EBITDA ranging in the low single digits. And importantly, each business has proven highly cash generative. For example, you see here, Keurig, we expect to deliver more than $600 million of free cash flow this year. And JDE Peet's this morning reaffirmed its outlook for the year of EUR 1 billion, about $1.2 billion. When we put these two companies together, we expect even stronger top and bottom line growth going forward. And let me take you through why we believe that. To start, Global Coffee Co. will be an advantaged market leader in the $400 billion global coffee category. And as I said previously, scale matters in coffee. This business will have it. Global Coffee Co. will be the #2 coffee player in the world by revenue and the #1 pure play operating across 100 countries. It will have a strong portfolio of brands, diversified across formats, across channels. It will have a strong financial profile, $16 billion in net sales and over $3 billion in adjusted EBITDA. The combined entity will have a broader product line than either stand-alone company had, but in particular, relative to Keurig. Prior to the combination, as you see on this first bar, our business was almost exclusively focused on the single-serve subcategory here in North America. But with the addition of JDE Peet's, you now see Global Coffee Co. will have a format mix that's far more closely aligned with the global category split and yet still with a favorable skew to the high-margin single-serve segment and other more value-add areas. What does that mean? Global Coffee Co. can then fully participate in the growth of the entire category, both in meeting existing consumer preferences and emerging growth opportunities. Similarly, as a true multinational now, Global Coffee Co. will be better positioned to capture a fair share of category growth. At the category level, coffee has two large structural growth drivers. We think both of these are evergreen. The first is per cap consumption growth. This has been and we expect will continue to be a tailwind for the category. It's supported by elements like a rising middle class and ongoing preference shifts, particularly in non-coffee legacy markets of preferences driven by youth from tea to coffee. The second is premiumization as measured by value per cup. This trend is occurring across all formats. And you see it most evident in the growth of premium solutions like single-serve, but it's occurring across brands as well with premium trademarks growing faster than mainstream and value. So while per capita consumption is a greater opportunity perhaps in less developed coffee markets and premiumization is a bigger trend than established countries, we actually see significant runway in both of these structural growth drivers. The business will also enjoy unique revenue opportunities arising from this very complementary combination. Let me quickly talk to these five formats. Given the potential to expand Keurig's brand equities now into new subcategories, leveraging JDE Peet's full segment exposure, technology, especially in brewers, Keurig is best-in-class in brewers. We've been an innovation leader. We know how to produce them at an efficient and profitable manner. We can provide insights to some of JDE Peet's systems like Senseo, Tassimo and L'OR. Channels, we can capitalize on our complementary footprints, including in away-from-home. Next generation. next-generation exciting Keurig Alta and K-rounds innovation now has the potential to think about expansion beyond North America and brands, targeting growth opportunities for specific brands in the portfolio. And one I'll call attention to is Peet's, and I'll give you more in a moment. As you see, the synergistic growth opportunities are ample and indeed global. Let me talk a little bit more about Peet's, just to bring that to life. We all know that brand, I think, pretty well here in the U.S. It has a rich heritage. It's a coffee pioneer. It's got strong brand awareness, premium coffee credentials across the U.S. But as this map shows, the map on the left, its market penetration is very much concentrated in the West Coast, and in particular, California, the home territory. And its commercial execution at point of buying meaningfully lags Keurig's. But as a combined entity, Global Coffee Co. can utilize Keurig's significant commercial scale, our very strong customer relationships to improve Peet's geographic footprint. I'll give you one example with numbers. You see that on the far right. We have the ability to achieve -- well, today, Keurig achieves almost 4x the feature and display activity of brand Peet's. We can and we will close that gap. The result can be a much larger, faster-growing Peet's premium brand over time. So we've talked about the revenue opportunities, but we also see visible cost synergies at Global Coffee Co. Our $400 million synergy target in the first three years spans several areas. In procurement, we will benefit from enhanced scale across green coffee sourcing as well as direct and indirect spend pools. In manufacturing and logistics, we have plans for network optimization for route-to-market consolidation and other go-to-market efficiencies. And for SG&A, we've already identified corporate scale efficiencies as well as IT infrastructure and other system savings. Importantly, these synergies have been scoped and we've developed concrete and actionable plans to deliver on these cost synergies, if not exceed them. Ultimately, we expect Global Coffee Co. will generate consistent, attractive profit growth. This will be driven by a few factors. First, obviously, profitable top line growth. This company will be well positioned to capture its fair share of the coffee category's volume growth, which, as you've heard a couple of times, consistently grows on a volume basis at a low single-digit rate over time. This will obviously generate fixed cost absorption, operating leverage benefits. And in addition to that, the innovation that you've heard about today, our price pack architecture and RGM work, promotional effectiveness can further translate that top line growth into nice bottom line growth. Next, Keurig and JDE Peet's each have robust productivity programs, even beyond the deal synergies I just covered. And obviously, some of these savings will be earmarked for reinvestment, but others will flow through to the bottom line. And finally, it's not built into our baseline financial outlooks, but it's our belief that current coffee prices are clearly well above the long-term trend, and they do not appear to be supported by market fundamentals. I'm not going to try to predict commodity market gyrations on this stage, but it is worth noting that any normalization in this cost would clearly drive a cyclical profit tailwind. Bringing these elements together, the business' structural advantages the potential revenue synergies, the cost synergies of the combination, the other profit levers available to the business, Global Coffee Co. will support an attractive growth algorithm. Now there certainly can be some year-to-year volatility in top line due to commodity volatility. But over time, we project low single-digit net sales growth and high single-digit adjusted EPS growth. And we would expect this business to be highly cash generative. As you see on this chart, anticipated cumulative free cash flow of more than $5 billion from '26 to '28. We are excited to create this global coffee powerhouse the world's largest coffee pure play and a stable of the best loved brands powered by advantaged capabilities. All right. I think you've earned a well-deserved break. Let's take a 15-minute break, and we will come back and talk about Beverage Co. Thank you. [Break] Chethan Mallela: We're starting in one minute. Everyone find your seats. Please welcome Eric Gorli, President of U.S. Refreshment Beverages. Eric Gorli: Right. You all hear me? Excellent. Good morning. Thrilled to be here getting to represent this great business. And most likely, I'm a new face to most of you. Believe it or not, I've actually been in this industry closing in now on 30 years. I spent the first 20 in the [ R.E.D. ] system, and I just hit my 10th year anniversary here at KDP. And look, as I've told Tim, Bob, our Board, there is absolutely no other place than I'd rather be right now than here with this collection of iconic brands and the incredible team that we've been able to assemble. So let me tell you why I feel that way. Tim hit some of this to start with, we work in a fantastic industry. It is large, over $300 billion in retail sales. And most importantly, year after year, it has demonstrated the ability to consistently grow sales dollars north of 3%. And what fuels that growth is just how dynamic the consumer and her ever-increasing demands are. Underlying megatrends, these are things we all experience in our day-to-day lives, convenience, wellness, the need for functionality. The fuel a cycle of innovation and the opportunity to continuously participate in new pockets of growth. And this landscape is way more fragmented than most people realize. We view this as an opportunity for future expansion, particularly with our unique build, buy, partner model. So let's talk a bit about Bev Co. and why we feel like we are uniquely positioned to be a formidable challenger in this industry. We have scale. We exited 2024, as you saw in Tim's slides, north of $11 billion in net sales. Our business is profitable. Our EBITDA margin is at 30%. And again, importantly, we're growing. Since 2018, we've averaged a top line growth rate of 8%. We have incredible portfolio of brands with incredible organic growth upside. That's going to be most of my presentation today, just the confidence we have in these products. We also have an advantaged commercial and route-to-market model. This includes one of only three national direct store delivery systems for nonalcoholic beverages here in the U.S. And we've invested significantly in our operations to support network expansion. And yet we still have so much room for improvement. So I'll now get into the details on why I personally have so much confidence we can maintain this momentum into the next chapter. So one of the things that is so very special about beverages is just how they are so very personal. These are products where consumers create deep lifelong relationships with their favorite brands. We have many of these brands inside our portfolio, brands that consumers love, brands that our retailers value. So a few facts and figures. On the slide, you'll see over 25 brands that have over $100 million in annual retail sales. They are led by our $3 billion trademarks, brand Dr. Pepper, fast approaching the $6 billion mark as well as category leaders like Canada Dry and Mott's. Some other key brands, you'll see icons like Snapple, A&W, 7UP, as well as a few fast-growing disruptors like Bloom, GHOST and Electrolit. Today, we believe we have a portfolio that not only provides us with exposure to growing categories, but it creates scale for us with our customers and efficiency inside of our operations. So over the past several years, we've done a really nice job of being very thoughtful in how we want to evolve our portfolio. As you heard Tim mention, we employ a flexible but disciplined model that's really centered around building, buying or partnering. It all starts with build. And you can see on the slide where we have demonstrated a really strong track record of bringing innovation. No better example of this than inside of our CSD portfolio. Here, we are repeatedly recognized by our retailers for our market-leading innovation. We've also been very purposeful in our approach to utilizing different ways to go expand the portfolio, particularly our partnership model. Our approach to partnerships is very, very unique in the industry. We work hard to ensure that there is a win-win in the relationship that we have aligned incentives and that both partners are in it for the long term. These partnerships are able to go leverage our DSD network and allow us to rapidly participate in growth pockets with a very capital-efficient model. And in a number of cases, they provide us with a superior risk-adjusted return that we likely could achieve on our own through a build model. So we'll start now with the portfolio with my favorite brand, our flagship brand Dr. Pepper. I literally could speak for an hour to some brand Dr. Pepper alone. It is a brand that has had incredible success, and yet we still believe tremendous headroom for growth. A couple of years ago, you heard Tim say, Dr. Pepper became the #2 most consumed soft drink brand. This year, 2025, we will complete our ninth consecutive year of share growth. This is all built upon a consumer obsession for the brand. You can see that demonstrated in category-leading household penetration growth as well as industry recognition for our marketing campaigns. We believe we have a repeatable playbook that works. It starts with Dr. Pepper's unique flavor, its distinct positioning. It plays firmly and wins in what we call the treat demand space. We're able to take that positioning and then make meaningful connections with what consumers really care about and where their passions are. Right now, you can see that on Any Given Saturday come to life in season 8 of our highly successful Fansville campaign. We also leverage winning innovation, innovation that creates excitement not only with our consumers, with our retailers and our distributors. That drives some of the scale retail activation you'll see in market for the full trademark. Importantly, not only for the innovation, this also attracts new households into our base flavor, we execute this well. So this is great, but what excites me the most is the runway we still have ahead of us. Let me talk about Dr. Pepper Zero Sugar, still very much in its early days. You'll see in your scan data, it's already the #2 Zero Sugar CSD, but still has significant opportunity in terms of distribution, display presence, even consumer awareness. As a percentage of the trademarks mix, we're still only about 60% of the development of the #1 Zero Sugar CSD. Point number two, Dr. Pepper is Gen Z's most popular beverage brand, and we've rapidly been adding households within this cohort. If you are like myself, a student of our industry, you know that this type of trend is highly encouraging for longer-term consumption growth. And then finally, we have outsized growth opportunities in specific geographies. While we're currently approaching a 13% share nationally, however, in any given local market, we could be as high as the mid-20s in our heartlands or mid-single digits on the coast. What's really encouraging right now is we are growing share across all market types. In lower share markets, our innovation has been the most impactful in actually bringing new households into the trademark. And then final point, as good as the marketing has been on Brand Dr. Pepper, we honestly believe we can get even better. This year, we've begun to leverage some of our new capabilities in precision and personalized marketing. This is now allowing us to go reach target consumers with relevant content in a hyper-efficient approach. We'll speak a little bit more about that in a couple of minutes. So this playbook, we think it's a repeatable model that we can go apply to other parts of our portfolio. And let me just give you two quick examples of work in flight today. So Canada Dry, #1 ginger ale, a long track record of growth. Canada Dry plays in the relaxed man space. It also has a unique and ownable position. Here, we've seen innovation also play an important role. Back in 2024, we launched what we call our fruit splash platform. That year, it was recognized as the #1 CSD innovation. We're bringing the second flavor in for 2026. And much like brand Dr. Pepper, Canada Dry also has geographic opportunities. While it's a 3 share nationally, it's as high as a 12 share here in parts of the Northeast. And let's take a minute to talk about Mott's. Mott's, #1 apple juice and sauce brand, a staple for moms, incredible equity and health. Here, though, we still have potential for growth. Great example you see on the slide is in our sauce portfolio. Inserted formats like cup and jars, we're north of a 50% share, but we have been a relatively small player in the growing pouch segment. Over the past year, with a focused marketing and commercial activation plan specifically against pouch, we've been able to unlock significant growth. So I'll let you see on the right-hand side of the slide. You can see a host of other iconic brands within our portfolio that we think we can deploy the same playbook to unlock organic growth. For those of you, probably most of the audience here, local to New York City, you may have noticed Snapple has both a new campaign, and just last week, the return of its iconic glass packaging in five classic flavors, honoring the city where it was born and its five boroughs. So let me shift gears here. Another space I probably consume too much of, but we're excited about as a company, the energy category. Energy now, the third largest category in beverages, $28 billion. If you look at the standard data growing rapidly. What's really remarkable about energy is just how over the past two decades, this category has continued to reinvent itself. It's been able to leverage different product profiles, whether it be ingredients, caffeine amounts, serving sizes, brand positionings. The category has been able to continually unlock additional occasions and bring in new households. Right now, we're really seeing the latest iteration of this with the female-targeted product lines. Three years ago, we rounded honestly to a zero share in energy. We knew this was a big opportunity, so we set out to go create a portfolio to win where we saw the growth occurring, products with great taste, products that played in the zero sugar space, products that we could target against distinct demand spaces with unique authentic brands. Today, we believe we have a complementary portfolio of brands that can win within their respective segments, especially when you couple that with our commercial approach and our national distribution network. You'll see in your scanner data over the past four weeks, we've now surpassed the 7.5% share, and we have line of sight to our stated goal of the 10% share in the next few years. So aside from energy, we've also established platforms in several other high-growth categories over the past two years. Through our long-term distribution partnership with Electrolit, we now have a strong play in sports hydration. Specifically, we are the #1 player in the rapid hydration segment. This is a $2 billion segment that is growing at a blistering pace. This summer, we entered the prebiotic CSD space with Bloom Pop, building on Bloom's incredible success to date in energy. In its launch retailer, velocity per SKU was on par with the market leaders. We're really excited about Bloom Pop's potential, and we just began scaling this nationally at the end of Q3 through our DSD network. And then finally, earlier this summer, we had an acquisition, a company called Dyla brands, which has allowed us to go play in the drink mix space. Dyla is bringing both brands as well as capabilities. Additionally, it's going to let our broader portfolio to instantly access this high-growth and attractive functional powder segment. So a lot of effort has gone into building this portfolio. However, entering a category is one thing. The bigger question, can you effectively sustain the success? And you can see on the slide across a variety of time horizons in a spectrum of categories, how we have been able to significantly increase our market share relative to pre-KDP distribution. This reinforces that access to our network, it's more than distribution. It's our ability to step change the selling and activation for a brand all the way from the national buying desk down to the outlet level. So, part of the secret, whether it's successful innovation or some of the partnership scaling I just spoke about are some of the top-tier capabilities that we've been able to create in our marketing and commercial functions. I mentioned earlier with brand Dr. Pepper, my excitement around our new capabilities to go amplify what we already believe is world-class marketing. This is all grounded in new abilities to go leverage AI-powered data and analytics to go create a deeper understanding of the consumer. This helps us guide our innovation. It's helping us set brand strategy. And now it's also allowing us to create highly relevant personalized content and creative. Our marketing and communication platforms are increasingly connected across both channels and platforms. This is going to let us unlock precision media capabilities, allowing us to go target the individual and drive efficiency and effectiveness in how we fight our marketing investments. Right now, at KDP, we think we have access to the right data, the right systems and most importantly, the right talent, underpinned by an agile operating model to measure and react almost real time to ensure we're driving the best returns for our marketing investments. This fall, we started to go deploy this with our Fansville campaign. You're going to hear us talk a lot more about this in the future. And then an area that I've spent a great deal of my time helping to go build out is the middle part of the slide is what we call our commercial engine. So this is the function which really serves as the critical link between our brands and ultimately our routes to market. So inside the gears of the engine, you see some of the best-in-breed capabilities we've created. It could be omni marketing, revenue management, category management, how we show up with our customers. These are capabilities that allow us to effectively represent our products with our customers with a high degree of confidence in the ability to go create value. The advantage of us doing this well, so regardless of the brand owner or the route to market is we can create a seamless experience for our retailers, bring them meaningful commercial solutions that can fully take advantage of the breadth of what our portfolio has to offer. And then final point on the slide, we all know it, strong national distribution, absolutely critical to go win in beverages. Right now, we have six different options that we can go use and it really depends on what is the right fit for the product or what is the need of the retailer. So let me speak a bit more about those options. So I'll talk more about company-owned DSD. We have it both here in the U.S. and in Mexico. But we also are able to go leverage some leading bottlers that complement our company-owned DSD footprint in specific geographies. For some products, we still utilize the effect of warehouse direct model, particularly for categories that have lower velocities or where there's a real preference by the retailer for that mode. Fountain foodservice and on-premise, extremely important. These channels provide access to high-value away-from-home occasions. These are critical for building brands. Notable, brand Dr. Pepper is the most pervasively available fountain beverage. This allows us to go have direct relationships with most major operators and customers in the foodservice space. And finally, winning in e-com has become increasingly important. By our measures today, roughly one in eight cold beverages, the purchases are occurring in a digitally oriented means. And in many categories and retailers, it's providing over 100% of the growth. We are making the right investments to ensure we've got the specialized capabilities to effectively partner for growth, whether it's a pure play or our omnichannel retailers. So let's talk a bit more about DSD. Why does it matter so much for beverages? Well, when you get into it, great DSD execution is more than just a replenishment model. Done well is a powerful competitive advantage that allows you to build brands over time. DSD provides access to outlets that are not serviced by warehouse direct. Most of the convenience retail channel, most of on-premise cannot get there with that DSD. And even within retail channels, it allows a local selling associate to build a meaningful relationship with decision-makers at the outlet level. These relationships, coupled with the merchandising resources we provide can translate into a superior retail presence for our brands as well as getting you critical access to cold drink equipment and other means of trial. Scale is what makes a DSD system work. To generate the local brand-building benefits, there is significant labor and fixed costs. Scale drives a virtuous cycle that benefits from the leverage on that infrastructure and done well, it enables further reinvestment and growth. So let me orient you to our DSD network. These are the trucks that carry the majority of our portfolio. Again, we have one of only three systems that can cover the entirety of the U.S. footprint. Our company-owned trucks, they're depicted in the maroon on the slide. They cover roughly 80% of the population base. And for the balance of the country, we have long-standing strong strategic relationships with leading independent distributors who operate with scale in their own respective geographies. Look, I've had the chance over the past few years to spend a great deal of time with some of the 13,000 DSD employees that we have. When you get a chance to experience the passion these team members have for our brands, the expertise they bring to our customers every day, hitting almost 200,000 outlets, you can see firsthand why this is such a powerful competitive advantage. So we're really proud over the past six years of the work we've done to go strengthen our DSD network. Look, we're improving every day in terms of both the service, the capabilities that we're providing our retailers. So let me talk about each of these vectors, we'll start with territories. Since 2019, as Tim mentioned, we've made over 30 acquisitions, some relatively modest, a few rather large. What's universal though is where we made these investments, we've been very satisfied with the returns that they've generated. That said, there is not a one-size-fits-all model here. Our primary goal is to have a scaled and relevant DSD operation that puts the right focus on our brands, whether it's a partner or something we own, access is what is key. Let me shift the portfolio. One of the goals of our portfolio expansion has actually to go help us generate additional scale for our company-owned DSD operations, meaningful participation in categories like energy or sports hydration, they've had a material impact within specific channels. No better example than inside of convenience retail. Here, we've been able to improve our drop sizes close to 70% and in some instances, have had the opportunity to go revisit our service frequency to go map better to some of our customers' needs. Again, a great example of that virtuous flywheel I spoke about a moment ago and how it can strengthen our ability to go capture growth, particularly in C-stores, which is an extremely profitable space. So final point on the slide is going to reference some of our digital capabilities. These here are really focused on our frontline selling. We're rolling these out recently in the market, really pleased with the results. The one I'll highlight is our perfect daughter. This is an application that's leveraging algorithms based on outlet-specific data to help pre-generate the order for the next delivery. And just to bring this home, if you think about a big box store, generally a couple of hundred thousand square feet, we may have 250 different SKUs spread across that store that a sales associate is responsible for writing the next delivery order for. Where we've been able to deploy this application, we are seeing meaningful improvement in in-stock rates as well as a significant reduction in the time it takes spent on lower-value activities, and counting walking around the outlet. So with that additional time, we can enable these same individuals to shift their focus to local selling activities. Here, we're also implementing real-time access to outlet-specific data. We're starting to enable it with AI to help generate specific insights, that's going to help aid in their ability to work with the local customer decision-maker to unlock growth inside of that outlet. Extremely excited about where this is going to go. So shift gears a minute. Let's talk about Mexico. We also have a fast-growing profitable $1 billion-plus business in Mexico. Though it's at an earlier stage, we think the same model that has driven success in the U.S. also can be leveraged here. We have a leading brand. It starts with our flagship brand Peñafiel. If you are not familiar with Brand Peñafiel, is a 100-year-old locally sourced icon that is the #1 mineral water in Mexico. We're now seeing that brand have success moving into some adjacent spaces. We also believe some of our U.S. trademarks can play a much bigger role in the Mexican market, particularly Brand Dr. Pepper. Finally, like the U.S., we continue to make meaningful investments in expanding our DSD network. Much like the U.S., for Mexico, a critical enabler of brand development, particularly in a market where the traditional trade is still thriving. Today, our company-owned footprint, we reach about half of the marketplace. We cover population centers in the central and northern part of the country. All this together is why we feel great about our ability to generate strong returns from Mexico for many years to come. So spoken a lot about growth. I also want to emphasize, though, we are focused on the right kind of growth, growth that's going to allow us to go expand our margins over time. Pricing, critical lever. We are very well positioned to drive sustained net price realization across our major categories. Another key thing is our largest category, CSDs, we still believe has a very, very attractive price-to-value ratio, particularly when you compare that to other beverage options for purchase. Let's talk about mix management. We have very strong revenue management capabilities. Done well, we're able to go meet both some affordability requirements, but also identify different levers to improve our unit economics, whether it's through promotional optimization or package and product mix. I highlighted the virtuous cycle in convenience stores. The ability to continue to grow immediate consumption soft drink occasions as well as energy, these are really profitable levers to continue to go get great margin accretive mix in your portfolio. And then finally, I'll touch on productivity. We all know productivity, it supports reinvestment back into the brands, ideally can help expand margins. Annually, we target 3 to 4 points of productivity, and we've been able to consistently deliver in that range over the past few years. Specific focus areas where we have made and will continue to make investments are in our network, both within our manufacturing and our distribution facilities, we've got opportunities to further leverage automation and optimize our footprint. Digital, I spoke a lot about frontline a few moments ago. We also have digital initiatives in flight to help step change our demand and supply planning visibility across the vast network. And then finally, operating model. We're continuing to strengthen how we manage this productivity pipeline, increasingly driving accountability down to our local orbits. So when you bring it all together, Bev Co. has delivered consistent strong financial results. Since 2018, on a compounded annual basis, top line growth approaching 8%, EBITDA growth almost 12%. And look, we've achieved these outcomes through what I covered today, strong base business momentum and share gains, deliberate capital-efficient portfolio reshaping initiatives and targeted actions, which we were able to mitigate inflation and help us go reinvest back against the core tenets of our business. And we expect to sustain this momentum. That supports the algorithm you'll see up on the page, mid-single-digit net sales growth and high single-digit adjusted EPS growth. Additionally, we expect to generate significant free cash flow, which will, as Tim mentioned, provide optionality for us to either invest against organic or potentially inorganic additional growth levers. So a few points to reiterate as I close here. This is a powerful platform in a fantastic industry. Over the past six years, this team has proven its ability to consistently deliver attractive financial returns. We now head into the future. We're equipped with a fortified portfolio, the right brands, the exposure to high-growth demand spaces, which we believe can meet our growth goals organically. Additionally, we're poised to benefit from a step change in our new digitally enabled marketing capabilities. We have a model against our portfolio that creates optionality against how we can add to the portfolio in a very capital-efficient manner. We are strengthening our network, and we're going to continue to recognize the benefits of improved execution. These improvements will drive growth in margin-accretive categories, packages and channels. And then finally, we have demonstrated the ability to unlock meaningful productivity, and we believe we have a robust pipeline of opportunities to come. So as you assess some of these efforts, I think now, hopefully, you can understand why I have so much confidence in this team. And as we head into the next chapter for Bev Co., confidence about our future and our ability to go deliver this very attractive algorithm we have up on the page. Thank you guys so much for your attention this morning. I'm now going to turn the podium over to Jane. Jane Gelfand: [Audio Gap] Each independent company remain the same as we outlined in August. For Beverage Co., that includes an outlook of mid-single-digit net sales growth and high single-digit adjusted EPS growth. And for Global Coffee Co, we envision an outlook and long-term targets consistent with low single-digit net sales growth and high single-digit EPS growth. These will be strongly cash flow generative businesses with Bev Co. projected to generate over $6 billion of cash flow -- free cash flow over the next three years and Global Coffee Co. set to produce more than $5 billion. While the exact dividend at each company will be determined closer to separation, what we can commit to you today is that across the two, we'll maintain the level of our current dividend to start. And we also come to you today with a clear view of starting net leverage for each stand-alone company. Upon separation, we expect Beverage Co. to have net leverage between 3.5x and 4x, with Global Coffee Co targeted between 3.75x and 4.25x. Of course, both companies will continue to delever and strengthen their balance sheets following the separation as we keep to a commitment to strong investment-grade profile. Let's zoom in on each company in a little bit more detail, and this will build on the remarks of my colleagues. For Beverage Co., the financial algorithm and capital structure that we've laid out are carefully designed to enable its growth potential, its growth strategy and continued outperformance. As you just heard from Eric, our Refreshment Beverages business has already proven itself to be an agile challenger in North American beverages, and we fully intend to build on this standing with long-term targets that reflect that. Multiple factors are expected to contribute to mid-single-digit net sales growth. Over the last several years, we have worked really hard to evolve our portfolio mix towards a faster-growing weighted category average, which now features a well-balanced set of volume, mix and price drivers. On top of that, we layer a proven track record of market share gains supported by strong innovation and commercial capabilities. And in addition, our ability to enter white spaces and activate capital-efficient partnerships now and in the future, they're attacked, which means further growth optionality as we move through this period of integration and then afterwards during -- after the separation. So combined with operating margin upside and some below-the-line leverage, what becomes clear is the path to high single-digit EPS growth for the Beverage Co. And to facilitate this, we expect the capital structure at separation will be only modestly above where KDP's would have been prior to the deal with cash flow to delever quickly thereafter. Separately, we will optimize Global Coffee Co. for more resilient growth and strong cash flows. What that means is our vision remains to create a pure-play cash-generative global coffee company. How does that manifest financially? A combination of low single-digit net sales growth over time with some volatility up and down over the course of commodity cycles due to pricing pass-through dynamics and high single-digit EPS growth, thanks to a combination of actionable cost synergies, continuous productivity and below-the-line leverage. This combination should drive more steadily growing cash flow with upward potential should the coffee price normalize from here. And for Global Coffee Co. too, what we want is a balanced capital structure out of the gate, which means net leverage likely between 3.75x and 4.25x at separation. So you now kind of better understand the financial vision, and I'd like to shift the discussion to how we get there. Over the last several weeks, we set out to optimize our acquisition financing mix with two objectives. The first was to lower leverage at acquisition close. And the second was to establish a clear line of sight to solid capital structures for each of the individual separated companies. That process successfully culminated in today's announcement of a combined $7 billion strategic equity investment anchored by two leading global investment firms, Apollo and KKR. I would highlight several benefits to the revised financing package. One, we will, in fact, reinforce our investment-grade profile as a combined company with net leverage at close now approximately a turn lower than our original plan entailed. Secondly, we will have greater visibility to investment-grade worthy capital structures for each independent company akin to what I just described. And even though the new capital is equity-like, it comes with a reasonable cost while pairing us up with world-class investors who see the strength of the opportunity at KDP and its successor companies. All in, against the backdrop of more comfortable leverage and attractive year-one EPS accretion of approximately 10%, we hope this update will allow the strategic logic and value of the deal to take center stage in your evaluation. I'll take a closer look at the structure of the deal. Under our previously announced plan, assuming a June 2026 close, net leverage at 2026 year-end was projected in the low 5s. What that meant was a starting point at close that would have been at approximately 5.6x. After today, we expect initial leverage at close to be in the mid-4s. And from there, we plan to delever at roughly 0.5 turn a year, thanks to a strong focus on cash flow. The new investments will allow us to replace the full balance of junior subordinated notes and a smaller portion of senior debt that were originally intended to be part of the financing package. And all in, the weighted average cost of capital of the deal is expected to be only modestly higher than original plan. The new instruments we've stood up take two forms. Let's start with the creation of a new Global Coffee Co. joint venture with a consortium of investors led by Apollo and KKR. The JV will focus on single-serve manufacturing in North America with the earnings from pod manufacturing to be split among the partners, including KDP. In fact, KDP will retain a controlling interest in the JV as well as operational control of the assets. And in establishing the JV, we'll receive $4 billion in total proceeds at a cost of capital of just above 7% in a 7.3% to 7.4% range, an addition projected. In addition, KKR and Apollo have made a strategic investment into KDP and ultimately, the Beverage Co., yielding $3 billion of incremental capital. The second instrument is an attractively priced convertible security. It features a preferred dividend of 4.75% to be netted against any common dividends and the conversion price is $37.25. That's a 6% premium to where KDP last traded prior to the announcement of the acquisition, an outcome that speaks to the upside potential we all see here. I should mention that we plan to offer our shareholder partners an opportunity to participate in this financing. To help with your modeling, you'll find a page in the appendix that outlines the accounting implications of each instrument. And when you run your models, what you'll see is that we've been able to effectively drive leverage lower while making a manageable trade-off in terms of accretion and cost of capital. Based on your feedback, which informed our decisions over the last several weeks, we believe this is a more optimal balance to strike. As Tim said, ensuring solid balance sheet for each company is one of the critical milestones towards a successful separation, and we expect to be operationally ready to go by year-end 2026. In the meantime, our job will be to focus on EBITDA growth and cash flow generation to facilitate that time line. However, should we want to further accelerate the deleveraging path, there are other levers that we could employ to raise additional capital. For instance, we might consider monetizing select noncore minority stakes and nonstrategic brand assets. And we may also evaluate a partial IPO of Beverage Co. to begin the separation process, which could raise additional primary proceeds. To be clear, these are simply options for us to consider. The only concrete commitment on this page and on this stage is the strong free cash flow generation to support our transformational vision of the future. And speaking of commitments, we recognize we have come to you with quite a bit of news today, and we're focused on supporting your full understanding. So of all the messages I hope you'll take away from my presentation, it's the following: we will ensure an appropriate capital structure for KDP at transaction close as well as each individual company at separation and beyond. Our focus is on strong cash flow to support deleveraging as well as maintaining our competitive and attractive dividend. Through all of this, our unwavering goal is to set Beverage Co. and Global Coffee Co. up for financial success and operational success. And as we do so, we will stay consistent and transparent in our financial communications to help build and maintain your confidence. With that, thank you very much, and I'll pass it on to Roger Johnson. Roger Johnson: Good. Okay. My name is Roger Johnson, and I have the privilege of being the Chief Transformation Officer and Chief Supply Chain Officer here at Keurig Dr. Pepper. And in my capacity of Chief Transformation Officer, I am responsible for the integration of JDE Peet's into KDP and then the subsequent separation into Global Coffee Company and beverage company. So I'd like to take a few minutes today to just walk through our approach and the execution of the transformation and maybe give you some more details of how we're approaching the work in front of us. First off, we are genuinely excited about the opportunities ahead for both stand-alone companies. And as Bob and Tim mentioned earlier, we have strong support and oversight from our Board of Directors and the specially created transaction committee. To guide this transformation, we've established an executive steering committee that meets weekly to provide critical oversight and timely strategic direction. We've also added rigor through a transformation management office or our TMO, which is focused on capturing synergies and driving growth opportunities. To keep everyone focused, we've named a dedicated internal TMO team to lead these initiatives, allowing most of our teams to continue driving base business momentum. This process is fostering strong communication between JDE Peet's and KDP leadership as well as our both internal functional experts. And to ensure success, we've partnered with outside advisers who bring deep experience in integrations and complex transactions, and they are long-standing relationships, both for us and JDE Peet's, which means we can leverage their detailed knowledge of our collective businesses and their proven expertise from hundreds of similar processes across industries worldwide. Let me add some more context in the scope of our transformation management office. We fully stood up critical work streams focused on objectives of integration planning, future company designs, separation, synergy value capture and spin readiness. For both Global Coffee Company and beverage company, these efforts have been mobilized in collaborative but discrete work streams. We've organized these objectives into three primary focus areas for execution. First and foremost, change management. We're engaging the hearts and minds of our organizations, showcasing future opportunities and creating that winning culture as we move towards stand-alone success. In commercial and supply chain, we're leveraging this unique moment to optimize and unlock growth and the potential across marketing, selling organizations and key go-to-market opportunities. And then finally, for enterprise functions, we are focused on building fit-for-purpose teams calibrated to each company's unique needs and scale, ensuring both organizations have the strength and agility to succeed. As we fully mobilize the TMO, I've seen fantastic collaboration across our teams in these early days. It's really inspiring to watch our leaders really lean in to the road ahead. Together, we've shifted into the next gear and planning against key milestones. First of all, I'd say we're focused on integration planning following the acquisition close with detailed action plans to capture synergies. And we're also accelerating readiness work, developing future company operating models for both global coffee company and beverage company and getting into the functional-specific preparation required for success. Secondly, we're deep into separation planning to ensure clean operational readiness for two world-class public companies. Our goal is to be ready to separate by year-end 2026. And that means everything within our control will be stood up and ready by then. As Tim mentioned earlier, the actual timing will depend on achievement of multiple milestones, including our own. But our commitment is clear, secure operational readiness as early and as robustly as possible while actively capturing cost synergies. And our goal is clear to build a global coffee powerhouse and the most agile North American beverage leader. This transformation approach will make that vision a reality. To make sure both stand-alone organizations reach their full potential, we placed a heavy focus on communications and change management. Recently, we had the chance to spend meaningful time with the JDE Peet's team on International Coffee Day, very fitting. And it was a fantastic event in Amsterdam, where we shared our vision, answered questions and amplified the excitement across both teams. The shared love of coffee brought the teams together and really gave everyone, including myself, a glimpse of what a true coffee powerhouse could feel like. At the same time, we launched aligned communications approaches, high-frequency town halls, feedback loops, multichannel digital outreach, both internally and externally. And this really ensures we're reaching every employee and engaging top leadership, including our director and above populations. For many, this is the first time in their careers, they've experienced a transformation of this scale and enrolling them in the journey is an exciting opportunity. To reinforce collaboration, we've shared clear guiding principles and leadership commitments on how we will work together for the outstanding outcomes we expect. We believe a consistent drumbeat of communication is critical to a seamless integration and eventual separation without missing a beat. So far, employee feedback has been very positive, especially around leadership transparency, communication depth and the opportunities ahead of us. And I can tell you firsthand from Amsterdam, Frisco, Burlington, all over, our colleagues are energized about the future potential of these two great companies. As mentioned earlier, our Coffee company value capture plan, about $400 million is well underway with opportunities across procurement, manufacturing and SG&A and IT. This target has been validated through both top-down and detailed bottoms-up planning, and we see it as highly actionable. As Tim highlighted, these efficiencies are balanced across the three major buckets of procurement, manufacturing and logistics, SG&A and IT. And ahead of close, we've established clean teams to ensure that work can happen outside the day-to-day business so we can move quickly once the acquisition closes. Immediately after close, we'll activate each functional focus area to deliver on our three-year synergy capture plan. And we're confident these cost synergies, combined with future growth opportunities will set Global Coffee Company up for long-term success. And our job is to do the same for beverage company, minimizing dis-synergies before and after separation. We expect that impact to be approximately $75 million, and we largely plan to offset it. That means we got to redesign organizations and spend structures with agility in mind, keeping any leakage manageable within the beverage company's overall P&L. I hope you can see and feel my excitement and confidence in our ability to land the right structure, build two successful companies and create value for everyone throughout this transformation. So thank you for your time and engagement. And I'm going to turn it over back to Tim to give a Q3 earnings update. Thank you. Timothy Cofer: We are coming down the home stretch. Thank you, Roger. Look, one of the main objectives, obviously, in establishing that TMO is not only to do the hard work around separation -- integration separation, but importantly, to minimize the disruption of that activity so that our core teams can focus and deliver on the base business quarter after quarter. And I think our Q3 results that you've probably already seen in the press release are a testament to this approach. We continue to operate with focus, with discipline. We delivered another strong quarter here in Q3, even with that tough macroeconomic backdrop. So let me share some highlights on the quarter. Net sales accelerated in Q3. They accelerated sequentially, they increased at a double-digit rate with strengthening performance across all three of our reported segments. We gained market share in key categories like CSDs and energy. We successfully implemented another round of pricing on our coffee business. And in international, we drove healthy relative trends among challenging macro conditions. So as you've heard throughout the morning, we are advancing a lot of exciting initiatives right now at KDP across both Refreshment Beverage and coffee. And these are, as evidenced in the results, really contributing to this near-term performance and I think continued momentum. Having said that, as expected, inflationary pressures ramped during Q3. And even despite this, we delivered solid bottom line growth and generated meaningful cash flow in the third quarter. So with one quarter remaining in the year, as you've heard, we are raising our constant currency net sales outlook and reaffirming our EPS growth guidance. We're confident that our robust commercial plans, our innovation plans, our operating rigor will help us achieve these updated targets and finish 2025 on a strong note. So let's move to the consolidated results. You see it on this slide. Net sales specifically grew 10.6%, led by about a 6.5% increase in volume mix with strong results in U.S. ref bev and international. The GHOST integration continues to perform very well. It's meeting all of our key metrics that we set out and delivering on year-one of our investment thesis. It's contributed 4.4 points to the top line. Net price increased 4.2% primarily, that's reflecting the pricing actions we took on our coffee business. in response to obviously, sea price inflation. On the bottom line, operating income increased roughly 4% net sales growth, productivity savings were partially offset by that inflationary pressure I referenced. All in, EPS grew 6% to $0.54, and that included a modest below-the-line benefit from a minority partnership gain. Okay. Let's do a quick tour of the three reported segments, starting with Refreshment Beverage. We maintained what I characterize as exceptional momentum on this business with net sales growing 14.5%, driven by volume/mix increase of over 11% Net price was also a driver. It added about 3 points to net sales. GHOST clearly was a strong contributor to our growth, but also our base business. In fact, our base business accelerated in Q3, increasing in the high single digits, led by CSDs, energy, sports hydration. Overall, the segment results in ref bev were prepared by that growth playbook that Eric took you through just a few minutes ago, brand building, innovation, commercial execution, each contributing to the strong performance you see. And we see significant runway for future growth in ref bev, and we have strong plans in place going into '26 to ensure we deliver on that momentum. What about segment operating income? You see it grew 10% with net sales gains and ongoing productivity savings more than offsetting the impacts of inflation as well as lapping earned equity gains that were larger in the prior year. Let's shift to U.S. Coffee. In U.S. Coffee, we continued our recovery trend. We drove modest growth in both the top and bottom line. Net sales increased 1.5%. Net price realization was 5.5% as we implemented additional pricing actions on our pods business and our brewers business in response to inflation. This was obviously partially offset by a volume mix decline of about 4 points, primarily driven by lower brewer shipments. And I will tell you, during the quarter, retailers are continuing to manage brewer inventory very tightly, and there's some adjustment to the recent price increases by consumers. Pod shipments also declined, but more modestly and the elasticities are remaining quite manageable and within our overall expectation. Overall, the coffee category remains resilient in our view relative to the significant increase in input costs, and we're also seeing improvements in our own business. Admittedly, the commodity backdrop is difficult and price overall is driving our top line. Olivier told you earlier, we're actively advancing robust innovation plans. He covered many of them, marketing plans, driving more brewer sales, some exciting news going into '26 with Keurig Coffee Collective and beyond. And overall, we would say, while pod shipments declined, we feel good about what we're seeing from an elasticity standpoint. Let's talk about segment operating income. It grew about 2.5% with pricing and cost savings more than offsetting inflationary pressures. We're improved by -- we're -- sorry, we're encouraged by the improved trajectory on the bottom line, but we do expect impact from green coffee inflation and tariffs to build into the fourth quarter. All right. Now international. Net sales grew 10% in constant currency. That's a 6% increase in net price, a 4% increase in volume mix. Results reflected strong relative performance in Mexico despite what you know are widely reported macro challenges as well as the pricing-led growth in our Canadian coffee business. International operating income declined about 4%, primarily reflecting the impact of inflationary pressures as well as a tough year ago comparison. This was partially offset by the strong top line growth that I referenced in productivity savings. Overall, in international, I would tell you, we continue to see significant potential for this segment to have outsized top and bottom line contribution over time. These Q3 results also underscored the cash generative nature of our business. Free cash flow was more than $500 million in the quarter, bringing that year-to-date total to $955 million. But importantly, and you see it in this box, this year-to-date figure includes the unfavorable onetime impact of the $225 million GHOST distribution payment that we made in Q1 as we acquired this business and took over distribution. Obviously, excluding the impact of this one-timer, we would have generated more than $1.1 billion in free cash flow on a year-to-date basis, representing obviously a sizable step-up from last year. Looking ahead, you've heard us say it, and Jane mentioned it, we expect strong cash generation, both in Q4, obviously, on a full year basis and in the years to come, which will help support those deleveraging goals that Jane shared with you earlier. All right. Let's move to guidance. Three quarters of the year behind us, we are raising our constant currency net sales outlook to high single digit from mid-single digit previously. We're also reaffirming and remain on track to deliver HSD EPS growth guidance. We recognize that the environment remains dynamic, especially when you think about tariffs, the building inflationary impacts, but we've got the innovation. We've got the commercial plans. We've got execution in a great place as well as disciplined expense management and all of that for us means we can continue to deliver on our guidance and for our shareholders. All right. Let's wrap this up, and then we'll go to a break before Q&A. So we've reviewed the strong Q3 results. I want to now come back to the four questions I put up right when I took the stage this morning. And I think over the last couple of hours, I hope you'd agree, we provided meaningful updates and further details on our transformative value creation plans. Let's go back to these four questions. First, why the acquisition? Because after careful consideration, we concluded that the acquisition of JD Peet's is a unique opportunity to strengthen our coffee business by adding substantial complementary global scale. This combination will catalyze meaningful revenue opportunities, cost synergies and in turn, drive strong financial delivery and sustainable competitive advantage. Second question, why separate it all? You have the option to run it as a combined company? Because we believe in the power of focus. We believe strong and distinct cultural identities at Global Coffee Co. and Beverage Co. can create even greater alignment and more purposeful action. And we believe that strategic optionality should be more available and accessible to each business as a stand-alone. Third question, how do we tailor our capital structures to enable these outcomes by making revisions. We've solved for a more comfortable leverage at acquisition close with a different and attractive financing mix. And we've enhanced visibility to two properly calibrated balance sheets for each of these independent companies. And finally, how do we ensure success, by focusing on milestones rather than dates, by putting the right processes in place to achieve those milestones and by appointing the right leaders with the right experience to drive towards those goals. All right. Let me wrap it up by stating the obvious, and it's on this slide. We are truly just getting started. The market reaction after August 25 was not what we hoped for. But I can tell you the reaction from our other stakeholders, including commercial partners, customers, KDP employees and future colleagues at JDE Peet's have all been strongly positive. We've given folks a very inspiring destination and they're ready to go. We're excited about this future transformation as well. But I also want to be clear, we're not in a rush. We are making a big bet because we see enormous potential. And we're going to be highly deliberate in how we go about unlocking it. I hope you sense that after today. Our management team, our Board of Directors see a tremendous amount of value creation opportunity from this two-step transaction, and we will not rest until we get that done. So as you heard today, this was a slide Bob started with. We do have a consistent and proven track record of creating value in beverages. We create vibrant businesses through a playbook that works. We have deep insights that underpin our conviction in this deal, and we have a clear plan to deliver on its promise. At the same time, we're listening and we are adjusting as and when needed. And this leadership team has the confidence, it has the experience to successfully carry out this transaction. But we also have the wisdom, we have the willingness to stay flexible in our approach. Again, I hope you've seen that today, and you will continue to see that as we chart our course to establishing North America's most agile beverage challenger and a true global coffee powerhouse. Thank you for your time. Those of you that are here with us at NASDAQ, we're going to take a break before we come back for Q&A. I again encourage you to take full advantage of these fabulous beverage stations. And those that are joining verbally, we are going to -- or sorry, virtually, we are going to come back at 12:15 East Time. Thank you very much. [Break] Operator: Ladies and gentlemen, please welcome members of Keurig Dr. Pepper's Board of Directors and management team to the stage. Chethan Mallela: Thank you. I hope you enjoyed that break. We're able to try some of our great beverages. I will now move to a Q&A session with the panel. So we're happy to take your questions. Dara? Timothy Cofer: Dara, right here in the front row, okay. Dara Mohsenian: So, Tim, it's been a couple of months now since you announced the transaction. Just can you give us an update as you've done more detailed work and look more under the hood at any incremental opportunities as you see it on the JDE side as you've looked at the business the last couple of months? And specifically on the cost synergy side, potential maybe for upside there, level of visibility that you can deliver the savings you outlined? And then just secondly, on the base KDP business today, can you just give us an update on the tariff situation, what's embedded in '26 guidance, how we should think about incrementality in '27, but also really wanted to understand how you're managing pricing on both the coffee side as well as the CSD side, given what we're seeing with tariffs and the volatility there. Timothy Cofer: Yes. Thanks, Dara. I'll start. And Roger, I might kick it to you on cost synergies and then I come back on the tariff and cost outlook. Look, over the last eight weeks, as I said, I've spent a lot of time with our colleagues at JDE Peet's multiple trips into Amsterdam, et cetera. You can imagine we did a great deal of due diligence prior to announcing this acquisition. But at some point, that's kind of public company due diligence. So now being able to really get underneath the hood, meet the leadership team, review things like brand plans, early thoughts on innovation and so on. What I'm seeing is, number one, this is a good business. These are good bones, the brands, the positions, et cetera. And you saw a lot of supporting evidence on stage earlier today. I think the other is improved confidence in our synergies, both on a revenue basis in terms of the growth opportunities everything from what we can do on the brewer side, one of many towering strengths of legacy Keurig is our brewer know-how, our brewer innovation, our brewer cost structure and our brewer economics. And having seen the other side brewers and having run one of those businesses in my past life, I think there's real benefits there. I think a lot of the -- take Keurig legacy brands, think of Green Mountain and The Donut Shop and take it across all formats now in a more profitable way, that's an opportunity for us. Then we start talking about things like Alta, et cetera. So I'm -- the more that I learn, the more excited I am on the base business itself, the early stages of the reignite the amazing strategy that, that team is embarking upon as well as the synergies. You want to talk a little more on cost, Roger? Roger Johnson: Yes. So in the remarks that I had, we talked about from a cost side, procurement, manufacturing, logistics and SG&A and IT. And after the diligence work concluded, kind of had a chance to dive in deeper and really start to underpin that, right, learn more about the reignite the amazing and then see what's complementary. And I'd echo what Tim said around maybe more obvious things, brewers or otherwise. But then things about manufacturing footprint, routes to market and associated IT systems that I would -- I have confidence as we're building out the plans as best we can as two separate companies that I'm confident in it. And then we'll get into the clean rooms a little more detail over the next couple of weeks to substantially underpin those more. Timothy Cofer: And then on tariff, lastly and then next, Kevin, looks like is -- look, first of all, unique to U.S., right? So it's not a global impact here for the others. No doubt that cost pressure is a back half '25, early '26 phenomenon. So that pressure will continue into that. As part of your phrasing the question, what's built into '26 guidance, there is no '26 guidance. That's not the purpose of today. You guys know we have an algorithm. That's an algorithm that we feel strongly about. But today is not the day for '26 guidance. I will tell you, cost pressure will continue to mount in Q4 and carry over into the front half of next year. Kevin Grundy: Great. Kevin Grundy, BNP Paribas. Two questions, just kind of taking a step back. Strategically with respect to the deal, maybe just spend a moment on the structure of the deal and why the Board believed it made more sense than potentially a spin or sale of the coffee business. where you still get sort of the strategic focus that, that sort of transaction would lend itself to? And then relatedly, what learnings does the Board take from this and the market reaction in terms of the way you think about capital allocation, communication with your large shareholders and things of that nature? I'd appreciate your thoughts. Robert Gamgort: Okay. I'll start off on there. Yes. I think -- I mean, Kevin, I think we were incredibly transparent in one of the slides that Tim had today that said we contemplated all potential alternatives, status quo, selling, spinning and then this combination here. And we analyzed each one of those and looked at the potential value creation from that. The problem with selling it is that you need a party on the other side who's willing to buy it and buy it at a price that you think is fair. And this is a really large asset. Spinning it off on its own does nothing. It weakens the business. It's -- I talked about before about creating a scale player on a global basis. Spinning off Keurig on its own is one that we thought would have destroyed value, and we would have lost a lot of the synergies and the scale that we get as a combined company. Theoretically, to one of the questions, I think we were talking at a break that you could spin it and then merge it at some point in time. Well, that's an unknown. You're not actually not allowed to spin it tax-free and have a prenegotiated deal, so we couldn't do that. And then you're left with a lot of uncertainty. And some of these spin, sale conversations are because there are a group of investors, and I understand it, who think that coffee is a problem. They don't like the coffee business. We actually do like the coffee business. And we, as a Board, are responsible for creating value across our portfolio. So separating it so that people could come in and buy the refreshment beverage business and then let the coffee business language out there is not the Board's responsibility. And so when we took a look at all of the possibilities, we firmly believe, and you see that today, that the combination of KDP's coffee business anchored by Keurig and JDE Peet's is a perfect match. These are complementary businesses that create a real global leader in coffee. And this was the way that we chose to get there. I don't know, Pam, to take the second part in terms of lessons from the Board or build on that one before I take this over too much. Pamela Patsley: No, that's okay. I'll take the easy part. We did learn a lot. And otherwise, we wouldn't be here again today. almost just two months after some of us spoke to you all the first time. And I think taking time and we did have a lot of outside advisers, as you would expect, all summer long, spring, summer. We solicited other input, other advisers. And certainly, everyone in this room also was listened to and was heard. And so I think I'm not sure there'll ever be another one of just this thing again. But so that part is definitely a learning. I will emphasize what Bob said that -- and you heard it both from Bob and Tim in the more formal remarks that we did consider a lot of alternatives. And along that way, because we've heard feedback about JAB and question marks about that, when we were doing some of that strategic analysis, survey of the market, survey of alternatives, whenever it involved JDE Pets or something, we had a separate committee of the Board of disinterested and independent directors. So that feedback and survey part of the market always went to just that group. So I feel very good about our governance, our rigor around governance and our respect of independence and competing interest. I think we've done a very good job. But there's no question, maybe just taking our time a little bit would -- slowing a few decisions down would be the biggest takeaway in terms of learnings. I hope that was helpful. Christopher Carey: Chris Carey, Wells Fargo. Two questions, please. First, on the free cash flow outlook, 2026 to 2028. Is this a view on free cash flow conversion? Or are you implicitly giving any expectations for net income growth in that time frame? I'm conscious that the algorithms that you've laid out today are longer term, but are you also underwriting high single digits over 2026 to 2028 for those two businesses from an earnings growth perspective. So perhaps you can give any context on that. I mean, obviously, we've gotten concrete expectations for 2026 to 2028 free cash flow. That's why I'm kind of testing that. The second thing would be, in what backdrops would you tap into these additional financing paths, if you will, right, beverage IPO, selling of minority stakes, green coffee inflation is going to carry into the front half of next year. Potentially that has EBITDA risks, okay, if EBITDA comes in a bit lower, now we finance -- or we tap into these financings. What are the thresholds by which those become near-term realities, so the free cash flow and then the financing? Timothy Cofer: I think most of you in this room know Jane and know her well. She's our Head of IR and CFO International. But in addition, over the last few months, Jane has jumped into an expanded role as SVP of Strategic Finance and Capital Markets. And Jane, you're well placed to answer Chris' two questions. Jane Gelfand: Thanks for teeing me up the questions, Chris. So first on free cash flow. What -- our goal and objective for today is to give you more clarity, more data points against which to plan and model and just understand better what we mean by the vision for Beverage Co. and Global Coffee Co. In doing so, we thought it would be prudent to give you a view of what we think the cash generation potential of each of those businesses is over the next several years rather than pinning you down to any particular year. And so what I would interpret the over $6 billion for Bev Co. and over $5 billion for Global Coffee Co. in free cash flow generation to be is truly a three-year view, and we will unpack that as we go forward, as we give you more perspective on 2026 specifically. But I think what you're hearing us do is try and give you a view as we operate as a combined company into each of the pieces because we know ultimately, that will be what you are -- we're all marching towards. Then anyone else want to chime in on alternatives. Otherwise, I'll take it. So look, what we've done here over the last several weeks is take a fresh look at the financing, right, and make sure that we're solving for the things that we know are important for the company and for shareholders, which is a balance sheet that is solid and visibility to balance sheets that are appropriate for the individual pieces. I think we've done that very successfully today, moving your point of view from 5.6x to 4.6x at transaction close, assuming June 2026. You also have a view of what the deleveraging potential is of the business, right, at about 0.5 turn a year. So very quickly, you see that particularly with a muscle that we already have proven over time around emphasizing cash flow generation, we can get to a blended point for net leverage that gives us real visibility to that separation. Now businesses naturally are variable, markets are variable, conditions change. And so what you should expect us to do is to evaluate all of our options, right? To build on what Pam said, like the lesson is you got to be flexible. You know where you're marching. You got to get there in a value-maximizing way. And what you're hearing from us is that there is a set of potential options and levers we could pursue, but we will only pursue those if we believe they unlock maximum value and better outcomes for the business. Chethan Mallela: Andrea? Andrea Teixeira: So, Andrea Teixeira, JPMorgan. So my question is on the synergies. I understand that the $400 million is on top of the EUR 500 million from the JDEP, and we have the details for the JDEP. Obviously, there is a lot of kind of optimization of the brands and facilities as well. So I was hoping to see out of that $400 million, I understand, Tim, you said a lot of this is SG&A. But thinking of like how the hedging of the commodities and procurement can be with to all of these. And then I understand JDEP has a very strong capability for hedging. So thinking of how that can be linked and how conservative were you setting that guidance of $400 million and how to think as investors? Timothy Cofer: Thanks, Andrea. Let's -- first, I want to just clarify the baseline here, and then I'll ask Roger to build from his unique position, both as Head of Supply Chain and Procurement and Chief Transformation Officer. For clarity to Andrea's question, the JDE Peet's cost-out program is EUR 500 million over seven years, half of which will be reinvested in the business. The acquisition integration synergies are $400 million over three years as a result of the combination. And we have spent a great deal of time leading up to the acquisition announcement first at a high level. And in the last eight weeks at a far more detailed level as we've kicked off this transformation management office and with external advisers as well who have worked with both our company and JDE Peet's company to comfort ourselves that those two numbers over those two time frames are incremental. Roger, what else would you say on Andreas, double-click? Roger Johnson: Yes. So from a building the -- to the extent we can, right, understanding the -- each of the programs, right, and independent programs, I think we've arrived at a good place where we have confidence in the underpinnings. We always preserve the right to get smarter, but one of the principles we have is best of both, right? And really bringing that to light as we're really underpinning the plans. Again, the next step is to get into the clean room and understand detailed policies and what have you. The coffee market is a fairly efficient market on its own. And I think there's other opportunities there as we look at the capabilities, whether it's technology, whether it's development or what have you, to really bring some flexibility to unlock further places to look, specifically around coffee formulation and what have you. And so I'm looking forward to the next couple of weeks of getting into that. I'll be in Amsterdam next week to start that process of going into the next click of it. But to date, what we've seen is underpinning the numbers in a way that we feel confident, and we reserve the right to accelerate that more and drive where we see opportunities. We know we have to phase it. We know we have to make choices, right? We can't do everything all at once. But sitting here today, I have confidence in that number. And then as we learn more about policies and how to action those numbers, we'll come back to you with the schedules after we build them. Chethan Mallela: Peter Grom, and then Filippo. Peter Grom: Peter Grom from UBS. So, two coffee questions, just maybe a follow-up on that. So the long-term algorithm of low single-digit top line growth into high single-digit EPS growth. Is that inclusive of the synergies? Or are there other factors that drive that degree of operating leverage? And then just on the business itself, so just ball mix for coffee this quarter, it didn't really change that much sequentially despite pricing stepping higher. So how much of that is actually the mix component versus shipments actually holding stable? And then just on elasticities, how are you thinking about that through the balance of the year? Timothy Cofer: Yes. I can start. I think the first answer is inclusive. Obviously, that's near term. That's a long-term algorithm. -- near term, that's an enabler for that. On the coffee quarter, the second question, do you want to take that, Jane, Olivier? Jane Gelfand: I'll start, Olivier, if you want to add. I had a conversation with some of you offline about, hey, what gives you confidence in the coffee category recovery. And I think if you zoom out, right, we've had a couple of years now of sequential volume improvement. We're not where we expect to be longer term. But this year and the year-to-date experience, I think, would be very supportive of this trend, right? There is record pricing in the market because we have record sea prices. And yet despite that, what we are seeing is very manageable elasticity. So to answer your question specifically, Peter, you did see some volume trade-off as more pricing was enacted in the market. At the same time, you had favorable mix. within that sort of U.S. coffee segment. I will say that pods are quite resilient. You are seeing more elasticity on the brewers, but that would have been expected. Chethan Mallela: Filippo, go ahead. Filippo Falorni: Filippo Falorni, Citi. So going back to the coffee category more long term. Bob and Tim, you talked both about the attractiveness of the category. Maybe can you expand a little bit more on the rationale of the deal? Why was coffee the best category to double down compared to maybe some of the fastest growth categories within beverages? And even from a long-term standpoint, like we've seen some of the categories taking some share in terms of caffeine consumption like energy drinks. So what gives you the confidence that, that 2% 40-year CAGR is still kind of the right trajectory? Robert Gamgort: Given that I've been around for 40 years, I'll start with the last one. I seem to be an expert on that, and then Tim can talk about the piece about the second -- the first part of the question. So I'm going to go back to 1985 in that case study. You know what the case study was, how do you fix the coffee category given that everyone at below a certain age is switching to diet Coke. That was the case that was on campus in 1985. And so the point is there are always the short-term trends where categories are challenged by new formats, new varieties. But that's why it's always important, I think, in CPG to step back and take a long-term view. And I could give you 25 examples of short-term trends that never panned out. What's really interesting about coffee and the reason that it is so powerful over the long term is what Tim said in his section. There's an emotional element to it. There's a premiumization element to it. There's a comfort element to it. And also, it is one of the few food and beverage products I have worked on in my 40-year career where it is deemed healthy. Other than water, I haven't worked on one that the government wasn't trying to limit some version of consumption. And so this is a rare situation where it's energy and it has all the other attributes, and it has a health tailwind to it. And that's why there is no suggestion over the long term that it's going to change. And all of the diagnostics that we were doing, even post-COVID when it was slowing down, there's nothing negative we could find about coffee. If you do some analysis, you'll always find something on the fringe. If you did in 1985, you would have saw the diet Coke coming in was replacing some of the occasions for a period of time. You see the same thing now to a degree on energy, but we have 0 belief that, that is something that is a long-term structural change in the category. Timothy Cofer: You said it well. Chethan Mallela: Okay. Rob? Robert Moskow: Rob Moskow, TD Cowen. I wanted to know about the high single-digit EPS growth target for coffee. There's a lot of leverage there implied because the net sales target is only low single digit. And what gives you confidence that there's enough leverage to bridge those two? And if I could also come back to your 40 years of experience, the volume growth, I know it's in the USDA chart, shows volume growth over the last five years in coffee. Volume has grown over the past five years, but KDP's volume is down and JDE's volume is down, too. So who's taking all that coffee? Like who -- where is all that volume going, if not to the European leader and the single-serve leader here? Timothy Cofer: You want to take the first one on HSD? Jane Gelfand: Sure. Look, I mean, what we're laying out for you are very identifiable actionable cost synergies that we're going after in short order and then longer-term opportunities, both in terms of top line and kind of continuous productivity and the reignite the amazing target through 2032 is a part of that. All of which is to say, when we think about HSD, certainly in the first years out of the gate, that's very visible from a cost synergy standpoint, right? But -- and also deleveraging can help bridge that. As you go forward, you're going to have that much more traction on the various opportunities that Tim unpacked for you and you'll also drive a more resilient business such that you can get more ongoing operating -- but we'll have to prove it to you, right? Again, out of the gate, you have a lot of visibility between below-the-line leverage and the cost synergies, and you heard Roger talk about his confidence there. Olivier Lemire: Yes. Maybe from a total at-home consumption, obviously, last four years, we saw a spike in consumption in at-home through COVID and then decline in in-home as people return to normal life and work. This has been stabilized over the last few years. And we're coming from a very strong foundation with 47 million households and very good intel that we've got tens of millions of high-value households that have yet to convert into the Keurig system. So with strong marketing campaigns coming up hitting in Q4 with good promise to consumer, great coffee without the grind and a series of innovation, and we saw new coffee system, we're very confident that we'll be able to return to growth from a volume standpoint. Chethan Mallela: Lauren, and then Steve Powers. Lauren Lieberman: Lauren Lieberman from Barclays. So I think I sensed a change potentially on time line to separation is sort of like at or before by year-end '26 or we'll be ready to go. So at the risk of word-sniffing, like confirm if that's right or not. But notwithstanding the comments on like lessons learned and we should go more slowly, I'm just curious why, like what the determining factors would be to decide to move more slowly or to do it right away? What you'd be looking to achieve or benefit from going more slowly? And then secondly, I feel like we're spending a lot of time talking about coffee, why coffee, coffee, coffee. What changes, if anything, for Bev Co. going forward? And I'd love to hear about that. Timothy Cofer: Great. I'll take the first one. And Eric, why don't you take a shot at the second? Lauren, I would say I'm not sure you heard a definitive change in time line. What we said on August 25 was we anticipated that this could close by the mid of next year and separate by the end of next year. You heard something similar today, but there was a shift around we still expect mid of next year for the close and that we will be ready to separate year-end. So those times are the same. The difference is in that nuance. And I think what you heard from us today is it will be milestone-based. We are not going to commit to a hard date to you today. And recall what those milestones are, right? We want to be sure that our business is continuing to perform well. Guess what, you saw it again today, it is, and we're committed to that. We want to be sure that we have the right capital structures in place. And you heard us make big steps today towards that in terms of improved leverage at close and stated targets at separation. You also heard us say we need to be sure we've got world-class independent Boards of Directors and proven, experienced, high-caliber leadership teams. And you heard even an update on one of those points today around leadership of Global Coffee Co., which we're beginning a process to find that right leader. And then you also heard, let's make sure from a market condition standpoint that we've got the right conditions that could support a potential option, not yet a firm decision. We'll stay flexible and agile, and Jane covered that in her section. So I think the broad time line, Lauren, and group here is similar to what we said on 825, but with an important nuance where we'll be milestone-based and we'll do it at the right time when we're ready to get the right outcome for our shareholders. Do you want to talk about Bev Co. and what an independent Bev Co. looks like? Eric Gorli: I was able to talk to you guys for about 25 minutes on kind of our playbook, playbook that has been driving success. We really feel like that playbook is going to work in the future as well, and I gave a number of examples. I think the separation, Tim hit on it, the focus on the Bev Co. entity from the management team, from our supporting functions, from the Board, I think that's probably going to be the biggest benefit. There is definitely a different culture for a fast-moving soft drink-centric, DSD-centric organization versus a warehouse model. I think the amplification of that and just how we go about creating the company's culture, coupled with the management team's focus will probably be the biggest underpinnings. That said, we've got a playbook that's working, and I would expect you're going to see more of the same. Timothy Cofer: No doubt. And the only build on Eric's point, for sure, around focus and culture. I think there are upside benefits to a stand-alone pure-play rev business. The other that I briefly mentioned in my remarks was around strategic optionality. And certainly, today, I'm not going to give you the list of here are the five5 things. But I would say, as you continue to advance a scaled strong brand portfolio, many different categories of participation, strengthen that DSD muscle, there could be options down the road that present themselves around ownership in different levers of the business, brands, distribution, et cetera. So we'll take a step at a time. But I do think an option like that longer term is enhanced. It's more accessible, more available, more actionable, should we choose that that's in the best interest of the shareholder as a stand-alone ref bev company. Chethan Mallela: Steve? Stephen Robert Powers: I was actually going to ask along a similar line, which shocking. We have a habit of doing that. So, it's Steve Powers from Deutsche Bank. So I get the -- that future focus and optionality post transaction. But as you assess this initiative today going out and kind of doubling down on coffee and separating coffee, that's a big project that wasn't envision. So just the opportunity -- how do you get comfortable with the risk and opportunity costs of pursuing that and maintaining all the good that you've been doing on refresh and beverages? How do you handicap that? And how big of a consideration was that really my main question. I do have a secondary question, which probably is for Jane. Just on the separation, I think the base case is to spin coffee. But then earlier, when you talked about the different optionalities, you talked about partial IPO of beverages. Just what that means for the existing debt that KDP has? Does that stay with Beverage Co.? Does that go to Coffee code? Do we know? Timothy Cofer: I'll start with the first one, and Jane can take the second one. Look, Steve, it is all about execution. This is not something that's unique in the world. We would agree that it's a big undertaking and has complexity to it. That's not daunting for us. As I shared on stage, many of us on this stage right now have experience in large acquisitions, integrations, separations, right? We've done it before. Many of these people on stage. And then it's really about do you have a great plan, set of processes. That's why we elected today to also ask Roger to unpack our transformation management office and our approach to that, obviously, external advisers, et cetera, carving off a group of individuals who are focused on that to then allow the vast majority of our 29,000 colleagues at KDP to deliver their mission day after day after day. And I think Q3, quite honestly, is an early proof point. This was a challenging quarter. One might argue a quarter where there were some distractions, right? And look, we put up a pretty good quarter here that we're proud of. And so it is just about the right plan, the right governance around it, the right people with the right experience executing well. Jane Gelfand: Steve, good question on separation plans. You're right that we've now named a couple of options to pursue a separation. The common element across those is it's a tax-free separation, and that piece is sacrosanct, and we're going to solve for that first and foremost. Secondarily, we got to think about, well, what's the optimal separation mechanism, and that depends on the circumstances in the market. And again, what we think will create the most value, right, for our shareholders. And so one potential is a tax-free spin. Another is this partial IPO concept, which would allow all of our shareholders to participate as we could consider floating a small portion of Bev Co. as well as bring in additional participants, right, and raise primary proceeds, which can be used to accelerate deleveraging. We haven't made a decision. I think what you should expect us to do is to solve for optionality as long as possible and then think about, to your point, the debt structure, how we raise the debt, how we think about those moving pieces to maximize our flexibility. Not all of that has been decided yet, but that is something that we are very actively considering. Chethan Mallela: Michael? Michael Lavery: Michael Lavery, Piper Sandler. Just wanted to come back to some of the milestones you laid out, one of which is operational performance. Would that include both businesses running on the algo targets? And then second question, just on the pace of delevering. Originally, you had expected about a 5.6x at close and 5.2x at the end of the year, around half a year, obviously, around 0.4 turn. Now you're calling out about 0.5 turn on a full year. But did anything change? Or is that conservative? How do we think about the half turn? Timothy Cofer: Again, I'll take the first. Jamie can take the second. Look, our expectation is we continue to perform at a high level at both KDP and JDE Peet's. You've seen us do it so far this year, and that's the expectation going forward. And yes, we do believe, I said it on stage earlier, we're doing this transformational next step from a position of strength, and we think that's the best position to launch two new companies. Jane Gelfand: As it relates to the leverage, right? So just to clarify because there are a bunch of numbers that we've thrown around, and I want to ground us in what we're talking about. The original plan, as was announced in late August, would have contemplated a net leverage at acquisition close, assuming June 2026 at 5.6x. We've made a set of announcements today that give us visibility to about 4.6x on the same time frame. You're also right that we've talked about pace of deleveraging, right? And there is a little bit of delta between what we're seeing today, which we feel very, very good about, right, the half a turn a year and some of the assumptions that were built into the 5.2x, which would have included some synergy capture in year one. And so look, I think what you're hearing from us is the commitment to maximize, right, cash flow and get to a very quick pace on deleveraging. I wouldn't read too much into exactly this number versus this number, the half a turn and then the commitment to see if we can accelerate that responsibly is what you should anchor to from here. Chethan Mallela: Kaumil? Kaumil Gajrawala: Kaumil Gajrawala from Jefferies. I guess a couple of things as you responded to the market reaction and you were thinking about all of your options. Why was the Apollo, KKR option? Why were they the best partners? I believe they have a Board member coming on. Will that Board member be on both sides of future co, just one of the sides? And then when we think about -- we only had five hours to think about this, but when we think about the new structure, you've talked about all the benefits, why it should work, everything that's -- how everything is intended to go. But what were the risks that you considered under this new structure on what if things don't go right, how much flexibility do we have to be able to get to where we're looking to go? Timothy Cofer: I think Pam will take the Board member question. Do you want to take the two new investors, KKR, Apollo? Jane Gelfand: Yes. Look, we're extremely excited to partner with Apollo and KKR. Obviously, there is real strategic merit in the investments that they've underwritten, right? You see an expressed conviction in each of the future successor companies, right, and the value of the assets there and the upside opportunity, particularly as you think about Bev Co. and all of the optionality that we've talked about here, but also in terms of the single-serve prospects in North America and in the JV. Beyond just the sort of economic profile of all of that, we get the benefit of some of the smartest minds in the financial world with a ton of experience in transactions, complicated transactions across industries, across the world. And we're excited to partner together and leverage that insight. I will pass it on to Pam in terms of the Board member and all of those Board dynamics. But I'll just say all of the work that we've done over the last several weeks have absolutely been confirmatory of that partnership and the mindset with which we're walking into these strategic investments and partnerships, and we're excited. Pamela Patsley: Great. With regard to what was in the press release this morning about it would be our intent to name Brian Driscoll as put him forward in the proxy for election to our Board of Directors. I believe the press release said in conjunction with the transactions, which we were outlining in that press release. However, we are initiating and have a very robust process using an outside search firm to help us because at the end of the day, whenever separation comes, we will have to stand up, as you've heard, two fully independent boards able to field the requisite committees, and it is our goal to make those best-in-class. While we may have some supposition and ideas in our head as to who might go where, we are way not at that point to begin to talk about that because we don't have enough people to field both. So it's going to be an iterative process, and we will use someone from the outside, and we have an internal committee that will be doing a lot of the leg work on behalf of the full Board, but of independent directors and of course, Tim and Bob participating as we go through the interview process and looking at candidates. We always look for diversity of background, diversity of skills and filling in gaps in terms of capabilities as we look around the Board table. And we have to keep that in mind now for two Boards ultimately. So, hopefully, that answers your question. Chethan Mallela: Great. I think that's about all the time we have today. So I just want to thank everybody joining us in person and on the webcast for your interest in KDP. I think you've heard very clearly about our conviction in the acquisition of JDE Peet's and the planned separation into two pure-play companies, and we hope you share our excitement about the future for KDP. Thank you.
Simon Hinsley: Good morning, and welcome to ikeGPS First Half Financial Year 2026 Performance Update as released on the NZX and ASX this morning. [Operator Instructions] Glenn Mills, Managing Director and CEO's presentation. But with that, Glenn, I might just hand it over to you for the performance. Thanks. Glenn Milnes: Great. Thanks, Simon, and thank you, everyone, for taking the time to meet today. We want to be very efficient with your time. First thing, though, I'm pleased to introduce Paul Cardosi. Paul is based in our Colorado headquarters alongside the leadership team. So introducing Paul, he started right at the end of September. Paul Cardosi: Hello, everyone. It's good to meet everyone today. Thanks, Glenn. Glenn Milnes: Great. So look, what we'll do for today's session is go through the performance and the numbers themselves. It's been a very strong quarter for the business, which has been pleasing. I want to talk about the market because market timing is everything in terms of, I think, our growth prospects and where we're sitting and also introduce some of the go-to-market and also the new product functionality that we've introduced that we think should materially impact our subscription revenue base. So please take note of this important notice for this presentation. It's the agenda we just talked to. I won't -- Paul will take you through the numbers in terms of the following charts. Just covering those last 3 points, I think it's important for our shareholders to understand that we've maintained our cash operating expenses are materially flat versus the prior calendar period. So we've been able to grow the business and scale without adding additional people costs, in particular. We've got a strong balance sheet now with $34 million on the balance sheet. We've got no debt. We are fortunate to be very well supported through a capital raise process in the second quarter, both institutional -- new and existing institutional support and also a high level of support from our retail investors. And the last point is tied to the ASX All Ordinaries Index. We were promoted there towards the end of September, which tracks the 500 largest companies on the ASX by market cap. So with that, I'll hand over to Paul, and he'll take you through some of the headline numbers. I think actually, before we transition there, we are reiterating guidance in terms of platform subscription revenue. This is going to be at approximately 35% or greater through this year. We're in good shape to deliver that. We're still committed to EBITDA breakeven on a run rate basis within the second half of this year, which we're now into -- well into October. Paul, over to you. Paul Cardosi: Thanks, Glenn. I'm going to start with the exit annualized run rate of our platform subscription revenue. We're very pleased at the 47% growth rate that you see on the slide. Key takeaways around our platform subscription revenue growth are really the strength and the continued growth we see around our IKE Office Pro and IKE PoleForeman subscription products. So great growth there. You can see here on the 47% growth for the latest subscription revenue. If you go to the next slide, Glenn, the next slide represents our 6-month year-to-date subscription revenues, and this has given you a look at our first half performance. You can see on a compounded annual growth rate, we're at 30%. But faster than that, you can see our year-over-year growth year-to-date versus the year-to-date prior calendar period was a 35% growth rate. So really reiterating that guidance Glenn mentioned earlier, continuing to see 35% plus growth rates across our subscription business. If we go to the next slide, Glenn, I'll talk a bit about seat growth. These are the user seats that we sell for our subscription products. 55% growth over prior calendar period. I would say as we continue launching products as well as the products we have launched, we do sell on a per seat basis, a per user basis. So you can see -- really, I see this as seat adoption, user adoption and really strength in the number of users we have across our subscription products. So 55% growth rate there for our subscription business. Moving to the next slide, Glenn. This is our transactions revenue. This is a services business that's heavily influenced by the number of poles that we manage for customers. Our customers perform themselves. This business is down. It's a lower-margin business for us. You can see that the 32% decline in transaction revenue. There's volatility in this business. There's a lot going on with the new U.S. administration around fiber or high-speed communication in rural networks. I would say there's some volatility in this market right now in terms of the timing of the funding. We do expect this to rebound. The time line is, I would say, in the medium term. But again, a lot can happen that's really in the macro U.S. economy. So overall, this business is down. It is impacting our overall revenue growth. But again, we expect as legislation moves through, we'll see a rebound at some point in the, I would say, the medium term here. I don't know, Glenn, if you want to comment on this or you want to just keep going. Glenn Milnes: Yes. No, that's a good summary. We're seeing the Tier 2 fiber and Tier 3 fiber folks have been asked by the new government administration to rebid for the contracts that they had been awarded. And that's created some uncertainty, but this infrastructure has to be built. So we're confident it comes back. It's just -- it's difficult for us to predict when we stay in very close contact with our core customers here. Again, this business has generated just under $3 million of revenue through the first half of the year, and we're able to adjust our cost base and make sure it stays profitable and has a good margin profile. Paul Cardosi: This is a revenue mix slide. So again, looking at the different sections of this chart, you can see that we're now at 90% of our revenue coming from both our recurring revenue streams and reoccurring revenue streams. And I would highlight that the subscription portion of this hit 69% of our revenue. So you can see the purple -- hopefully, you can see it on the screen. The subscription makes up a much larger portion of our revenue. It's a very highly profitable portion. We're around about 93% margin on that subscription revenue. Again, that is the focus that the business has had and has, and you can see it's really taking effect with the amount of subscription revenue that's really dominating the mix of our revenue. So it's nice to see that. If I move on, Glenn to the next one. I'll wrap up with -- these are the key metrics we typically show. It's really a summary table for you to digest comparing our first half this year versus last year. One thing I would note is the third line down, the subscription customer count. It grew only 2%. But I would point out that we had about 40 very small customers that didn't convert yet to PoleForeman. So we've counted those as temporarily lost. But if you compare the 2% subscription customer growth with a 35% revenue growth, the takeaway from that is the customers we are adding are higher annual contract value customers. So again, a small customer count really leading to that 2% growth. But overall, with the customers we are adding and the price we're getting per customer is really growing significantly well. And I think with that, Glenn, I'll hand it over for the update. Glenn Milnes: Great. Yes. And I think just on that number of subscription customers, you see prior year actually dropped down when we took out those tiny little legacy PoleForeman products. So it's going to bounce right back in terms of that percent change. What I wanted to do is we've got quite a number of slides here, and I do want to be respectful of time and get to Q&A quickly. But there's just some new market data that I think matters looking at what's happening across the North American electric utility space and communications market, which I wanted to touch on. Again, just the size of the market opportunity over the next decade is enormous, more than $2 trillion of capital coming into grid modernization. And to do this successfully with an aging workforce, aging infrastructure, it does require technology and digital grid intelligence. That's what IKE focuses on as a business. So there's some data here to absorb as appropriate. And again, the numbers are quite staggering, more than 130 million wooden distribution assets getting to almost 50 years and at failure thresholds. And again, we help design and engineer and maintain these distribution assets. So it's a really interesting time and a pretty monumental engineering task to achieve what the U.S. has to achieve over the next decade or 2. And a lot of the -- it's not just -- there's a lot of private capital coming into this market for grid resilience. There's a lot of federal funding coming in, and it is focused heavily on distribution network capacity, more power on the network and capacity and hardening, which is where IKE plays. Again, the broadband industry has had this slowdown with regulatory uncertainty where the Trump administration was looking to make some of these decisions technology neutral was potentially going to favor Musk and the satellite industry. I think that's reversing pretty fast just because of performance for customers. But again, a lot of capital coming in -- these fiber and small cell attachments go on to distribution networks. And again, we help that process go much faster and more efficiently. And this is what we're, in essence, building in terms of capability as a company. So looking to be able to engineer a network right through its life cycle. So to go out and digitize and to see what matters in a power network, then to assess what's at risk, how vulnerable is your network, how can you make sure you meet code compliance and keep the network safe for your customers and for the environment and then to be able to design and engineer with confidence. And that's the way that we're building our product portfolio today. I think everyone knows about some of the macro factors just the power requirements from having to charge electric vehicles, AI data centers, et cetera, just so much engineering that needs to be achieved. And then with climate change, we've got wildfires, storms. These things are happening just much, much, much more regularly. And so you need a hard power network that doesn't fail and cause the next wildfire or takes a city out from a power supply perspective. And the market in North America, we've published this slide previously. The market is really large. If you just look at our top 8 customers, it's almost 4x the size of the Australian market in terms of the number of homes and businesses that these groups are delivering to. So it is a really profoundly large market opportunity in terms of the networks that we're supporting and starting to get alongside as a partner for these customers. Again, maps that we've published previously, there's 106 investor-owned utilities across the country. These are the really big networks that are all interconnected, but they serve their own service territory. They're generally publicly traded companies. And then more than 2,800 municipality and cooperative electric companies, but they all represent quite large customer opportunities for us, and they deal with the same problems. So we've just started to really scratch the surface in terms of customer penetration and also new logo acquisition. Again, I'll go fast through here because I think many of you are familiar with much of this information. Again, how do you help a customer follow the bouncing ball in terms of engineering a network through its life cycle, go and assess the asset, design the asset, be able to -- at really high scale, be able to assess your entire network using technology, so you understand where your vulnerabilities are. And then we have our IKE Analyze service just to help customers get some scale. And we focus a lot also on training and education, not because we want to be a services training and education business, but it lets us get in front of our target customers, and we get in front of hundreds and hundreds and thousands of engineers and help teach them around best practice for the distribution grid. So we really, I think, understand where we're going. We're extremely focused on North America and distribution grid assets. And we've got some clear goals in terms of being the most trusted company delivering software solutions into the distribution grid over the next 10 years. And what is interesting, this is actually a global private equity firm went and surveyed 40 of our customers. They didn't actually ask us to do it, but they came back and gave us the results. Our NPS score is 91%. It goes from minus 100 to plus 100. It's a Boston Consulting framework that's pretty common these days. So it's working in terms of our go-to-market process. We focus very hard on customer experience and leading with people and process as well as obviously, technology. We're winning and of the 10 largest investor-owned utilities. We're adding new logos consistently. We've got 5 of the 10 largest communications companies at different stages of adoption on the communications side. We're now -- our software is in every state in the United States in terms of its use. And we're managing more than 20 million overhead assets now in our system. And that doesn't mean there's 200 million distribution assets. It doesn't mean 10% of the market is done. These assets get engineered over and over and over again for different purposes and different requirements. So again, we're sort of early in terms of market development. And growth is going to come from winning new logos. We've got about 6% of the logos in North America today. And we think we're about 20% penetrated in the 6% we've got. So it's account development and it's new logo acquisition. Just some examples here around how we're getting to market. And we focused heavily on education and training. We've got a program that looks at the National Electric Safety Code and how customers can make sure that they're applying best practice. And we've trained more than 800 organizations over the last 1.5 years, more than 3,000 attendees. We run other webinars, and we IKE certify engineers across utilities. So I think more than 1,700, it's close to 2,000 attendees have been IKE certified in terms of OSHA training and National Electric safety training. And again, the natural conversation leads to, well, how do you do this work with technology? And that's obviously how we cross-sell the software part of what we're doing. Again, I'll go fast because I think there was a separate release that covered this topic quite well. But we're really excited in the second quarter to introduce some new AI-enabled capability inside of IKE Office Pro. So that's our core product. And simplistically, if you look at that photograph on the right, that's a pretty complicated power asset. That's all the communications infrastructure at the bottom, it's all the power assets at the top and there's a street light. There's a transformer and there's a whole bunch of drop points, et cetera. And this -- when an engineer is assessing this asset and they're trying to build more capacity on a line or whatever it might be or they're trying to figure out if it meets the National Electric Safety Code for compliance, it's a very manual process typically. And we've built this automation capability that a computer with a click of a button, it's able to find and identify everything on that asset. So the level of productivity gain for these very expensive engineers that are sitting in the back office is quite profound. And so we're really excited to get this into market. It's been well received by customers that have, a, went through the trial process with us to make sure we sort of had product market fit correctly. But also now that we've got it -- it's embedded in the product. It's not an opt-in option. This is additional ARPU and it's compulsory if you're using IKE Office Pro. So yes, just into market towards the end of September, but we think really exciting, and we're going to add more and more capability in and around this product. IKE PoleForeman continues to expand extremely positively. Again, it's been in market about 18 months. I know that there are questions around what's the ARR driving to for PoleForeman for this year. It will be something close to 10 million by the end of this year, which is that's 20x the level from when we rebuilt the product a couple of years ago. So that's traveling really well. I think we're going to keep winning some big and important customers. We're going to add more capability and increase pricing. So I will pause there. I know there's a lot of slides, but I think it's some important items. And Simon, I can hand over to you for -- if there's any questions. Simon Hinsley: Thanks for that, Glenn. First up, we've got a question from James Lindsay at Forsyth Barr. If we can get to it. I might just pause on that one. But the submitted question, Glenn, that we've got how much more penetration can you get out of existing customers? Glenn Milnes: Yes, about -- we think we're about 20% penetrated inside of the customer footprint if we take a holistic view. So there's probably another 80% potential. We're not saying we're going to get all of it, but that's the potential. Simon Hinsley: And James Lindsay at Forsyth Barr should be able to talk, please go ahead. James Lindsay: Well done on the update. I was just wondering, I know it's sort of still early birds with regard to the R&D progress on the new products. Just keen if there's any sort of change in your timing. I think you mentioned it was about sort of 12 months away for the first of the 2 products to come into a trial. Would that still be in place? Glenn Milnes: Yes. We're making really strong progress, James, on essentially the bolt-on module for IKE PoleForeman can be sold stand-alone to any participant in the market, but also we will integrate with PoleForeman. -- and that's progressing well. James Lindsay: Okay. Cool. And then just with regard to the sort of continuation of net adds in the quarter, which I think was about 12 or so, so good progress there. Just interested in where it's coming from, if it's sort of in the core IKE Office product or in PoleForeman itself specifically? Glenn Milnes: Yes. PoleForeman is going faster in terms of adds. And it's actually -- it's an important item. We focused initially on winning the biggest investor-owned utilities in the country. And the interesting ecosystem effect now is they're mandating IKE PoleForeman to anyone that touches their network. So if you're an engineering firm doing work for the utility or if you're a communications company coming in and putting fiber on their assets, they're requiring PoleForeman. So we start -- we're really seeing that kind of ecosystem flow through. And next quarter, because I know it's something folks are asking for is just more visibility into the latest pro forma numbers, ARR, total contract value, et cetera. So we'll provide that in 3Q. James Lindsay: And then obviously, with the capital raise business in a lot better financial position, I was wondering if sort of an increase in sales and marketing sort of number of people on the ground with regard to sales is likely in the next quarter or 2? Glenn Milnes: Yes. there will be over time, but we're very committed to the EBITDA target. And we've got a very efficient sales and marketing team at the moment. We're growing at these kind of rates in terms of subscription level, spending less than 30% on sales and marketing. So those metrics are tracking well for us. So we're in quite a scalable position. We're also -- like every other company in the world at the moment, we're working really hard on being AI-enabled, not just putting AI inside of your products, but driving important business processes with some of these pretty remarkable tools. So we've got a whole of company training and education program tied to AI enablement as well from an operations perspective. James Lindsay: And then good to have the PolePilot new product out there. Can you just add a little bit more maybe just to the pricing constructs. You talked about it being as part of Office Pro. Is it going to be done on a subscription basis or a seat basis and potential for sort of ARPU uplift once sort of as it goes through the network? Glenn Milnes: Yes. The launch pricing is adding $200 per seat per annum. And as I say, it's not an opt-in item. It just is inserted into the pricing model. And as we add more capability and as we get better fuller data on productivity benefits for customers, that price point will go up in terms of the ARPU uplift. James Lindsay: And then obviously, on the transactional side, probably a little disappointing, but hard on the politics to get that working. Can you just give us an update when you think the recontracting will sort of get firmed up and potential for later in the year? Or is it likely next year or the year after that transactions recover? Glenn Milnes: Look, James, I'd just get it precisely wrong, but I do -- I mean we do have a view, and we're talking to our customers a lot actually and talking to some of the bigger industry participants as well. And again, what the federal government has required is they froze every rural fiber contract that was in place across the country and asked market participants to rebid. And it's tough for them to land on some hard dates. We haven't lost any of those customers. They're just waiting to get working again. And then I believe that will pick back up. What we have been able to do, though, is we have really adjusted the associated OpEx costs with that business. So it's generating positive margin at the levels it's operating at now. And it adds value for our customers. They love having the additional capacity when they require it. So yes, it remains something that we'll continue to pursue. Simon Hinsley: Next up, we've got James Bisinella from Unified Capital Partners. James Bisinella: On the result and welcome, Paul, to the group as well. Maybe just a couple for me. Just looking at subscription ARR, if I back out FX, just on my numbers, it looked like kind of a record quarter, around a couple of million bucks of net adds. So I guess, firstly, can you confirm that I'm directionally accurate there? And then secondly, just confirm, was there any like larger wins or anything as part of that number, just given it was a pretty strong result? Glenn Milnes: No, you're right. That's almost exactly correct, James, in terms of the numbers. it was across a whole range of customers. There wasn't -- there were some really interesting ads for groups like Exelon. So Exelon run 5 investor-owned utilities they delivered power to all of Chicago and Illinois and various other states. And they had been an early adopter of IKE PoleForeman and then they added another 130 licenses just as they get it more embedded across the business. Really interesting because, again, these guys are signing up for 3-year or 5-year terms. So it is really sort of long-term partnership business. But mostly, it was just a consistent flow of sort of similar level contracts versus any single big item. James Bisinella: Okay. Excellent. And maybe just one more on PolePilot, the AI product sounds really exciting. You mentioned that being a driver of platform adoption. So I guess, can you just confirm, is this more than an add-on? Like are you getting inbounds from potential new logos on the back of it? Or is it more just an upsell to existing customers? Glenn Milnes: No. It has caused a bit of a stir. If you can make an engineer fully loaded cost maybe $100 an hour, you can make these folks go, say, 20%, 25% faster and better. And really -- and it's amazing how you can remove the training burden to bring on new engineers to do this work when a computer gets you 30% of the way through an engineering task. Some of those benefits are quite compelling. So yes, we're excited. And we're going to do more in terms of detections and automation, et cetera. So it's going to become more and more powerful over time. And then if you fast forward and we're processing bulk data captured from Google Street View or whatever it might be, then all of a sudden, you're really sort of shifting the needle on some of this workflow, which I think is going to matter a lot. Simon Hinsley: Next up, we have Jules Cooper from Shaw Partners. Jules Cooper: Glenn and Paul, well done on a great result. So just sort of following up on James' question there. In U.S. dollar terms, the ARR added in the period was a record. I just wondered, when we look back over the last year, Glenn, we saw like the fourth quarter was particularly strong. Now we've got a strong sort of 2Q. How do we -- how should we think about seasonality? And you've obviously said here that the sales pipeline remains robust. But as you look into 3Q and 4Q, when you're cycling some stronger numbers from last year, how do you see it sort of landing maybe relative to this year -- sorry, this quarter, is this a sort of new level for the business? Or just want to get your perspective on how you see the third and fourth quarter shaping up and seasonality? Glenn Milnes: Yes, it's a good question. There's a little seasonality in our business, and it's because of the winter. So some parts of the U.S. up on the East Coast or in the North, there's a lot of bad weather, snow and ice and you can't get outside and engineer and build in some of those conditions. It doesn't tend to have a huge impact. And then Q4 for us, which is from January through to the end of March, tends to be very strong because all of our customers, their financial year end is the end of the year. So they're budgeting to deploy new technology and new tools from the start of the next year, which is why we typically see that lift if that helps. Jules Cooper: Okay. No, no, that does. Good perspective. And if we just sort of pick up on PolePilot, you sort of mentioned, I think it was $200 a seat incremental. I just wanted to sort of catch what you said around how your customers can adopt it. Is it just there and they can turn it on themselves? Or is there a selling motion behind it? Just if you could just go through that again, how they actually sort of pick up the product and start using it? Glenn Milnes: Yes. It's just delivered into IKE Office Pro and pricing has increased automatically. And we spend a lot of time running educational programs. And for anyone interested, if you subscribe to our LinkedIn channel like GPS, you'll just see the velocity and volume of training and education. So one of the programs at the moment is a lot of PolePilot education in terms of best practice and best use. So yes, it goes straight into the product. And we're just measuring at the moment elasticity just to understand the level of acceptance of higher price points or b, where you potentially can have churn if people don't see the value. So we're literally a couple of weeks into that pricing optimization assessment. Jules Cooper: Okay. No, that's good color. And then just lastly, cash operating expenses, you said, materially the same as the PCP. When should we expect that to start increasing as you sort of put the investment into the new products? When should we start to see that running through the business? Glenn Milnes: We do. We've got 2, I think, extremely compelling new subscription product modules that we're building. Much of that investment will be capitalizable. So it won't be as visible from an OpEx perspective, but we will be investing, obviously, in the process to build these new product modules. And then I think the go-to-market investment will flow just on the back of continued revenue growth. And as we hit these certain capacity breakpoints, if you keep adding dozens and dozens, dozens of new large infrastructure companies, you do have to have the people to be able to service those folks because we serve the market directly, which I think is a really important part of competitive advantage and why we've got those kind of NPS scores, et cetera. It's people and process, not just tech. So yes, it will happen through Q3, Q4 into the following year. But we're -- obviously, we're very well positioned balance sheet-wise to do that. Jules Cooper: Yes, absolutely. And just lastly, on those NPS numbers, some of the highest I've ever seen. So well done to you and the whole team. Glenn Milnes: Yes. Thanks. It was a surprise to us as well, Jules, to be honest. But it's good to see, and it's just one data point. We measure it internally ourselves, and we don't ever publish it because it's an internally measured thing. But we typically see 45% to 60%, which again is exceptionally good in our industry. But it was -- yes, it was great to see that sort of independent set of numbers. Simon Hinsley: We've got a couple more submitted questions that we'll churn through, Glenn. What's the expected timing for existing customers to further penetrate? How long will it take you to access the 80% you don't have? And what are some of the unlocks that would get you to that access? Glenn Milnes: I think the cross-sell component of what we do is very important. I think some of these automation tools that we're introducing matters a lot to these customers. And then if we think about next-generation products, which we are building is having a fully integrated stack. Again, it's an extremely exciting time to be a software growth company without extensive legacy products, and that's the opportunity for us. All of our products can be to be sold separately, but integrated in a platform with a thin UX layer sitting over the top in terms of these AI tools. I mean that's the big opportunity, I think, and that's what we're pursuing. And I think that will help a huge amount with cross-selling. Simon Hinsley: And just last question from Sinclair Currie at MA Australia. Thinking about growth opportunities as either from ARPU growth or winning new customers, is one a greater opportunity than the other? Glenn Milnes: The biggest dollar opportunity is new logos. We've got 94%, 93% of the market still go get. So we have focused on the largest in terms of the biggest network operators. But there's another 85 investor-owned utilities that we're not in today. And yes, it does take time to develop them, but that's the biggest opportunity. We've got teams -- I mean, go-to-market, we've got teams. One is focused on account development and expanding inside the customers we're in another group that's focused on new logos. So it's sort of a separate process. Simon Hinsley: Thanks, Glenn. Thanks, Paul. I just hand it back to you for closing remarks, Glenn, and we'll finish up there. Glenn Milnes: No, thank you. No further closing remarks. Paul and I are available always for e-mail questions or calls. So happy to pick anything up as useful. Simon Hinsley: Perfect. Thanks very much all for attending, and thanks, Glenn and Paul. Have a good day. Glenn Milnes: Thanks.
Operator: Good afternoon, and welcome to the F5 Fourth Quarter Fiscal 2025 Financial Results Conference Call. [Operator Instructions] Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I'll now turn the call over to Ms. Suzanne DuLong. Ma'am, you may begin. Suzanne DuLong: Hello, and welcome. I'm Suzanne DuLong, F5's Vice President of Investor Relations. We're here with you today to discuss our fourth quarter and fiscal year 2025 financial results. François Locoh-Donou, F5's President and CEO; and Cooper Werner, F5's Executive Vice President and CFO, will be making prepared remarks on today's call. Other members of the F5 executive team are also here to answer questions during the Q&A session. Today's press release is available on our website at f5.com where an archived version of today's audio will be available through January 27, 2026. We will post the slide deck accompanying today's webcast to our IR site following this call. To access the replay of today's webcast by phone, dial (877) 660-6853 or (201) 612-7415 and use meeting ID 13756255. The telephonic replay will be available through midnight Pacific Time, October 28, 2025. For additional information or follow-up questions, please reach out to me directly at s.dulong@f5.com. Our discussion today will contain forward-looking statements which include words such as believe, anticipate, expect and target. These forward-looking statements involve uncertainties and risks that may cause our actual results to differ materially from those expressed or implied by these statements. We have summarized factors that may affect our results in the press release announcing our financial results and in detail in our SEC filings. In addition, we will reference non-GAAP metrics during today's discussion. Please see our full GAAP to non-GAAP reconciliation in today's press release and in the appendix of our earnings slide deck. Please note that F5 has no duty to update any information presented in this call. I'll now turn the call over to François. François Locoh-Donou: Thank you, Suzanne, and hello, everyone. We delivered exceptional fiscal year 2025 results exceeding $3 billion in revenue and $1 billion in operating profit for the first time. Revenue grew 10% while earnings per share grew 18%. Our growth was driven by data center reinvestment, hybrid cloud adoption and enterprise AI infrastructure demand. Our product refresh cycle, competitive takeouts and the maturation of our software model and go-to-market motions also contributed to growth. In FY '25, we maintained our strong profitability, delivering gross margins of 83.6%, up 80 basis points over FY '24, an operating margin of 35.2%, up 160 basis points over FY '24. This performance resulted in record free cash flow of $906 million, up 19% compared to FY '24 underscoring the strength of our financial model and execution. Our FY '25 results demonstrate the power of our platform and our strategic role in the marketplace. They also strengthen our confidence in our vision and road map for the future. Our immediate focus, however, has been on our incident response and I will speak to our priorities and offer an update on where we are now. Upon identifying the threat on August 9, our team immediately activated our incident response process. Our priorities were clear. First, contain the threat actor, initiate a thorough investigation and take immediate and urgent action to strengthen F5's security posture. While the investigation will continue and the work of bolstering our security posture will expand, our initial steps have been successful. Second, we prioritized delivering reliable software releases to address all undisclosed high vulnerabilities in BIG-IP code as quickly as possible. Through the exceptional efforts of our engineering and support teams, we achieved this, enabling thousands of customers to promptly deploy critical updates upon disclosure. Our customers are moving quickly to update their BIG-IP environment, and a significant number of our largest customers have completed their updates with minimal disruption. As an example, a North American technology provider completed updates to 814 devices in a 6-hour window in the first weekend. Customers have expressed appreciation for our transparency, the thoroughness of the information we provided and the clarity in the steps they need to take to improve the security of their environment. Our third priority is raising the bar on security across all aspects of our business. We are acutely aware of the increasing sophistication of attackers and the fact that the threat surface is expanding rapidly. Each year, over the last several years, we have aggressively increased our investment in security, and we are making further significant investment this year and beyond. To further this work, Michael Montoya, a recognized cybersecurity expert and former member of our Board, has joined F5 as Chief Technology Operations Officer. Michael brings deep operational expertise and will drive the execution of a robust road map to further enhance security across our internal processes, environments and products. Our goal across all these actions is to better protect our customers and we believe F5 will be a stronger partner to customers because of it. We know customers will judge us by how we respond to this incident. Throughout this process, we have been committed to transparent customer communication at every step, reflecting lessons learned from how others have navigated similar challenges. We acknowledge that we may see some near-term impact to our business. We are fully focused on mitigating that impact while doubling down on the value we deliver to our customers. Stepping back, it is evident that advanced nation-state threat actors are targeting technology companies and most recently perimeter security companies. We are committed to learning from this incident, sharing our insights with customers and peers, and driving collaborative innovation to collectively strengthen the protection of critical infrastructure across the industry. Now I will turn the call over to Cooper, who will walk you through our Q4 results and our outlook. Following his remarks, I will return to discuss the broader business trends and some key customer highlights. Cooper? Cooper Werner: Thank you, François, and hello, everyone. I will review our Q4 results and some selected full fiscal '25 results before I elaborate on our outlook for FY '26 and Q1. We delivered a strong Q4 growing revenue 8% to $810 million with a mix of 49% global services revenue and 51% product revenue. Global services revenue of $396 million grew 2% year-over-year while product revenue totaled $414 million, increasing 16% year-over-year. Systems revenue totaled $186 million, up 42% over Q4 of FY '24, driven by tech refresh and data center modernization, direct and indirect AI use cases as well as competitive takeouts. Our software revenue of $229 million was up slightly against an exceptionally strong Q4 of FY '24. Perpetual license software totaled $30 million, up 25% year-over-year. Subscription-based software declined 3% year-over-year to $198 million, reflecting the transition of our legacy SaaS and managed service revenue offerings and to a lesser extent customers' preference for hardware-based solutions for certain use cases, a trend which emerged over the course of FY '25. Revenue from recurring sources contributed 72% of our Q4 revenue. Our recurring revenue consists of our subscription-based revenue and the maintenance portion of our global services revenue. Shifting to revenue distribution by region. Our teams drove growth across all theaters. Revenue from the Americas grew 7% year-over-year, representing 57% of total revenue. EMEA delivered 7% growth, representing 26% of revenue and APAC grew 19%, representing 17% of revenue. Looking at our major verticals. Enterprise customers represented 73% of Q4's product bookings. Government customers represented 19% of product bookings including 6% from U.S. Federal. Finally, service providers represented 8% of Q4 product bookings. Our continued financial discipline contributed to our strong Q4 operating results. GAAP gross margin was 82.2%. Non-GAAP gross margin was 84.3%, an increase of 138 basis points from Q4 FY '24. Our GAAP operating expenses were $461 million. Our non-GAAP operating expenses were $384 million. Our GAAP operating margin was 25.4%. Our non-GAAP operating margin was 37.0%, an improvement of 255 basis points year-over-year. Our GAAP effective tax rate for the quarter was 11.4%. Our non-GAAP effective tax rate was 16.9%. Our GAAP net income for the quarter was $190 million or $3.26 per share. Our non-GAAP net income was $257 million or $4.39 per share, reflecting 20% EPS growth from the year-ago period. I will now turn to cash flow and balance sheet metrics, all of which were very strong. We generated $208 million in cash flow from operations in Q4. CapEx was $16 million. DSO for the quarter was 46 days. Cash and investments totaled approximately $1.36 billion at quarter end. Deferred revenue was $2.0 billion, up 11% from the year-ago period. We generated $906 million in free cash flow for all of FY '25, up 19% from FY '24, resulting in a free cash flow margin of 29%, highlighting the strength of our business fundamentals. In Q4, we repurchased $125 million worth of F5 shares at an average price of $297 per share. For the year, we repurchased shares equivalent to 55% of our annual free cash flow. We ended the quarter with approximately 6,580 employees. François recapped our high-level FY '25 results at the start of the call. I will elaborate on our annual software and security revenue results. Software grew 9% year-over-year totaling $803 million, with software subscriptions representing 85% of FY '25 software revenue. Our software revenue is comprised of perpetual software licenses, term-based subscriptions and SaaS and managed services. Perpetual software licenses contributed $120 million in software revenue, up 7% year-over-year. Term-based subscriptions contributed $508 million to our software revenue, up 18% year-over-year, driven by continued strong renewals and expansions. SaaS and managed services contributed $176 million in revenue, down 9% year-over-year, reflecting growth from F5 Distributed Cloud Services offset by the transition of our legacy offerings. Total annualized recurring revenue for our SaaS and managed services offerings ended the year at $185 million, up slightly from FY '24, including 21% growth in ARR for our core SaaS and managed services solutions. ARR from legacy offerings declined to $15 million as we wound down legacy SaaS and managed service offerings and transitioned customers to F5 Distributed Cloud Services. We expect to complete any remaining transitions in the first half of FY '26. Several years ago, we began breaking out our security-related revenue annually. This year, our total security revenue, which includes standalone security, attached security and maintenance revenue related to security, grew 6% to approximately $1.2 billion, or 39% of total revenue. Standalone security revenue totaled $463 million, representing 31% of product revenue. Let me now address our outlook beginning with FY '26. Unless otherwise noted, our guidance references non-GAAP metrics. We delivered an exceptional FY '25 exceeding expectations with stronger-than-expected systems demand and continued healthy expansion in our software subscription business. As we enter FY '26, we see several persistent demand drivers, including hybrid multicloud adoption driving expansion across our platform, the continuing strong systems refresh opportunity with more than half of our installed base on legacy systems nearing end of software support, growing systems demand beyond tech refresh for data sovereignty and AI readiness use cases and a return to growth in revenue from our SaaS and managed services with the transition of legacy offerings largely completed in FY '25. These drivers in our current pipeline support mid-single-digit revenue growth in FY '26 against our exceptional 10% growth in FY '25. However, we also anticipate some near-term disruption to sales cycles as customers focus on assessing and remediating their environments. Taking this into account, we are guiding FY '26 revenue growth in the range of 0% to 4% with any demand impacts expected to be more pronounced in the first half, before normalizing in the second half. Moving to our operating model. We recognize the revenue guide may lead to a modest impact to our operating margin near term. We are committed to driving continued operating margin leverage and believe any demand impact is likely to be short term and therefore any effect on our operating model would also be temporary. With that context, we estimate FY '26 gross margin in a range of 83% to 83.5%. We estimate FY '26 non-GAAP operating margin to be in the range of 33.5% to 34.5% with operating margins lowest in our fiscal Q2 due to payroll tax resets in January and costs associated with our large customer event in March. We expect our FY '26 non-GAAP effective tax rate will be in a range of 21% to 22%. And we expect FY '26 EPS in a range of $14.50 to $15.50. Finally, we intend to continue to use at least 50% of our free cash flow towards share repurchases in FY '26. Turning to our Q1 outlook. We expect Q1 revenue in a range of $730 million to $780 million. This is the wider range than we would typically guide, reflecting the potential for some near-term disruption to sales cycles. While we are not guiding revenue mix, we expect Q1 software to be down year-over-year given the strong growth in the year-ago period. We expect non-GAAP gross margin in a range of 82.5% to 83.5%. We estimate Q1 non-GAAP operating expenses of $360 million to $376 million. We expect Q1 share-based compensation expense of approximately $61 million to $63 million. We anticipate Q1 non-GAAP EPS in a range of $3.35 to $3.85 per share. I will now pass the call back to François. François Locoh-Donou: Thank you, Cooper. Our immediate priority remains supporting customers as they evaluate and safeguard their environments. As we help our customers navigate this period, market dynamics are moving in a direction where F5 solutions are more essential than ever. The accelerated adoption of hybrid multicloud architectures and AI-driven infrastructure is driving demand for advanced application delivery and security solutions, areas where F5 is uniquely positioned to address our customers most complex challenges. The industry has platforms for endpoints, network access and for cloud workloads, but the F5 application delivery and security platform is the first to unify high-performance traffic management with advanced application and API security across hybrid and multicloud environments at scale. Unlike fragmented point solutions, the ADSP is purpose-built to simplify hybrid multicloud complexity. It integrates security, scalability and operational efficiency while enabling valuable XOps capabilities like policy management, analytics and automation. By the end of Q4, nearly 900 customers were leveraging F5 XOps capabilities, up from just 20 in 2024. Innovations like our AI Assistant and Application Study Tool have been instrumental in driving this growth, which underscores the power and potential of the ADSP. Over the last several years, we also have been evolving our go-to-market strategy focusing on landing, adoption, expansion and renewals within our solutions portfolio. This approach has delivered results. 26% of our top 1,000 customers are now using F5 Distributed Cloud Services, up from 17% in 2024. By delivering integrated solutions and accelerating customer outcomes, F5 is uniquely positioned to lead in a rapidly growing and dynamic market. I will speak to a few customer highlights from Q4 that demonstrate the power and the benefit of our holistic platform approach. An APAC-based bank is driving secure and scalable digital transformation with F5's comprehensive application delivery and security solutions. Leveraging F5 BIG-IP, NGINX and Distributed Cloud Services, the bank is modernizing its critical infrastructure to enable 24/7 internet banking and mobile application access while meeting strict regulatory requirements for service resilience and disaster recovery. F5 ensures business continuity and robust security, protecting against DDoS attacks and API vulnerabilities. By enabling seamless migration to containerized applications, F5 is positioning the bank for hybrid multicloud success. The leading North American investment manager partnered with F5 to modernize its infrastructure, enhance resilience and ensure uninterrupted operations. By migrating from legacy iSeries platforms to BIG-IP rSeries ahead of end of software support dates, the customer avoided compliance risks and ensured seamless operational continuity. The customer also deployed F5 for secondary DNS services to reduce reliance on a single provider and deliver critical redundancy to prevent outages. F5's lightweight platforms and cloud solutions help the customer optimize performance within existing budgets. Finally, a major energy and gas company partnered with F5 to modernize its critical infrastructure and drive its cloud migration while ensuring seamless security across hybrid and multicloud environments. F5's BIG-IP and Distributed Cloud Services extend application delivery, security and identity management into hybrid multicloud environments, ensuring seamless operations and operational continuity. The customer is also leveraging F5's Advanced WAF to strengthen the protection of revenue-generating B2B applications and business critical platforms. With F5, the customer simplified operations, achieved cost savings and accelerated the modernization efforts. These examples highlight the strong impact F5's ADSP approach is having for our customers. While we continue to work toward realizing the platform's full potential, we are confident that our commitment to innovation will drive even more value and outcomes for our customers. Before closing, I will highlight the traction we are building in AI use cases. We are seeing clear evidence that AI-related demand is contributing to our growth. AI is prompting a wave of data center refreshes as enterprises prepare for increased network capacity and services to support AI workloads, agentic AI and inferencing demands. Beyond benefiting from broader AI-driven trends, F5 is directly powering key AI use cases. In FY '25, we secured AI use case wins with more than 30 customers who are leveraging F5 to enable seamless, scalable and secure AI workflows. These wins represent net new insertion points and growth opportunities built on decades of expertise. Today, we are actively supporting 3 critical AI use cases. Number one, AI data delivery. F5 secures and accelerates high-throughput data ingestion for AI training and inferencing, enforcing policies and protecting sensitive data while eliminating bottlenecks. Number two, AI runtime security. F5 safeguards AI applications, APIs and models from abuse, data leakage and attacks like prompt injection, ensuring visibility and control. And number three, AI factory load balancing. F5 optimizes traffic and GPU utilization in AI factories to increase token throughput, reduce time to first token and lower cost per token. In Q4, we secured several new AI wins across these use cases. In an AI data delivery use case, an asset manager in EMEA partnered with F5 to overcome challenges in managing their AI workloads and ensuring reliable data performance. Their existing server could not handle high levels of demand causing outages that disrupted operations. F5 provided a customized solution with advanced technology to improve systems reliability, efficiently manage data traffic and seamlessly work with their existing infrastructure. The Government Ministry in EMEA chose F5 to secure and scale AI security runtime operations for its AI-driven weather prediction platform. Expanding on a prior AI data delivery project, the Ministry required a comprehensive solution to ensure real-time access to AI-driven data with robust security for sensitive operations. F5 delivered a comprehensive solution suite, including AWAF for application security, SSLO for traffic inspection, APM for access control and LTM for reliable data delivery. With F5, the Ministry transitioned from manual inefficient forecasting to a secure real-time AI-powered platform improving performance, accuracy and operational efficiency. In an AI factory load balancing use case, a North American service provider specializing in providing high-performance computing solutions for AI and machine learning workloads, needed a high-performance solution to manage and scale AI workloads. They required enhanced scalability, reliability and accessibility for GPU-driven workloads as well as a proxy for container functions to optimize AI data pipeline performance. F5 provided an integrated solution featuring container ingress services with BIG-IP virtual editions delivering a critical control layer for performance, scalability and reliability across AI data pipelines. F5's ease of installation and ability to address the customer's specific needs set it apart from competing open-source alternatives. In Q4, we've strengthened our AI runtime security capabilities with the acquisition of CalypsoAI. Their cutting-edge technology enhances our offerings with real-time threat defense and red teaming at scale, addressing critical needs for enterprises deploying generative and agentic AI. We are integrating these capabilities into our ADSP, creating the most comprehensive solution for securing AI inference. In fact, we launched 2 new offerings in Q4 leveraging Calypso's technology. F5 AI Guardrails establishes and monitors how AI models and agents interact with users and data while defending against attackers. And F5 AI Red Team identifies threats and informs exactly where and how urgently guardrails should be implemented. Wasting no time, our team secured wins for these offerings with a top-tier investment bank and a global AI compute platform leader. Collectively, our Q4 successes underscore F5's growing leadership in the hybrid multicloud landscape and the real value our platform approach delivers to customers, empowering them to simplify operations, enhance security and accelerate innovation across their environments. I want to express my deepest gratitude to our customers and partners. Your urgency, collaboration and trust through every step of our incident response have been invaluable. We are truly honored to work alongside you and remain steadfast in our commitment to earn your confidence every single day. I also want to extend my heartfelt thanks to all F5ers who came together with incredible focus and dedication to drive a strong and effective response. Looking ahead, we are resolute in our commitment to emerge stronger from this experience and to working across the security community to build a better and safer digital world. In closing, I am deeply honored by the Board's appointment as Chair effective with Al Higginson's retirement in March 2026. As a Director for nearly 30 years and Chair for 20, Al's leadership has been essential to F5's growth and transformation. He has provided outstanding stewardship and tone at the top that has shaped the F5 we are today. I am humbled by the Board's trust and confidence in me to help lead F5 through its next chapter. I look forward to working alongside this talented management team and the Board to continue F5's trajectory of creating long-term value for shareholders. Operator, please open the call to questions. Operator: [Operator Instructions] Our first question comes from the line of Meta Marshall with Morgan Stanley. Meta Marshall: Can you hear me? Suzanne DuLong: We can. Meta Marshall: Sorry, there was music for a second. Just a question in terms of what form of kind of conservatism have you put into the estimates? I guess I'm just trying to get a sense of are you accommodating customers through discounting? Is this you're pushing off -- maybe people are pushing off purchasing decisions while they're handling kind of servicing or upgrading incidents? Or are you having to give other incentives to kind of upgrade boxes? Just trying to get a sense of kind of what form that kind of customer conservatism is taking? And then maybe just a second question. Just as you think about kind of the underlying growth of the systems business, like any way to contextualize how much of fiscal '25 growth was kind of due to the product upgrade cycle that was happening? François Locoh-Donou: It's François. Let me start with the first part of your question. I think Cooper will take the second question. Let me just start from -- you saw that we delivered a very strong quarter and, in fact, a very strong fiscal 2025. And the momentum in the business has been very, very strong. And that is driven increasingly by the secular trends that we've talked about, specifically hybrid multicloud and AI, and I can come back to that a little bit later. Based on these trends, we felt the trajectory of the business going into 2026 was more in the mid-single-digit growth. But we said we are guiding to 0% to 4% growth for 2026 based on what we see as potential near-term impact related to the security incident. And when I say near-term impact, we think we would see probably the majority of the impact in the first half of the year with trends kind of normalizing in the second half of the year. So let's double click on this near-term impact for your question. What we have in there, Meta, is really 3 categories of things that could create near-term disruption. The first is that we have our own resources, our field resources and sales resources over the last few couple of weeks, and I think that will go on for a few more weeks, have really been focused on attending customers, helping them upgrade their environments, remediate issues, answer any questions, et cetera. And inevitably that takes time away from normal sales cycles. And the same is true for customers who are putting a lot of resources on upgrading their BIG-IPs, ensuring their environment is in the right place and that takes time away from considering the next project. So that is a short-term disruption around allocation of resources both at F5 and with our customers. There's a second potential disruption that we have considered in our guidance which is that given the visibility that this security incident has had, it would be natural that in some of our customers at an executive level, we may see some delays of approvals or delays of deals or additional approval as customers across a complex organization make sure that they want to be reassured that their project should move forward and they have no further interrogation around that. That's the second consideration. And then the third one is that potentially for some of our customers there may be some projects that they were going to move forward with, and they end up deciding not to do that. And we have considered that as a third potential impact. Now, I want to be clear, the -- everything I've just talked about, as you know, Meta, more than 70% of our revenues are recurring. Everything I've just talked about with the impact that would be mostly with new projects or new footprint acquisition. And so far, it is very early days because this was disclosed only 2 weeks ago. We haven't seen any of the impacts that I'm talking about, but we are very prudent about this because we are very, very early after the disclosure and the interaction with customers. Cooper? Cooper Werner: Thanks. Yes. And then in terms of the systems business, we're seeing strength in both the product or tech refresh and capacity expansion. The growth has been pretty balanced actually across both. Roughly 2/3 of our systems business in FY '25 was tech refresh, with about 1/3 coming from what we call data center, increasing capacity, data sovereignty, use cases. A lot of it is really driven by AI that can be both direct and indirect. So it's just been a trend that we continue to see over the course of the year where we're seeing growth for both the refresh motion as well as some of these newer use cases. And then on the refresh motion, I would also note that I think we're still relatively early days on that refresh cycle with more than half of our installed base currently still on the legacy product families that would be going into software support. Operator: Our next question comes from the line of George Notter with Wolfe Research. George Notter: Just continuing on that line of discussion, I guess I'm curious about how you actually size the potential impact from the security breach. I would imagine it's probably a complex exercise, but I'm curious if you could just kind of walk us through like the logic here. And then maybe related to that, can you give us a sense for how many customers were affected where there was configuration information taken or are there specific customer issues that you can point to? Cooper Werner: Yes. Sure, George. This is Cooper. I'll take the first part, and then François can address the second question. So François kind of touched at it a little bit at a high level when he kind of referenced the percentage of our business that is recurring in nature. But as we went through this process, we really took a fairly granular approach at kind of profiling our revenue base across all the different revenue streams and kind of taking a look at which of these revenue streams could be more impacted and which ones would be more resilient in the near term. So if you think about our revenue base, a lot of the revenue that we recognize comes straight off the balance sheet. So our service revenue -- that maintenance revenue is mostly coming off of deferred revenue. We've got our -- this is, for example, our SaaS revenue is coming out of beginning ARR and then we've got a lot of our software businesses coming through in the form of subscription renewals. So those are revenue streams that are highly resilient, and we wouldn't expect to have much of a near-term impact. And then if you look at kind of newer use cases, whether that's competitive takeout or new software projects, that's where there potentially could be more of a near-term impact. And so we kind of looked at these different cohorts of our revenue base and just kind of made a judgment as to what the potential impact could be in the near term as customers are kind of going through some of their operational activities around the incident. And then we also kind of balance that just looking at other peers historically that have gone through similar incidents and what revenue impacts they saw. And then, of course, we've spent a lot of time with our sales teams, just kind of assessing at the outset what their view was as to what impact, if any, they might see and then continuing those conversations as they've engaged with their customers in the field. And I think we're very encouraged by some of the early feedback we've gotten from those conversations. They've been very healthy discussions with customers in helping them kind of address some of these early concerns. And I think we're feeling pretty good about our relationship and how those interactions are going with our customers. François Locoh-Donou: And I'll take the second part of your question, George, on customer impact. First of all, I do want to take this opportunity to say that, of course, we are disappointed that this happened and very aware as a team and as a company of the burden that this has placed in our customers who have had to work long hours to upgrade their BIG-IPs and secure their environment. And we're continuing to work with all of our customers in ensuring that they are in the place they want to be. With that said, the customers who were impacted, so we shared that there was no evidence of access to F5 Distributed Cloud Services environment or NGINX environmental. So it was essentially BIG-IP customers that were impacted. There were really 2 categories of impact. All of our BIG-IP customers, we recommended strongly to all of them that they upgrade their BIG-IP to the latest releases that we worked very hard to make available on the day of disclosure. And we were very impressed frankly, with the speed with which our customers have mobilized resources to be able to make these upgrades and put them in production fairly rapidly. So the impact really on them was having to mobilize resources to do that work shortly after our disclosure. And we are actually pleased that a lot of customers are through that work. It will continue, but we're very pleased to see the speed with which customers have upgraded their BIG-IP. The second category of impact was related to data exfiltration. That impacted a small percentage of our customers for -- and we will continue to go through the sort of e-discovery process around what specific data with the customer -- but from the first body of work that we have done on that, we have already identified the customers that were impacted and we have sent them their information, their data package for the data that might have been exfiltrated. And the most common feedback from customers so far has been that, that data is not sensitive, and they're not concerned about it. There was no impact to our CRM or our support system. Operator: Our next question comes from the line of Michael Ng with Goldman Sachs. Michael Ng: I just have two. First, just on OpEx, it seems like the implied OpEx growth for fiscal '26 is about 4% at the midpoint. Just wondering if you're seeing any additional costs as a result of the data breach, other investments in systems internally or costs related to offering free Falcon EDR subscription to affected customers. And then second, certainly encouraging to hear that it was just BIG-IP that was impacted, not NGINX or DCS. Could you just tell us what percentage of the revenue comes from BIG-IP? Cooper Werner: Yes. So I'll start with the latter. We don't break out our product by revenue line. We're a single-segment company, but it's -- BIG-IP is the highest revenue product, of course, but we don't actually break out what the contribution is. And then in terms of investment security and the OpEx, so yes, we actually have been investing aggressively in secured -- cybersecurity over the last several years. We've more than doubled our investment in cybersecurity just in the last 3 years alone. And we had already accounted for continued investment in our planning for this year even before we learned of this incident. And of course, we've learned a lot in the last several weeks, and so there's some additional investments incorporated into our planning, but that was among the highest priority areas of investment in our plan going into the... Michael Ng: And any costs related to the Falcon EDR subscription? Cooper Werner: Yes. So there are a number of costs related to the incident remediation and in the offering that you're referencing as part of that, those are either going to be accounted for in our -- with our cyber insurance or they would be remediation costs that are accounted for separately as a onetime expense. Operator: Our next question comes from the line of Tal Liani with Bank of America. Tal Liani: By the way, the sound quality is bad on your end, hard to understand you. I have two sets of questions on software revenues and system revenues. On systems, if I look at the dollar revenue for this year and you started the year with $160 million, but then it accelerated to $180 million a quarter, give or take, $181 million, $186 million, but $180 million a quarter, do you think you can further grow from this level? Or is the growth rate going to decline substantially because this level reflects kind of the level of the refresh going forward, kind of steady-state refresh going forward? Or what are maybe different drivers? I'm just trying to understand if the increase from $130 million to $140 million last year to about $180 million this year, if there is further growth from this level or we stabilize at this level? And on software, I have the same question almost that if I look at the quarterly level of revenues this year and I average it out, there was a step-up in this year versus last year, but we stayed at the level of about $210 million. I mean, some quarters are below, some quarters are above, but there is kind of a straight line, and this is on the heels of refresh, of renewals. So the question is what drives software to growth from here if that's the growth we're seeing with renewals and all the -- we spoke about it previous quarters and all the accounting treatment of renewals. So bottom line is what drives software and system growth from here versus the temporary items that are impacting it right now. Cooper Werner: Okay. I will start with hardware. So I think you're right, we saw a significant growth here, of course, this year. I think that that -- you referenced the -- where hardware revenues were at in FY '24 and then that really is the kind of the starting point. That was a low watermark, we had talked about customers were in a period of sweating assets where they had not been investing in the data center and a lot of that was tied to the macro at the time in customer budgets. And what we've been seeing is a bit of a catch-up period over the last year with some of that deferred investment, and that's what's driving -- has driven a lot of the growth just in FY '25. But we are still early in the refresh cycle, so we think there is still ability to grow that business. And then as I said on an earlier question, we're also seeing kind of a new vector of growth, and this is kind of more of an emerging growth category which is in some of the data center capacity expansion that we've been seeing. And we think a lot of that is tied to AI readiness. And so that one, it's still relatively early, but that's kind of a newer growth trend that we don't think is cyclical that it could potentially have growth for years to come. And so from the refresh perspective, we believe that this year should be a strong year of refresh because of how early we are in the cycle. And then on the new -- the performance and data center capacity expansion that could continue to have growth as well. Now having said all of that, this is all kind of looking back at our view that the business was pointing to mid-single-digit growth for this year. So there's still the near-term impact that you could see related to the security incident. So we'll see how that plays out. François Locoh-Donou: And Tal, I'll take the second part of your question. So let me just be clear. We strongly believe that our software is going to continue to grow at a healthy clip and that's driven in the trends. I make that statement on the trends that we're seeing in the business. So if you look at this year, the multiyear software agreements that we have that are active, just this year, grew 20% year-on-year and we expect that to continue to grow. Our motion of the flexible consumption agreement that allow customers to consume over multiple years and consume over multiple parts of our portfolios are growing because customers are embracing these hybrid multicloud architectures more and more and need multiple form factors, including software and Software-as-a-Service. A manifestation of that is, I'll give you kind of 2 manifestations of that. One is in our SaaS adoption. We -- the number of SaaS customers this year grew almost 60%. I think they grew 57%. We have over 1,300 distributed cloud customers today, and we have a little more than 800 a year ago. So that adoption -- and that adoption is growing, including in our largest customers. So our top 1,000 customers, we're seeing that now over 26% of them are consuming F5 distributed cloud. As you know, in the SaaS part of the business we have been going through some transitions, we are largely through these transitions, and we expect the SaaS and managed services line to contribute to growth in software going forward. The second dynamic is that customers are seeing the benefits of our entire portfolio and we're seeing that in the number of customers that are consuming multiple product families on F5. If you go back 4 years ago, we had about 30% of F5 customers that were consuming multiple product families from F5 amongst our top 1000 customers. That's now up to 70%. And we're seeing the ADSP, our application delivery and security platform, the capabilities in that platform, including software capabilities, especially in our XOps capabilities, we're seeing rapidly and growing adoption around that. And so when you combine all of this, you combine what we expect to see with the growth of our flexible consumption agreements that has continued to happen. What we expect to see in SaaS adoption, which we have already seen this year and the approach we've taken with application delivery and security platform and the adoption we're seeing of that, all of these are catalysts for continued growth of the software business going forward. Tal Liani: But François, if that's the case, and I know you reduced the guidance a little bit because of the breach -- because of the cybersecurity issue, but even before that you only guided growth to 5%. So if that's the case, why don't we see a faster growth rate? Cooper Werner: Correct. So Tal, I mean we've talked about this, and François talked about this on several calls. There is a timing nature because of these 3-year cycles on the renewals. And so the subscription business that we sold in FY '23 had a lower growth rate because new projects were under pressure. This was 3 years ago. And so that's what's coming up for renewal in FY '26. And so the base with which we're starting doesn't have as much growth in FY '26 and that's what was behind what we said was a mid-single-digit growth opportunity when we talked in July. That same base has much more growth in FY '27 and we don't have the headwind related to our SaaS and managed service business because we're through the transition. So we tried to lay out that there are going to be some ups and downs in the annual growth rates tied to the timing of those renewal motions. But we've given that look ahead beyond the current year into '27 to give that visibility that we expect a reacceleration in software growth rate. The underlying trends are very healthy. François laid out several metrics to point to the underlying health of the software business and we saw that last year. If you look at our term license business, that was up 18%. We have the headwind related to SaaS where our SaaS and managed service was down 9%. But again, that's going to be behind us and so it points to a very healthy software view beyond FY '26. Operator: Our next question comes from the line of Tim Long with Barclays. Timothy Long: Two quicker ones, if I could. I just wanted to follow up, François, on Distributed Cloud Services. Part of my question was about multiproducts. I think you just answered that there. But could you talk about some of the other economics that you see as you transition to DCS, things like deal sizes, win rates, maybe when we get to it, dollar retention or add-ons on top of that, number one? And then number two, if you could just quickly touch on a few of the verticals at least on a bookings basis, we're a little out of band. Enterprise was really strong year-over-year and service provider was pretty weak, all for pretty weak numbers. So anything that's driving kind of a little bit of out-of-band performance on those 2 verticals, that'd be great. Operator: Please hold. We're experiencing some technical difficulties. François Locoh-Donou: Tim, let me start again. Can you hear me? Operator: Yes, we can hear you now. François Locoh-Donou: Okay, great. I was starting with your question, Tim, on distributed cloud, I would say this is a land-and-expand motion. So typically the deals would start rather small in the multiple kinds of case and expand after that. I'll give you a data point on that. We have 1/3 of our distributed cloud customers that have expanded their ARR with us and they've expanded -- their expansion has been 90% for those of whom who have expanded. So it can be pretty significant growth in a customer after we sign them and that will continue to grow as we add more services onto F5 distributed cloud and we're continuing to add services as part of building this application delivery and security platform. We're adding more and more of the services that customers have enjoyed on BIG-IP onto F5 distributed cloud. To the second part of your question on the verticals, the -- generally, what we're seeing is kind of the most important enterprise verticals are all embracing hybrid multicloud postures for different reasons. But in the end, it all points to F5. So financial services, for example, in a lot of cases are keeping their core banking data on-premise, but are also having to build sort of disaster recovery to comply with operational resilience regulations. And so they're leveraging public cloud for that. And anytime a customer is using both on-prem environment and public cloud environment, it creates a strong case for F5. The same is true in health care. We're seeing the same in manufacturing, in retail and even in public sector environments. So these verticals embracing hybrid multicloud really allow us to grow our share of wallet into these verticals, and that's what's driving this cross-sell of our portfolio. The service provider space, Tim, that you mentioned, it's true that generally that segment has been, I would say, rather tepid in part because 5G has not really taken off in the way that we all expected a couple of years ago. And there hasn't been a real growth driver frankly, for service providers, either in ARPU or 5G services adoption. So we have seen stability there, but not significant growth to date. Operator: Our next question comes from the line of Simon Leopold with Raymond James. Simon Leopold: A couple things I wanted to check on. One, hopefully easy is, what are you seeing in terms of U.S. federal in light of the government shutdown? Is that an aspect that's affecting the outlook for your December quarter? And the other thing I wanted to get a better sense of is you've given us some commentary around the mix of software and hardware for the December quarter, but what's baked in for software versus hardware growth in that full year 0% to 4% guidance? François Locoh-Donou: Let me start with the -- in terms of the U.S. federal government, we have, in our guidance, assumed some level of disruption in that segment of our business, especially in the first quarter with the government shutdown that clearly is having an impact on project being delayed or approval being delayed. We -- it is our hope that this normalizes over the course of the year. But certainly, in Q1, we have assumed that the numbers that we would see from the federal sector would not be what we have seen historically in that part of the business because of the government shutdown. Cooper Werner: Yes. Thanks, Simon. We're not guiding mix at this point, just given that we're 12 days since the announcement of the incident and we've done a lot of work to provide a range on the growth outlook which, as we said, we've discounted some risk of short-term disruption to demand. We expect the demand to normalize in the second half of the year and I think as we see demand start to normalize, we'll look to give an update of what software and hardware growth can look like for the rest of the year. Simon Leopold: Just maybe you could clarify because you've got BIG-IP as the appliance system business, but you have virtual editions of BIG-IP. So when you talked about the breach, you said it affected BIG-IP. Does that mean that the breach affects both software and hardware equally? François Locoh-Donou: Yes, it does. Operator: Our next question comes from the line of Samik Chatterjee with JPMorgan Chase. Samik Chatterjee: François, just curious to hear your thoughts in terms of how the market share dynamics change on account of the potential impact that you're outlining for the first half. Because I'm just wondering if sort of we should expect to see some of the spend from your customers if it does get delayed from first half to see some catch-up in the second half, particularly when it comes to potentially the systems part of your business. And I have a quick follow-up after that, sorry. François Locoh-Donou: Yes. So we cannot know if on a 1- or 2-quarter basis that's hopefully enough of a runway to see substantial change in market share. So if I speak more on an annual basis and what I expect going forward, my expectation is that we continue to gain share in the app delivery and security market. The reason I say that is relative to other players in the space, we are investing more in our road map. We have been very aggressive at investing in security, and I think through the conversations with our customers around what we are doing to secure our environment, build trust centers to allow customers to come and do penetration testing of our code. All of the work that we are doing with partners to continue to look for any vulnerabilities and secure our code, that our customers are going to continue to see that F5 is really the right partner, is 100% committed to maximum security in our products and in their environments. And that will pay in terms of over time, customers, of course, continuing to partner with F5 and where possible, consolidate spend on our application delivery and security platform in their environment. And we have a world-class road map for our customers to continue to deliver functionality in delivery and security. So I think you have to look at it over a period of time. There may be a short-term blip in the first half of our year because of the factors that I described earlier. But in terms of our market share, our market position, our relationship with customers, I think if anything, over time, it will continue to strengthen. Samik Chatterjee: Got it. Got it. And for my follow-up, I was just looking at the disclosure that you had on standalone security revenues. I think you said $463 million for this year. Looks like it's been fairly consistent for the last couple of years without material growth, like I have $458 million for fiscal '24, $475 million for the year before. Any sort of more details you can provide in terms of what you're seeing on the standalone security side and why hasn't there been more significant growth on that front? Cooper Werner: Yes, I'll take that. So our overall security business grew about 6% last year. So I think what you're seeing is this is going back to the trend that we've talked about with customers preferring to consume via the platform and consolidate multiple functions onto a single platform. And so you're seeing less -- maybe less growth coming from standalone solutions and more of a preference to consume through our flexible consumption program where they're adding additional modules and attaching more security onto existing footprint. And so that growth is really coming through more in a platform form factor. And then the other thing to consider also is just there's a little bit of an impact on the standalone security from the SaaS transition that we've done with some of the legacy offerings, which, again, that'll be kind of behind us as we look ahead. Operator: Our next question comes from the line of Amit Daryanani with Evercore ISI. Amit Daryanani: I have two as well. I guess, Cooper, maybe just to start with you, can you just walk through the operating margin for the year? I think you're implying 34% margins for fiscal '26, but it's also the same, I think, for fiscal Q1. So I'd love to just get a sense on why aren't we seeing leverage in the back half of the year versus the front half. And then if you just quantify what the OpEx uptick in the March quarter will be for some of the events you talked about, that would be helpful. Cooper Werner: Yes. And we talked -- I had in my prepared remarks that the low watermark for operating margins would be Q2. That's typically the case, just seasonality with payroll tax resets and our large customer event in March. And so you actually would expect to see some leverage in the back half of the year coming off of the lower operating margins in Q2. And we're not going to guide Q2's operating expense today, but you could look at kind of seasonal trends to get a feel for what that uptick in the operating expense typically is in Q2. Amit Daryanani: Got it. And then François, just on the breach side and the challenges you're having, can you just -- maybe just help us understand if the source code is compromised, how do you give customers the confidence that there's no zero-day threat that's kind of hiding in there over time? Just maybe walk through that. And then does this also dampen your ability to implement price increases when it comes to the hardware side, really to reflect what Citrix has been doing to some extent in that space. So I'd love to just understand kind of the zero-day risk and the potential for price increases maybe being a bit more muted there as you go forward. François Locoh-Donou: Thank you. Well, let me start with the code and then let's come back to price increase as a separate topic. Look, I said earlier that I think customers will continue to choose F5 because we provide best-in-class app delivery and security capabilities for our customer. Now when you look at the code, I shared earlier some of the things that we are doing to ensure that we remain vigilant about potential vulnerabilities in our code. And so we have engaged partners that are scanning our code and will continue to do so to ensure that if there are any vulnerabilities that we remediate them immediately. I shared with you that we are setting up a trust center that will be there to allow our customers to come and do penetration testing with our code. We are going to leverage AI for hunting for penetration as well in our code. We are enhancing our bug bounty program. So there are a number of things that we are putting in place, all designed to ensure we remain hypervigilant about this, and we give customers maximum comfort around the security of our code going forward. And I think in our industry we really intend to be best-in-class in doing this. And I think as we have these conversations and frankly, as we have shared these plans and these road maps around the things we're going to do with our customers, they have been very pleased with our response and I think are getting a lot of comfort that we are doing all the right things to ensure that their -- the product they get from F5 continue to be safe and free of potential vulnerabilities or zero days. I would also say that we have taken this further, and you may have seen in our disclosure that we are working with CrowdStrike to implement EDR capabilities on BIG-IP. And that's an extra layer of protection that we are offering customers to have way more observability, monitoring into their BIG-IPs which is something that hasn't been done in the industry. You haven't seen perimeter devices really enabled with EDR. And so it's just one example of where we are innovating with other industry partners to raise the game on security for our customers. I think the issue of price increases is a separate issue. As you know, you mentioned one of our competitors earlier, we have taken an approach here that is to have durable relationship with our customers and to really show the value of what we're doing for them over time. We don't intend to change our policy and our approach. I think we're going to be very consistent with that. And frankly, we can be consistent with our approach because customers recognize all the investments that we're making, the road map that I just talked about in terms of security, but also the world-class road map we have in terms of building delivery and security and having the best delivery and security platform for hybrid multicloud environment. We're the only company today that can serve them in hardware, software and SaaS and serve their traditional apps, their modern apps and their AI applications. And we're continuing to make these investments, both organically in our portfolio and inorganically. You probably just saw this quarter we made the acquisition of CalypsoAI. We did that to add capabilities to our platform specifically tailored for AI applications, securing AI applications in our application delivery and security platform. So customers will continue to see these investments from F5, and I think based on that we can justify the value that we're getting in the interactions with our customers. Operator: Our next question comes from the line of Ryan Koontz with Needham & Company. Ryan Koontz: Most of my questions have been answered, but just a quick clarification. When you talked about the migration of your end-of-life products out there today, kind of where are you now in that migration? How do you think about that going forward? Are you seeing some pushouts? Are you giving customers any kind of time frame breaks because of the breach to migrate those products going end of life? Cooper Werner: Yes. So we have said that we're still pretty early days in the refresh motion just in terms of the percentage of the installed base being well over 50%. That's on those 2 platforms. There's -- no, we haven't adjusted the end of software support dates. Those have been public for a long time and we're working with customers to ensure they have an orderly path to make those refreshes across our estate. Ryan Koontz: Got it. Helpful. And maybe circling back to your comments on the telecom segment. Obviously, yes, 5G has been disappointing there in terms of kind of the deployment of virtualization, but are you seeing any new activities in the telecom domain around the new 5G core, maybe picking up momentum or anything else to call out on the telecom front here? François Locoh-Donou: Yes, look, I think what we're seeing is the sort of 4G to 5G transition continue with some geographies ahead of others. Those customers who have implemented 5G were seeing growth inside of these environments, capacity, in some cases, growing fairly rapidly. But generally this transition from 4G to 5G and frankly the revenues that telecom operators expected from that transition have not really materialized and that, in turn, has put pressure on their CapEx spend. So we are continuing to find new use cases inside of our service provider customers, but it hasn't been significant enough to drive a substantial uptick in the overall segment for F5. Operator: I would now like to pass the call back over to Ms. Suzanne DuLong for any closing remarks. Suzanne DuLong: Thank you, everybody, for being with us today. We look forward to seeing many of you during the quarter. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Shane Xie: Welcome to the Confluent Third Quarter 2025 Earnings Conference Call. I'm Shane Xie from Investor Relations, and I'm joined by Jay Kreps, Co-Founder and CEO; and Rohan Sivaram, CFO. During today's call, management will make forward-looking statements regarding our business, operations, market and product positioning, growth strategies, financial performance and future prospects, including statements regarding our financial guidance for the fiscal fourth quarter of 2025 and fiscal year 2025. These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated by these statements. Further information on risk factors that could cause actual results to differ is included in our most recent Form 10-Q filed with the SEC. We assume no obligation to update these statements after today's call, except as required by law. Unless stated otherwise, certain financial measures used on today's call are expressed on a non-GAAP basis and all comparisons are made on a year-over-year basis. We use these non-GAAP financial measures internally to facilitate analysis of our financial and business trends and for internal planning and forecasting purposes. These non-GAAP financial measures have limitations and should not be considered in isolation from or as a substitute for financial information prepared in accordance with GAAP. A reconciliation between these GAAP and non-GAAP financial measures is included in our earnings press release and supplemental financials, which can be found on our IR website at investor.confluent.io. References to profitability on today's call refer to non-GAAP operating margin, unless stated otherwise. And with that, I'll hand the call over to Jay. Edward Kreps: Thanks, Shane. Good afternoon, everyone, and welcome to our third quarter earnings call. We're joining from New Orleans, where in 2 days, we'll host Current, the data streaming event where real-time data and AI come together. Turning to the quarterly results. We delivered a strong Q3, exceeding the high end of all guided metrics. Q3 subscription revenue grew 19% to $286 million. Confluent Cloud revenue grew 24% to $161 million, and non-GAAP operating margin expanded 3 percentage points to approximately 10%. This performance underscores strong consumption growth in our cloud business, the deepening commitment of our customers and our disciplined focus on driving efficient, sustainable growth. Last quarter, we outlined 2 areas of focus in our go-to-market and several areas where we were drilling down on early success, all aimed at accelerating use case expansions and supporting the long-term growth trajectory of our cloud business. I'll give a brief update on each of these. The first area of focus was tightening field alignment to drive more use cases into production. As we shared last quarter, we saw strong momentum in late-stage pipeline progression, a metric that tracks the dollar value of new use cases moving into production. That momentum continued in Q3 with more than 40% sequential growth and progressing late-stage pipeline and an accelerating pace of new use cases. This positions us for durable consumption growth and was a key driver of our cloud performance this quarter. In parallel, we continue to build momentum in expanding our large customer base, delivering the largest sequential net add in $100,000-plus ARR customer count in the past 2 years, along with continued acceleration in million dollar plus ARR customer growth. Together, these results underscore the depth of opportunity within new workloads and the continued strength of expansion among our large customers who are increasingly standardizing on our data streaming platform and relying on Confluent to meet their business needs. Our second focus area is centered on accelerating the build-out of our DSP specialist team to drive multiproduct selling. We previously highlighted Flink momentum in the first half of the year, and we're pleased to report another strong quarter with Q3 Flink ARR for Confluent Cloud growing more than 70% sequentially. Flink usage has continued to expand across our customer base. More than 1,000 customers used Flink during the quarter. Stream processing is key as it enables companies to act on data the moment it's created, turning information into real-time decisions and results. A great example of the power of our Flink offering is Siemens Healthineers, a global leader in medical technology with operations in more than 70 countries. The company develops imaging systems, lab diagnostics and connected medical devices used by hospitals and clinics around the world. Behind these life-saving technologies is a constant stream of data that determines equipment reliability, accuracy and ultimately, patient outcomes. But Siemens Healthineers was hindered by disconnected systems that isolated critical data in silos, lengthy file transfers, manual handling and periodic batch processing often delayed insights by weeks. These delays prevented timely action to improve equipment performance and product quality. So they turn to Confluent Cloud with fully managed Flink. With Confluent, Siemens Healthineers built a unified real-time data backbone that streams and processes millions of events from imaging, lab and devices daily. Flink continuously filters, joins and enriches these streams to deliver timely, trustworthy operational insights that help improve device reliability, manufacturing, quality and consistency of diagnostic data across its installed base. This foundation now gives Siemens Healthineers real-time visibility and the agility to move faster as it advances digital and AI initiatives that enhance care delivery and improve patient outcomes worldwide. Next, our partner ecosystem continues to deliver strong results. As of Q3, partners sourced well over 25% of our new business over the last 12 months. This is a clear sign of the consistency and scale we're building through our established partner relationships, which are instrumental in broadening our footprint and driving customer expansion. Confluent was named a MongoDB Partner of the Year and served as an AWS launch partner for the new AI agents and tools category in the AWS marketplace, further strengthening our position at the center of real-time data and AI. Lastly, we remain as competitive as ever replacing CSP streaming offerings. We have maintained win rates well above 90%, with average deal size, more than doubling over the past 2 quarters, all while continuing to increase our add bats. This is made possible with multi-tenant Freight Clusters, Enterprise Clusters and WarpStream, which together have delivered a 4x increase in consumption over the past 3 quarters. Because of their multi-tenant architecture, we believe adoption of these new clusters is a tailwind to subscription gross margin over time. These differentiated offerings provide superior performance and lower TCO to our customers which also helps us soak up more of the world's Kafka workloads. This includes one of the world's largest fintech companies who signed a 7-figure deal in Q3 to move their large-scale logging and telemetry workloads from open source Kafka to Confluent. Another great example of this is EVO Banco, a digital native bank in Spain serving hundreds of thousands of customers through its mobile-first platform. As transaction volume grew, its open-source Kafka clusters became increasingly difficult to scale and secure with rising operational costs and downtime during peak loads. To address this, EVO Banco migrated to Confluent Cloud as its central data backbone. The platform now streams and processes hundreds of thousands of financial events per day across payments, fraud detection and customer channels and with stream processing and fully managed connectors, EVO Banco integrated core banking systems and analytics tools in real time without managing infrastructure. Since moving to Confluent, the bank has improved reliability, lowered costs and accelerated delivery of new banking features. Q3 also marked the 1-year anniversary of our WarpStream acquisition. Over the past year, WarpStream has seen 8x growth in consumption, and we've closed multiple 6-figure deals with marquee customers across different industries, including a Fortune 5 customer. We're encouraged by WarpStream's strong first year performance and remain incredibly excited about the significant opportunity ahead. Next, I want to spend a few minutes on a key aspect of Confluent's opportunity in the AI space, providing context data for AI agents and applications. We're seeing a clear pattern across the industry. Many companies have shown they can successfully prototype AI, but fewer can get those systems into production. AI models are clearly capable, but a recent MIT study found that though enterprises are investing tens of billions of dollars in generative AI. Most of these initiatives haven't delivered the desired results. The challenge isn't building a prototype. It's being able to build reliable business systems powered by AI that makes trustworthy decisions and takes appropriate actions. There are 2 factors that fundamentally drive the quality in AI systems, the models capabilities and the data it has access to. Both of these are significant challenges, but they fall on different people to solve. Improving the quality of large-scale AI models is a challenge largely driven by a small number of LLM producing research labs. Enterprises can easily harness the results of this work by simply pointing their apps at a new model. But getting data into shape to act as context for AI is a problem every enterprise must solve with their own data. This is where Confluent can help. One of the reasons AI demos are often so successful is because they can be powered by a onetime manually curated data set. But to take an agent to production, it must have an up-to-date comprehensive view of all the inputs needed to do its work. This isn't just a matter of trying to hook the model into every source system directly. The source data is generally too messy and application specific to lead to good results. And AI Ops can't be splunking around in production databases, reading through everything and potentially leaking the wrong data to the wrong user, that would be wildly expensive, create unsustainable production workloads and be fundamentally insecure. Rather, the problem is about curating the right data for a given problem and creating a data set an agent can be tested with and evaluated against. Maintaining that live context is what determines how well an AI system performs. That's where accuracy, relevance and trust are won or lost. What businesses need is a system that can keep data in motion so it can be processed, reprocessed and served continuously as it changes. Our data streaming platform was built for exactly this problem. It works to connect data from every system application and cloud and support just these kinds of complex pipelines. With Kafka, Flink and Tableflow, teams can process in real time, combining history and live events with one unified engine. With logic changes, you can go back and reprocess data to create the new data set. Tableflow and Flink work to combine the best aspects of real-time capabilities with the long-term historical store of data in the lake. As this goes out to production, the stream of feedback data can also be captured to measure the effectiveness of each change. And in 2 days, we will host Current and unveil new capabilities that are designed to make this even easier for customers and strengthen how our platform delivers real-time government context. Confluent data streaming platform is becoming the context layer for enterprise AI as businesses move from AI experimentation to production, from static data to living context, and from analysis to intelligent action. One customer that really illustrates this is a multibillion-dollar health and fitness chain with nearly 200 clubs in a rapidly growing digital platform. As the company expanded into AI-powered wellness, its data from wearables, class bookings and mobile apps was siloed and processed in slow batches. This made it impossible to provide real-time personalized guidance through its Gen AI companion. With Confluent Cloud as a streaming backbone, this customer now continuously ingests and enriches this data in motion. Wearable metrics, work out history, purchase activity and engagement events are streamed and combined with contextual data, like recovery status or performance trends before being routed into AI systems to fuel personalized recommendations. Confluent enables them to deliver AI insights in seconds instead of ours, scaling to millions of real-time interactions while enabling security and compliance. Fully managed infrastructure frees engineers to focus on innovation, helping the company turn decades of wellness expertise into intelligent, context-to-ware experiences that deepen member engagement and fuel digital growth. As AI evolves from innovation to utilization, context will define who wins, and we are committed to making Confluent the company enabling the shift by turning data and to continuously refresh trustworthy context for AI systems everywhere. In closing, we're encouraged by the strong out consumption growth and the traction we're seeing for our complete data streaming platform, particularly with Flink. As AI becomes operational across every industry and geography we believe that the demand for real-time context powered by data streaming will only grow. It's an exciting time for Confluent and we're just getting started. With that, I'll turn it over to Rohan. Rohan Sivaram: Thanks, Jay. Good afternoon, everyone, and thank you for joining our earnings call. Our strong third quarter performance highlights the momentum of our data streaming platform and our diversified growth strategy. We delivered strong top line growth, stabilized our net retention rate, increased the adoption of new products and drove continued margin expansion. These results demonstrate our ability to drive durable, profitable growth at scale over the long term. Turning to the results. Q3 subscription revenue grew 19% to $286.3 million and represented 96% of total revenue. Confluent platform revenue grew 14% to $125.4 million, driven by healthy demand in financial services. Cloud revenue grew 24% to $161 million, representing 56% of subscription revenue compared to 54% in the year ago quarter. We are pleased with our cloud performance this quarter, which was driven by stronger consumption across core streaming and DSP, including acceleration of new use cases moving into production. Turning to the geographical mix of total revenue. Revenue from the U.S. grew 13% to $172.1 million. Revenue from outside the U.S. grew 29% to $126.4 million. Moving on to rest of the income statement. I'll be referring to non-GAAP results unless otherwise stated. While driving top line grow at scale, we continue to show significant operating leverage in our model. In Q3, subscription gross margin was 81.8%, above our long-term target threshold of 80%. Operating margin increased 340 basis points to a record of 9.7%, exceeding our guidance by 270 basis points. This was driven by revenue outperformance and improved sales and marketing leverage from continuing to streamline coverage to drive growth. Adjusted free cash flow margin increased 450 basis points to 8.2%. Net income per share was $0.13, using $370.6 million diluted weighted average shares outstanding. Fully diluted share count under treasury stock method was approximately 382.4 million. We ended the third quarter with $1.99 billion in cash, cash equivalents and marketable securities, reflecting the strength of our balance sheet. Turning now to customer metrics, $20,000 plus ARR customer count increased to 2,533, up 36 customers sequentially. $100,000-plus ARR customer count was 1,487, up 48 customers quarter-over-quarter, representing the largest sequential increase in 2 years. New $100,000-plus ARR customers include many leading AI companies such as Forbes 50 AI analytics provider, an AI-powered SIEM cyber security vendor, a next-gen AI automation platform company. Our $100,000-plus ARR customers continue to account for more than 90% of our ARR, $1 million-plus ARR customer count increased to 234, representing growth acceleration of 27%, driven by new use case expansion across cloud and platform. Additionally, more than 10 of the 15 net new $1 million-plus ARR customers increased their spend on DSP products over the previous quarter. NRR for the quarter stabilized at 114%, while GRR remained close to 90%, driven by stronger consumption growth in our cloud business. Turning to our outlook. For the fiscal fourth quarter of 2025, we expect subscription revenue to be in the range of $295.5 million to $296.5 million, representing growth of approximately 18%. Non-GAAP operating margin to be approximately 7% and non-GAAP net income per diluted share to be in the range of $0.09 to $0.10. For fiscal year 2025, we expect subscription revenue to be in the range of $1.1135 billion to $1.1145 billion, representing growth of approximately 21%. Non-GAAP operating margin to be approximately 7%, non-GAAP net income per diluted share to be in the range of $0.39 to $0.40 and adjusted free cash flow margin to be approximately 6%. For modeling purposes, we expect Q4 cloud revenue to be approximately $165 million, representing growth of approximately 20% and accounting for approximately 56% of subscription revenue based on the midpoint of our guide. Turning to the key drivers of our business. We saw strong demand in our core streaming business and good momentum across DSP, AI and our partner ecosystem. First, our continued focus on field alignment is delivering strong results. In Q3, we accelerated the pace of moving new use cases into production and sustained strong momentum in building our late-stage pipeline, which once again grew more than 40% sequentially. We're also seeing customers commit to larger and longer-term deals, reflected in RPO growth of 43%, another quarter of acceleration. Together, these trends give us greater visibility into near-term consumption revenue and increase longer-term visibility with improved RPO to revenue coverage. Second, we saw good DSP momentum across cloud and on-prem in Q3. Building on the momentum from the first half of the year, we delivered another quarter of strong performance for Flink with particular strength in cloud. Q3 Flink ARR for Confluent Cloud grew more than 70% sequentially, and we now have more than 1,000 link customers, including more than a dozen customers with greater than $100,000 in Flink ARR and 4 customers with greater than $1 million in Flink ARR. This comprehensive breadth and depth represents the foundation for scaling into a very significant Flink market opportunity ahead. Here are 2 customer examples to illustrate how Flink begins to drive ARR expansion in our customer base. These customers are spending currently north of $100,000-plus and $1 million-plus Flink ARR, respectively. Notably, in the last year alone, adoption of Flink has supported both customers to more than 6x total spend. Third, we are strongly positioned to deliver contextualized, well-governed and AI-ready data to companies. We now have more than 100 AI native customers, including 21 with $100,000-plus in ARR demonstrating Confluent's highly strategic role in the age of AI. Fourth, we are pleased with seeing continued traction in our partner ecosystem. On a trailing 12-month basis, Q3 partners sourced deals increased to more than 25% of our new business, up from more than 20% last quarter. As we grow beyond the $1 billion-plus revenue scale, we expect partners to play an even bigger role in driving growth and leverage in our business in the years ahead. Lastly, we've continued to demonstrate the effectiveness of our disciplined ROI-driven capital allocation strategy, especially in M&A. Q3 marked the 1-year anniversary of our WarpStream acquisition. And in just 1 year, WarpStream's consumption has grown nearly eightfold. Following the Immerock acquisition, we shipped our Flink product in spring of last year. And since then, we've scaled Flink into a low 8-figure ARR business. The strong financial performance underscores the successful path both products around and reinforces the strength of our overall capital allocation strategy. In closing, we delivered strong third quarter results demonstrating durable top line growth and margin expansion at scale. We are encouraged by the strong consumption growth in our cloud business and remain focused on continuing to execute on our key growth drivers across core streaming, DSP, AI and the partner ecosystem. Looking forward, we believe we are well positioned to take advantage of the large market opportunity ahead. Now Jay and I will take your questions. Shane Xie: All right. Thanks, Rohan. [Operator Instructions] We ask that you kindly keep it to one question and one follow-up. And today, our first question will come from Brad Zelnick with Deutsche Bank, followed by Morgan Stanley. Brad Zelnick: Great. And good to see the good results, especially the accelerated bookings, really impressive. Jay, I want to follow back on some of the go-to-market changes that you made last quarter. The field alignment, changes in coverage ratios. And it's great to see the momentum in late-stage pipeline continue. What are the learnings now that we're another quarter into these changes? And what conversion trends can you share on all this new pipe? And how should we think about the capacity to effectively work that much incremental pipeline? Edward Kreps: Yes, those are great questions. So yes, we put a number of things in motion heading into this year. And particularly over the last few quarters, I called out some of those, the specialization model for DSP. That's really important just to be able to take these new products to scale, and it's working really well. A number of aspects of just kind of field execution around consumption. I think that's one of the biggest drivers of that kind of progression in consumption pipeline. And on that pipeline, I think we have very high confidence in it. These are ultimately customer workloads that they have people building that are reaching production that then go drive consumption in the quarters ahead. And so it's a little bit more than just an entry in sales force. And that's why we feel that it's a very promising stat and why we track it very religiously quarter-to-quarter. So I think these are really solid improvements. I've been very impressed by the execution in the go-to-market team over the last few quarters to get this in place and do it quickly. And I think that gives us a lot more ability to help drive these consumption workloads ourselves, right, really land in the right use cases, make sure that they're using our complete product, the full DSP in the best way possible and make sure that, that gets out to production without snags and reaches its full potential. So yes, I think very promising in what we're seeing. Brad Zelnick: Great. And maybe just a quick follow-on for Rohan. RPO and CRPO, both accelerating very nicely. Why or why shouldn't we look to that as a reliable leading indicator for Confluent specifically? Rohan Sivaram: Yes. Great question, Brad. Thank you. You're right. RPO, in general, what I've shared before is when you think about our business for Confluent platform, absolutely. RPO is the single most important leading indicator with respect to the forward-looking organic growth of the business. For Confluent Cloud, it's a tad bit nuanced where over the short term, I think what we've internally focused on is the momentum of new use cases moving into production and which was a check in Q3. So overall, we feel with the short-term drivers. But over the long term, I think, coverage of RPO to revenue to cloud revenue, that has continued to increase through the year. I mean this particular quarter was the fourth consecutive quarter of accelerated RPO that we've delivered. So yes, like from the cloud business perspective, short term is new use cases moving into production and our ability to drive growth in the new business, newer products, and long term is around the RPO. So that's going well. And for Confluent platform, absolutely, it's a leading indicator. So that's how I think about it. Shane Xie: All right. Thanks, Brad. We'll take our next question from Sanjit Singh with Morgan Stanley, followed by JPMorgan. Sanjit Singh: I guess it's a very simple one, Jay, and it's with multiple sort of vectors that you guys have in play to drive growth, including with all of the sort of rejuvenation activity within the go-to-market organization. When do you think we can see growth start to bottom is the first question. Edward Kreps: Yes. Yes. I mean, look, first of all, I think we're very pleased with the results that we brought, the strength in cloud, pleased to be in a position where we're raising guidance for Q4. I think ultimately, the cloud business has been quite strong. When you look at the growth rate for Q4, there is some impact from a particular customer. We kind of talked about that dynamic last quarter. if you normalize for that, you are seeing kind of stability in the overall cloud growth rates. So overall, we feel pretty good about that. And then when we talk about kind of some of these tailwinds some of the GSP offerings, including Flink getting to scale and starting to contribute more sizably. The overall execution within the field team around consumption and the ability to drive use cases, I think, those are positive trends. Sanjit Singh: When it comes to the growth that you're seeing in the core streaming business, given the big ramp in like things like WarpStream and enterprise, that sort of kind of the cannibalization question. Are you seeing that kind of net accretive impact from the rise of those offerings? Or do you feel like there's any cannibalistic effect on some of the core streaming business? Edward Kreps: Yes. Yes. It's a very fair question as we added new offerings that were particularly cost effective. Is this going to be a tailwind or a headwind. I think it's proven to be a substantial tailwind. So we called out in the call that we've seen substantial improvement in overall deal size, which is maybe counterintuitive, but in fact, it's not because customers are leaning in with bigger workloads, bigger migrations that might have been harder or taken longer in the past. And because of the architecture of these offerings, the multi-tenant clusters with enterprise and freight, WarpStream with BYOC, they're very cost effective to run. So they are a tailwind to gross margin. So it's really good on both sides. It's good deal for customers, they're leaning in and going bigger. And it's a good deal for us. It's ultimately more profitable. Shane Xie: All right. Thanks, Sanjit. We'll take our next question from Mark Murphy with JPMorgan, followed by Barclays. Mark Murphy: Yes. Great. So Jay, you had mentioned, I think you said more than 40% sequential growth in progressing late-stage pipeline. And it sounds very promising. I'm not sure we have historical context on that metric. Can you speak to what is driving such great traction there. And then what is the normal level of sequential growth you'd see in that late-stage pipeline? Edward Kreps: Yes, yes. So yes, it's a great question. We're obviously not trying to turn that into some kind of external metric, but one of the things we set for ourselves as a benchmark of improvements in the field motion around consumption was, hey, get the new use cases, get into the new use cases, get them to production. And so we measure the dollar amount of those use cases. And we've seen that as these use cases hit production, they ramp up, they take traffic, they drive consumption in the quarters ahead. So it's a reasonable indicator to pay attention to in a forward-looking way. So yes you're asking, hey, what's the normal growth quarter over quarter? Well, over time, if you're bringing more dollars of use cases out to production, those are dollars that you're realizing in future quarters. It takes some quarters for different projects to ramp up. So it's not one is to one, but that's roughly how I would think about it. We haven't given kind of the full history of the metric, and that isn't the intention. It really is, I think, being used by us as a benchmark of execution of the field. And we felt that kind of internal metric was one of the best representations of that. We have made a number of adjustments in how folks are working these consumption projects. And I think it really has worked quite effectively. Mark Murphy: Okay. And then as a quick follow-up, Jay, how is the early response to the launch of streaming agents on Confluent Cloud? Because I think we would all agree, for sure, agents need access to real-time data. Frankly, they're going to look pretty unintelligent, right, and out of date if they don't have it. But then companies are -- they're so risk-averse, and they're struggling to give -- to get comfort giving agents free rein to all their data, right? It sort of scares them. And you laid out a nice -- very nice architectural vision for that, right, in the webinar, but I'm just wondering how is the customer readiness for that product? And just could you speak to -- I mean, if this takes off, can agents become pretty big in the mix a few years down the road? Edward Kreps: Yes, I think that they absolutely can. So there's a few opportunities around AI for Confluent. One is around making the agents real time. One is about the provisioning of real-time data sets. Both of those are actually substantial, and you can do them both together or you can do them separately. And for those who follow us closely, we -- I mentioned in the prepared remarks that we're here in New Orleans for our conference Current, and that's in a few days. So we'll have some announcements in this space that I think we'll fill out the picture a bit more. But already, the streaming agents have caught on, we talked about one of the customer use cases in the call earlier. And it makes a lot of sense. This is a really easy way that you can run the agent on the kind of historical data, kind of benchmark it, be able to play with it almost in a batch model, but then have it translate into production and run in real time against the data that's there. It makes that kind of development much easier. And I think this is going to be a critical part of the stack. One of the things, I think, software teams are realizing is that this kind of agent development is actually a bit different from traditional software. You have to do it with the data. Traditional software, you can kind of write some program, run some unit tests against it with fake data. If that all passes, it works, you're good to go, your program is good. But these AI systems are not that way. You can build some support agent and say, oh, this answers support questions really effectively. But if you haven't tried it with the actual customer data on actual customer questions, if you're not really developing that way, you're not doing anything. And so the need is to be able to work iteratively with data, but then also launch something that will run in real time in production and be able to keep those 2 in sync as the team moves. And so I think we have really foundational capabilities. Like in many ways, that is about what streaming is, which is this ability to take some of the ideas that we had off-line with batch data processing, be able to translate them into continuous processing. And so I think it's a huge opportunity for us. In many ways, it's an acceleration of what we were doing for customers anyway. Even if the intelligence was just smart rules in a production application that was driving personalization or customization or relevance, we're already doing lots of that. And I think the AI opportunity is, in many ways, a huge generalization of that of allowing not just hard rules, but broad capabilities to access the same kind of data to make data-driven decisions, take smart actions. So hopefully, that's helpful. And stay tuned for the next couple of days, we'll have a few more announcements. It's hard to always figure out the timing of these things. But since that's 2 days later, we don't get to talk about all the new products until then. Shane Xie: All right. Thanks, Mark. We'll take our next question from Raimo Lenschow with Barclays, followed by Wells Fargo. Raimo Lenschow: Perfect. Can't wait for conference then. The -- 2 quick questions, one for Jay, one for Rohan. Jay, Flink, you gave us some extra data points. At Flink, we've been waiting for -- while I don't want to call it an inflection point, but like the uptick here. What do you see there, how customers are using it and what you're seeing in the pipeline? Does that kind of increase your optimism like talk a little bit about how that kind of translates into the business going forward? And then, Rohan, one for you. You've raised the subscription by more than the beat in Q3. Obviously, that's a good sign for Q4. What drove that? Was that kind of the one AI customer maybe doing a little bit more with you? Is that overall business doing a little bit better? Can you speak to that, sort of what gave you the confidence there? Edward Kreps: Yes. I'll start with Flink that we're hugely excited. So I do think externally, this was a little bit of an unusual product development cycle because we changed our stream processing strategy and bought a Flink company, but it wasn't a Flink product. It was just the team that had built the open source. So then we were effectively starting product development with an announcement about Flink. So then we had to build the product. And I think the team has done an amazing job of that to really build a modern data -- serverless data processing layer, but do it in a way that supports high availability, real-time processing. It's a big undertaking. I think the growth of that since it's kind of reached GA and kind of got into the critical enterprise features over the last year has been spectacular. And that's absolutely as much as we could ask out of a kind of first year of selling for the product, and that trajectory remains very strong as we look ahead. So yes, we are -- I think as we've communicated as we started this effort, we think that potential for that offering over time is huge. The market for data processing is really big. There's all this stuff in these old batch jobs that needs to move into real time. And now I think we're starting to realize that opportunity. And it's an interesting intersection with the AI question as well because one of the things that actually aids these conversions is AI. So if you're converting these batch quarries to streaming queries, we have a set of capabilities to just help customers do this, just goes through and makes the little minor adjustments. I mean, largely, it's very similar. These streaming queries or SQL or similar language to the batch stuff, but of course, getting all the nuances, right? And so that's been one of the accelerants that's helped customers that are trying to go big with a lot of real-time jobs all at once, help them move faster. So yes, long story short, we're very excited about it. Rohan Sivaram: And Raimo, before you answer the question, I'll just add a quick point to what Jay said. From my lens, when some of these new products are ramping, I think, there are 2 things that I'd like to focus on, the breadth of adoption and the depth of adoption. For Flink, specifically, when you look at the breadth of option, we have over 1,000 paying customers for Flink. And on the depth side, we have about 12 customers spending over $100,000 in ARR and 4 customers spending $1 million in ARR. So that's actually a good position to be in and on the heels of 3 quarters or 9 months of very solid growth that we've seen. So just to add to what Jay said, we're excited about what lies ahead on that side of the business. So coming back to your question on subscription guidance for Q4. Yes, we are pleased to raise our Q4 subscription guide, and that's mostly coming from the Confluent Cloud side of the world. So if I take a step back and then analyze the Q3 performance, I'll call out 3 things. The first one is something that Jay called out in his prepared remarks. That's just the momentum of new use cases moving into production. And we saw 2 consecutive quarters of acceleration over there, so which is good. The second area is around -- we are seeing more normalized levels of optimization. I would actually put it in the category of healthy levels of optimization. So that's number two. And the third is continued strength in Flink and the cloud side of Flink. So these are some of the drivers and the momentum builders in Q3, and that's giving us confidence with respect to our Q4 cloud guidance. And I'll leave you with one more big picture thought that I touched on my first response that is these are short-term visibility drivers for the cloud business. When I take a step back and look at the long term, the RPO to cloud revenue coverage through the year has continued to increase and improve. And that's less of a Q4 visibility, but more of a slight long-term visibility, we feel good with that increasing coverage as well. Shane Xie: All right. Thanks, Raimo. We'll take our next question from Ryan MacWilliams with Wells Fargo, followed by Piper. Ryan MacWilliams: Jay, as enterprises continue to move from testing to production with AI use cases, are there any AI use cases that come to mind that involve Confluent that could be more likely in production in the near term, like a customer service use case or an IoT use case. Edward Kreps: Yes. Yes. We're seeing -- these tend to be quite broad, right? So there's similar patterns around customer support. There's patterns around anomalies and investigations. Many businesses have some operational side kind of looking for the bad thing and then diving into the bad thing that cuts across businesses that might be doing IoT, manufacturing, different production processes, but also things like retail. But even businesses, financial services, insurance, companies you might think of this being more risk averse. I think have very active projects in this area. And so I think for all of these, it's about whether they can really complete that connectivity and make it into production with these systems. We think that a big part of that is about data flow, data quality, the ability to actually iterate and test and get from something that kind of 99% works to something that 99.99% works. So it sounds like a small difference, but we operate already in a business where, operationally, the difference between 99% and 99.99% is actually a really big deal for our customers. And so you can totally see why on the quality side for any of these things. It's hard to get that last bit done. And I think why we think we're well positioned for it. Ryan MacWilliams: I understand it as well. I got 99 things right and 1 thing wrong, you remember which one. And then for Rohan, you mentioned last quarter that a large AI native company was moving to self-hosted after signing a self-managed deal in the third quarter. Any commentary on how much that large customer contributed in the third quarter? And as that large customer spend drops off from the cloud next quarter, could the self-managed portion step-up, contribute further? Just any commentary on the mechanics of that large customer deal could help? Rohan Sivaram: Yes, yes. Ryan, a few data points that I'll share. First, and reiterate what I said in the Q3 call, and what we said in the Q3 call was this large customer basically made this move from Confluent cloud to on-prem. And as a result of this dynamic, their spend towards Confluent would be significantly reduced. So that's the data point. And what that would do is it would have a low single-digit impact to our Q4 cloud revenue. And Jay called out earlier, when you normalize that impact of the low single digit and you compare our Q4 guidance versus Q3 actual cloud performance, you'll see somewhat flattish year-over-year growth rate. So that kind of signs of stabilization. And specifically, that large customer, obviously contributed in Q3 from a revenue perspective and the real impact, the low single-digit impact we are going to see from our cloud business is in Q4 and that's incorporated in our guidance for Q4. Shane Xie: All right. Thanks, Ryan. We'll take our next question from Rob Owens with Piper Sandler, followed by William Blair. Robbie Owens: Jay, maybe you could elaborate a little bit more on the CSP replacement opportunity? Just how big you think it is? And why do you think this is inflecting over the last couple of quarters? Edward Kreps: Yes. Yes, it's quite sizable. We also, of course, are continuing to do very large open source takeouts, and there's quite a lot of the open source. But both for the open source and the CSP offerings I think one of the -- there's really 2 things that I think are making this something customers really want to take action on right away. The first is the TCO of making the change. And that comes out of the fundamentally, the improvements we've made in Kora that enable things like Enterprise Clusters, Freight Clusters. It's just something that's kind of better, faster, cheaper. And I think that's very compelling. Secondly, I think these DSP capabilities have become just a bigger and bigger part of what customers think about when they think about streaming and what they need to do to be set up to use this technology in their organization. And I think that's really quite appealing to customers making the move. So I think those 2 things are the 2 biggest needle movers. The biggest enabler, I would say, on our side, is really working on tools around migration, making it easy. I think once you have a bunch of customers that want to do it, well, this is a big live data system migration, we want to make it as easy as pushing a button, that's ongoing work to really make that easier and easier. And as I think we continue that, I think we'll see an even faster transition of these systems, which is great. Robbie Owens: Great. And then as a follow-up, Rohan, in your contemplating guidance for the fourth quarter, you mentioned healthy levels of optimization. And I know this has been an issue in the first half of the year. When you -- I'd actually just to parse the question a little bit more on the comments a little bit more, is this healthy levels from prior optimizers or these net new optimizers that aren't to the same extent that you saw before. And so I guess within that question, maybe an update on optimization, is it still relevant as a headwind from the first half. And is this more a balancing active net new or kind of the whole thing in aggregate? Rohan Sivaram: Yes, Rob, when I think about the cloud business or rather how we manage and run the cloud business, they are typically like 3 things that are important to focus on, right? The first is, as you're entering a quarter, you're entering a quarter with a book of business and like for the existing customers, what is the growth that they are showing. And that's where optimizations generally come up. And as we've said, optimization is kind of part and parcel of every cloud business. And we want our customers to fine-tune and kind of use Confluent in a more efficient manner. That's part and parcel and that's something -- that's why I called it healthy levels of optimization. Which compares to prior historical optimizations that we've seen and which is not an outlier. So that was my comment. The second data point around how we kind of look at the business momentum is net new use cases moving into production. And the third is around adoption of new products. So when I talk about our guidance or just the momentum in Cloud business, these 3 kind of all go hand in hand. And the optimization levels to specifically answer your question, are in the ranges that we've seen historically, that is kind of more normalized and again, healthy and good optimization. Shane Xie: Thank you. We'll take our next question from Jason Ader with William Blair. Jason Ader: Yes, I know we've seen better cloud consumption trends across the vendor landscape, really over the last quarter or so. How much of the better performance that you guys saw in Q3, do you think is due to better sales execution versus overall macro tailwinds, including AI? Edward Kreps: Yes, it's a great question. It's -- obviously, it's always hard for us to pull ourselves out of the environment in which we operate in because we only get to run each quarter once, there's no counterfactual where it was a different environment. That said, I do think some of these improvements are kind of very mechanically obviously helping things. And so I do think we've made a set of structural improvements that are paying off. The new products are obviously new products, which are kind of bringing in Flink revenue or Connect revenue or governance revenue that we would not otherwise have had in those customers. So yes, I can't ascribe it between the two. I am aware that there was kind of good results in some other providers. But we do feel like we've made some pretty important structural improvements in what we're doing. Jason Ader: Okay. And then Rohan, for you. You didn't talk about U.S. Federal at all, but the shutdown here is going into week 4 or something. Did you bake that in? Did you bake in some conservatism to your Q4 outlook, especially on the Confluent platform side from potential weakness in U.S. Federal? Rohan Sivaram: Yes. For -- Jason, that's a great question. I mean, before I go into Q4, our Q3 federal performance, which is generally a big federal quarter, was in line with our expectations. So pretty much in line, no surprises there. And when you look at federal as a percentage of total revenue. I've shared this before. It is in the low single digits for us, which is good and bad, good as it's a big opportunity for us as we look ahead. And so that's great. And from a Q4 perspective, we have a couple of deals that are appropriately baked into our guidance. Shane Xie: All right. Thanks, Jason. We'll take our next question from Mike Cikos with Needham, followed by Wolfe Research. Hey, Mike, we can't hear you. You may be still on mute. All right. Why don't we go to Alex Zukin first, and we'll go back to Mike after Alex. Aleksandr Zukin: Can you hear me okay? Shane Xie: Loud and clear. Aleksandr Zukin: Perfect. Maybe just first one for Jay. Of the 21 AI native customers that you guys signed over $100,000 or that are using the product for over $100,000, is there a common pattern in how they're using Confluent? Are the AI products built around Kafka or Flink? Or are there use cases similar to what you're seeing with other companies? Because that's a really, really powerful stat. I wanted to see if you could unpack it a little bit. Edward Kreps: Yes. So first of all, AI companies or tech companies, so they have a set of usage patterns, they're exactly like every other tech company, which is they use it for a bunch of different stuff, right? But there is a set of use cases that are common in these companies, which are very specific to AI. And that's about the flow of data about the suggestions, recommendations, actions are being taken. So I kind of touched on this briefly in the script, but the big difference in these AI systems is it is not just upfront testing. You need to do this kind of ongoing evaluation, which is really looking at what are the actions that's taken, are they good? How are we going to evaluate that? You have a bunch of different ways of doing that, including just asking humans to judge it, asking the model to judge it. But the flow of that data is really kind of right at the heart of a lot of these systems, and it's a very natural kind of streaming problem. You're going to collect that in real time, it's going to flow out maybe through table flow or other mechanisms into kind of long-term storage. You're going to be able to iterate on that. It's also a very important kind of real-time analytic in terms of how well you're doing for your customers minute-to-minute, as you're out there, if you release if you take in a new model or you make changes to your system, ultimately, are you doing better or worse with your customers? That's kind of the fundamental question. So in many of these systems, that's one of the use cases. And this is not surprising. This is a similar use case we had with more traditional machine learning use cases. I think it's just now translated into the AI era. Aleksandr Zukin: Perfect. And then maybe just a quick one for you, Rohan. You gave us a lot of stats that are really encouraging. RPO accelerating and the coverage ratio is improving. You talked about I think, being past kind of a peak negative optimization headwind where it's kind of stabilizing and you're talking about more visibility longer term. And you gave guidance for cloud platform revenue -- sorry, for cloud revenue for Q4, but not guidance, sorry. You gave a modeling point of being around 20%. And as I look at a year ago when -- at least for my model versus the out year, there was about a 2-point delta in that. And so I guess I know we're not guiding to or maybe even in modeling points yet for next year. But as we look at our models and that 20% exit rate, do we -- what kind of step down given some of those dynamics that are maybe headwinds for Q4 that reversed? Should we think about as we look at next year cloud revenue? Rohan Sivaram: Yes, Alex. As we speak, we're kind of dotting the I's and crossing the T's on our fiscal year '26 plan. So I'm not going to be providing guidance either for total revenue or cloud revenue in this call. Having said that, I think, it's important to reiterate some of the data points that I shared around like, I think, you said it late-stage pipeline moving into production, the optimization levels being stabilized, normalized and which I like to call healthy, right? And the Flink driver of business, Flink has been really good. So we expect and coupled with the long-term visibility. So when you think about these and then you couple that with the low single-digit impact that we saw in Q4, which will obviously have an impact over the first half of next year, right? So those are some of the puts and takes. If I were you, I would look at as I think about fiscal year '26. But in our Q4 call, I'll be sharing a lot more color and details around our cloud revenue guidance. Shane Xie: Thank you. We will try Mike Cikos with Needham again, followed by Guggenheim. Michael Cikos: Can you guys hear me okay? Edward Kreps: Loud and clear. Michael Cikos: Sorry about that. And thanks for the second shot here, Shane. I just wanted to come back to Rohan first. On the consumption trends, can you just give us maybe a little bit more granularity on how those month-over-month trends played out in Q3? You obviously outperformed the guide here. But I don't know that we necessarily broke it down to the month-over-month trends the way that we were getting that detail in Q1 and Q2 of this year. Rohan Sivaram: Yes. For our month-over-month trends, obviously, we spoke around the performance drivers for Q3, which were 3, I just laid out. And given these drivers, our month-over-month consumption growth rates improved sequentially. And in general, going forward, I will try to avoid providing that level of detail. But specifically, we brought it up last quarter. So our month-on-month growth improved sequentially, and we were pleased with it. Michael Cikos: That's great to hear. And if I could just tack on one more, I know that you guys had the double down initiatives and some of the near-term focuses that we went through last quarter. Jay, maybe for you. But on the DSP specialization team, again, encouraging to hear some of these data points. Has the team been built out at this point? I know last quarter, we were talking about accelerating that buildout. Are the bodies in the seats? And where are we in maturing the playbooks and that team at this point? Edward Kreps: Yes. Yes. Yes, that team is built out and in full execution mode. Shane Xie: All right. Thanks, Mike. We will take our next question from Howard Ma with Guggenheim, followed by KeyBanc. Howard Ma: I appreciate all the commentary on the optimization trends. And I get that the Q3 outperformance sets the bar higher heading into Q4. But for -- I guess, one for Rohan. Does the Q4 cloud guide specifically still assume optimizations or consumption trends well below historical trends? And then when you take into consideration the large AI native customer, does it imply that NRR will be -- will decelerate versus the 114%? Rohan Sivaram: Yes. So I'd say a couple of questions, so I'll break it down, Howard, to start off like we always have optimization. And that's all quarters, there is optimization. And that's why I kind of made sure that I commented around like normalized level of optimization that we saw in Q3. So that is hopefully answering the first part of your question. And when you kind of normalize the impact of the one large customer that we called out last quarter, our Q4 guidance is when you look -- compare the year-over-year growth rates, it's roughly flattish to what we saw in Q3. And from a net retention rate perspective, obviously, we are pleased with stabilization of our net retention rates. And when you think about what are the drivers, it's primarily around our stronger consumption growth that we saw, both in core streaming and DSP, both are drivers of stabilization. And from a net retention, again, I'm not going to guide for Q4 or fiscal year '26 for net retention, but I'll leave you with 2 data points. In the short term, net retention can generally fluctuate. But over the long term, some of the opportunities that we are focused on, be it core streaming, DSP, AI partner ecosystem, these are going to be the drivers of net retention rate. And all of these drivers have had positive results in Q3. Howard Ma: Got it. And Rohan, given how important Flink is as a driver now, you gave the disclosure Flink low 8-figure ARR, Flink on cloud up 70% sequentially. I think if you triangulate it, you can get to maybe low single digit, call it, $2 million to $3 million of sequential increase in the cloud side. So is that fair? And should we expect that sort of sequential -- assuming that number is right, increase on the cloud side going forward, maybe as a baseline. Rohan Sivaram: Yes. Again, I'm going to stay away from providing guidance, but we are very pleased with our Flink performance. And from a Flink performance, again, I'll say because it's important to note both the breadth and the depth of our Flink performance is something that we should note. We have a lot of customers, over 1,000 customers using Flink and then we have 12 customers spending over $100,000, 4 customers spending over $1 million. And in Q3, we just reported greater than 70% quarter-over-quarter growth for that business. So we're very pleased with how the Flink business is progressing, and it will be a material contributor to Confluent Cloud in fiscal year '26. Shane Xie: All right. Thanks, Howard. Our last question today will come from Eric Heath with KeyBanc. Eric? Eric Heath: Great. Maybe a lot of good questions have been asked. Maybe if I could just come back to Flink for a minute here, Jay. I am just curious to hear more maybe about some of the easy wins you're seeing with Flink customers. Some of the learnings you are applying to scale that Flink adoption across the customer base. I know we talked a lot about go-to-market and the DSP team, but any color there? And Jay, maybe just lastly, any thoughts or the feedback on how we should think about competition with Databricks structured streaming product that was announced this quarter? Edward Kreps: Yes. Yes, happy to talk about both. So yes, there's actually a very broad set of use cases for Flink. If you were trying to bucket them, there's a bucket that's kind of these real-time data pipelines, getting data to some AI application or agent getting data into the analytics ecosystem, Databricks, Snowflake, cloud provider things. And then there's a set of use cases, which are acting on the data, right? Trying to predict fraud, personalize things for customers, do something smart in reaction to an event in the business. Those are the 2 kind of buckets that we see customers using. Both are actually doing quite well. And both are represented in kind of the numbers that we would overall describe. I would say some of the larger customers are customers that are kind of taking existing batch processes and converting them over. So I talked about a number of customers just doing these kind of migrations. That's obviously the most challenging to orchestrate for a new product is to really take something that's been built up over many years and kind of move it over. But we're finding that we're now at a point of maturity where we can start to do that and do it successfully with customers. So that's I think that's an exciting thing. Relative to Databricks, we remain actually very close partners working together on applications for hundreds of joint customers. We're providing a set of real-time data that often flows as their environment. There are some overlaps and capabilities in both what we're doing and what they're doing. I think in practice, we tend to serve different constituencies. We tend to have more kind of real-time operational application systems, software engineers, they would tend to have more data engineers, analytics, data scientists, type user base. But for sure, there's some things that you could do in either product. On the whole though, I think we've been pretty complementary in going to market together. And even though that kind of overlapping feature set may increase, I think that will remain the case. Ultimately, customers have chosen us for that real-time hub of integration for data and many customers have chosen Databricks as the kind of lake destination where all the data goes for historical analysis. And so ultimately, customers want those things to work together, we're happy to serve them together. Shane Xie: Great. This concludes our earnings call today. Thanks again for joining us. Have a nice evening, everyone. Take care. Edward Kreps: Thanks all.
Operator: Good day, ladies and gentlemen, and welcome to the Amkor Technology Third Quarter 2025 Earnings Call. My name is Diego, and I will be your conference facilitator today. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to Jennifer Jue, Head of Investor Relations. Ms. Jue, please go ahead. Jennifer Jue: Good afternoon, and welcome to Amkor's Third Quarter 2025 Earnings Conference Call. Joining me today are CEO, Giel Rutten; and CFO, Megan Faust. Our earnings press release was filed with the SEC this afternoon and is available on the Investor Relations page of our website along with the presentation slides that accompany today's call. During this presentation, we will use non-GAAP financial measures, and you can find the reconciliation to the comparable GAAP financial measures in the slides. We will make forward-looking statements today based on our current beliefs, assumptions and expectations. Such statements are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our press release and SEC filings for a discussion on the risk factors and uncertainties that may affect our future results. We assume no obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of this presentation, except as may be required by applicable law. With that, I will now turn the call over to Giel. Giel Rutten: Thank you, Jennifer. Good afternoon, everyone, and thank you for joining the call today. I'd like to begin today on a personal note and to share that I have decided to retire from Amkor at the end of 2025. It has been an honor and privilege to be President and CEO of Amkor for over 5 years, and I'm excited to see what the future holds. I will remain on the Board of Directors to provide continuity and to support our long-term strategy. I would like to congratulate Kevin Engel as my successor and will support this transition over the next couple of months. Kevin has been with Amkor for over 20 years and brings deep experience that will benefit the company during this next growth phase. You'll hear more from Kevin at upcoming investor events and on the next earnings call. With that, I will now provide updates on the quarter. Amkor delivered a strong third quarter with revenue of $1.99 billion and EPS of $0.51, both exceeding the high end of our guidance. Revenue increased 31% sequentially driven by a robust demand for advanced packaging. We executed steep production ramps and achieved record revenue in both the communications and computing end markets, demonstrating our ability to scale quickly and support our customers' product launch cycles. Communications revenue increased 67% sequentially and 5% year-on-year, driven by the latest iOS product ramp and a 17% year-on-year growth in Android. We expect Q4 to decline sequentially with some slowdown in iOS, partially offset by continued strength in Android. On a year-on-year basis, Communication is expected to be up more than 20% in the fourth quarter. As AI expands into edge devices, we are collaborating closely with customers on next-generation products and we are confident this will drive future demand for advanced packaging. Computing revenue increased 12% sequentially and 23% year-on-year. We anticipate modest sequential decline in Q4 on product mix changes, but expect continued year-on-year growth. Our high-density fan-out technology is ramping as expected with another product moving into production in Q4. Our long-term computing outlook remains robust as innovation in AI and high-performance computing fuels investments across data centers, infrastructure and personal computing, areas where Amkor has a strong customer pipeline. Automotive and Industrial revenue increased 5% sequentially and 9% year-on-year driven by growth in advanced products for ADAS applications together with improvements in our mainstream portfolio. Fourth quarter revenue is expected to be stable sequentially and grow around 20% year-on-year, supported by broad-based customer demands. Consumer revenue increased 5% sequentially, but was down 5% year-on-year reflecting the product life cycle of a wearable product introduced in the second half of last year. We expect a further decrease of this product in Q4 and anticipate a slight decline in traditional consumer applications. Year-on-year, Consumer is expected to be down mid-teens percent. Overall, our fourth quarter guidance reflects positive trends of returning to a more normal seasonal pattern and for continued year-on-year growth in both our advanced and mainstream portfolio. Now let me share an update on our strategic initiatives. The semiconductor industry is rapidly evolving as accelerated AI proliferation drives market expansion, technology transitions and increased requirements for a resilient manufacturing base. Within this dynamic landscape, Amkor remains focused on its 3 strategic pillars: investing in our technology leadership, building supply chain resilience in our manufacturing footprint and deepening partnerships with lead customers. Earlier this month, we marked a major milestone with the groundbreaking of our new advanced packaging and test campus in Arizona. Working closely with our foundry partner, this campus will be a cornerstone of U.S. semiconductor manufacturing, delivering a full turnkey supply chain with advanced packaging and test capabilities to leading customers in the industry. The Arizona investment represents a bold step forward in our strategic journey. We've increased the total projected investment to $7 billion, reflecting additional cleanroom space and a second facility. Once complete, the campus will include 750,000 square feet of clean room, space and create up to 3,000 high-quality jobs. Construction of Phase 1 is expected to be completed in mid-2027 with production beginning in early 2028. The Arizona campus will feature smart factory technologies and scalable production lines to meet evolving market demands for AI, high-performance computing, mobile communication and advanced automotive applications. It will focus on advanced packaging and testing technologies and will complement domestic foundry manufacturing, enable a full end-to-end semiconductor supply chain in the U.S. Our expanding geographic footprint with facilities in Asia, Europe and now the U.S. distinguishes Amkor in the OSAT industry. It allows us to partner more closely with customers and deliver innovative packaging and test solutions aligned with their technology road map needs. In summary, Amkor delivered a strong quarter, advanced our strategic initiatives and remains well positioned for long-term growth. With that, I will now turn the call over to Megan to provide more details on our third quarter performance and near-term outlook. Megan Faust: Thank you, Giel, and good afternoon, everyone. Third quarter results were better than expected with revenue of $1.99 billion. This represents 31% sequential growth and 7% year-on-year growth. All end markets grew sequentially, and we achieved record revenue in the communications and computing end markets, driven by robust demand for advanced packaging. Given the leverage in our financial model, profitability metrics expanded more than revenue sequentially. Gross profit was $284 million and gross margin was 14.3%, up 230 basis points as the flow-through benefit from higher volume was partially offset by an increase in material content due to a higher proportion of advanced SiP. Operating expenses came in as expected, higher sequentially, primarily due to a nonroutine benefit in Q2. Operating income was $159 million, and operating income margin was 8% compared with 6.1% in Q2. As a result of higher operating income and favorable foreign currency, net income more than doubled at $127 million, driving EPS to $0.51 for the quarter. And finally, EBITDA was $340 million and EBITDA margin was 17.1%. Turning now to operational efficiency. We are taking steps to optimize our manufacturing footprint in Japan. We are actively working with our customers to align factory capacity to market demand to assure supply is guaranteed for this broad portfolio of automotive products. Near-term focus is on reducing manufacturing costs, as well as working with customers to adjust terms to cover costs for underutilized production lines. We expect to begin to see results from these actions in Q4 2025 while additional adjustments will take effect in the first half of 2026. With the full effect of these actions, we see a path to improving corporate gross margins by around 100 basis points exiting 2027. Japan continues to be a key region for Amkor, supporting the automotive end market and offering geographic flexibility to a global customer portfolio. Over the same time period, we also expect margin improvement from Vietnam ramp-up efficiencies, mainstream recovery and scaling of leading-edge advanced packaging. We are currently refining our long-term financial targets, and I'm pleased to announce that we plan to host an Investor Day in mid-2026, where we will share these targets and deeper insights into our long-term strategy. Now moving on to the balance sheet. This year, we took proactive steps to position our balance sheet and enhance liquidity for the upcoming investment cycle, particularly for our Arizona campus. We replaced our $600 million Singapore-based revolver with a new $1 billion U.S.-based revolver. We executed a $500 million term loan. We issued $500 million of senior notes due in 2033, and redeemed $525 million of senior notes due in 2027, significantly extending our maturity profile. As of September 30, we held $2.1 billion in cash and short-term investments, and total liquidity was $3.2 billion. Total debt as of Q3 was $1.8 billion, and our debt-to-EBITDA ratio was 1.7x. Now turning to our fourth quarter guidance. Revenue is expected to be between $1.775 billion and $1.875 billion, representing an 8% sequential decline at the midpoint and a 12% year-on-year increase. We are pleased to see forecasts for both advanced and mainstream are up double-digit percent year-on-year. Gross margin is projected to be between 14% and 15%, which includes an anticipated benefit from asset sales of around $30 million. Year-on-year, gross margins are constrained due to product mix concentrated in higher material content products and higher manufacturing costs as we scale and invest in leading-edge advanced packaging. Operating expenses are expected to be around $120 million, and our full year effective tax rate is expected to be around 20%, excluding discrete items. Net income is forecasted to be between $95 million and $120 million, resulting in EPS between $0.38 and $0.48, which includes the anticipated asset sale benefit. Our 2025 CapEx forecast has increased to $950 million, up from $850 million to support expanded investment in our Arizona campus. In addition to investment in our geographic footprint, our focus remains on scaling capacity and capability for leading-edge technologies, including high-density fan-out, advanced SiP and test solutions. We will provide more details on our CapEx spend levels and timing for our new Arizona facility when we give 2026 CapEx guidance at our next earnings call. In closing, our third quarter results reflect the effectiveness of our strategy, strengthening our technology leadership, building supply chain resilience by expanding our broad geographic footprint and deepening partnerships with lead customers in growth markets. With the upcoming CEO transition, we remain committed to investing in our long-term growth and our capital allocation strategy, positioning Amkor to deliver sustainable value for our shareholders. This concludes our prepared remarks, and I'll now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Ben Reitzes with Melius Research. Benjamin Reitzes: Yes. I appreciate it, and Giel, wish you the best of luck. Look forward to talking to you later, but enjoyed you on these calls. I got two questions. First of all, with regard to the gross margin guidance in the fourth quarter, if you take out the asset sale, I believe it's 160 basis points lower, which puts you below what we were expecting a bit. You mentioned some higher manufacturing costs. Could you just elaborate on that? And what the pressures are that kind of puts you without the sale below 14%? Megan Faust: Ben, this is Megan. I'll take that one. So normalizing for that asset sale, you've got the math right. So that sequential incremental flow-through is actually in line with our financial model. You'll see it's probably about 30% incremental. What's happening there probably compared to last Q4 is we do have a higher material content in Q4. If you look at last year, we actually had over 350 basis points drop in the material content between Q3 and Q4. That was related to a deeper communications drop last year. So that's effectively what's impacting margin in our Q4 guidance. And then you had a follow-up? Benjamin Reitzes: Yes. Just wondering if you could talk a little bit more about the communications segment. I'm sorry if you said this, but we're picking up indications that there's upside into 4Q with one of -- with your biggest customer at least. And I was wondering about the dynamics there on the consumer guide, if you can elaborate, are you seeing it? Or is there an offset in Android? Or is there a conservatism in your guidance for communications in particular? Giel Rutten: Thanks, Ben. Let me try to answer that question. Overall, I think the Communications segment, we're guiding down slightly into Q4, we see continued strength in Android, and that's also reflected in our guide. We see a slight tapering off in the iOS ecosystem. How that exactly reflects into end product outlook is difficult to say. I think we're a little bit deeper into the supply chain where we supply our services. I think for now, this is the exposure that we have, and we take that forecast in our guidance. Operator: [Operator Instructions] Your next question comes from Randy Abrams with UBS. Randy Abrams: Yes. I wanted to also congratulate you, Giel, just on the next chapter. It has been good working with you. I wanted to ask the first question on the Compute opportunities, where you mentioned the start of shipping the high-density fan-out. If you could go how you see the pipeline for AI and networking and also for the first tranche of CoWoS-S capacity, if you see opportunity to utilize that with some of the new products coming out? Giel Rutten: Let me take that, Randy. Well, first of all, thanks, with your congrats. With respect to the high-density fan-out opportunities, I mean we start shipping the first product in the quarter. We have two more products lined up, one with the same customer and the other with an external party. So we believe that, that high-density fan-out technologies, and I reiterate the question, let's say, the outlook that we shared last time, is a solid foundation of future growth for Amkor. And it was good to see the ramp going into this quarter and also into next quarter. So we expect that to continue. I think we see a strong outlook there. With respect to the 2.5D, I mean short term, we see a slight moderation there. Longer term, we see, let's say, a stronger potential pipeline coming up. And I think we had a review last couple of weeks with our customers on that specific technology, and that's signaled positive trends going forward. It may take a few more quarters before these products are going to be released, but it's encouraging to see that, that technology will continue to be a solid foundation also going forward. Randy Abrams: Okay. Good. And then my follow-up question on the system and package pipeline. This year, you gained back a key socket. It looks like two different things going on that improving, but the consumer pulled back. If you could talk broadly about SiP, how you see the pipeline into next year, continuing on the communication gain and then maybe what's happening on the consumer side. Giel Rutten: Yes. I think the sockets on the communication side, that is performing as expected. We're executing the ramp going into Q3 and Q4. And also there, I think the outlook for the full year is in line with what we shared in February, including the socket ramp. So we're pretty positive on the communication side. With respect to the consumer side, I mean the end product goes through a predicted and forecasted sequential decline. It's a cyclicality of that product portfolio. We're encouraged with next products that are being launched going forward in that same portfolio, but we expect that Q4, as guided, will be a correction and a further slowdown of that existing product. Operator: Your next question comes from Steven Fox with Fox Advisors. Steven Fox: I had a couple of questions as well. First, Megan, can you just round out some of the margin talk. You mentioned in the prepared remarks also that manufacturing costs were weighing year-over-year. So I was curious how much that is and where you are relative to sort of peak pressures on that? And the same thing for the material content mix, how do we think about that sort of ongoing pressures into next year? If there's any way to give clues on that? And then I had a follow up. Megan Faust: Sure, Steve. So with respect to the Q4 gross margin, year-over-year, there's really two things constraining flow through. One is the higher manufacturing costs, and that's really attributable to our leading-edge advanced technology, most of which Giel just mentioned, but having higher overhead and CapEx to support that ahead of scale. So as we build scale with those leading-edge advanced technologies, which we see that scaling well into 2026, that will not be a headwind. The other half is related to, what I would say, year-over-year unfavorable product mix. So the decline in our peak material content we had in Q3 to Q4 will probably be around 100 basis points compared to last year, which was over 300 basis points. And that's really attributable to a more stable SiP and a more normal seasonal pattern with regards to that sequential behavior. Steven Fox: Great. That's helpful. And then just bigger picture on the $7 billion investment for Arizona now. I guess if you can comment a little bit further than what has been described so far and like public comments about why the increase in investment, what does it signal about Amkor's opportunities longer term? And then I was curious, does it create any near-term opportunities like stamp of approval for winning near-term business in other parts of the world? Giel Rutten: Steve, let me comment to that. I mean, over the last, let's say, 12 months, we see an increased interest in U.S. manufacturing and that comes from multiple customers that is driving up local investments, not only in scale for silicon to be manufactured in the U.S., but also an increased demand for advanced packaging. So we're working very closely with these lead customers, but also with our foundry partner to scale the capacity that we put in place in line with demand of our lead customers. And that's the basis of the increased investment to $7 billion. You have to keep in mind that this investment is coming in different phases, and we stepped that up through two important phases with the two additional -- or a second additional building. And also, of course, we only put equipment then based on real market demand. But overall, we expect that the $7 billion is justified given the increased interest in the U.S., but also given the alignment that we have with lead customers here on to require capacity for U.S. manufacturing. Operator: Your next question comes from Craig Ellis with B. Riley Securities. Craig Ellis: Yes. and I'll start just by thanking you and wishing you well, Giel, for all the help. And then Kevin, look forward to working with you more intensely next year. On to the question, I think there was an indication that within the automotive and industrial end market, we saw broad strength that sounds like ADAS is starting to improve, as I think you expected three months ago against what's been a pretty tepid automotive market. Could you give us a sense for the potential for ADAS and some of your other programs to continue to benefit that segment as we look beyond 4Q into 2026? Giel Rutten: Thanks, Craig. Yes, let me try to answer that. I mean we expect, going forward, that advanced packaging in the automotive domain will continue to increase and will continue to drive growth. ADAS, it's a broad range of technology going into automotive, and we expect that, that will continue to grow certainly because of the proliferation of that functionality deeper into the car range, but also further electrification of the automotive market. So we expect that to continue over the next, I would say, a couple of years, and that will step-by-step move to a more self-driving functionality into the car and more connectivity into the automotive domain. We are well positioned there. I mean we're working with the leaders in the semiconductor area that deliver products in this functionality, and we're very pleased with our opportunities and pipeline there. The other positive element in the automotive domain is the recovery of our mainstream portfolio. We saw the second quarter of this year reaching a trough. And going into the third quarter, we see improvement, and we expect that to continue into the fourth quarter. And our customers signaling a strong, let's say, improvement of the overall inventory in the supply chain with a more balance there, and that ultimately will drive a more balanced revenue base in the automotive domain for Amkor. Craig Ellis: That's really helpful, Giel. And then I wanted to follow up with a clarification for Megan. Megan, nice to see the significant gross margin improvement coming from the facility rationalization in Japan. The question is, for the 100 basis point gross margin improvement by end next year, what's our baseline? Is it the adjusted fourth quarter level after taking out that $30 million benefit? Or were you pointing back to the third quarter as the baseline? Megan Faust: Thanks, Craig. Yes. So I would use our Q3 as our baseline, given we are going to begin seeing benefits moving into Q4. I did want to clarify the 100 basis point benefit, we had stated the full impact of that would be seen by the end of 2027. And that marks a 2-year activity, which is, for us, very standard as we're managing through rationalizations of this sort in Japan, supporting mainly an automotive customer base. Operator: And your next question comes from Joe Moore with Morgan Stanley. Joseph Moore: I wonder if you could just address the overall cyclical environment for the OSAT business. Are you seeing customers starting to get concerned about potential tightness and any impact that you could see -- have seen on like-for-like pricing and may see in the future on like-for-like pricing? Giel Rutten: Well, good question, Joe. Thanks for that. Across our portfolio of mainstream and advanced packaging, we see on the advanced packaging side in some pockets, tightness of supply where our lines are filling up quite significantly. That holds for, for example, a flip chip portfolio or some wafer level packaging. So I don't see tightness still occurring in the next quarter, but we see that in some pockets, there is tightness of supply, not only with respect to overcapacity, but there is also some limitations in certain areas, for example, substrates where we're working closely with suppliers to make sure that we have a continued supply base there. Joseph Moore: Okay. Great. And then in terms of the strength that you've seen in the smartphone business, any indication that any of that could be pull forward tariff related, anything like that? I mean it seems like there's pretty solid demand, but I just wanted you to address that because you get the question a lot? Giel Rutten: I mean it's difficult to say what next year will bring on the smartphone base. I mean for Amkor, it's important to reconfirm our position in this domain, both on the Android side as well as on the iOS side, where we can confirm that we are convinced that we have a very strong footprint on both sides of certainly the premium tier smartphones. We also see an increased evaluation of next-generation products in that supply chain, enabling future phones for more AI functionality as edge devices. When that will materialize in a change or increased semiconductor content, it's difficult to share with you at this moment, Joe. But overall, we're confident that we have a solid position in the market, difficult to predict how the individual phone segments will develop into next year. Joseph Moore: Congratulations again on your retirement. Operator: And your next question comes from Peter Peng with JPMorgan Chase & Company. Peter Peng: Giel, I want to echo my peers' comments as well and best of luck in your next chapter. Just on your CoWoS-L, there's increasingly more and more of your hyperscaler customers and merchant transitioning to CoWaS-L in their technology road maps. I know you guys have something equivalent to your S-Connect. Maybe you can share some update on the progress there with your S-Connect and how do you believe you're positioned in this area? Giel Rutten: Well, it's difficult to comment on CoWaS-L. We're working very closely with our foundry partner to make sure that we have a complementary supply chain in place. Current focus is very much on what we label high-density fan-out, an equivalent of CoWoS-R, and we see significant opportunities there. With respect to the other CoWoS-L, I think we're currently evaluating the on-substrate part of that technology in Asia as well as to make sure that we have a complementary supply chain put in place in the U.S. So overall, that's our approach there, Peter. But overall, I think the computing market has multiple opportunities for Amkor. I think we're working closely, both with customers as well as with the foundry partner going forward on the different technology domains. Peter Peng: Got it. Okay. And then maybe just you talked about some new ramps in your -- the CoWoS-R equivalent high-density fan-out. How is that going to impact seasonality as we think about the first half of next year? Is that anything significant that would alter seasonal? Or do you think those are like less beneficial until later on. Maybe just talk about seasonality and how you think about those products ramping? Giel Rutten: Well, seasonality for Amkor in the past and also now is, to a large extent, driven by our exposure to the communication market. I think there was a strong and there is a strong seasonality in the communication market. If you look to our other markets, be it automotive, computing and also consumer, there is less pronounced seasonality. So the product launches that we are referring to, we expect them to show significantly less seasonality. And with more growth in the compute domain that would ultimately level out the significant seasonality that we have, although we foresee, of course, that for the time to come, the Communications segment will be our biggest segment. Operator: And your next question comes from Tom Diffely with D.A. Davidson. Thomas Diffely: Congratulations, Giel, on your next chapter. So maybe just one more question on the new facility in Arizona. When you think about the $7 billion, the increase to $7 billion, how much of that is because of the extra capacity you're adding versus the increase in costs that we've seen kind of across the board these days in construction? Giel Rutten: Well, Tom, I think I can be short on that. This is exclusively related to the increased capacity that we are planning for. You may have been informed that we also moved the location of the factory to a different location, a location closer to the TSMC location that gives us twice the land area with an additional option to further expand with 50 acres for potentially a third facility. So that offers opportunity to grow. We're in close cooperation and in close alignment between the different partners and customers to make sure that we scale the facility correctly when it comes to scale, but also make sure that we ramp that facility with the right technology in line with what customers need in the U.S. So it is not related -- the increased investment is not related to the higher cost, it is strictly related to the capacity expansion. Thomas Diffely: Okay. Great. That's very encouraging. And then as a follow-up, when you think about the CapEx of $950 million for next year, how much of that is specifically for Arizona? Megan Faust: So Tom, I can take that. So we had increased our CapEx guide for 2025 to $950 million, and that was really driven by having more visibility in what we would need to spend in 2025. We have not yet given guide for CapEx for 2026. So we will give that at our next earnings call, along with more visibility on the timing and expense for the Arizona facility. Thomas Diffely: Okay. But the increase in '25 was all driven by Arizona being... Megan Faust: Correct. Operator: And your next question comes from Steve Barger with KeyBanc Capital Markets. Steve Barger: I had another compute question. Giel, I think RDL formats are replacing silicon interposer to some degree, which should be good for OSATs. How much of your CapEx has been to support RDL? And does that shift drive higher value add that translates to unit margins? Or would the primary benefit be volume? Giel Rutten: Steve, with respect to the relative CapEx that goes into the expansion of high-density fan-out, the RDL-based technology, it's a significant, I would say, the majority of our CapEx. I want to reiterate there that a large part of our capital investments when it comes to individual equipment is highly fungible, fungible between standard wafer level packaging, even bumping to 2.5D into the high-density fan-out. But if we look to the ramp that we're preparing for, and I have to correct myself, I think we're ramping up with our lead customers, 3 individual products and with the second customer, another product in the early part of the year. So there's a significant ramp expected, and we made a significant commitment to our customers to support that ramp where we are working in close cooperation with our lead customer there. So that's how we see the investment in high-density fan-out. Steve Barger: And I know it's being driven by compute right now, but what are the gating factors to the higher volume applications like PC or mobile? Are there technology challenges for those applications? Or is it just really a function of customers making the decision to go that direction? Giel Rutten: Yes. Good question, Steve. From our perspective, this technology will be applied in multiple domains. One is the data center domain, as we just discussed, but it definitely will go into the more higher volume PCs and ultimately also in the mobile communication domain. The technology is basically the same. I think we use the same production lines for that technology. Of course, the individual specification of the technology is slightly different for each application. But the basic capacity that we put in place is supporting products into -- in the PC domain as well as in the data center and communication domain. Operator: And your next question comes from Denis Pyatchanin with Needham & Company. Denis Pyatchanin: Great. Well, we'd like to mirror everyone's congratulations as well. And for a quick question about Computing. So Computing looks like it was up over 20% year-over-year. Can you discuss the key drivers of this growth? And if you will see these persisting into Q4, even with revenue guided down somewhat quarter-over-quarter? Giel Rutten: Yes, Denis. I mean Computing in the last quarter showed broad-based strength. I think all applications in the computing domain from PCs as well as networking as well as data center products were up in the quarter. And we expect that, that will continue. I mean we see on the more consumer products on the PC product, we still see strength, and that's also what the market predicts. But definitely also on the networking and data center product side, we see a continued strength. So overall, we're optimistic. We had a good quarter and a good year in Computing. We had a record in the third quarter. I have to remind you that the AI and the AI proliferation is just started. So there will be more products being developed going into the edge and edge devices as well as into networking and data centers. So we stay [Technical Difficulty] and we remain very optimistic there, and we're confident that we have a client there. Denis Pyatchanin: Great. And then for my follow-up, for communications, I think you mentioned strength in Android persisting into next quarter. Can you provide some more color on that, maybe perhaps by geography? Giel Rutten: That is difficult to say. I mean we believe that there is a trend in the Android market, and I also mentioned that last quarter, there is a trend to higher-end devices, so the premium tier smartphones, and that's a global trend. And I cannot go to individual customers there, Denis. We saw that there was inventory in that supply chain. But overall, we believe that currently, that inventory is digested. So overall, we are very positive on the Android players. Operator: And ladies and gentlemen, at this time, I'm showing no further questions. I would like to turn the call back over to Giel for closing remarks. Giel Rutten: Thank you. Now let me recap our key messages. Amkor delivered a strong third quarter with record revenue in both the Communications and Computing end markets. Fourth quarter revenue is expected to increase 12% year-on-year at the midpoint. We are focused on enhancing operational efficiency and optimizing our manufacturing footprint in Japan. And we look forward to hosting an Investor Day in mid-2026, where we will share financial targets and deeper insight in our long-term strategy. Thank you for joining the call today. Operator: Ladies and gentlemen, this concludes today's conference call. You may now disconnect.
Operator: Good morning, everyone, and welcome to the Westgold Resources Q1 FY '26 Quarterly Results Investor Update Webcast. Your first speaker for today is Wayne Bramwell, Managing Director and CEO. I'll now hand you over to Wayne. Wayne Bramwell: Thank you, Shane, and welcome, everyone, joining us today. On the call today, I have Aaron Rankine, our Chief Operating Officer; and Tommy Heng, our Chief Financial Officer. Today, I'll provide a quick overview of the Q1 FY '26 results. After that, Aaron and Tommy will each share an overview of their areas, and then we'll open the webinar up for questions. Let's jump straight in. Slide 4. Q1 marks a strong start to the new financial year. We delivered 83,937 ounces of gold at an all-in sustaining cost of $2,861 an ounce. which is in line with our guidance. Importantly, we generated an underlying cash build of $180 million and closed the quarter with $472 million in cash, bullion and liquid investments. This quarter also saw the release of our 3-year outlook, which outlines a clear pathway to 470,000 ounces of annual production by FY '28, while reducing our cost profile. This outlook is supported by a 24% increase in mineral resources to 16.3 million ounces and a 5% increase in ore reserves to 3.5 million ounces, reinforcing the long-term strength of our portfolio. Key to our value proposition is increasing returns to our shareholders. During the quarter, we declared a $0.03 per share final dividend for FY '25, upgraded our dividend policy for FY '26 and launched a 5% on-market share buyback program. All in all, Q1 FY '26 sets a solid foundation for the year ahead. With strong financials, growing reserves and a clear growth strategy, Westgold is well positioned to deliver its organic growth plans. Let's move to the next slide, Slide 5. Our total recordable injury frequency rate, TRIFR, improved to 5.04 this quarter, down from 5.67 in the previous quarter. This is a positive step and reflects the continued focus across our sites on embedding safer work practices and improving hazard awareness. Slide 6. We are building momentum. We've now delivered 3 consecutive quarters of cash builds, culminating in a $108 million increase this quarter for a total of $472 million in cash, bullion and liquid investments. Slide 7, FY '26 guidance maintained. We're off to a solid start in FY '26 with 83,937 ounces produced at an ASIC of $2,861 an ounce, both in line with guidance. As we flagged within our guidance, production is back ended in FY '26, and we're well poised to ramp up in H2 as planned. Slide 8. Resource and reserves continue to grow. During the quarter, we released updated resources and reserve statement. Encouragingly, we've again built upon our mineral resource base, growing it to 16.3 million ounces and lifting ore reserves to 3.5 million ounces. representing a 24% and 5% growth, respectively, over the last 12 months after depletion. Slide 9, the 3-year outlook. This quarter, we released our 3-year outlook, a high confidence, executable plan that sees Westgold grow from 326,000 ounces in FY '25 to 470,000 ounces by FY '28, while reducing our all-in sustaining cost to circa $2,500 an ounce. Importantly, this growth is organic and fully funded, underpinned by our existing portfolio of assets, 3.5 million ounces in ore reserves and circa 6 million tonnes per annum of processing capacity. Key, we're not relying on new discoveries or external deals. This is about maximizing performance from what we already have, higher-grade ore, better infrastructure and smarter capital allocation. We've built the foundation. Now we're focused on consistent execution. Slide 10. The 3-year outlook sets the baseline for what we're aiming to achieve, but it's important to note that there's plenty of upside not included in the plan. I won't go through all those listed on the slide here, but some key opportunities we're actively progressing to bring value forward include Bluebird South Junction Underground. The 3-year outlook assumes we reach 1.2 million tonnes per annum by FY '28, but we are targeting this rate by the start of FY '27. Higginsville mill expansion beyond 2.6 million tonnes per annum. Feasibility study work includes options up to 4 million tonnes per annum of capacity and also operational improvements. We have made substantial gains in this space, which have not been baked into the plan and is becoming more operationally efficient is a key focus during FY '26. These represent material upsides to our base case and reinforce the strength and flexibility of our portfolio. With that, I'll hand over to Aaron to talk in more detail about operations. Aaron Rankine: Thank you, Wayne, and welcome to all on the call today. Slide 13. Q1 was a quarter of planned consolidation, setting the foundations to accelerate production. Key milestones in the quarter include updated mine design and commencement of paste fill at Bluebird South Junction, completion of infrastructure upgrades at Beta Hunt, completion of scheduled processing maintenance shuts at all plants and first ore from the Crown Prince OPA. Whilst our production quarter-on-quarter was marginally down, we delivered to our plan. And it should be noted that whilst this was a consolidating quarter, it was the second highest gold production in the history of Westgold. Looking ahead, we see clear tangible opportunities to drive our production up and cost down with continued improvement in operational performance, the introduction of higher-grade Great Fingall ore, continued ramp-up at Blue Bird South Junction and optimizing Beta Hunt on the back of the improved infrastructure. Slide 14. Slide 14 gives us a closer look at the Murchison, where we produced 53,140 ounces, about 1,700 ounces lower than the last quarter. All 3 Murchison plants had major shuts scheduled in Q1, which was the main driver for the quarter-on-quarter reduction. The mining of slightly lower grade areas compared to Q4 also contributed to Fortnum's lower production in Q1. At the Bluebird South Junction mine, part of the Meekatharra Hub, we implemented paste fill and ramped up development of the finalized mine design on which I'll provide more detail on the next slide. This resulted in reduced mine tonnes compared to the prior quarter. This was, however, offset by higher grades from the mine, which contributed to a modest quarter-on-quarter improvement from the hub. The other contributor to improved production at Meekatharra was the early commencement of ore from Crown Prince via the ore purchase agreement with NMG. We had anticipated first ore from Crown Prince in November. However, we received 33,000 tonnes in September, of which we processed 24,000 tonnes during the quarter at 3.5 grams for 2,601 ounces. This had around a $13 million impact on our all-in sustaining costs. At Great Fingall, [indiscernible] mobilized seamlessly in September, and we're on track to deliver the first ore from virgin stopes in Q2. The total AISC for the Murchison was $163 million, about $25 million higher than the prior quarter. This cost increase was due mainly to the OPA and higher processing maintenance costs as part of the planned shutdown. Slide 15. Now I'd like to cover Bluebird South Junction in some more detail. Some great work has been done by our engineering teams to create the updated mine design you see on the slide for South Junction Zone. The new design mitigates the ground control issues that have delayed development to date, whilst enabling the productivity benefits of transverse mining by creating up to 10 active work areas per level and enabling continuous mining in the levels with segregation from paste fill exclusion zones. Paste filling for the South Junction zone has commenced without a hitch. Introducing paste supports large, highly productive stope shapes and allows full extraction of the South Junction ore body. Whilst the commencement had short-term impacts in Q1, we will start to see the benefits as production ramps up over the financial year. Let's jump to the Southern Gold Fields. Slide 18 summarizes the performance of our Southern Gold Fields operations. Production performance was consistent quarter-on-quarter on a mine-by-mine basis. We produced 30,797 ounces for the quarter. Whilst 2,400 ounces lower than the prior quarter, the main contributor for this was the opportunistic take-up of additional Lakewood tolling in Q4. 61,000 tonnes of stockpile were built in the Southern Gold Fields in the quarter. The stockpile buildup and a onetime noncash adjustment in relation to the Karora transaction resulted in a lower total all-in sustaining cost quarter-on-quarter. Critical for the outlook at Beta Hunt, several key infrastructure projects are now complete. These upgrades will nearly double the ventilation flows when operated at full capacity, circulate freshwater in and out of the mine and provide consistent and reliable power, supporting the mine production ramp-up toward a run rate of more than 2 million tonnes per annum. With that, I'll hand over to Tommy to talk to the financials. Su Heng: Thanks, Aaron, and hello to everyone on the call today. On to Slide 21. This slide quickly summarizes the strength of our financial performance in Q1 FY '26. We delivered a strong net mine cash flow of $133 million in the quarter, which can be characterized as one of consolidation and setup. This was driven by a combination of solid gold production and a realized gold price of $5,296 per ounce, which was $2,435 per ounce above our all-in sustaining cost of $2,861 per ounce. The gold sold figure of 94,913 ounces and therefore, monetizing the bullion buildup we had due to the timing of gold sales in the prior quarter. Westgold remains fully unhedged, giving us full exposure to the rising gold price. We closed the quarter with $472 million in cash. During the quarter, a $200 million credit facility we established back in October last year expired, leaving us with $100 million credit facility remaining, of which $50 million remains drawn. This positions us exceptionally well to fund growth, absorb volatility and continue delivering strong returns to shareholders. On to the cash flow waterfall graph on Slide 22. We built $108 million in cash, bullion and liquid investments this quarter, closing with $472 million on hand. Underlying cash build was $180 million before growth and exploration spend. This was driven by positive operating cash flows and supported by strong margins. On capital allocation, we invested $60 million on nonsustaining capital, comprising $39 million in growth projects, primarily at Blue Bird, South Junction and Great Fingall and a further $21 million in plant and equipment upgrades across the portfolio. These investments are aligned with our strategy to lift mine productivity and reducing our operating cost base. We continued our investment in exploration and resource definition, investing $12 million over the quarter. Overall, we're in a strong position. Our balance sheet is robust. Our investments are targeted, and we're well funded to execute our growth strategy. Slide 23. Before I hand back to Wayne to wrap up, I would like to touch on the shareholder returns. Westgold continues to deliver on its commitment to shareholder returns. We declared a $0.03 per share final dividend for FY '25 and have upgraded our dividend policy for FY '26 to reflect our growing confidence in the business. In addition, we launched a 5% on-market share buyback program, a clear signal of our belief in the value of our shares and our disciplined approach to capital management. These initiatives are underpinned by strong cash generation and robust balance sheet, positioning us to continue rewarding shareholders while investing in growth. With that, I'll hand back to Wayne. Wayne Bramwell: Thank you, Tommy. Let's jump to Slide 25, divesting noncore assets. Westgold's strategy is to focus on our larger operating assets. Consistent with this plan, this quarter, we commenced the divestment process of our noncore Peak Hill, Mt Henry Celine and Chalice assets, all of which do not feature in the 3-year outlook or longer-term production plans. Slide 26. Q1 was a solid start to FY '26. In the Murchison, our Meekatharra Hub continues to produce cash as grades lift from the Bluebird South Junction underground and Crown Prince open pits. In the Southern Gold Fields, the key mine infrastructure upgrades are complete, setting the Beta Hunt mine up for higher outputs from Q2 onwards. Importantly, we built cash again this quarter, closing the quarter with $472 million in cash, bullion and liquid investments. With that, I will close the formal presentation and open the webinar up for questions. Operator: Thank you, Wayne. [Operator Instructions]. Your first question, Wayne, comes from Kyle, and it is what triggers the buybacks to kick in? Wayne Bramwell: Thanks for that, Kyle. This facility, the share buyback facility was set up last quarter. But for the large part of it, we were in blackout periods and couldn't buy the stock. We have a view of value in this business. And once the price gets to under that value, we'll buy. Operator: Next question comes from Larry. Wayne and team, can I understand Lakewood's tolling better? Is it 50 kilotonnes per annum per quarter as you mine 87 kilotonnes per annum more than processed? So will this present as a potential risk being short mill capacity as Beta Hunt ramps up? Aaron Rankine: Aaron here. So yes, with Lakewood, the locked-in tolling capacity is 50,000 tonnes a quarter. In Q4, we opportunistically took up a gap in the Lakewood schedule that Black Cat offered us. So 50,000 tonnes a quarter going forward. In terms of mill capacity, no, we're basically set up in our mine plans and milling capacity to be able to build a stockpile, and that's what we've considered in our guidance. Operator: There's no further questions at this time. So if you'd like to make any concluding remarks. Wayne Bramwell: Just in closing, I would like to make one statement. the cash don't lie. We built cash again this quarter, and this is the third quarter in a row past sort of the integration of the Karora assets that we've done that. The business is gaining momentum. We've started to see an inflection point at Meekatharra. And now with the capital projects completed at Beta Hunt, we expect the outputs from the Southern Gold Fields to lift. Thanks for everyone for patching in today. We're back to work.
Irakli Gilauri: Good morning and welcome to Q3 earnings call. Thanks, everybody, for joining and finding time. Today, we are going to talk about the 5 different topics. First of all, I'll talk about the key developments and in our -- in Q3. We'll talk about the performance of Q3 and 9 months. Then we will have our portfolio companies, CEOs talking about their respective large portfolio -- large company performance. As you saw, the numbers are staggering. It's really top performance our CEOs are showing, and it will be good to discuss with them outlook as well. Giorgi, our CFO, will talk about the portfolio company valuation and liquidity and dividend outlook. And in the end, I'll do the wrap-up and followed by the Q&A session. So let me start with the highlights. So NAV per share in quarter, it grew nearly 8%, excellent performance, both by Lion Finance Group share price performance. But most importantly, our private large portfolio company showed an excellent operating performance, and they continue to deliver staggering results, 30% -- nearly 30% EBITDA growth in Q3. And it's been a 9 months performance been also 30-plus. So that's kind of one of the [indiscernible] large portfolio companies. [indiscernible] our goal is to be a debt-free at GCAP level. $50 million is really a very small debt for us, but we still want to do debt-free holdco. In terms of the NCC ratio, we improved to 5.4%. That's another kind of a good development. We continue to buy back our shares. 1.4 million shares was bought back in Q3. In total, 15.2 million shares we bought for $221 million looking at the average price, what we have bought, the 15.2 million shares is really a big value creation we created by the buyback. So that's kind of another reason to like or love buybacks. We did -- our healthcare group did the acquisition, bolt-on acquisition, a small one, but we like the pricing and we like the momentum that our management is delivering. They have been delivering excellent performance, operating performance. And I think it's a great platform for us to invest more money to make -- to grow our business even further. And I think that was kind of [indiscernible] what our management has executed. We also entered the MSCI index [indiscernible] index, which played a positive role in the [indiscernible] share price -- of our shares in general, sorry. Let me give you an overlook of the progress of the GEL 700 million capital return program, which we announced in August this year. Nearly half of this program is done, $100 million is the paydown of the debt and out of $50 million, nearly $26 million we already executed in buybacks, and we continue to execute on the remaining $24 million. Now the -- so you see on the next slide, the progress. And you see that after delivering of $50 million buyback, only GEL 300 million will be left to return to the shareholders. So it's kind of -- we are moving in a very lightening progress on this [indiscernible] 1.5 years earlier. It seems like we'll be delivering this capital return program earlier than we anticipated in the beginning. I want to just highlight this, Giorgi, our CFO, put this slide together, and I like this slide because it's kind of reflects on the ownership of GCAP shares. So by holding the 100 GCAP shares -- sorry, ownership of the Bank of Georgia shares through GCAP. So if you hold the 100% GCAP shares, you used to hold 20.4 Bank of Georgia shares. in December 2020 for instance. And that has changed over time. And now it's actually you hold more 21.8 shares, which reflects the -- reflects our buybacks basically. And in reality, we did sell down a little bit Bank of Georgia because of the PFIC's reasons. But at the same time, by buying back GCAP shares, we actually didn't really change much the ownership of the Bank of Georgia's shares through GCAP. So that's kind of reflects that we have -- our shareholders have a good exposure on Bank of Georgia performance. I want to update now on the capital market [indiscernible] has been generating in the local market, and we are more and more relying on the exits or capital raising -- the capital raising on the local market, and we like this fact very much. For instance, GEL 350 million of debt in was raised by our health care group at 3.75% margin. That is kind of the 5-year maturity and the funds [indiscernible] our health care [indiscernible] out what the health care business did. On the other hand, our hospitality business issued very small bond on one of our hotels, which we sold most of the other hotels, but we have one hotel remaining in Gudauri ski resort. And we think it's a good asset, and we think we want to sell it at a good price. So we are not in a rush here, and we decided to raise a $10 million bond. It's a small bond, but it actually reflects well that we can -- even small businesses can access the capital markets locally. So this is an acquisition earlier I talked about the health care business, bolt-on acquisition. We bought -- it's less than 4x EBITDA -- forward-looking EBITDA, this business, and we think that integration and synergies, I mean, I think that the 4x is a safe way to assume that we can achieve the 4x for next year. Now the economy continues to perform extremely well in every sense. One thing which needs to be highlighted is the National Bank reserves, which have been accumulating pretty fast. In the past 3 quarters, GEL 1.5 billion unprecedented interventions and the National Bank [indiscernible] bought the $1.5 billion of reserves. And now it's a record high at $5.4 billion international reserves. So in terms of the GDP growth, we see [indiscernible] higher growth than the IMF does. So let me talk about the NAV development, NAV per share development. So 7.9% increase was mainly driven by Bank of Georgia share price increase and the operating performance of our large portfolio companies. The good thing that we haven't changed anything on the multiple side. So we had a 4.6 percentage point gain on Bank of Georgia and 2.8 percentage point gain on operating performance of all our large companies. So then we had buybacks at 1.2 percentage point positive impact. Emerging and other portfolio companies also contributed positively at nearly 0.5%. Operating performance was minus 0.2% and other was 0.9 percentage points. This mainly reflects the litigation case -- legacy litigation case, what we had in the past, which has been now done and over. In terms of -- on Slide 12, you see NAV growth over the [indiscernible] past 3 years, we have achieved 33%; 5 years, 29% COG and 18% CAGR we have achieved since the GCAP inception. So 18% is needs to be improved for sure, but we are very happy with 3% and 5% NAV COG growth for sure. In terms of the free cash flow, [indiscernible] Slide 13, you see that after the paydown of debt, our pro forma free cash flow increased from $48 million in '24 to $63 million. So -- but the growth is even more attractive per share basis because we were buying back the shares meanwhile. So per share, our free cash flow has increased by 45.6%, [indiscernible] important we are not tiring of talking about the buybacks. And we have bought back 15 million shares plus with $221 million. And now we are at 35.4 million shares, all-time low number of shares. We are really fighting the share count. We like the share count [indiscernible] discount and where we are. Now let [indiscernible] revenue is up -- on Slide 16. Revenue is up 13.5% in Q3. 9 months is 16.2% increase. Q3 EBITDA 29.5% increase and 9 months, 34%. So really, this continues the high growth momentum, and we are happy that our management of portfolio companies are delivering, and I will talk about why they are so good later on. Here, you see the cash flow development, same growth, high growth here. In the 9 months, we have 20.7% free cash flow growth. In Q3, we had 3.7%, which will -- in Q4, we will most likely see a way higher growth in cash flow as we will have more cash coming in pre-Christmas. And you have aggregate cash balances also growing of our portfolio companies stands at GEL 250 million. Now on NCC development, we have as I said, we have 5.4% NCC, which has been decreased nearly 3x over the year. One thing which we need to highlight that our contingency liquidity buffer of $50 million will be decreased due to this litigation case is over. Also, the debt levels in GCAP has decreased and our portfolio companies are a very healthy leverage ratio. So we don't need to have such a huge liquidity buffer of $50 million in Q4 [indiscernible] substantially. NCC ratio development here, you see that's coming down and we were at a record 42.5%, and we are at 5.4% of that. It's a nice development. It's along with our announced strategy of delevering the GCAP. Now let me hand over to the Retail Pharmacy CEO, Tornike, who will talk about the performance of our retail pharmacy business. And then we will have the insurance company CEO, Giorgi [indiscernible], talking about insurance and then Irakli Gilauri, CEO of Healthcare business, who will talk about the developments in health care business. Tornike Nikolaishvili: Hello, everyone. I'm pleased to share a brief business overview and update on the performance of our retail pharmacy business for the third quarter and 9 months of 2025. Let me remind that our business consists of 3 main directions: retail, wholesale business and international operations. Retail business is our core, generating around 75% of our revenue. Wholesale business is our biggest focus for growth. And in international, we are, let's say, in a start-up mode, believing to expand further in the region. We have a unique category structure in retail, having around 50% share of non-medication versus med category. So non-med category can be described by higher margins and no price regulation risks. Based on 2023 figures, we continue to be the largest player in the retail pharmacy market in Georgia with around 36% market share in organized trade. We are operating under 2 well-positioned retail brands, GPC, which targets the high-end segment and Pharmadepot serving the mass market. We also operate 2 franchise brands, the Bodyshop and Alain Afflelou (Optics) and are active in Armenia and in Azerbaijan as well. We expanded our network by 8 new pharmacies added in Q3, including 1 additional in Armenia, most of them in cost-efficient formats that require limited capital. So as of September 2025, we operate 438 pharmacies. So in terms of -- in the next slide, please, in terms of operating performance, our retail revenue grew by 6.1% in 9 months and 7.5% in quarter 3, respectively, supported by same-store growth of 5.3% and 6.6% in 9 months and quarter 3. This was despite the exit from our textile retail business, which slightly affected the headline growth. We are encouraged by this trend as it reflects healthy consumer demand and solid in-store execution. As in Q2, we continued strong growth on the wholesale side. Revenue grew by 33% as we continue to deliver on our strategic focus to grow in wholesale. It was achieved across all wholesale channels, mainly driven by increased product availability. So we also increased the average bill size around -- by around 10% year-over-year and gross profit margins improved to record high 33.4% in quarter 3, driven by a better sales mix and improved supplier terms. So on the next slide, let me share how it's translated in financial performance. So EBITDA grew by 30.6% in 9 months. We reached record high GEL 73.7 million. And in quarter 3 alone, EBITDA grew by 18%. And cash conversion from EBITDA is back on 90% plus threshold for 9 months due to strong quarter 3 performance. From a balance sheet standpoint, we remain cautious and disciplined. Our adjusted net debt to LTM EBITDA continued to improve, reaching 1.3x, which is below our target ceiling of 1.5x. We also distributed GEL 10 million in dividends during the quarter. In addition, we plan to distribute GEL 15 million dividends in quarter 4. Thus, in total, the dividend for the year will be GEL 35 million, reflecting confidence in our cash flow and overall financial health. So on the next and last slide, let me summarize. We have maintained solid revenue momentum, especially with same-store sales growth and strong wholesale results. Profitability has improved, supported by gross profit margin improvement and prudent cost discipline. Leverage remains at a healthy level, giving us flexibility for future investments and shareholder returns. Thank you again for your time. I'm happy to take your questions during Q&A session. Now let me hand over to Giorgi [indiscernible]. Unknown Executive: Thank you, Tornike. Hello, ladies and gentlemen. I will overview the insurance business today. Our insurance business comprises of 2 main business lines that we divide its property and casualty that is run under the brand name of Aldagi and we run another line of business, the main line of business, medical insurance under the meds brand of Imedi L and the medium to upper affluent brand under the name of Ardi. I would like to underline that Q3 was a record high, and I would say the record high during the existence of the insurance business in GCAP, and I will dive you in both business lines separately. So to go to the insurance revenues, our insurance revenue grew by 9% and 9 months over 9 months, the growth was almost 30%. Our pretax profit grew even more by 22% and 9 months over 9 months grew by 23%. Just a quick update on the key operating data. We have a growth of 11% in net premium written, while our P&C business grew by 14%, while the medical grew by 8%. Going forward into the separate slides and separate business lines. There are -- at this point, there are 19 insurance companies operating on the territory of Georgia and ALDAGI, our P&C business line -- business provider is the undisputed leader with 35% of market share with the closest captive company with 23%. So there's quite a big difference between the second player and ALDAGI. We had an amazing growth in insurance revenues of 16% Q-over-Q and almost more than 20% 9 months over 9 months. The main expansion was driven by the retail motor portfolio as retail remains a key strategic focus on our agenda together with the credit life insurance. The good point is that our net profits -- our pretax profit grew even more than the revenues that underlines our healthy portfolios and the disciplined underwriting. The pretax profit grew by 23% and that translates into the record high ROEs of more than 40%. That is a historic high that we never envisaged. Key operating data, net premiums written grew by 14%, as I have already mentioned. And the good point is that the combined ratios were improved by almost 1.1 points, driving it down -- they're dragging it down to 83%. Individual insurance grew by 14%, while the insurance written policies grew by 13%. The renewal rate stays still very high and promising at 75%. The good point to just -- again to underline is the good accomplishment that I would like to underline is the combined ratio that is mainly driven by the improved loss ratios in the corporate motor segment that was announced last year that we will be eliminating loss-making clients and dragging down the combined ratio. So the moves that we put into life are effective, and we are really happy with the management and the actions that they took -- they put into life and our combined ratios are in our target of 85% to them in the medium term. Going to the health insurance, we had also another record high health insurance quarter in terms of the profitability, even though the revenue in Q3 was minor because of elimination of a few big loss-making clients and a few state tenders that we didn't participate in. But going forward, we think that Q4 will be -- will return to double-digit growth. 9 months over 9 months was about 40% growth in health insurance. The actions that we put on in Life was mainly reflects the loss ratio improvement by 1.3%, and we had an 18% record high increase also in single quarter of 18% for the single policy issued. Pretax profit grew at 15%. That translates into record high ROEs of about 38%. Key operating metrics, net premiums written grew by 8%. Combined ratios went down, and that is -- I'm happy that it is because of the eliminating loss-making clients in Q3 and not participating in a few big state tenders, putting down our combined ratio by 1 point. Individual insurers are a bit down because of not participating in the state tenders, while the corporate segment grew by 17%, I mean, direct insurance. The renewal rate still remains very strong at 80%, which is considered very high and very strong in the health insurance. Both brands are doing very well. Ardi has launched our higher affluent brand has launched the new application, the new digital solutions and Imedi L also has launched the new updates for the web that was translated into 73% of the digital bookings putting down -- bringing down the costs and affecting our combined ratio. That is in line with our digitalization of all brands, all 3 brands in total. So going forward and a few words, the medical insurance still also remains the leader on the market. We hold about 32% of the market share that is in line in the appetite of 30% to 35% of targeted market. Going forward, and a few words to remember about Q3. We had an outstanding performance in both P&C and medical insurance, resulting in record high profit and all-time high ROEs of 40% -- more than 40% in P&C and almost 40% in health insurance. We had an exceptional result in motor insurance, especially the corporate motor that underlines again the healthy underwriting and the healthy portfolios in the middle of our operating principle. New brand identity was launched for the -- and transformation was done in both brands of health insurance, Imedi and Ardi and the new digital solutions were also launched in both health insurance lines. We paid almost GEL 2 million in Q3, translating into GEL 15.6 million and more cash to come to GCAP in Q4. The expectations are very good and very promising. We are hoping for even better Q4 and in both P&C and health insurance throughout all 3 insurance companies in revenues and in profits. So that was in short about the health and P&C business, insurance business. And let's wait for the Q4. I do hope that it will be much better. Thank you. And I'll pass the floor to Irakli Gilauri, who will underline our Healthcare business. Irakli Gilauri: Hello, everyone. I will walk you through Healthcare Services business latest results. I'm very pleased to report another strong quarter. We continued our focus on the outpatient direction by attracting new doctors and diversifying our services. We also optimized our revenue mix and improved patient retention. As a result, our outpatient revenue grew by 28% year-over-year in third quarter and share of outpatient revenues grew further by 2.4 percentage points from 40.8% to 43.2%. We launched new services in several hospitals and clinics addressing previously underserved medical needs. This includes the introduction of our arthroscopy sports medicine, gynecology and interventional cardiology in several hospitals. Our initiatives helped us to deliver 20% revenue growth with our EBITDA growing by 46% in Q3 and EBITDA margin surpassing 19% as well. Our last 12 months EBITDA reached GEL 89 million, up from GEL 58 million from September 2024 result, which led to net debt-to-EBITDA decrease from 5x to 3.8x. On the next slide, in our hospitals business, in third quarter 2025, we delivered revenue growth of 19% and EBITDA growth of 44%. Operating cash flows grew by 39% during 9 months of 2025. And we think that Q4 cash conversion will be very decent. Occupancy rates increased by 8.5 percentage points during the same period, while the average length of stay decreased by 0.3 days as a result of our efficiency-focused initiatives. On the next slide, in the polyclinics business, number of admissions increased by 8%, while number of tests performed in our Diagnostics business increased by 15%. This resulted in revenue growth of 26% and EBITDA growth of 55%. In Diagnostics business, we still operate at below 50% capacity and intend to increase our utilization significantly going forward. On the next slide, we signed a binding agreement to acquire Gormed, a regional health care network with 3 clinics and -- in the Central Georgia. The transaction is subject to approval by the competition agency. Gormed covers 3 cities with combined population of circa 300,000 people with 80,000 registered patients. Most notably, we entered Gori, Georgia's fifth largest city. Through this acquisition, we are strengthening our regional network in Southern and Central Georgia, enhancing our patient referrals and optimizing staff utilization across 7 interconnected clinics. In 2 cities, the Gormed was our only competitor pressuring our margins, and the acquisition will enable us to merge the 2 hospitals and extract synergies and increase effectiveness. The acquisition offers 2026 EBITDA multiple of under 4x we expect an improvement of 0.6 percentage points in annualized ROIC on the Healthcare Services business level, demonstrating our continued focus on shareholder value creation. That concludes my part of the presentation, and I will hand over to Giorgi Alpaidze. Giorgi Alpaidze: Thank you, Irakli. Hello, everyone. I will briefly take you through what these excellent results mean for GCAP's balance sheet and our NAV statement. So starting with the overview, we updated the valuations based on the internal valuation mechanisms. This is in line with what our independent third-party valuation company Kroll does every 6 months. So this time, we looked at the DCFs, we looked at how the projections that were set forth at the 6 months period, the results were actually delivered over -- in the third quarter. And overwhelmingly, all our large portfolio companies actually delivered higher EBITDA, higher revenues than what we were projecting at the end of June. This has helped us create value across the board. Briefly in the overall overview, we did have a little bit of sales in the Lion Finance Group shares, but still it continues to be the largest investment that we have on our NAV. It was 47% of our portfolio. Within the private portfolio investments, retail pharmacy was the largest business, followed by health care services and the insurance business. On the next slide, you will see that the multiple development in the third quarter was pretty much in line with the multiples at the end of the second quarter with only small minor increase in insurance, but it was broadly in line. On the next slide, you will see that how these multiples affected the portfolio value development. So overall, the portfolio value increased by GEL 100 million. However, it was a result of many movements. In the Lion Finance Group, you see this decrease, but that was because of the dividends that we received in the quarter, which was actually a combination of the full year dividends of 2024 plus the interim dividends where the ex-dividend date actually fell in September. So we had to record those dividends in the third quarter as well. And also the sales where we sold about 600,000 shares of Lion Finance Group that also resulted in the decrease of the stake. But overall, we recorded gains in the Lion Finance Group. In the private portfolio, the excellent growth meant that the retail pharmacy business contributed about GEL 51 million to our P&L. That includes the value creation within the business, but also the dividends that they paid us. That was followed by Healthcare Services business at GEL 40 million and insurance at GEL 36 million. Now on the next slide, you will see how these value creation is translated into the new portfolio values or the latest portfolio valuations for each business. Within Retail Pharmacy, the EBITDA growth that Tornike spoke about was GEL 42 million P&L impact for GCAP that was driven by EBITDA and additional GEL 4 million from the positive net debt change where the net debt improved, notwithstanding the GEL 10 million dividends that they paid us. So that's how we get to overall about GEL 50 million profit within our third quarter NAV statement from retail pharmacy. In insurance, we also had a 5.1% growth because of the growth in the net income, which you saw on the previous slides across the board in P&C insurance and the medical insurance that was also supported by the net debt change. And overall, this value was created by the net income growth and the strong cash flow performance. In the Healthcare Services business, EBITDA growth delivered GEL 60 million. That was partially offset by the cash conversion as the operating cash conversion in the third quarter was relatively low that we expect to recover, as Irakli mentioned earlier, in the fourth quarter. So we would expect this net debt change to be reversed as we go into the fourth quarter. But overall, the Healthcare business did deliver about GEL 40 million value creation for us. Now this concludes the valuations and briefly into the liquidity. Our liquidity continues to be very strong even as the gross debt balance that we have carried, as you can see on the top of this chart, has been reducing over time. Despite that, our liquidity has increased. We finished the quarter with $77 million worth of liquidity, which for the first time since GCAP's demerger from Bank of Georgia Group, we actually had a positive net cash balance given that our gross debt is only $20 million, we were actually negative net debt or net cash of $27 million. And then now on the next slide, we are now projecting the increase in our dividend inflows from previous GEL 180 million. We now expect GEL 200 million, around circa GEL 200 million. We have so far collected, as you see on the slide, GEL 168 million, but as it was mentioned earlier by the private portfolio companies, we expect to get more dividends from the pharmacy business as well as from the insurance business. And on top, our other portfolio companies, renewable energy and the auto services will be also paying us more dividends, which we think in the fourth quarter will bring the full year to GEL 200 million dividends. What's important here, I would highlight that on a per share basis, given the number of shares that we bought back this year, which is more than 10% so far, this means that we will be having about 31% growth on a per share basis in terms of the dividend inflows per share. That concludes my presentation and over to Irakli for the wrap-up of this excellent set of results. Irakli Gilauri: Thank you, Giorgi. So I will not repeat all the points what we have here. But basically, I think the short summary is that we have excellent performance and team is delivering. Q4 outlook is also looks positive. Economies continues to grow. Our companies continue to deliver. So let's move on the Q&A session. Operator: [Operator Instructions] So as I see, we have first question from Dmitry. Dmitry? Dmitry Vlasov: Congratulations on a really good set of results. I have 4 questions, please. The first one is on the ongoing capital allocation. You did great progress for your GEL 700 million. You paid down a good amount of debt. And now my question is about the priority between buybacks and debt maybe for the next 10 months. What should we expect? What would be the priority for you? Would it be buyback or debt? That's the first. Irakli Gilauri: Thanks, Dmitry. I think that even the fact that the leverage is really low level [indiscernible] our priority is buyback, especially at the current NAV discount level. So that's clearly a buyback at this discount level for sure. Dmitry Vlasov: Got it. And the second question is about Lion Finance Group. I understand that's your key holding and pays you very good dividends. But maybe in the near future, do you plan to trim the stake a little more or you are currently happy at the current position? Irakli Gilauri: We are happy with the current position. The only thing I don't know whether you follow this PFIC development that we had, and we had to trim a little bit off. So basically, that's kind of where we are, but we are happy with LFG holding. It continues to perform well. It's a very well-run bank. We have a very good geography and the economy. So... Dmitry Vlasov: That's clear. Then the next one is on the Healthcare segment regarding the deal, which you've done. Obviously, the multiple is very good. My question is on the EBITDA impact for the 2026. I mean it's a small one, but just to double check whether you expect any near-term pressure on the EBITDA margin maybe in the first quarter or the second quarter of 2026 or you don't expect any of that? Irakli Gilauri: On Healthcare, we don't expect EBITDA margin pressure at all. We are actually expanding EBITDA margin, as you see, and we will continue to expand because we are adding more profitable services. We are making more efficient operations. I mean this is kind of a small acquisition, but it gives you a flavor at what prices we have the appetite to invest, allocate the capital. And basically, I think that will a little bit of helps to grow the business and grow the profitability, generate more cash, and that's what we are for here. Dmitry Vlasov: Understood. That's very clear. And the last one is on Armenia in pharmacy business. If you could give me an update about the current market share and how it developed over the last 12 months. It's quite an attractive market. Irakli Gilauri: I think it's better we have Tornike talking about that, our CEO of Pharmacy business. Tornike? Tornike Nikolaishvili: So thank you for the question. So in Armenia, unfortunately, we don't count the market share because as we do in Georgia, it's transparent how the big companies are reporting their data, but it's not the case for Armenian market. So we don't have -- and the market also is very fragmented in Armenia. The key accounts as they are holding in Georgia around 90% of total market. It's very much fragmented in Armenia. Operator: Now I will read out the question that we have in the question-and-answer panel. So the question comes from Eduardo Lopez. Congrats all Georgia Capital team. Here are some questions. On retail, can you give us more color in relation to strong wholesale growth and evolution of international expansion? And the second question is about the insurance. Could you give us an insight in the breakdown of growth volume and price, especially in P&C insurance? Could you also comment the evolution of reinsurance business and potential unit economics? Irakli Gilauri: I think let's have Tornike and Giorgi answering these questions right. Tornike Nikolaishvili: Thank you. So for wholesale, let me mention that the biggest impact for our wholesale business, such a big growth is the portfolio enhancement, in fact, which means that we have -- partially, we have additional new contracts for exclusive brands and products, which we are selling in wholesale in all channels. And the second part is that we opened for our existing portfolio, which we are selling before, let's say, exclusively in our retail. But now we opened that for big pharma key accounts and also pharma traditional trade as well. So that gave us a results there. Unknown Executive: So I will answer the first question about the pricing. So the first question is about the pricing and mainly our actuaries and underwriters are looking at the portfolio analysis. So mainly last year and in Q3, we had a growth in corporate motor. So we adjusted the prices according to the loss ratios that we look at and we usually monitor the portfolios. So we are always pricing our products at market price and even more so a bit more than the market price because of the brand and because of our high NPS. So whenever there is a yellow flag from our actuaries, of course, we reprice the price, mainly it's in P&C, where we use the actuarial opinion in each line. As far as for the health insurance, of course, it's really in collaboration with the health care providers, health service providers. So -- and they are also adjusted annually or maybe even twice per annum because of the growing demand and utilization. So we see -- in health insurance, we see quite a big utilization because of the AI developed quite well. And this year, we had 2 adjustments because our patients usually ask ChatGPT -- ask AI tools and then they come directly to the doctors and ask for the prescription. So we need -- so utilization is growing, meaning that we need to adjust the prices. So we always have our hands on the pulls to keep the combined ratios at a healthy level. So we put the healthy portfolios in the middle of our working principles. So that's the first part. In terms of the international inward reinsurance, the development is really, really good. As you know, in Q2, our P&C business has been upgraded to the investment rating, and we became the first company in Georgia with the investment grading. Our announced strategy was there is that we will keep up to 10% of the total revenues at this point in the medium term for the inward reinsurance. And the good news is that we had a meeting with our reinsurance rate and they increased our inward reinsurance limit from USD 5 million to USD 15 million, and that's the recent development. So because of the prudent underwriting and the good healthy portfolios also in the inward reinsurance. So what we should expect is that we should expect the growth in inward reinsurance, but we'll take it really cautiously. We are learning the market. We are learning the region, but we really love this business to be presented in the region without any equity and using our treaties -- reinsurance treaties. So the first one is, yes, we will be developing. We will be increasing our portfolios, but cautiously, up to 10% of our total revenues. And the good development is that -- recent development is that our main partner, Hannover Re granted us increased -- tripled our inward reinsurance limit from USD 5 million to USD 15 million that's the recent development. So that is the answer. Operator: So the next question comes from Ben. Ben, you can talk now. Benjamin Maher: Can you hear me? Irakli Gilauri: Yes, yes. Benjamin Maher: I've got a few. The first one is on the capital return program. You -- this is obviously meant to run to the end of 2027, but you're tracking well ahead of that at the moment. So would you expect to announce another program next year possibly? That's my first question. The second question is just on acquisitions. So the acquisition of health care business, that seems to be positive and done at a good price. Should we expect bolt-on acquisitions and buybacks rather than larger M&A until the discount to NAV narrows? And then kind of related to that, what discount to NAV would buybacks no longer make sense for you guys? Just on the existing investments you have, do you expect to monetize any of these in the near term? Or is that more of an end 2026, 2027 event? And then my final question is just on the dividend guidance. So I saw that you upgraded it for this year, but I was just wondering to give us -- if you're able to give us any color for the dividend you expect in 2026 and beyond. Irakli Gilauri: So let me start with the capital return program. Yes, we did say end of 2027. It seems like we are moving faster, and we may do in '26 announce a new one once we finish. But I don't want to make a new deadline. So far, we are working with 2027. And last program, you know that we did 1.5 years earlier, we finished 1.5 years earlier than originally anticipated. So let's see how we go about here. As you saw on the slide, we had a GEL 300 million -- only GEL 300 million will be left after we are done with $50 million buyback program. Now in terms of the healthcare acquisition and the expectations about the investments, basically, we always said that we are running very simple capital allocation strategy. If we can find somebody with cheaper than GCAP, we'll buy it. So before, when we were running at 50%, 60% NAV discount, it was impossible to find anything. So now we did -- and we were only doing the buybacks. Now that it decreased the NAV discount is at 32%, we could have -- we found some things, not a lot, but some things we did find. So we don't expect to find many at 32% discount to NAV. So we may find from time to time some acquisition opportunities, which we will pursue. And it will be a very simple, can we buy this company cheaper than we can buy the [indiscernible]? It's a very simple question we need to answer every time we make an investment. So we found in health care and we bought it. And we don't expect to find a lot at the 32% plus discount to the fair price. [indiscernible] at this discount level. Once we will be trading at a premium, then we probably will be investing more. So that's kind of a very simple approach. Regarding the monetizations, monetizations are not planned or et cetera. They are, in a way, it's periodic. And we see -- if we see the opportunity to sell, we do that. And we -- of course, we look at the GCAP discount levels. More discount closes down on GCAP share price, more difficult will be to sell and so it's easier to sell at a higher discount than a lower discount. So it's basically very simple straightforward capital allocation program we run. It is scientific, but there is some art involved in this as well. As it's not -- mathematically, you cannot really measure everything what is the investment in health care in the region versus the investing in GCAP, it's not dissimilar. So it has to be -- the GCAP investment is way better than the investing in the regions in health care. So basically, there is a lot of science, but we also use art there. In terms of the dividend outlook, so far, we did announce the 2026, what we are expecting, and we will announce '27 outlook towards the end of the Giorgi, our CFO correct me if I'm wrong, when we will be announcing the dividend outlook for '27. Giorgi Alpaidze: So for '26, so we announced '25. So we will be announcing for '26 as we publish our fourth quarter numbers. But at the moment, we do expect that number to grow compared to 2025, Ben. Benjamin Maher: Okay. Can I just ask one more quick question if we have time. Just again related to acquisitions. Given all the hard work you've been doing through buybacks to reduce the share count back down to before the merger level, I assume that going forward, you wouldn't expect to issue further shares to fund an acquisition? Or is that something that you still would look at potentially to try and finance another acquisition? Irakli Gilauri: The buyback is not a hard work, to be honest, it's very simple work. We just don't work much. Actually, we just buy back. Buying something is hard work. You need to do due diligence, negotiation, et cetera. So we would rather do little and do the buybacks, to be honest. Sorry, I did not fully catch the question. Benjamin Maher: No, that's fair enough. I'm just wondering if going forward, would you -- should we expect the share count to increase ever again? Or are you quite keen to keep it... Irakli Gilauri: No, no. We don't like share count to increase. We like share count decreasing. No, I mean, our goal is to become a permanent capital vehicle, which is basically don't issue new capital and reinvest. So if we want to invest something somewhere, we need to sell something. And if we need to -- we can do the bridge, we can attract some bridge loans if we want to invest somewhere. But -- and then have a very clear path of repaying this loan. And so we have a very firm commitment of not increasing the number of shares. Contrary, we want to decrease. So we like the share count decreasing. We have our internal targets, how far down we want to go. It's actually 1 share. But so far, we are a long way to go -- we have a long way to go. Operator: So next question comes from [indiscernible]. Unknown Analyst: Can you hear me? Irakli Gilauri: Yes. Unknown Analyst: Yes. I wrote my questions on chat as well, so I will just read them out. With regard to the Imedi litigation, given that it was stated that there was low perceived risk in the annual report of '24, I just wanted to ask, firstly, if you have an updated view on the other [ BGA ] litigation and what was mentioned in the pharma. And if you think more provisions might be needed there, if you have anything relevant to share? Irakli Gilauri: No. At this stage, basically, we don't anticipate anything -- any provisions. We did have on NCC, the liquidity buffer on Imedi L, and we did have some provision to that Imedi L basically. But that unfortunately, it worked out that way. But at this stage, we don't see any need to provision anything else. Unknown Analyst: Okay. And secondly, I mentioned the returns that you're putting up in the insurance segment is truly phenomenal. I just want to see if you think this is sustainable and how you strategize if so, to keep those returns? How is the market -- the Georgian insurance market looking overall? Is that above market level returns you're earning? Is it not? And yes, just some commentary around how the returns on equity can be so exceptional in your insurance business. Irakli Gilauri: Giorgi, maybe you want... Unknown Executive: Yes. I'll take the question. Yes. Thanks for the question. So to start with the first part, we've been producing the exceptional return on equity for the last 10 years. So we are outperforming the market twice for the last 10 years. So -- and it's not for 1 or last 2 years. For last 10 years, Aldagi has -- our P&C business has produced twice high ROEs than the market, meaning that our main principle and the approach is that we put in the middle, the disciplined underwriting. So we don't jump from one side to another. We follow our strategy that is a disciplined underwriting, meaning that we are very sure and the management is sure that the high ROEs and the profitability and the returns we provide is very sustainable because of the healthy loss ratios that we keep. And our strategy is to keep the loss ratios in the range of 85 -- from 85% to 87% in the medium term for the next 5 years. And we've been doing this for the last 10 years, meaning that even there -- the market is very fragmented. There are 3 main players, but the idea is that we don't dampen the prices. We follow our brand and we follow our underwriting. So meaning that we are not going -- the returns will be sustained for the last -- I mean, for coming years that we are really, really sure. The competition is quite high, but the main players, I mean, are 3. The rest are small. And yes, that's it mainly that allows us to keep the high returns with the exceptional. And we are the only company in Georgia, mainly keeping the big division of the actuaries. So we do not make any decision without the actuarial opinion, and they have the right to raise yellow and red flags and every decision made by the company is made by the recommendation of the actuaries. And we will keep and we will stick to the disciplined underwriting in the coming years. Unknown Analyst: Okay. That's great. I mean the combination of growth and underwriting margin in your insurance business is truly spectacular. So congratulations. What's -- a quick follow-up maybe on that. What's the name of the 3 competitors or the 3 main players? Unknown Executive: Yes, the main group, there are 3 main competitors as us. One -- is one us. The second is the Vienna Insurance Group. We only have one international player at this point present with the Vienna Insurance Group by 2 companies. And the third one is a Captive Insurance company which is owned by one of the banks. 100% -- mainly dependent -- mainly which is dependent on the bank portfolios. Unknown Analyst: All right. And if I may, just a last final one. With regards to the whole PFIC situation, has there been any discussion around alternative solutions here? It just seems to me that Bank of Georgia can be very strongly argued to be your cheapest asset and your cheapest investment based on contribution to NAV. And then it seems this will be preventing monetization in other mature businesses, for example, health care, given that a big return of cash would prevent you to do buybacks or return that to shareholders, and you would again cross the PFIC limit by quite a lot. Just keen to hear if you have any comments and thoughts on this dynamic and if you explored other solutions. Irakli Gilauri: So basically, we are -- to be honest, this -- the Bank of Georgia thing we had to fix it quickly because it nearly doubled from year-end. So basically, it has happened in such a short period of time. We didn't have anything else to fix that problem other than they trim the Bank of Georgia. So in 6 months when the share price nearly doubles, it's very difficult to come up with alternatives. I'd love to come up with alternatives. But at that point of time, we didn't have any alternative. Unknown Analyst: Do you have any other alternatives going forward if -- given Bank of Georgia is still relatively lowly rated, if this would continue? Irakli Gilauri: Basically, we are exploring [indiscernible]. I don't know, U.S.A. that overnight or in a couple of months, 3 months, it's not happening like that. You need time to monetize business in Georgia. Giorgi Alpaidze: So [indiscernible], for example, as we grow our private portfolio as the assets on the private portfolio side grow, that is helping to keep the passive share of assets down when it comes to Bank of Georgia. For example, this acquisition, which is not yet complete, but the bolt-on in the health care business, it adds the asset base. It adds the land, it adds the building value, et cetera. That's positive for PFIC, for example. Unknown Analyst: Yes, of course, of course. I'm just saying it seems like you're so far been selling your cheapest assets based on rating. Giorgi Alpaidze: But at the same time, we've been buying back. That's why we had that one slide, which shows you that even when we are selling, when you look at it on a look-through basis, you still own same amount of -- or more amount of Bank of Georgia shares than what you own 3 years ago or 4 years ago, for example. Unknown Analyst: No, of course. Yes, very clear. Operator: Thank you, [indiscernible], for the interesting questions. We also have one question in our Q&A panel. The question comes from Barry Cohen. And the question is, what does the management think team think is the spread between the discount to NAV tightens enough where use of capital shifts to portfolio investments versus share repurchases? Irakli Gilauri: I think we answered that question basically, it is as NAV discount gets lower, smaller, more investment opportunities come and will come to us. So that's kind of -- will be available for us to make an investment. So it's a process. Operator: Perfect. And the last question that we have is from [indiscernible]. It seems like you took the slides out of the presentation regarding focusing on capital-light businesses versus capital intensive. And you also made a capital-intensive acquisition, albeit a cheap one. Is that is a sign of a change in strategy? Irakli Gilauri: No, no, I don't know whether we took a slide off. It's a very good observation, but this slide should be -- should go back in there. I think that this acquisition was mostly opportunistic and it improves the exitability of the health care business. So basically, I mean, we don't -- we cannot say that we cannot invest -- if we invest that we improve the exit opportunity, why not? So no, we did not -- we are not changing our strategy. We are very much committed to the capital-light. And this acquisition was pretty much the, first of all, very small ticket size. Second, it was a bolt-on to our current business. And thirdly, it is improving the exit opportunity for our capital-heavy business basically. Giorgi Alpaidze: And if I were to add just 2 things, and we didn't take out any slides, Bret, maybe it's in a different presentation. But one thing that's great about this bolt-on is it comes with no leverage. They have no debt, and we're buying this at less than 4x. You can imagine we can leverage this at 3x, and we only put down 1x as an equity. So as directly said, it was a very attractive structure in that sense. I don't know, over to you. Any more questions? Operator: Yes. Thank you. Thanks, Giorgi. No, there are no pending questions currently. If some of you want to -- or have any questions, please do not hesitate to write it in a Q&A panel or raise your hands. Irakli Gilauri: It seems like there are no further questions. Thanks for your time, and stay tuned for Q4 as we continue to deliver on the results -- great results. Thank you.
Operator: Good morning, ladies and gentlemen. Welcome to Galp's Third Quarter 2025 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations. Joao Pereira: Good morning, everyone, and welcome to Galp's Third Quarter of 2025 Q&A session. In the room with me, I have both our co-CEOs, Maria Joao Carioca and Joao Marques da Silva as well as the full executive team. But before passing the mic for some quick opening remarks, let me start by our usual disclaimer. During today's session, we'll be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. With this, Joao, would you like to say a few words? Joao Diogo da Silva: Thank you, Joao, and good morning, everyone. We have a couple of Joaos around here. Well, the third quarter was a strong one for Galp. Solid operating performance according businesses testifies our strong operating momentum. In Brazil, upstream production continued elevated with 115,000 barrels per day, driven by high availabilities of the fleet during the quarter. This gives us confidence on ending the year close to the upper end of our 150,000 to 110,000 guidance. On top of that, Bacalhau reached first oil just a few weeks ago, a very important milestone, a key project for Galp, which will drive our free cash flow growth in the coming years. Well, but meanwhile, in Iberia, we've captured strong seasonal trends in downstream businesses, particularly in refining and in commercial, where we posted a record high quarter EBITDA. As EVP of Commercial as well, congratulations to the team with results above pre-COVID levels. Although macro environment continues volatile and challenging, Galp operates a highly resilient portfolio with a 2026 dividend breakeven just below $40. Resilience and short-term growth underpins our distinctive investment case. Maria Joao, a few comments. Maria Joao Carioca: Thank you, Joao. Indeed, quite a few rounds around here, but strong operating performance across businesses translating into robust cash delivery. I believe that's the highlight for this quarter. Just looking at the 9 months operating cash flow, we are flattish against 2024, whereas Brent is down more than $10. So this is illustrative of the resilience that we just discussed. And on that same note of execution towards resilience, this quarter, we further reduced net debt and reinforced our financial position. Net debt is now at 0.4x. This is a reassuring level when facing the current volatility in commodity prices, it's also a solid ground on which to develop our value-accretive opportunities in the portfolio. Looking at the full year and even though we're not upgrading guidance today, we're confident that we will exceed our group EBITDA and OCF guidance based on the strong performance across the asset base so far. We acknowledge that Namibia remains the most relevant aspect in Galp's equity story. So looking into the ongoing bilateral discussions, these are showing good progress, and we maintain confidence in our time line and in establishing a strong partnership that will allow us to accelerate and to prioritize Mopane. Operator, we may now take questions. Thank you. Operator: [Operator Instructions] We will now go to our first question today and the question comes from the line of Alejandro Vigil Garcia from Santander. Alejandro Vigil: Congratulations for the strong results. The first question is if you can -- of course, very difficult. If you can give us some color about the -- what are you thinking about the Mopane farm down in terms of the structure, in terms of the -- in general, how you are seeing this -- the momentum of this transaction? And the second question, also probably difficult at this point is in terms of next year. If you can give us some color about how is projections about production next year Bacalhau start-up. You can give us some color initial, even qualitative about the next year guidance. Maria Joao Carioca: So let me start with Mopane. As you know, we've been commenting on the fact that we are very, very focused on achieving a partnership that will help us drive the asset forward. So at this time, we're still not diving into details. I believe it's still critical for us to make sure that our priorities are clear. And I think the conversations we've had so far and the bidders we've engaged with speak to those priorities. We were very keen on making sure that we had an experienced operator with us to make sure that the asset moves forward at the pace and with the priority that we see conducive to good value creation for Galp. We've been reporting and we're very glad to continue to engage in conversations with bidders, and those bidders are all very experienced operators with very relevant track records. So this is where we are. I think with those bidders sitting down to talk to us, what we're doing is making sure that we get very clear alignment on progressing Mopane. And that has been conversations, that has been the tone of the conversation and progressing well. So we're very confident on making this partnership a success by year-end. And I think that is clearly the focus and the color available at this time. On next year, so Bacalhau is very, very early days, but it's a good start. We've been, of course, testing and making sure that the early numbers and the early performance of the assets are consistent with what we were expecting so far, good news. So excluding Bacalhau, we were expecting production to be fundamentally flattish. So this is on top of what are, we believe, best practice declining rates in our assets in Brazil. So we continue to have an expectation of under 5% decline rates, particularly in Tupi and Iracema. We're working towards not only sustaining, but actually making sure that we perform above those thresholds. So there is an infill campaign under execution to continue to drive the performance of those assets. So that leads us in the end to this flattish performance that I mentioned. And on top of that, you will have Bacalhau. Bacalhau will, of course, be ramping up. So we don't expect it to get to full plateau until 2027. Operator: Your next question today comes from the line of Biraj Borkhataria from RBC. Biraj Borkhataria: The first one is just on CapEx for next year. There's obviously one big uncertain piece, which is Namibia and any carry you might get. But are you able to give some color on what you expect to spend in 2026 CapEx if we were to exclude Namibia? And then the second question is just on the financial framework. You have now EUR 1.2 billion of debt and obviously, Bacalhau is ramping up as well. In the past, you showed a chart highlighting that you had roughly EUR 1.2 billion of capital employed in your low carbon segment. I was wondering if that's still the case. And the reason I ask is I'm trying to understand if there's a sort of structural level of net debt for that part of the business because it would be helpful to think -- as we think about sort of excess payouts and uses of free cash flow. Maria Joao Carioca: Thank you, Biraj. Very comprehensive set of questions. So on CapEx and adding a bit more color to what I mentioned before, we're not revising our net CapEx guidance. So still at a little bit under EUR 0.8 billion per annum on the '25 to '26 period. So that is still the overall guidance. Now this year, we had, of course, approximately EUR 800 million from the announced divestments. So this leaves us with gross CapEx of about EUR 2.4 billion accumulated in the period. Now for 2026, we do expect numbers to be slightly lighter than in '25, but it's still a challenging year. So Bacalhau is still going to be ramping up. We are going to be keeping pace towards conclusion of our transition investments in Sines. And we have what is our normal run rate, so to say, of approximately EUR 400 million per year of CapEx. So if you dive a little bit into what that entails other than the upstream run rate CapEx, you also get maintained investments in renewables. We're still foreseeing approximately EUR 150 million to EUR 200 million in our renewables portfolio. And commercial has an ongoing transformation and digitalization program, and that is approximately another, I'd say, EUR 100 million per year. So all in all, we're maintaining, of course, a very disciplined approach. We continue to aim for a capital-light structure, but still guiding up to approximately EUR 0.8 billion per year because we are still in the critical stage of a number of these investments we have in the portfolio. On the financial framework and following up from our CapEx approach, so in terms of capital employed, you mentioned the numbers for our transition and for our low carbon investments. I believe we now hold approximately EUR 1.5 billion to EUR 1.6 billion in our capital employed that pertain to that type of assets and that type of approach. On debt, fundamentally, what we have is debt being managed at the corporate level. So in terms of what we see as our structural level, this reflects to a large extent, the free cash flow generation we have in our businesses and of course, the fact that we continue to drive our CapEx towards -- a significant portion of it being towards transition. Approximately, I'd say it's about 65% of our CapEx is still transformation. So there, of course, the numbers that we were guiding for in terms of CapEx and hence, net debt. Operator: Your next question comes from the line of Matt Smith from Bank of America. Matthew Smith: I wanted to ask -- try a couple of questions on Namibia, if I could. And the first would be, I mean, you're clearly focused on seeing the asset developed as soon as possible. So I just wanted to double check the details on that, whether that meant taking FID on the Northwest region as soon as possible, given that region is fully appraised? Or would you be open to seeing the Southeast region appraised as the next step? Or is there a red line on that topic? Or are you open to discussions with a potential new operator? So that would be the first part. And then the second part, perhaps more high level, you're clearly looking to solve for alignment on the acceleration of these assets. I mean I just wondered whether you're able to share any high-level thoughts as to how you think that can be achieved as part of the deal structure. And perhaps like a bolt-on to that, maybe it's related, maybe it's not, but a question that we're hearing more and more, would you be open to any form of asset swap as part of the transaction, if you're able to comment on that? Maria Joao Carioca: Thank you, Matt. So on Namibia, indeed, the focus is very much making sure that we align with our partners. So we do have our own technical teams looking at the assets and incorporating all the information that we absorbed. So again, it feels like it was a very long time ago, but we went through a very fast stage of drilling and finding new information. It was critical to derisk the asset, and we are now using that information, processing it ourselves and also sharing it with our prospective buyers and developing a perspective on the asset based on that. So we're very open and the teams have indeed been progressing as we acquire more knowledge and as we -- part of the conversations with our partners has also been conducive to that shared understanding, open to perspectives on the asset, not closed on which of the Northwest versus Southeast clusters needs to be the core driver for an initial development, very open to a perspective that is just the one that drives the best space for the asset overall. As for the deal structure, again, very, very early to close on what could be a deal structure. We are, of course, trying to make sure that debt structure sets the right alignment and the right perspective in moving forward with the deal. So here, I guess, fundamentally, what we're trying to make sure is that when we are considering eventual asset swaps, those are open in the discussion as long as they allow us for clear visibility on the type of return we're getting out of the Mopane assets and as long as that those also don't hinder our visibility on how to progress further with Mopane. Operator: Your next question comes from the line of Pedro Alves from CaixaBank. Pedro Alves: The first one on the 2025 outlook. Perhaps if you can share a bit more details on what drives the upside to your latest official guidance. I think we have here different moving parts in upstream production, clearly with very good availability of the fleet. But in Q4, probably you will resume some stoppages. And then in Industrial and Midstream, which probably carries the bulk of the upside to your targets, certainly above the EUR 800 million of EBIT last guided. But it's also true that you will carry heavy maintenance in refining now in this Q4. So at the consolidated level, I think it was widely expected that you would exceed guidance. I guess the question is, are you comfortable with the consensus now at around EUR 3 billion for the full year? And the second question on the recent Orange Basin discoveries in Namibia and some of your neighbors. Have you noticed that this is driving any change in the market appetite or dynamics in the talks as you engage with your potential partners for Mopane. I mean these new finds obviously raise visibility on the basin, but does waiting longer for Galp risks giving prospective buyers other alternatives to elsewhere in the basin? Joao Diogo da Silva: So I'll start with the 2025 guidance. And in fact, we are on the back of a very strong quarter, but we will not be tweaking every quarter the guidance. We are very comfortable with the previous guidance. On that revised guidance, we revised also, well, the trading conditions, we've included the Venture Global volumes. That was the major point. And as you say, we will have a last quarter with a turnaround in Sines. That's what will hit us on the fourth quarter. We still have some support on the margin side, on the refining margin side, well, supported by demand that we could call stronger than expected, but also with the supply underperformance on the new capacity, which is not coming into play as it was expected. We are also -- well, entering into the heating season and some refiners as ours will go into maintenance that will also make some support. And overall, on the downstream, we have a very strong position in Iberia. We delivered very strong results in the third quarter, but we are entering the low season. So we expect to be prudent, maintaining the previous guidance. Midstream will be, for sure, supportive, and that's all for now. Maria Joao Carioca: Thank you. So maybe I'll pick up on the second question from Pedro on our perspective concerning Namibia and recent developments, if I recall correct your question. So Pedro, we normally abstain from commenting on what we see in the market coming out as news from other players. But generally, yes, I acknowledge the perspective you put forth as we hear news from other players and from drilling ongoing, -- and as we see what's coming out of the different players there, I mean, recently, we've heard news from Rhino. We've heard news from BW. What we still see is a basin that is very young in terms of its prospective development, but one where there's a convergence of developments that give it room for growth, and we see the concentration of interest there as very conducive to that growth actually taking place. We also see alignment in its core stakeholders. Relationships with local authorities with the government continue. There's continued interest. There's a good vision of what is the importance of having full support to the development of the asset. So all in all, what we're seeing is still a very young basin, but one where prospects continue to be conducive to investment taking place, and we continue to like the risk of the assets. So we will be farming down a bit, but still holding on to a relevant perspective -- a relevant percentage. So I think that speaks the loudest on the overview we continue to have of the basin and of Mopane in particular. Operator: Your next question comes from the line of Alessandro Pozzi from Mediobanca. Alessandro Pozzi: 2 for me. The first one on commercial, strong results in Q3. And just wondering if you can maybe give us your view on whether the results that we've seen in this quarter is just a function of a much stronger seasonality than usual or whether there is a structural change that would support a further improvement into 2026? And the second question is more on financials. Working capital, I think it was a positive movement during the quarter, but still negative for the 9 months. Maybe if you can give us any guidance on Q4. Joao Diogo da Silva: Thank you, Alessandro. It's indeed a very strong quarter. On commercial, we need to assume, well, we have some tailwinds. It's always the stronger quarter of the year. So when you perform well on the stronger quarter of the year, it's an important one. I would, well, divide in 2 main aspects of the business referring to your transformation claim. So we have, of course, better news from the Spanish side after -- well, a number of volumes were removed from the market related with players that were not playing in a level brownfield. So that's one. So very supportive volumes with around 20% year-on-year growth on the fuel side. But on the second hand, we have a fully revamped nonfuel business. nonfuel as per today is contributing nearly 30% nonfuel and new business, nearly at 30% of the full delivered value on this business. So that's something that we need to sustain. Today, more than half of our tickets are nonfuel, less than half are tobacco, which was clearly a very strong anchor on the path. So if you ask me on the 2026 view, we will be clearly aiming to surpass the $300 million. That's what we will deliver this year. But of course, with the growing electric mobility network that is already on the breakeven, we've crossed the 9,000 charges mark this year, and that's also very important because as of today, we are offering a complete diverse offer to the customer when he enters into our commercial retail network, and that's one, but also supported as an integrated play. So the play with industrial, the play with midstream, it's an integrated play. And we are taking advantage of that also. So strong results and surely for the next year, above the EUR 300 million. Maria Joao Carioca: On working capital, so maybe to put in perspective, the 9 months of this year reflect the fact that actually we ended 2024 with a particularly low level of working capital. There were very few cargoes in transit. So overall, we had a working capital level that we knew was going to be adjusted throughout 2025. And a couple of events up to the beginning of that early 2025 that impacted, the bad weather and the blackout in the Iberian Peninsula had an impact in our accounts. But fundamentally, we're returning to regular levels, not much to highlight there in terms of working capital all within expectations. Operator: Your next question comes from the line of Alastair Syme from Citi. Alastair Syme: In your negotiations on Namibia, are you finding broad agreement on the asset resources? I ask simply because it's quite a long time since you've updated the market on the resources. You've talked about EUR 10 billion plus in place, significant volumes of light oil. I mean are these statements that you think the prospective buyers agree with? I ask because I think this is why the sales process broke down last year. So just to get a sense of where that's at. And then secondly, very quickly, can you talk to upstream tax rates? You were low in 2Q, you're low again this quarter. What's going on? And what do you think the rate is that we should be using in our models going forward? Maria Joao Carioca: Thanks, Alastair. So let me pick up on the Namibia. So no issues in terms of agreement as to what our asset resources in place in Mopane is. It's a topic for technical discussion, of course. But actually, as we share information and as we have the technical teams engaged, I believe there is significant alignment and the vision we have on where the most interesting areas of the assets lie and what those represent in terms of potential overall asset resources have not been an issue of stress or an issue of disagreement at all. Quite on the contrary, very supportive and aligned discussions. So on upstream, the second part of your question, what do you see in tax rates? Actually, I believe you see it on the overall tax rate for the integrated portfolio, it does reflect the fact that in this quarter, in particular, the weight -- the relative weight of upstream in our overall portfolio was lower. So as upstream usually has a higher tax incidence when you have very good performances across other businesses, so industrial delivering, midstream delivering, commercial, as we mentioned already, with record high levels, that brings our overall tax rate down, and I believe that was what you were referring to. Operator: Your next question comes from the line of Joshua Stone from UBS. Joshua Eliot Stone: 2 questions, please. One on Venture Global. Just if you can give any indication of when you expect a decision on the arbitration there and any expectation around what to expect, noting that we've seen different outcomes for different plaintiffs so far? And then second, on Namibia, thank you for the additional insight. I just wonder, are you able to say how many partners you're still in talks with after your short list? I'm just trying to gauge competitive tension and how that's changed during the process, which seems quite important for you. Joao Diogo da Silva: On Venture Global, we are not expecting any outcome before next year, and that's it. Maria Joao Carioca: On Namibia then, we're not commenting on how many partners. It's plural. I think the critical thing to us all very experienced operators, as I mentioned before, competitive tension has been in play, productive conversations. So I think the conditions for a good progress have been met, and we've been engaging with partners, different paces, but still good conversations and good progress so far. Thank you. Operator: Your next question comes from the line of Irene Himona from Bernstein. Irene Himona: My first question is on refining in the fourth quarter. Your maintenance will last about 6 weeks. We can work out the utilization. But can you give us a sense of where your unit margins in refining may move to in relation to the $3.2 in Q3? Are we looking at something around $5, for example? And then my second question on the upstream in Q3, you alluded to the fact that your sales were higher than your production. Can you perhaps quantify that? So what were your sales in the quarter? And what was the EBITDA benefit of that overlift? Joao Diogo da Silva: So on the first one, so we -- well, we are expecting the turnaround to go until mid-November. We will have Plant 1 and the FCC around 50 to 45 days together at the same time. So on the quarter, we are expecting negative contribution from refining. That's what we are taking at this point. Of course, this contribution will be offset by a strong continued contribution on the midstream side. Maria Joao Carioca: On upstream, I believe what you're referring to is the fact that this quarter, we have a lower number of cargoes in transit. So that equates a little bit to having sold more than what we actually produced. The overall impact we estimate from that, so it was approximately one less cargo in transit that we had before. The value we estimate for that is of approximately EUR 40 million, that's EUR 4-0 million. All in all, what we see is still strong production being at the top range of what is our current guidance of 105,000 to 110,000. So this effect we registered in the quarter was fundamentally ongoing normal progress of operations and just transiting the cargoes as they come into our possession. Operator: Your next question comes from the line of Ignacio Domenech from JB Capital. Ignacio Doménech: The first one is on exploration on Sao Tome e Principe. So Shell recently spud a well there, and I would assume that will be looking to do the same in 2026. So just wanted to know your thoughts on the exploration campaign there, if there is any commitment by that to do any drilling in the next year? And my second question is a follow-up on the declining rates in Brazil. I think you mentioned that production, excluding Bacalhau, should be flat next year. So if you can elaborate a bit on the declining rates there? And maybe if there's been any change in the recovery factor at Tupi? Maria Joao Carioca: Thank you, Ignacio. So starting with Sao Tome e Prince, STP. No commitments so far. We do see the development in the recent activity -- the activity by Shell to be something that we will incorporate in our thought. As you know, we're looking at Sao Tome e Prince for its potential, high potential exploratory region. We do have plans to spud there in '26 to '27. But again, the information that is coming up on Block 10, and that's not a block we're in, but that information will be important in adjusting our perspective. Having said this, we are very aware of how important our growth profile is as a differentiating factor. So we're always looking at our assets and making sure that we're addressing them in a way that delivers at pace with our profile. I guess that's the perfect segue into your question about how do we see our declining rates in Brazil. So I mentioned that we're currently having -- experiencing declining rates of approximately 5% in the portfolio as a whole. And this is, as we see it very good performances. We would expect that for the type of depth and the type of assets that we're operating, declining annual rates would be in the neighborhood of 8%. We're actually delivering at below that in 5%. That delivery is in -- that concern with that type of best practice delivery is precisely what's behind the flattish production for next year. So next year, we will have the input or the uptick, if you'd like, from the infill campaigns that are under execution. So those when they come in, they allow us to halt a little bit the natural decline rate. It is already a best-performing decline rate vis-a-vis similar assets. So that's where we're standing there. Operator: [Operator Instructions] And your next question today comes from the line of Matt Lofting from JPMorgan. Matthew Lofting: 2, if I could, please. First, clearly, the second and third quarters have been very strong quarters operationally for Galp, which I'd like to congratulate you all on. You indicated this morning that you now expect to surpass the sort of the full year guidance, which was only updated in the summer. So I wondered if you could just expand on what areas of the business have outperformed the expectations or the baseline that you had in the summer? How much of that is a higher refining margin? How much of it is non-refining? And then secondly, I think you communicated earlier this month that Galp had formally notified Mozambique on the dispute concerning the capital gains situation in the country. Could you update on the latest status there, please, and your thoughts on it? Maria Joao Carioca: Thanks, Matt. Let me start with how we performed so far and what the best tell us for our guidance. So I think overall, it's been good performance across all businesses. But looking into the fourth quarter, what we expect is that coming in on top of what has been very good production in upstream. So we still expect to be at the upper level of the reference we gave on 105,000 to 110,000. So that is, of course, a good driver towards our results. If you add to that the combined performances of the remaining businesses that will add to the overall perspective of delivering above the current consensus. So no particular focus there, just general throughout the portfolio, good performance, if anything, top-tier performance in terms of what we had guided for in upstream. Joao, do you want to comment on Mozambique? Joao Diogo da Silva: I will. Thank you, Matt. So at this point, international arbitration was triggered, but we need to say that we are continuing to pursue a constructive engagement with Mozambique. Well, Galp is in Mozambique for more than 65 years at this point. We've invested more than EUR 1.1 billion in upstream projects. We are very, very, very present on the downstream business with terminals. So that's a country that we fully respect. However, on this case, the government estimates based on accounting books share capital disregards fully all the investments made in upstream. And Galp does not contest its tax obligation. But of course, we need to challenge incorrect and inconsistent interpretation of the law. And that's something that creates uncertainty and that we need to fight and to help Mozambique. So at this point, we don't have any provision recognized in the books. It's fully supported by our external assessment that reiterates our position. So we believe there are no legal grounds to sustain the account claim. But more than that, I finish where I started. We are very, very engaged to pursue a solution with the government and we fully respect. So hopefully, we will find that solution soon. Operator: Your next question today comes from the line of Paul Redman from BNP Paribas. Paul Redman: I wanted to come at Namibia maybe with a slightly different angle, but you talked about in your press release the fact you had a bunch of nonbinding offers through the summer and now you have a short list. I just wanted to ask, is there anything you can say on what drove that shortlist? Was it partner? Was it the valuation, FID dates, start of production date? Any color here would be really useful. And just also on Namibia, just trying to work out, I think I get a sense from who's answering which questions kind of as co-CEOs, who's running the process? Or are you both involved in the process? And then secondly, just on Mozambique, does the arbitration put any risk on the cash expected in 4Q '25? And secondly, have you thought about if Rovuma LNG does get FID-ed, how you would think to allocate that cash in 2026? Maria Joao Carioca: Paul, I do tend to answer many of your questions, but we're all fully engaged, and I'm sure Joao would likely take up. But then again, on your question here, the shortlist notion is fundamentally taking into consideration the prospective offers we got, the pace at which the different bidders were able to address the questions that we engaged and actually the depth and the comprehensiveness of the analysis that was entailed in the initial offers. So fundamentally, we've moved at a faster pace with those players that had the best positioning and had the best ability to engage in the discussions that came in the later stages after the initial offer there. So on Mozambique, maybe just to comment on the cash issue, what Joao just mentioned, we continue a dialogue with the Mozambican government. We've also been continuing our dialogue with our advisers in terms of making sure that our position on what is the due tax is further explained and strengthened. So we don't expect any additional cash issues or cash risks in the fourth quarter concerning this topic. We do expect conversations with the Mozambican government to continue, and we do see conditions for us to continue our presence in Mozambique. I think I would underline what Joao mentioned before, this is a market where we've been for a very long time. We respect our institutional obligations. We are just pursuing the due course of the law. So finally, I believe there was an additional question there on Rovuma FID in 2026. For cautionary reasons, we do not include any additional proceeds in our numbers. So we've seen positive news in recent days. We'll see how those proceed. And hopefully, there will be an FID, but we will we will expect news on that front. We have not yet included that as an upside in our numbers. If those come along, it plays into the discussion we were having before then maybe is a big elephant in the room, a lot of what will be our future discussion in terms of how to go from there. It will be something that we will bring up once the deal is concluded. Operator: Your next question today comes from the line of Nash Cui from Barclays. Naisheng Cui: 2, please. The first one is on distribution. Galp delivered a very strong earnings and cash flow and net debt has coming down. I wonder if you could talk about how we should think about cash distribution in 2026, please? Then the second question is on refining margin outlook. I know your Sines refinery is going to be back online very soon. How do you see refining margin in November, December and into Q1, please? Maria Joao Carioca: Thanks, Nash. So let me start with distribution. We are maintaining for now our 1/3 of OCF guideline. But we see that as something that has been very aligned to the type of consistency and predictability going together with the flexibility that we value considering ongoing processes such as Namibia. So the 1/3 OCF, again, together with what we've been delivering in terms of cash dividend growth, that's about 4% per annum with the flexibility to give an uptick such as the one we had last year, acknowledging favorable conditions. So this gives us sufficient room for -- as growth comes through our balance sheet and our P&L, we are indeed sharing that and distributing that to our shareholders. We like the consistency through the cycle of having a steady guideline based on OCF. And you have seen us use buybacks as kind of the plug-in number to ensure additional performance flows through to investors as we release it. So no expectations all in all to change this overall guideline. We do believe it will serve us well, and it will allow us to flow through any good performance in terms of cash generation straight through to our shareholders. Joao Diogo da Silva: And Nash, on the refining outlook, I've made a couple of mentions to the demand -- supply-demand balance at this point. So we are we are expecting, if we think forward on the first Q, we are expecting some part of the underperformance of the new capacity, [indiscernible], we are assuming that they will come back in full potential. So that's one. On the second hand, we will be in the heating season and some refiners will be into maintenance on the last quarter, but they will come back, hopefully. That will be the case of Sines. So that's another one. And thirdly, at this point, we know that we have lower inventory levels on both sides of the Atlantic and a couple of Russian capacity at this point are affected. So around 20% to 40% of the Russian capacity is affected. So there are a number of factors that will add us to a much more prudent environment on the refining side. So we are expecting a lower margins on the first Q. But all in all, we are very focused at this point on the turnaround and to do it in a safe way, and that's where we are. Operator: [Operator Instructions] And your next question comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: I have 2, please. The first one, we have seen later last week that Petrobras has had a setback on its arbitration proceedings against the ANP on the ring fence discussions on the Tupi/Iracema [indiscernible] fields. Are there any updates that you can share with us? And are there any courts that you can take this process to after arbitration? And then the second one also related to the ANP, but are there any updates on the unitization proceedings of Berbigao? Maria Joao Carioca: Thank you, Guilherme. So on the recent developments on the arbitrations, we see these as a lot of news flow here and a very important asset. So the discussions on the ring fence are, of course, very, very loud. But what we see here is not a setback, an ongoing discussion. We are progressing with our arguments. We see local authorities still engaged and making sure that we take the asset forward. We understand the conditions in Brazil. So we understand that there is the need to discuss the ability to generate value from that asset and to make sure that all the parties and stakeholders involved are driving the right value out of it. But fundamentally, what we continue to try to work on is an active dialogue with ANP, with Petrobras, our partners in Block and with the local government. The developments that we see are steps. We are -- we've acknowledged that we don't share in the vision concerning the way to treat these reservoirs. The geological data tells us those are separate reservoirs. So we continue to activate the appropriate legal actions to protect our interest there. So the recent decision has been focused only on future outflows. That means that currently forgot that we no longer have any cash outflows concerning our position in preserving our interest there. So overall, we'll continue to monitor. We'll continue to be very actively engaged, and we'll see how that progresses, but still defending our interests. On the unitization of Berbigao, so no fundamental decision. It's still an open matter. Thank you. Operator: We will now take our final question for today. And your final question comes from the line of Peter Low from Rothschild & Co. Redburn. Peter Low: The first was just on Bacalhau. Can you comment what you expect the production contribution to be in the fourth quarter? And then what the shape of that ramp-up might look like through 2026 and into 2027? And then the second question was on cash tax payments. They looked like they were quite low in 2Q and 3Q. Is there any kind of seasonality at play there? And should we expect a step-up in the fourth quarter? Maria Joao Carioca: Thanks, Peter. On Bacalhau, so we had a very low volume expectation for this year, so for the fourth quarter of '25. The first oil did come up in line with what were our expectations. But overall, the contribution is still very slow. What we're seeing in terms of take-up from the actual operations is positive. It's good pressures and also what we're seeing is also good delivery so far. But we'll monitor and assess to make sure that the ramp-up takes place. What we have as referenced for the ramp-up continues to be our cost experience in the basin. So in Tupi, for instance, some of our best performers had the fastest ramp-up of approximately 11 months. So it's clearly a different size boat and some differences in the assets. So we do see ramp-up of at least a year. Again, going back to my prior mention of full contribution coming up only in 2027. So when it does come up, just as a reminder, that should be approximately 40,000 barrels per day share. And if the Brent holds at, say, 70,000, this should be approximately EUR 400 million in OCF per annum at plateau, but we'll see throughout 2026, and those are expected numbers only for 2027 as we plateau. Cash tax payments. So again, what we have is there's an element of phasing in our taxes. So typically, we have a pretty high first quarter, and that took place. Our overall guidance is still at the level of approximately EUR 0.9 billion. So no change there. And what you've seen in this quarter was, again, as a recall, just the impact of having a lower weight of our upstream business, which is more heavily taxated than our remaining businesses. So a mix effect in our overall tax rate with our cash overall payments expected to be fully within guidance for the year. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen. Welcome to Galp's Third Quarter 2025 Results Presentation. I will now pass the floor to Joao Goncalves Pereira, Head of Investor Relations. Joao Pereira: Good morning, everyone, and welcome to Galp's Third Quarter of 2025 Q&A session. In the room with me, I have both our co-CEOs, Maria Joao Carioca and Joao Marques da Silva as well as the full executive team. But before passing the mic for some quick opening remarks, let me start by our usual disclaimer. During today's session, we'll be making forward-looking statements that are based on our current estimates. Actual results could differ due to factors outlined in our cautionary statements within the published materials. With this, Joao, would you like to say a few words? Joao Diogo da Silva: Thank you, Joao, and good morning, everyone. We have a couple of Joaos around here. Well, the third quarter was a strong one for Galp. Solid operating performance according businesses testifies our strong operating momentum. In Brazil, upstream production continued elevated with 115,000 barrels per day, driven by high availabilities of the fleet during the quarter. This gives us confidence on ending the year close to the upper end of our 150,000 to 110,000 guidance. On top of that, Bacalhau reached first oil just a few weeks ago, a very important milestone, a key project for Galp, which will drive our free cash flow growth in the coming years. Well, but meanwhile, in Iberia, we've captured strong seasonal trends in downstream businesses, particularly in refining and in commercial, where we posted a record high quarter EBITDA. As EVP of Commercial as well, congratulations to the team with results above pre-COVID levels. Although macro environment continues volatile and challenging, Galp operates a highly resilient portfolio with a 2026 dividend breakeven just below $40. Resilience and short-term growth underpins our distinctive investment case. Maria Joao, a few comments. Maria Joao Carioca: Thank you, Joao. Indeed, quite a few rounds around here, but strong operating performance across businesses translating into robust cash delivery. I believe that's the highlight for this quarter. Just looking at the 9 months operating cash flow, we are flattish against 2024, whereas Brent is down more than $10. So this is illustrative of the resilience that we just discussed. And on that same note of execution towards resilience, this quarter, we further reduced net debt and reinforced our financial position. Net debt is now at 0.4x. This is a reassuring level when facing the current volatility in commodity prices, it's also a solid ground on which to develop our value-accretive opportunities in the portfolio. Looking at the full year and even though we're not upgrading guidance today, we're confident that we will exceed our group EBITDA and OCF guidance based on the strong performance across the asset base so far. We acknowledge that Namibia remains the most relevant aspect in Galp's equity story. So looking into the ongoing bilateral discussions, these are showing good progress, and we maintain confidence in our time line and in establishing a strong partnership that will allow us to accelerate and to prioritize Mopane. Operator, we may now take questions. Thank you. Operator: [Operator Instructions] We will now go to our first question today and the question comes from the line of Alejandro Vigil Garcia from Santander. Alejandro Vigil: Congratulations for the strong results. The first question is if you can -- of course, very difficult. If you can give us some color about the -- what are you thinking about the Mopane farm down in terms of the structure, in terms of the -- in general, how you are seeing this -- the momentum of this transaction? And the second question, also probably difficult at this point is in terms of next year. If you can give us some color about how is projections about production next year Bacalhau start-up. You can give us some color initial, even qualitative about the next year guidance. Maria Joao Carioca: So let me start with Mopane. As you know, we've been commenting on the fact that we are very, very focused on achieving a partnership that will help us drive the asset forward. So at this time, we're still not diving into details. I believe it's still critical for us to make sure that our priorities are clear. And I think the conversations we've had so far and the bidders we've engaged with speak to those priorities. We were very keen on making sure that we had an experienced operator with us to make sure that the asset moves forward at the pace and with the priority that we see conducive to good value creation for Galp. We've been reporting and we're very glad to continue to engage in conversations with bidders, and those bidders are all very experienced operators with very relevant track records. So this is where we are. I think with those bidders sitting down to talk to us, what we're doing is making sure that we get very clear alignment on progressing Mopane. And that has been conversations, that has been the tone of the conversation and progressing well. So we're very confident on making this partnership a success by year-end. And I think that is clearly the focus and the color available at this time. On next year, so Bacalhau is very, very early days, but it's a good start. We've been, of course, testing and making sure that the early numbers and the early performance of the assets are consistent with what we were expecting so far, good news. So excluding Bacalhau, we were expecting production to be fundamentally flattish. So this is on top of what are, we believe, best practice declining rates in our assets in Brazil. So we continue to have an expectation of under 5% decline rates, particularly in Tupi and Iracema. We're working towards not only sustaining, but actually making sure that we perform above those thresholds. So there is an infill campaign under execution to continue to drive the performance of those assets. So that leads us in the end to this flattish performance that I mentioned. And on top of that, you will have Bacalhau. Bacalhau will, of course, be ramping up. So we don't expect it to get to full plateau until 2027. Operator: Your next question today comes from the line of Biraj Borkhataria from RBC. Biraj Borkhataria: The first one is just on CapEx for next year. There's obviously one big uncertain piece, which is Namibia and any carry you might get. But are you able to give some color on what you expect to spend in 2026 CapEx if we were to exclude Namibia? And then the second question is just on the financial framework. You have now EUR 1.2 billion of debt and obviously, Bacalhau is ramping up as well. In the past, you showed a chart highlighting that you had roughly EUR 1.2 billion of capital employed in your low carbon segment. I was wondering if that's still the case. And the reason I ask is I'm trying to understand if there's a sort of structural level of net debt for that part of the business because it would be helpful to think -- as we think about sort of excess payouts and uses of free cash flow. Maria Joao Carioca: Thank you, Biraj. Very comprehensive set of questions. So on CapEx and adding a bit more color to what I mentioned before, we're not revising our net CapEx guidance. So still at a little bit under EUR 0.8 billion per annum on the '25 to '26 period. So that is still the overall guidance. Now this year, we had, of course, approximately EUR 800 million from the announced divestments. So this leaves us with gross CapEx of about EUR 2.4 billion accumulated in the period. Now for 2026, we do expect numbers to be slightly lighter than in '25, but it's still a challenging year. So Bacalhau is still going to be ramping up. We are going to be keeping pace towards conclusion of our transition investments in Sines. And we have what is our normal run rate, so to say, of approximately EUR 400 million per year of CapEx. So if you dive a little bit into what that entails other than the upstream run rate CapEx, you also get maintained investments in renewables. We're still foreseeing approximately EUR 150 million to EUR 200 million in our renewables portfolio. And commercial has an ongoing transformation and digitalization program, and that is approximately another, I'd say, EUR 100 million per year. So all in all, we're maintaining, of course, a very disciplined approach. We continue to aim for a capital-light structure, but still guiding up to approximately EUR 0.8 billion per year because we are still in the critical stage of a number of these investments we have in the portfolio. On the financial framework and following up from our CapEx approach, so in terms of capital employed, you mentioned the numbers for our transition and for our low carbon investments. I believe we now hold approximately EUR 1.5 billion to EUR 1.6 billion in our capital employed that pertain to that type of assets and that type of approach. On debt, fundamentally, what we have is debt being managed at the corporate level. So in terms of what we see as our structural level, this reflects to a large extent, the free cash flow generation we have in our businesses and of course, the fact that we continue to drive our CapEx towards -- a significant portion of it being towards transition. Approximately, I'd say it's about 65% of our CapEx is still transformation. So there, of course, the numbers that we were guiding for in terms of CapEx and hence, net debt. Operator: Your next question comes from the line of Matt Smith from Bank of America. Matthew Smith: I wanted to ask -- try a couple of questions on Namibia, if I could. And the first would be, I mean, you're clearly focused on seeing the asset developed as soon as possible. So I just wanted to double check the details on that, whether that meant taking FID on the Northwest region as soon as possible, given that region is fully appraised? Or would you be open to seeing the Southeast region appraised as the next step? Or is there a red line on that topic? Or are you open to discussions with a potential new operator? So that would be the first part. And then the second part, perhaps more high level, you're clearly looking to solve for alignment on the acceleration of these assets. I mean I just wondered whether you're able to share any high-level thoughts as to how you think that can be achieved as part of the deal structure. And perhaps like a bolt-on to that, maybe it's related, maybe it's not, but a question that we're hearing more and more, would you be open to any form of asset swap as part of the transaction, if you're able to comment on that? Maria Joao Carioca: Thank you, Matt. So on Namibia, indeed, the focus is very much making sure that we align with our partners. So we do have our own technical teams looking at the assets and incorporating all the information that we absorbed. So again, it feels like it was a very long time ago, but we went through a very fast stage of drilling and finding new information. It was critical to derisk the asset, and we are now using that information, processing it ourselves and also sharing it with our prospective buyers and developing a perspective on the asset based on that. So we're very open and the teams have indeed been progressing as we acquire more knowledge and as we -- part of the conversations with our partners has also been conducive to that shared understanding, open to perspectives on the asset, not closed on which of the Northwest versus Southeast clusters needs to be the core driver for an initial development, very open to a perspective that is just the one that drives the best space for the asset overall. As for the deal structure, again, very, very early to close on what could be a deal structure. We are, of course, trying to make sure that debt structure sets the right alignment and the right perspective in moving forward with the deal. So here, I guess, fundamentally, what we're trying to make sure is that when we are considering eventual asset swaps, those are open in the discussion as long as they allow us for clear visibility on the type of return we're getting out of the Mopane assets and as long as that those also don't hinder our visibility on how to progress further with Mopane. Operator: Your next question comes from the line of Pedro Alves from CaixaBank. Pedro Alves: The first one on the 2025 outlook. Perhaps if you can share a bit more details on what drives the upside to your latest official guidance. I think we have here different moving parts in upstream production, clearly with very good availability of the fleet. But in Q4, probably you will resume some stoppages. And then in Industrial and Midstream, which probably carries the bulk of the upside to your targets, certainly above the EUR 800 million of EBIT last guided. But it's also true that you will carry heavy maintenance in refining now in this Q4. So at the consolidated level, I think it was widely expected that you would exceed guidance. I guess the question is, are you comfortable with the consensus now at around EUR 3 billion for the full year? And the second question on the recent Orange Basin discoveries in Namibia and some of your neighbors. Have you noticed that this is driving any change in the market appetite or dynamics in the talks as you engage with your potential partners for Mopane. I mean these new finds obviously raise visibility on the basin, but does waiting longer for Galp risks giving prospective buyers other alternatives to elsewhere in the basin? Joao Diogo da Silva: So I'll start with the 2025 guidance. And in fact, we are on the back of a very strong quarter, but we will not be tweaking every quarter the guidance. We are very comfortable with the previous guidance. On that revised guidance, we revised also, well, the trading conditions, we've included the Venture Global volumes. That was the major point. And as you say, we will have a last quarter with a turnaround in Sines. That's what will hit us on the fourth quarter. We still have some support on the margin side, on the refining margin side, well, supported by demand that we could call stronger than expected, but also with the supply underperformance on the new capacity, which is not coming into play as it was expected. We are also -- well, entering into the heating season and some refiners as ours will go into maintenance that will also make some support. And overall, on the downstream, we have a very strong position in Iberia. We delivered very strong results in the third quarter, but we are entering the low season. So we expect to be prudent, maintaining the previous guidance. Midstream will be, for sure, supportive, and that's all for now. Maria Joao Carioca: Thank you. So maybe I'll pick up on the second question from Pedro on our perspective concerning Namibia and recent developments, if I recall correct your question. So Pedro, we normally abstain from commenting on what we see in the market coming out as news from other players. But generally, yes, I acknowledge the perspective you put forth as we hear news from other players and from drilling ongoing, -- and as we see what's coming out of the different players there, I mean, recently, we've heard news from Rhino. We've heard news from BW. What we still see is a basin that is very young in terms of its prospective development, but one where there's a convergence of developments that give it room for growth, and we see the concentration of interest there as very conducive to that growth actually taking place. We also see alignment in its core stakeholders. Relationships with local authorities with the government continue. There's continued interest. There's a good vision of what is the importance of having full support to the development of the asset. So all in all, what we're seeing is still a very young basin, but one where prospects continue to be conducive to investment taking place, and we continue to like the risk of the assets. So we will be farming down a bit, but still holding on to a relevant perspective -- a relevant percentage. So I think that speaks the loudest on the overview we continue to have of the basin and of Mopane in particular. Operator: Your next question comes from the line of Alessandro Pozzi from Mediobanca. Alessandro Pozzi: 2 for me. The first one on commercial, strong results in Q3. And just wondering if you can maybe give us your view on whether the results that we've seen in this quarter is just a function of a much stronger seasonality than usual or whether there is a structural change that would support a further improvement into 2026? And the second question is more on financials. Working capital, I think it was a positive movement during the quarter, but still negative for the 9 months. Maybe if you can give us any guidance on Q4. Joao Diogo da Silva: Thank you, Alessandro. It's indeed a very strong quarter. On commercial, we need to assume, well, we have some tailwinds. It's always the stronger quarter of the year. So when you perform well on the stronger quarter of the year, it's an important one. I would, well, divide in 2 main aspects of the business referring to your transformation claim. So we have, of course, better news from the Spanish side after -- well, a number of volumes were removed from the market related with players that were not playing in a level brownfield. So that's one. So very supportive volumes with around 20% year-on-year growth on the fuel side. But on the second hand, we have a fully revamped nonfuel business. nonfuel as per today is contributing nearly 30% nonfuel and new business, nearly at 30% of the full delivered value on this business. So that's something that we need to sustain. Today, more than half of our tickets are nonfuel, less than half are tobacco, which was clearly a very strong anchor on the path. So if you ask me on the 2026 view, we will be clearly aiming to surpass the $300 million. That's what we will deliver this year. But of course, with the growing electric mobility network that is already on the breakeven, we've crossed the 9,000 charges mark this year, and that's also very important because as of today, we are offering a complete diverse offer to the customer when he enters into our commercial retail network, and that's one, but also supported as an integrated play. So the play with industrial, the play with midstream, it's an integrated play. And we are taking advantage of that also. So strong results and surely for the next year, above the EUR 300 million. Maria Joao Carioca: On working capital, so maybe to put in perspective, the 9 months of this year reflect the fact that actually we ended 2024 with a particularly low level of working capital. There were very few cargoes in transit. So overall, we had a working capital level that we knew was going to be adjusted throughout 2025. And a couple of events up to the beginning of that early 2025 that impacted, the bad weather and the blackout in the Iberian Peninsula had an impact in our accounts. But fundamentally, we're returning to regular levels, not much to highlight there in terms of working capital all within expectations. Operator: Your next question comes from the line of Alastair Syme from Citi. Alastair Syme: In your negotiations on Namibia, are you finding broad agreement on the asset resources? I ask simply because it's quite a long time since you've updated the market on the resources. You've talked about EUR 10 billion plus in place, significant volumes of light oil. I mean are these statements that you think the prospective buyers agree with? I ask because I think this is why the sales process broke down last year. So just to get a sense of where that's at. And then secondly, very quickly, can you talk to upstream tax rates? You were low in 2Q, you're low again this quarter. What's going on? And what do you think the rate is that we should be using in our models going forward? Maria Joao Carioca: Thanks, Alastair. So let me pick up on the Namibia. So no issues in terms of agreement as to what our asset resources in place in Mopane is. It's a topic for technical discussion, of course. But actually, as we share information and as we have the technical teams engaged, I believe there is significant alignment and the vision we have on where the most interesting areas of the assets lie and what those represent in terms of potential overall asset resources have not been an issue of stress or an issue of disagreement at all. Quite on the contrary, very supportive and aligned discussions. So on upstream, the second part of your question, what do you see in tax rates? Actually, I believe you see it on the overall tax rate for the integrated portfolio, it does reflect the fact that in this quarter, in particular, the weight -- the relative weight of upstream in our overall portfolio was lower. So as upstream usually has a higher tax incidence when you have very good performances across other businesses, so industrial delivering, midstream delivering, commercial, as we mentioned already, with record high levels, that brings our overall tax rate down, and I believe that was what you were referring to. Operator: Your next question comes from the line of Joshua Stone from UBS. Joshua Eliot Stone: 2 questions, please. One on Venture Global. Just if you can give any indication of when you expect a decision on the arbitration there and any expectation around what to expect, noting that we've seen different outcomes for different plaintiffs so far? And then second, on Namibia, thank you for the additional insight. I just wonder, are you able to say how many partners you're still in talks with after your short list? I'm just trying to gauge competitive tension and how that's changed during the process, which seems quite important for you. Joao Diogo da Silva: On Venture Global, we are not expecting any outcome before next year, and that's it. Maria Joao Carioca: On Namibia then, we're not commenting on how many partners. It's plural. I think the critical thing to us all very experienced operators, as I mentioned before, competitive tension has been in play, productive conversations. So I think the conditions for a good progress have been met, and we've been engaging with partners, different paces, but still good conversations and good progress so far. Thank you. Operator: Your next question comes from the line of Irene Himona from Bernstein. Irene Himona: My first question is on refining in the fourth quarter. Your maintenance will last about 6 weeks. We can work out the utilization. But can you give us a sense of where your unit margins in refining may move to in relation to the $3.2 in Q3? Are we looking at something around $5, for example? And then my second question on the upstream in Q3, you alluded to the fact that your sales were higher than your production. Can you perhaps quantify that? So what were your sales in the quarter? And what was the EBITDA benefit of that overlift? Joao Diogo da Silva: So on the first one, so we -- well, we are expecting the turnaround to go until mid-November. We will have Plant 1 and the FCC around 50 to 45 days together at the same time. So on the quarter, we are expecting negative contribution from refining. That's what we are taking at this point. Of course, this contribution will be offset by a strong continued contribution on the midstream side. Maria Joao Carioca: On upstream, I believe what you're referring to is the fact that this quarter, we have a lower number of cargoes in transit. So that equates a little bit to having sold more than what we actually produced. The overall impact we estimate from that, so it was approximately one less cargo in transit that we had before. The value we estimate for that is of approximately EUR 40 million, that's EUR 4-0 million. All in all, what we see is still strong production being at the top range of what is our current guidance of 105,000 to 110,000. So this effect we registered in the quarter was fundamentally ongoing normal progress of operations and just transiting the cargoes as they come into our possession. Operator: Your next question comes from the line of Ignacio Domenech from JB Capital. Ignacio Doménech: The first one is on exploration on Sao Tome e Principe. So Shell recently spud a well there, and I would assume that will be looking to do the same in 2026. So just wanted to know your thoughts on the exploration campaign there, if there is any commitment by that to do any drilling in the next year? And my second question is a follow-up on the declining rates in Brazil. I think you mentioned that production, excluding Bacalhau, should be flat next year. So if you can elaborate a bit on the declining rates there? And maybe if there's been any change in the recovery factor at Tupi? Maria Joao Carioca: Thank you, Ignacio. So starting with Sao Tome e Prince, STP. No commitments so far. We do see the development in the recent activity -- the activity by Shell to be something that we will incorporate in our thought. As you know, we're looking at Sao Tome e Prince for its potential, high potential exploratory region. We do have plans to spud there in '26 to '27. But again, the information that is coming up on Block 10, and that's not a block we're in, but that information will be important in adjusting our perspective. Having said this, we are very aware of how important our growth profile is as a differentiating factor. So we're always looking at our assets and making sure that we're addressing them in a way that delivers at pace with our profile. I guess that's the perfect segue into your question about how do we see our declining rates in Brazil. So I mentioned that we're currently having -- experiencing declining rates of approximately 5% in the portfolio as a whole. And this is, as we see it very good performances. We would expect that for the type of depth and the type of assets that we're operating, declining annual rates would be in the neighborhood of 8%. We're actually delivering at below that in 5%. That delivery is in -- that concern with that type of best practice delivery is precisely what's behind the flattish production for next year. So next year, we will have the input or the uptick, if you'd like, from the infill campaigns that are under execution. So those when they come in, they allow us to halt a little bit the natural decline rate. It is already a best-performing decline rate vis-a-vis similar assets. So that's where we're standing there. Operator: [Operator Instructions] And your next question today comes from the line of Matt Lofting from JPMorgan. Matthew Lofting: 2, if I could, please. First, clearly, the second and third quarters have been very strong quarters operationally for Galp, which I'd like to congratulate you all on. You indicated this morning that you now expect to surpass the sort of the full year guidance, which was only updated in the summer. So I wondered if you could just expand on what areas of the business have outperformed the expectations or the baseline that you had in the summer? How much of that is a higher refining margin? How much of it is non-refining? And then secondly, I think you communicated earlier this month that Galp had formally notified Mozambique on the dispute concerning the capital gains situation in the country. Could you update on the latest status there, please, and your thoughts on it? Maria Joao Carioca: Thanks, Matt. Let me start with how we performed so far and what the best tell us for our guidance. So I think overall, it's been good performance across all businesses. But looking into the fourth quarter, what we expect is that coming in on top of what has been very good production in upstream. So we still expect to be at the upper level of the reference we gave on 105,000 to 110,000. So that is, of course, a good driver towards our results. If you add to that the combined performances of the remaining businesses that will add to the overall perspective of delivering above the current consensus. So no particular focus there, just general throughout the portfolio, good performance, if anything, top-tier performance in terms of what we had guided for in upstream. Joao, do you want to comment on Mozambique? Joao Diogo da Silva: I will. Thank you, Matt. So at this point, international arbitration was triggered, but we need to say that we are continuing to pursue a constructive engagement with Mozambique. Well, Galp is in Mozambique for more than 65 years at this point. We've invested more than EUR 1.1 billion in upstream projects. We are very, very, very present on the downstream business with terminals. So that's a country that we fully respect. However, on this case, the government estimates based on accounting books share capital disregards fully all the investments made in upstream. And Galp does not contest its tax obligation. But of course, we need to challenge incorrect and inconsistent interpretation of the law. And that's something that creates uncertainty and that we need to fight and to help Mozambique. So at this point, we don't have any provision recognized in the books. It's fully supported by our external assessment that reiterates our position. So we believe there are no legal grounds to sustain the account claim. But more than that, I finish where I started. We are very, very engaged to pursue a solution with the government and we fully respect. So hopefully, we will find that solution soon. Operator: Your next question today comes from the line of Paul Redman from BNP Paribas. Paul Redman: I wanted to come at Namibia maybe with a slightly different angle, but you talked about in your press release the fact you had a bunch of nonbinding offers through the summer and now you have a short list. I just wanted to ask, is there anything you can say on what drove that shortlist? Was it partner? Was it the valuation, FID dates, start of production date? Any color here would be really useful. And just also on Namibia, just trying to work out, I think I get a sense from who's answering which questions kind of as co-CEOs, who's running the process? Or are you both involved in the process? And then secondly, just on Mozambique, does the arbitration put any risk on the cash expected in 4Q '25? And secondly, have you thought about if Rovuma LNG does get FID-ed, how you would think to allocate that cash in 2026? Maria Joao Carioca: Paul, I do tend to answer many of your questions, but we're all fully engaged, and I'm sure Joao would likely take up. But then again, on your question here, the shortlist notion is fundamentally taking into consideration the prospective offers we got, the pace at which the different bidders were able to address the questions that we engaged and actually the depth and the comprehensiveness of the analysis that was entailed in the initial offers. So fundamentally, we've moved at a faster pace with those players that had the best positioning and had the best ability to engage in the discussions that came in the later stages after the initial offer there. So on Mozambique, maybe just to comment on the cash issue, what Joao just mentioned, we continue a dialogue with the Mozambican government. We've also been continuing our dialogue with our advisers in terms of making sure that our position on what is the due tax is further explained and strengthened. So we don't expect any additional cash issues or cash risks in the fourth quarter concerning this topic. We do expect conversations with the Mozambican government to continue, and we do see conditions for us to continue our presence in Mozambique. I think I would underline what Joao mentioned before, this is a market where we've been for a very long time. We respect our institutional obligations. We are just pursuing the due course of the law. So finally, I believe there was an additional question there on Rovuma FID in 2026. For cautionary reasons, we do not include any additional proceeds in our numbers. So we've seen positive news in recent days. We'll see how those proceed. And hopefully, there will be an FID, but we will we will expect news on that front. We have not yet included that as an upside in our numbers. If those come along, it plays into the discussion we were having before then maybe is a big elephant in the room, a lot of what will be our future discussion in terms of how to go from there. It will be something that we will bring up once the deal is concluded. Operator: Your next question today comes from the line of Nash Cui from Barclays. Naisheng Cui: 2, please. The first one is on distribution. Galp delivered a very strong earnings and cash flow and net debt has coming down. I wonder if you could talk about how we should think about cash distribution in 2026, please? Then the second question is on refining margin outlook. I know your Sines refinery is going to be back online very soon. How do you see refining margin in November, December and into Q1, please? Maria Joao Carioca: Thanks, Nash. So let me start with distribution. We are maintaining for now our 1/3 of OCF guideline. But we see that as something that has been very aligned to the type of consistency and predictability going together with the flexibility that we value considering ongoing processes such as Namibia. So the 1/3 OCF, again, together with what we've been delivering in terms of cash dividend growth, that's about 4% per annum with the flexibility to give an uptick such as the one we had last year, acknowledging favorable conditions. So this gives us sufficient room for -- as growth comes through our balance sheet and our P&L, we are indeed sharing that and distributing that to our shareholders. We like the consistency through the cycle of having a steady guideline based on OCF. And you have seen us use buybacks as kind of the plug-in number to ensure additional performance flows through to investors as we release it. So no expectations all in all to change this overall guideline. We do believe it will serve us well, and it will allow us to flow through any good performance in terms of cash generation straight through to our shareholders. Joao Diogo da Silva: And Nash, on the refining outlook, I've made a couple of mentions to the demand -- supply-demand balance at this point. So we are we are expecting, if we think forward on the first Q, we are expecting some part of the underperformance of the new capacity, [indiscernible], we are assuming that they will come back in full potential. So that's one. On the second hand, we will be in the heating season and some refiners will be into maintenance on the last quarter, but they will come back, hopefully. That will be the case of Sines. So that's another one. And thirdly, at this point, we know that we have lower inventory levels on both sides of the Atlantic and a couple of Russian capacity at this point are affected. So around 20% to 40% of the Russian capacity is affected. So there are a number of factors that will add us to a much more prudent environment on the refining side. So we are expecting a lower margins on the first Q. But all in all, we are very focused at this point on the turnaround and to do it in a safe way, and that's where we are. Operator: [Operator Instructions] And your next question comes from the line of Guilherme Levy from Morgan Stanley. Guilherme Levy: I have 2, please. The first one, we have seen later last week that Petrobras has had a setback on its arbitration proceedings against the ANP on the ring fence discussions on the Tupi/Iracema [indiscernible] fields. Are there any updates that you can share with us? And are there any courts that you can take this process to after arbitration? And then the second one also related to the ANP, but are there any updates on the unitization proceedings of Berbigao? Maria Joao Carioca: Thank you, Guilherme. So on the recent developments on the arbitrations, we see these as a lot of news flow here and a very important asset. So the discussions on the ring fence are, of course, very, very loud. But what we see here is not a setback, an ongoing discussion. We are progressing with our arguments. We see local authorities still engaged and making sure that we take the asset forward. We understand the conditions in Brazil. So we understand that there is the need to discuss the ability to generate value from that asset and to make sure that all the parties and stakeholders involved are driving the right value out of it. But fundamentally, what we continue to try to work on is an active dialogue with ANP, with Petrobras, our partners in Block and with the local government. The developments that we see are steps. We are -- we've acknowledged that we don't share in the vision concerning the way to treat these reservoirs. The geological data tells us those are separate reservoirs. So we continue to activate the appropriate legal actions to protect our interest there. So the recent decision has been focused only on future outflows. That means that currently forgot that we no longer have any cash outflows concerning our position in preserving our interest there. So overall, we'll continue to monitor. We'll continue to be very actively engaged, and we'll see how that progresses, but still defending our interests. On the unitization of Berbigao, so no fundamental decision. It's still an open matter. Thank you. Operator: We will now take our final question for today. And your final question comes from the line of Peter Low from Rothschild & Co. Redburn. Peter Low: The first was just on Bacalhau. Can you comment what you expect the production contribution to be in the fourth quarter? And then what the shape of that ramp-up might look like through 2026 and into 2027? And then the second question was on cash tax payments. They looked like they were quite low in 2Q and 3Q. Is there any kind of seasonality at play there? And should we expect a step-up in the fourth quarter? Maria Joao Carioca: Thanks, Peter. On Bacalhau, so we had a very low volume expectation for this year, so for the fourth quarter of '25. The first oil did come up in line with what were our expectations. But overall, the contribution is still very slow. What we're seeing in terms of take-up from the actual operations is positive. It's good pressures and also what we're seeing is also good delivery so far. But we'll monitor and assess to make sure that the ramp-up takes place. What we have as referenced for the ramp-up continues to be our cost experience in the basin. So in Tupi, for instance, some of our best performers had the fastest ramp-up of approximately 11 months. So it's clearly a different size boat and some differences in the assets. So we do see ramp-up of at least a year. Again, going back to my prior mention of full contribution coming up only in 2027. So when it does come up, just as a reminder, that should be approximately 40,000 barrels per day share. And if the Brent holds at, say, 70,000, this should be approximately EUR 400 million in OCF per annum at plateau, but we'll see throughout 2026, and those are expected numbers only for 2027 as we plateau. Cash tax payments. So again, what we have is there's an element of phasing in our taxes. So typically, we have a pretty high first quarter, and that took place. Our overall guidance is still at the level of approximately EUR 0.9 billion. So no change there. And what you've seen in this quarter was, again, as a recall, just the impact of having a lower weight of our upstream business, which is more heavily taxated than our remaining businesses. So a mix effect in our overall tax rate with our cash overall payments expected to be fully within guidance for the year. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning. My name is Anna, and I will be your conference operator. [Operator Instructions] This is FHipo's Third Quarter 2025 Conference Call. There will be a question-and-answer session after the speaker's opening remarks, and instructions will be given at that time. FHipo released its earnings report [indiscernible] October 24, after the market closed. If you did not receive the report, please contact FHipo's IR department [indiscernible]. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made in this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Ignacio Gutiérrez, Chief Financial Officer; and Jesús Gómez, Chief Operating Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead. Daniel Michael Zamudio: Good morning, everyone, and thank you for joining us today. Let me walk you through our third quarter 2025 results. Throughout 2025, we have remained focused on strengthening our platform, prioritizing high-quality yielding assets and maintaining a resilient, efficient and forward-looking investment strategy. The disciplined execution of this strategy supported by a solid capital structure positions us to continue adapting to a changing environment while pursuing sustainable growth. In the third Q, we reaffirmed our commitment to delivering profitability to our investors. Historically, as of the end of this quarter, we have distributed over MXN 7.2 billion to our investors, reinforcing our focus on sustained value creation. Our strong capitalization profile remains a pillar of FHipo's financial strength. In the third Q, we maintained a 59.7% capitalization ratio and a 0.65x debt-to-equity ratio. Our disciplined deleveraging strategy has strengthened the balance sheet and positioned us to capitalize on future growth opportunities. Our financial margin stood at 56.8% of total interest income, once again reflecting our stable profitability and operating discipline. Among the quarter's highlights, we closed at MXN 1 billion of financing between a renewal of our $500 million credit facility with Banco Ve por Más and signed a new facility with Banco Santander for the same amount further strengthening our financial flexibility and confirming the market's confidence in our business model. Furthermore, on September 22, the full early amortization of CDVITOT 15U and CDVITOT 15-2U trust certificates took place, resulting in a nonrecurring effect on quarterly results, in line with our objective of continuing the reduction of exposure to VSM-denominated loan portfolio. If we move on to Slide 5, we highlight our consistent track record of delivering value to our investors through stable distributions. For the third quarter, our annualized yield per CBFI stands at 11.5% based on an estimated quarterly distribution of MXN 0.35 per CBFI, subject to our current distribution policy. As I mentioned before, since FHipo was created, we have distributed approximately over MXN 7.2 billion to our investors, equivalent to MXN 19.32 per CBFI. These results underscore our strategic direction centered on creating long-term value and maintaining a focused approach for our investors. Moving to Slide 6. As of the third Q, our debt-to-equity ratio considering both on-balance and off-balance financings was 1.38x highlighting the fact that during the period of the third Q 2019 to third Q of 2025, we achieved a deleveraging of 0.9x in our total on and off balance debt. Over this period, we remain disciplined in maintaining a solid and resilient balance sheet, which positions us to capture future opportunities aligned with our long-term objectives. At the same time, our financial margin reached 56.8% for the quarter, representing a 5% points improvement year-over-year. This reflects the continued efficiency and reinforces our commitment to operating with discipline, focus and a sound financial structure. On Slide 7, we highlight our continued emphasis on higher yielding assets. As of the third quarter of 2025, originations through digital mortgage platforms accounted for 19.7% of the total portfolio. Up to 8.6% in the third Q 2023, reflecting a 2-year CAGR of 38.4%. Our portfolio has a strong asset quality profile with an average loan-to-value of 77% at origination and an estimated loan-to-value of 29% based on current market value of housing. Moving on to Slide 8, on the third Q, our nonperforming loan ratio calculated for the accumulated balances of the total portfolio at origination stood at 3.04%. Overall, our portfolio continues to reflect prudent levels of nonperforming loans, which remains consistent with the nature of the maturity profile of our assets. Finally, on Slide 9, FHipo affirms it commitment to sustainability and ESG best practices. We aim to generate long-term positive impact beyond financial returns. We have financed over 100,000 loans with 55% going to low-income households. Women represent 31% of our total portfolio and 35% of our digital mortgage platforms, while 39% of our workers are women. On governance, our Nomination, Audit and Best practices committees are fully independent and more than half of our technical committee members are independent as well. On the environmental side, about 70% of Infonavit borrowers have taken the green mortgage program benefit. And internally, we have implemented initiatives to reduce paper, plastic and water use. These actions reflect FHipo's ongoing commitment to incorporating strong ESG principles into our business model and decision-making process. Now I will turn the call over to our CFO, Ignacio Gutiérrez, who will discuss the leverage strategy. Ignacio Gutiérrez Sainz: Thank you, Daniel, and again, good morning, everyone. I'll first walk you through our different funding sources on Slide 11. FHipo has continued to strengthen its balance sheet. As of the third quarter of 2025, our total debt-to-equity ratio, including both on and off balance sheet financing stood at 1.38x, down from 2.3x in the third quarter of 2019 reflecting a deleveraging of 0.9x over that period. On a stand-alone basis, our on-balance sheet leverage ratio was of 0.65x. This financial discipline has improved our flexibility and reinforced our capacity to negative changing market environments. Our funding structure remains diversified and robust, allowing us to efficiently manage liquidity to support future growth opportunities. If we turn to Slide 12, as shown in the breakdown of our consolidated funding as of the third quarter of 2025, more than 70% of our financing has legal maturities exceeding 20 years. This profile provides us with a comfortable long-term debt structure aligned with the nature of our assets. In addition, our financing costs remain at current and competitive levels, supporting the sustainability of our capital structure over time. Now I'll turn the call over to our COO, Jesús Gómez, who will go through the portfolio breakdown before I discuss our financials. José de Jesús Gómez Dorantes: Thank you, Ignacio. Good morning, everyone. Thank you for joining us today. Let's move to Slide 14 to take a close look at the breakdown of our mortgage portfolio as of the end of the third quarter of 2025. FHipo's consolidated portfolio comprised 47,543 loans as of September 30, 2025, with an outstanding balance of MXN 17.8 billion, an average loan-to-value at origination of 77% and a payment-to-income ratio of 24.4%, at the end of the quarter 92.4% of the portfolio remain performing. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Más Crédito, FOVISSSTE and the digital mortgage platforms, which now represents nearly 20% of the consolidated portfolio. Moving on to Slide 15. FHipo's portfolio remains geographically diversified across all 32 Mexican states. Nuevo León, Estado de México and Jalisco are still the largest contributors together accounting for approximately 29% of the total portfolio balance. In terms of our partnership originations programs, here's the breakdown of the portfolio. First, Infonavit Más Crédito accounts for 49.9% of our total portfolio equivalent to MXN 8.9 billion. The digital mortgage platform portfolio accounted for 19% of the portfolio equivalent to MXN 3.5 billion. The Infonavit Total Pesos program represented 14% of the total portfolio equivalent to MXN 2.5 billion. Fovissste portfolio accounted for 11.8% of the total portfolio equivalent to MXN 2.1 billion. And finally, Infonavit Total (VSM) program reached 4.6% equivalent to MXN 800 million. The distribution reflects our strategy to prioritize origination programs that offer strong risk-adjusted returns while maintaining a diversified portfolio aligned with market demand. I will now turn back the call to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results for the third quarter of 2025. Ignacio Gutiérrez Sainz: Thank you Jesús. On Slide 17, we will discuss our NPL and provision coverage levels. Our consolidated nonperforming loan ratio stood at 7.6% as of the end of the quarter. As of the end of this quarter, we continue to maintain a solid reserve and loan loss allowance policy with an expected loss coverage of 1.43x against NPL and against expected loss and NPL coverage of 0.58x. If we move to Slide 19, and here, we will go through our financial results for the quarter. Total interest income for the third quarter of 2025 was of MXN 318 million, showing a decrease compared to the $332 million reported in the third quarter of 2024. This decrease is primarily attributed to the natural amortization of the portfolio, which was partially offset by the growth of the mortgage portfolio originated through the general mortgage platforms. The interest expense totaled MXN 137 million, representing a 14.2% decrease compared to the MXN 160 million reported in the third quarter of 2024, mainly though to the declining interest rates over the past 12 months. Our financial margin was of MXN 180 million, representing a 56.8% of the total interest income an increase of 5 percentage points compared to 51.8% in the third quarter of 2024. The allowance for loan losses recorded for the third quarter of 2025 was of MXN 65.2 million and the valuation of receivable benefits from securitization transactions showed a net decrease of MXN 115 million in fair value during this quarter. This result is mainly explained, as Daniel mentioned, to nonrecurring events such as the net effect derived from the total early amortization of the CDVITOT 15U trust certificates carried out in September 2025 and the consideration of observable factors related to the cleanup call of upcoming securitizations with similar portfolios. In addition to the amortization pace of the loan portfolio underlying the trust certificates given that these securitization structures are close-ended by nature and to the performance of the portfolio in collateral of such trust certificates during the quarter. Total expenses for the quarter totaled MXN 96.4 million, a decrease of 20% with respect to the same period of 2024. And considering these FHipo registered a result of minus MXN 98 million during the quarter. The estimated distribution for the third quarter of 2025, subject to the current distribution policy is of $0.356 per CBFI and which considering the price of the CBFI as of the end of the third quarter of 2025 results in an annualized dividend yield of 11.5%. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before we move to the Q&A section. Daniel Michael Zamudio: Thank you, Ignacio. As for the third Q of 2025, we have continued to strengthen FHipo's financial profile, maintaining a disciplined management approach, a healthy balance sheet and a solid capitalization. Our capital structure remains prudent, allowing us to preserve financial flexibility and continue distributing attractive yields to our investors. Looking ahead, our focus remains on prudent risk management and identifying new opportunities aligned with our long-term strategic objectives. At the same time, we continue to prioritize long-term profitability and the ongoing enhancement of our portfolio's quality. The initiatives we have implemented throughout the year have further reinforced our foundation to capture future opportunities and create sustainable value over time. We will keep advancing our ESG agenda and contributing to long-term value creation for all stakeholders, including the communities we serve. Thank you for your continued trust. I'll now hand the call back to the operator to open the Q&A session. Thank you for your continued trust. I'll now hand the call. Operator: [Operator Instructions] We would like to take this moment to thank you for joining FHipo's Third Quarter 2025 Results Conference Call. We have not received any questions at this point. So that concludes our question-and-answer session. Thank you. I would now like to hand the call back over to Daniel Braatz for some closing remarks. Daniel Michael Zamudio: Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest in the company and look forward to speaking with you soon. Operator: That concludes today's call. You may now disconnect.
Operator: Greetings, and welcome to the SIFI Technologies Financial Results for Second Quarter Financial Year 2025-2026 Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Mr. Praveen Krishna. Sir, you may begin. Praveen Krishna: Thank you, Ali. I'd like to extend a warm welcome to all our participants on behalf of SIFI Technologies Limited. I'm joined on the call today by Sir. Raju Vegesna, Chairman; and Mr. M.P. Vijay Kumar, Executive Director and Group CFO of SIFI Technologies. Following our comments on the results, there will be an opportunity for questions. If you do not have a copy of our press release, please call Luri Group at 1 (646) 824-2856, and we'll have one 1 sent to you. Alternatively, you may obtain a copy of the release at the Investor Information section on the company's corporate website at www.sifytechnologies.convestors. A replay of today's call may be accessed by dialing in on the numbers provided in the press release or by accessing the webcast in the Investor Information section of the SIFI corporate website. Some of the financial measures referred to during this call and in the earnings release may include non-GAAP measures. Sify's results for the year are according to the International Financial Reporting Standard, or IFRS, and will defer some work from the GAAP announcements made in previous years. The presentation of the most directly comparable financial measures calculated and presented in accordance with GAAP and a reconciliation of such non-GAAP measures and of the differences between such non-GAAP measures and the most comparable financial measures calculated and presented in accordance with GAAP will be made available on Sify's website. Before we continue, I'd like to point out that certain statements contained in the earnings release and on this conference call are forward-looking statements rather than historical facts and are subject to risks and uncertainties that could cause actual results to differ materially from those described. With respect to such forward-looking statements, the company seeks protection afforded by the Private Securities Litigation Reform Act of 1995. These risks include a variety of factors, including competitive developments and risk factors listed from time to time in the company's SEC reports and public releases. Those lists are intended to identify certain principal factors that could cause actual results to differ materially from those described in the forward-looking statements but are not intended to represent a complete list of all risks and uncertainties inherent to the company's business. Let me now introduce Mr. Raju Begesna, Chairman of Sify Technologies Limited. Chairman. Raju Vegesna: Thank you, Praveen. Good morning. Thank you for joining us on the call. As India's digital transformation is entering a decisive phase, redefining its role in the global technology ecosystem. The acceleration in the cloud adoption, AI integration and data center expansion underscores India emerges as the next hub of digital infrastructure. Our focus remains on aligning with this momentum through the sustained investments in the hyperscale data center robust network expansion and I release cell platforms. These initiatives are strengthening our position as a trusted enabler of enterprise transformation across both public and private sectors. We believe the next decade will see India's set global benchmark for digital innovation. Sify will continue to play a pivotal role in empowering the journey, building the infrastructure and platforms that will drive the country's growth in the AI-led economy. Let me now bring our Executive Director and Group CFO, Mr. Vijay Kumar, to explain both on the business and the financial highlights. Vijay Kumar? M. Vijay Kumar: Yes. Thank you, Chairman. We remain steadfast in our commitment to fiscal discipline while continuing to invest strategically for long-term growth. The current phase of expansion across our data center, network and digital platforms. reflects deliberate choices to build future ready capabilities. The network and data center businesses are scaling as per plan, the loss in our IT services business, represents our continued investment to prepare ourselves for the opportunities ahead. Our liquidity position remains robust underpinned by prudent cash flow management and operational efficiency. As we move ahead, our focus will be on sustaining agility in financial planning, embedding accountability and sustainability into every vision and driving enduring value creation for all stakeholders. Let me now expand on the business highlights for the quarter. The revenue split between the 3 businesses for the quarter was Network services, 41%; data center services, 13% and digital services 20%. During the quarter, Sify sold 3-megawatt additional data center capacity, as of 30th September 2025, Sify provides services via 1,196 fiber nodes across the country, a 12% increase over the same quarter last year and has deployed 9,992 contracted SDWAN service points across the country. A detailed list of our key wins is recorded in our press release, now live on our website. Let me briefly sum up the financial performance for Q2 for financial year '25, '26. Revenue was INR 10,533 million, an increase of 3% over the same quarter last year. EBITDA was INR 2,361 million, an increase of 20% over the same quarter last year. Loss before tax was INR 194 million and loss after tax was INR 275 million. Capital expenditure during the quarter was INR 3,064 million. The cash balance at the end of the quarter was INR 4,149 million. I will now hand over to our Chairman for his closing remarks. Chairman? Raju Vegesna: Thank you, Vijay Kumar. In the coming quarters, our focus will sharpen an empowering AI-led transformation and partnering with the new generation of enterprises that ready to innovate and scale with our integrated infrastructure and mature suite of digital services, Sify stands poised to lead in this new era of intelligent computing. I extend my sincere thanks to your continued trust and belief in our future. Thank you for joining on this. I will now hand over to the operator for questions. Operator: [Operator Instructions] Our first question is coming from Jonathan Atkin with RBC Capital. Jonathan Atkin: A couple of questions, if I may, about the data center services segment. First of all, can you give us a flavor for the types of returns, financial returns that you are achieving when you do sort of like the 3-megawatt deal that you referred to and just the range of financial returns that you're thinking about for enterprise as well as hyperscale deals. And if you could also remind us what you consider to be kind of your all-in cost of capital. M. Vijay Kumar: So as far as the 3-megawatt deal is concerned, it's a very small enterprise deal. Our data center business is both hyperscale and enterprise, approximately in the ratio of 2/3, 1/3, and our project IRR historically have yielded IRRs north of 20%, which is a little late 20% kind of IRRs have been the returns which we have generated. Jonathan Atkin: And then as you look at the opportunity set, given where India is in terms of hyperscale AI, but also enterprise AI adoption as we look over the next couple of years, what do you see the sales pipeline looking like that you could accommodate? And then any sort of general comments about other players in the market that are also building in some cases, larger scale projects compared to yourself and how you see the competitive environment? M. Vijay Kumar: The next couple of -- yes, please, sir, please go ahead. Raju Vegesna: John, basically, as you know that we have big campuses in Mumbai and in Noida and Chennai. And we invested what are the basic requirements as India I scales up, we are getting ready. Like similarly, we are looking at multiple places. And basically, we are capable of delivering big projects, and we are looking at this AI momentum tick off in India, and which is we are seeing some positiveness both hyperscalers and enterprises. So what is in a simple sense, is we are ready to expand. And your point is there are other people. Yes, there are other people. But I think one other thing is being 25 years in the market in India, and we are established as a brand. And I think we will get our own share here. Jonathan Atkin: And then lastly, just in terms of the breadth of opportunity, you mentioned 3 markets where there's scale development and demand, but also a lot of activity around edge, like multiple double-digit number of cities where there is also data center opportunities that are recognized and maybe comment about the edge opportunity as well as maybe how that kind of fits in with your network services business? Raju Vegesna: Yes. So yes, we are building edge data centers also. And one of the uniqueness of Sify is having a network business that positions us not only just a colo player and network integrated with that. So we have a plan to expand these Tier 2, Tier 3 cities where it is age is important. And we have our own sites planning, building 10 to 12 sites over the time based on the demand. So there also, we are making ahead into certain cities. Once they're live, we will more than happy to share with. And yes, you're right. It also we are playing -- we are going to play a role. Operator: Our next question is coming from Greg Burns with Sidoti & Company. Gregory Burns: Just wanted to ask about the proposed IPO of Infinite spaces. Why was now the right time to consider that type of transaction? M. Vijay Kumar: Yes. So Greg, the tailwinds for the data center, colocation industry growth is very strong. And it is important to have access to capital. And the listing will help us to continuously access capital to meet the demand forecast, which we see. Gregory Burns: Okay. And what percent of the -- the new entity will Sify retained ownership of? M. Vijay Kumar: We will retain ownership of a substantial percentage grade the exact percentage will be known after the book building process is completed. But what we will be holding is a very substantial percentage going forward and actually [indiscernible] we will dilute. Gregory Burns: Okay. Great. And Kotak, their investment is converting into Infinite spaces equity? Or are they -- does it convert into Sify Technologies equity? And what percent -- or how much stock are there debentures converting into? M. Vijay Kumar: Yes. So their debentures will get converted into Sify Infinite Spaces equity. And this conversion will happen after the draft prospectus is filed by -- is approved by the securities regulator in India. And at that time, we'll publish the exact percentage of how much will be they're holding. And Kotak's interest is to remain invested in the company. A small portion of their holding, they will be offering for sale as part of the public offering, essentially to support the float on that stock. Gregory Burns: Okay. And then you mentioned kind of how your network business integrates or works with the data center operations. So once you split off the data center business. Are they going to be signing long-term like multiyear agreements with the networking operations? Or are they free to kind of go contract elsewhere? M. Vijay Kumar: No. Even at present, the contracting happened separately for the networking with the parent company, which carries the licenses for the networking business. And for co-location, there are separate contracts which are entered with the data center company. The customer relationships and the go-to-market strategy for the company will continue to remain the same. And to our customers, we'll present an integrated offering where they'll consume network services, colocation services and IT services, which they would require. Gregory Burns: Okay. Great. And then just lastly, you mentioned the 3 megawatts of new contracting capacity this quarter. Can you just give us the full complexion of the data center business. I know you have 14 operational like how much design capacity do you have in the market and versus like what is currently operational? M. Vijay Kumar: We have about 188 megawatts of design capacity, which is ready for sale, out of which about 130-megawatt is built. And what is now sold is a small requirement for one of our existing customers. The rest of it is ready for sale and at different stages of customer conversations for contracting. Gregory Burns: Okay. And then what is the -- I guess, the road map for the rest of the -- or maybe the next 12 months in terms of data center builds, how much design capacity are you how much design capacity, I guess, is in the pipeline to be built out? M. Vijay Kumar: Yes. So Greg, I have a little bit of a constraint. Generally, we don't make forward statements and more importantly, having filed the draft prospectus with the securities regulator I'm prohibited from making any forward statements. But I just want to suffice it to say that there is a substantial amount of new greenfield project construction, which is happening in parallel. Operator: Our next question is coming from [ Maher Saker ] with [ Prithvi ]. Unknown Attendee: I have a few detailed questions and we'll take a bit of time for the Q&A. So my first question is regarding the IP of the Sify Infinite Spaces, in which Sify Technologies directly holds equity given that Sify NASDAQ listed entirely where about 84% is held by Promoter Group and 16% by ADR holders. Could you please explain the rationale behind pursuing the IPO of Sify Infinite through a holding company structure under rather than directly distributing ownership or demerger based structure in Sify Infinite between promoters and ADR holders in the same 84-16 proportion and then proceeding with the -- so basically, because of this holding company set up, both the promoter shareholders and ADR holders are currently unable to directly participate in the valuation upside of the data center business. So what was the like strategic regulator, your tax rationale behind adopting this holding company now. M. Vijay Kumar: Prithvi, I think it's a very involved question. I think we have got guided largely by our bankers and advisers in terms of the best structure for raising capital. And as you know, the data center business is completely India-focused business and capital-intensive business. And equally important, there is depth of capital market in India, which we have witnessed over the last few years. And in terms of value realization, and to eventually reflect hopefully, in the parent company. The bankers have advised is the best part. Unknown Attendee: Like actually, I have also the limited knowledge. So if you had gone through the demo structure, so it would have been helpful to the minority holders to unlock the value. So like is there any intent post IPO to simplify the structure? M. Vijay Kumar: It's difficult to respond to that, Prithvi, now. We will see it as time passes by whatever best headways we get in terms of what is best for the shareholders, we will certainly see. Unknown Attendee: It would be just helpful like if you can keep this in the mine like for future perspective. And my next question is regarding -- like I just wanted to get a sense of the road map like what is the expected time line for the infinite IPO from here? M. Vijay Kumar: Yes, the DRHP was filed last week. And usually, CB takes a time of 3 months for approval of the draft prospectus. And thereafter, we get guided by the bankers in terms of what is the appropriate timing to take to the market. Unknown Attendee: Okay. Okay. My next question is regarding the network services business. So if we look at the trend over the last decade, the operating margins have declined materially from 23%, 25% during FY 2016 to '20 to about 10%, 15% levels between -- in last 5 years, even though revenues have grown only at about 5%, 6% CAGR. So while I noticed the recent improvement in margins in Q1 and Q2 at around 14%, 18%, could you please like elaborate on what led to this sharp margin compression earlier like is this margin behavior structural or cyclical? Can we expect this segment to gradually revert to the 20%-plus range as utilization and demand improves? M. Vijay Kumar: Correct. It is structural, and it's by design. And you have started witnessing the improvement in margin. What happens is as the network expansion happens. And more importantly, when you invest in new age networks to support AI kind of demand. You invest in new infrastructure, which will take time to monetize. And these are important investments, which have to be done ahead of time. So these are done by design and as a structure and the trend which you have observed should continue. . Unknown Attendee: Okay. So like should we assume like the current 14%, 16% band as the new steady state? M. Vijay Kumar: No, no, no, no. it should get better. Unknown Attendee: So like over the future period should -- we should be able to see 20% plus kind of range, right? M. Vijay Kumar: Yes. That's our expectation, and we are working towards that. Unknown Attendee: Okay. And my last question is on the digital services segment. So like similarly, over the last decade, the business has shown like in revenue growth periods of high growth like FY 2016 to '18, then FY '23, followed by flat or negative years with an overall CAGR of about 11%. At the same time, operating margins have steadily eroded from around 15%, 20% during FY '16, '18 to negative territory in '24, '25. And the losses have also continued in Q1 and Q2. So can you please help us let me understand the key factors behind this deterioration? M. Vijay Kumar: Yes. So 2 reasons, Prithvi. One is there's a complete change in the way IT is getting consumed by enterprises post-COVID. Earlier, there is to be a substantial amount of IT projects, which were delivered on a system integration model. But post-COVID, most of it is consumed as a service. So project-based revenues by design as a company, we have chosen to scale it down. So unlike in the past, that's 1 reason. Second is also what's happening in the last 3, 4 years, and we have consistently shared in all our communication. This is a business where we are investing significantly in terms of people and in terms of building IP to be very relevant for the way IT is going to be consumed by the large enterprises and the upper end of the medium enterprises. So there's a lot of work happening there. It will take some time. It will take some time. But we are confident that we will be relevant to the market with the investments which we are making now. And we'll continue to do this for a few more quarters before we start hopefully seeing the results. Operator: [Operator Instructions] We have a question from [ Sri Tho ] who is a private investor. Unknown Attendee: I have a couple of questions, pretty much in line with what other participants have asked. Correct me if I'm wrong, from whatever I have reviewed the published results. The network services has grown at 16%. Data Services is around 25%. The digital services has degrown around 30%, 35%. This quarter. Is that a fair statement? M. Vijay Kumar: Yes. Unknown Attendee: So related to this, the digital services, I know we have spoken like in the last few quarters, that whole offering is being redesigned, maybe some non-value added services are being discontinued. That entire division is being revamped, so to speak. I know the network services and data center are kind of related to each other that you could offer both. How much of digital services is stand-alone? And how much is it actually dependent on other 2 businesses? So to reframe the question, data center client might request even the network services. How much of them are actually requesting for digital services? M. Vijay Kumar: Yes. So Srikanth, as far as the IT services are concerned, we broadly offer network managed services, then we offer the cloud and managed services. then we have security-related services broadly at a high level. The network managed services is very closely linked with our network business, the network infrastructure business. So in the network managed services, we manage for enterprises, large and including the bank's PSUs. We manage the networks for them. irrespective of where they are sourcing from the whole network is managed best. So there is a correlation there. And as far as the cloud and managed services are concerned. The cloud services, ultimately for the customers that require a good network to reach the cloud, whether it is cloud, which we build for them in our facility or the public clouds. So we have solutions, including technology platforms, which help enterprises to manage hybrid cloud consumption where they consume partly from public cloud and partly from the private cloud, which is set up on our data center, there's a correlation. And our security solutions are again largely around the infrastructure related security solution, whether it is security at the network layer or at the data center layer or the cloud layer. And of course, we do some bit of security around applications as well. So there is correlation. And beyond this, as far as our enterprise customers are concerned, the customer touch points are similar. So our effort is to ensure that -- in the large enterprises, we are able to maximize our share of engagement with them. So we have witnessed some amount of success in that. will continue to put our efforts to get it better. Unknown Attendee: Okay. Okay. So the other question, again, going on to the digital services. So it's basically the loss in the Digital Services division has dragged the overall results. Otherwise, this quarter result is probably similar to last quarter, maybe it growth? Had it not been for the loss in digital services? M. Vijay Kumar: Correct. Correct. Correct. Unknown Attendee: Okay. Okay. So obviously, I'm sure this division is on focus now on everybody's radar that you would obviously don't want this to drag the results of other divisions within the group. M. Vijay Kumar: Correct. Correct. You're right. And we are focused on that. But we don't want to stop investigated because in the -- unlike the network and data center where your investments are in balance sheet items, in the case of IT services business, your investment is in the P&L item. So this loss sort of reflects our investments for the future. And of course, we are focused on reducing this monetizing it early. And if some of our beds are not working, we will redesign our strategy. And also, we are focused on that. Unknown Attendee: Okay. Okay. And 1 last question, sir, on the upcoming IPO. The fact that the CPI Infinity spaces will be listed in India. Sify Technologies is the holding company, which is a NASDAQ listed. So we are indirectly a shareholder in not indirectly, directly shareholder in Sify Infinity Spaces, which will be listed in India. Given that the existing Sify Technologies shareholders will not be able to directly participate other than any Indian resident who can apply in the IPO, have you considered doing any kind of -- I mean lack of better word, maybe private placement or some kind of opportunity for existing investors and Sify Technologies who have an appetite to probably participate in the proposed IPO other than just applying in the IPO whoever is eligible? M. Vijay Kumar: Yes. We haven't done any specific work on this. But let me socialize with the bankers. We have guided on the entire process by the bankers of regulatory process and what is best for maximizing the value to all the existing shareholders. Unknown Attendee: It just may be a nice way of rewarding the existing shareholders. M. Vijay Kumar: I've understood your ask, but I think I need to be conscious of the regulatory network as well. Operator: As we have no further questions on the line at this time, I would like to turn the call back over to Mr. Raju Vegesna, for any closing remarks. Raju Vegesna: No. Thank you very much for joining this call and having continuous interest in Sify, and have a good day. Thank you. Operator: Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and we thank you for your participation.
Operator: Good morning. My name is Anna, and I will be your conference operator. [Operator Instructions] This is FHipo's Third Quarter 2025 Conference Call. There will be a question-and-answer session after the speaker's opening remarks, and instructions will be given at that time. FHipo released its earnings report [indiscernible] October 24, after the market closed. If you did not receive the report, please contact FHipo's IR department [indiscernible]. Questions from the media will not be taken nor should the call be reported on. Any forward-looking statements made in this conference call are based on information that is currently available. Please refer to the disclaimer in the earnings release for guidance on this matter. We are joined by Daniel Braatz, Chief Executive Officer; Ignacio Gutiérrez, Chief Financial Officer; and Jesús Gómez, Chief Operating Officer. I would now like to turn the call over to Daniel Braatz. Daniel, please go ahead. Daniel Michael Zamudio: Good morning, everyone, and thank you for joining us today. Let me walk you through our third quarter 2025 results. Throughout 2025, we have remained focused on strengthening our platform, prioritizing high-quality yielding assets and maintaining a resilient, efficient and forward-looking investment strategy. The disciplined execution of this strategy supported by a solid capital structure positions us to continue adapting to a changing environment while pursuing sustainable growth. In the third Q, we reaffirmed our commitment to delivering profitability to our investors. Historically, as of the end of this quarter, we have distributed over MXN 7.2 billion to our investors, reinforcing our focus on sustained value creation. Our strong capitalization profile remains a pillar of FHipo's financial strength. In the third Q, we maintained a 59.7% capitalization ratio and a 0.65x debt-to-equity ratio. Our disciplined deleveraging strategy has strengthened the balance sheet and positioned us to capitalize on future growth opportunities. Our financial margin stood at 56.8% of total interest income, once again reflecting our stable profitability and operating discipline. Among the quarter's highlights, we closed at MXN 1 billion of financing between a renewal of our $500 million credit facility with Banco Ve por Más and signed a new facility with Banco Santander for the same amount further strengthening our financial flexibility and confirming the market's confidence in our business model. Furthermore, on September 22, the full early amortization of CDVITOT 15U and CDVITOT 15-2U trust certificates took place, resulting in a nonrecurring effect on quarterly results, in line with our objective of continuing the reduction of exposure to VSM-denominated loan portfolio. If we move on to Slide 5, we highlight our consistent track record of delivering value to our investors through stable distributions. For the third quarter, our annualized yield per CBFI stands at 11.5% based on an estimated quarterly distribution of MXN 0.35 per CBFI, subject to our current distribution policy. As I mentioned before, since FHipo was created, we have distributed approximately over MXN 7.2 billion to our investors, equivalent to MXN 19.32 per CBFI. These results underscore our strategic direction centered on creating long-term value and maintaining a focused approach for our investors. Moving to Slide 6. As of the third Q, our debt-to-equity ratio considering both on-balance and off-balance financings was 1.38x highlighting the fact that during the period of the third Q 2019 to third Q of 2025, we achieved a deleveraging of 0.9x in our total on and off balance debt. Over this period, we remain disciplined in maintaining a solid and resilient balance sheet, which positions us to capture future opportunities aligned with our long-term objectives. At the same time, our financial margin reached 56.8% for the quarter, representing a 5% points improvement year-over-year. This reflects the continued efficiency and reinforces our commitment to operating with discipline, focus and a sound financial structure. On Slide 7, we highlight our continued emphasis on higher yielding assets. As of the third quarter of 2025, originations through digital mortgage platforms accounted for 19.7% of the total portfolio. Up to 8.6% in the third Q 2023, reflecting a 2-year CAGR of 38.4%. Our portfolio has a strong asset quality profile with an average loan-to-value of 77% at origination and an estimated loan-to-value of 29% based on current market value of housing. Moving on to Slide 8, on the third Q, our nonperforming loan ratio calculated for the accumulated balances of the total portfolio at origination stood at 3.04%. Overall, our portfolio continues to reflect prudent levels of nonperforming loans, which remains consistent with the nature of the maturity profile of our assets. Finally, on Slide 9, FHipo affirms it commitment to sustainability and ESG best practices. We aim to generate long-term positive impact beyond financial returns. We have financed over 100,000 loans with 55% going to low-income households. Women represent 31% of our total portfolio and 35% of our digital mortgage platforms, while 39% of our workers are women. On governance, our Nomination, Audit and Best practices committees are fully independent and more than half of our technical committee members are independent as well. On the environmental side, about 70% of Infonavit borrowers have taken the green mortgage program benefit. And internally, we have implemented initiatives to reduce paper, plastic and water use. These actions reflect FHipo's ongoing commitment to incorporating strong ESG principles into our business model and decision-making process. Now I will turn the call over to our CFO, Ignacio Gutiérrez, who will discuss the leverage strategy. Ignacio Gutiérrez Sainz: Thank you, Daniel, and again, good morning, everyone. I'll first walk you through our different funding sources on Slide 11. FHipo has continued to strengthen its balance sheet. As of the third quarter of 2025, our total debt-to-equity ratio, including both on and off balance sheet financing stood at 1.38x, down from 2.3x in the third quarter of 2019 reflecting a deleveraging of 0.9x over that period. On a stand-alone basis, our on-balance sheet leverage ratio was of 0.65x. This financial discipline has improved our flexibility and reinforced our capacity to negative changing market environments. Our funding structure remains diversified and robust, allowing us to efficiently manage liquidity to support future growth opportunities. If we turn to Slide 12, as shown in the breakdown of our consolidated funding as of the third quarter of 2025, more than 70% of our financing has legal maturities exceeding 20 years. This profile provides us with a comfortable long-term debt structure aligned with the nature of our assets. In addition, our financing costs remain at current and competitive levels, supporting the sustainability of our capital structure over time. Now I'll turn the call over to our COO, Jesús Gómez, who will go through the portfolio breakdown before I discuss our financials. José de Jesús Gómez Dorantes: Thank you, Ignacio. Good morning, everyone. Thank you for joining us today. Let's move to Slide 14 to take a close look at the breakdown of our mortgage portfolio as of the end of the third quarter of 2025. FHipo's consolidated portfolio comprised 47,543 loans as of September 30, 2025, with an outstanding balance of MXN 17.8 billion, an average loan-to-value at origination of 77% and a payment-to-income ratio of 24.4%, at the end of the quarter 92.4% of the portfolio remain performing. Our portfolio remains diversified across several origination programs, including Infonavit Total, Infonavit Más Crédito, FOVISSSTE and the digital mortgage platforms, which now represents nearly 20% of the consolidated portfolio. Moving on to Slide 15. FHipo's portfolio remains geographically diversified across all 32 Mexican states. Nuevo León, Estado de México and Jalisco are still the largest contributors together accounting for approximately 29% of the total portfolio balance. In terms of our partnership originations programs, here's the breakdown of the portfolio. First, Infonavit Más Crédito accounts for 49.9% of our total portfolio equivalent to MXN 8.9 billion. The digital mortgage platform portfolio accounted for 19% of the portfolio equivalent to MXN 3.5 billion. The Infonavit Total Pesos program represented 14% of the total portfolio equivalent to MXN 2.5 billion. Fovissste portfolio accounted for 11.8% of the total portfolio equivalent to MXN 2.1 billion. And finally, Infonavit Total (VSM) program reached 4.6% equivalent to MXN 800 million. The distribution reflects our strategy to prioritize origination programs that offer strong risk-adjusted returns while maintaining a diversified portfolio aligned with market demand. I will now turn back the call to our CFO, Ignacio Gutiérrez, to discuss FHipo's financial results for the third quarter of 2025. Ignacio Gutiérrez Sainz: Thank you Jesús. On Slide 17, we will discuss our NPL and provision coverage levels. Our consolidated nonperforming loan ratio stood at 7.6% as of the end of the quarter. As of the end of this quarter, we continue to maintain a solid reserve and loan loss allowance policy with an expected loss coverage of 1.43x against NPL and against expected loss and NPL coverage of 0.58x. If we move to Slide 19, and here, we will go through our financial results for the quarter. Total interest income for the third quarter of 2025 was of MXN 318 million, showing a decrease compared to the $332 million reported in the third quarter of 2024. This decrease is primarily attributed to the natural amortization of the portfolio, which was partially offset by the growth of the mortgage portfolio originated through the general mortgage platforms. The interest expense totaled MXN 137 million, representing a 14.2% decrease compared to the MXN 160 million reported in the third quarter of 2024, mainly though to the declining interest rates over the past 12 months. Our financial margin was of MXN 180 million, representing a 56.8% of the total interest income an increase of 5 percentage points compared to 51.8% in the third quarter of 2024. The allowance for loan losses recorded for the third quarter of 2025 was of MXN 65.2 million and the valuation of receivable benefits from securitization transactions showed a net decrease of MXN 115 million in fair value during this quarter. This result is mainly explained, as Daniel mentioned, to nonrecurring events such as the net effect derived from the total early amortization of the CDVITOT 15U trust certificates carried out in September 2025 and the consideration of observable factors related to the cleanup call of upcoming securitizations with similar portfolios. In addition to the amortization pace of the loan portfolio underlying the trust certificates given that these securitization structures are close-ended by nature and to the performance of the portfolio in collateral of such trust certificates during the quarter. Total expenses for the quarter totaled MXN 96.4 million, a decrease of 20% with respect to the same period of 2024. And considering these FHipo registered a result of minus MXN 98 million during the quarter. The estimated distribution for the third quarter of 2025, subject to the current distribution policy is of $0.356 per CBFI and which considering the price of the CBFI as of the end of the third quarter of 2025 results in an annualized dividend yield of 11.5%. With this, I will now hand the call back to our CEO, Daniel Braatz, for some closing remarks before we move to the Q&A section. Daniel Michael Zamudio: Thank you, Ignacio. As for the third Q of 2025, we have continued to strengthen FHipo's financial profile, maintaining a disciplined management approach, a healthy balance sheet and a solid capitalization. Our capital structure remains prudent, allowing us to preserve financial flexibility and continue distributing attractive yields to our investors. Looking ahead, our focus remains on prudent risk management and identifying new opportunities aligned with our long-term strategic objectives. At the same time, we continue to prioritize long-term profitability and the ongoing enhancement of our portfolio's quality. The initiatives we have implemented throughout the year have further reinforced our foundation to capture future opportunities and create sustainable value over time. We will keep advancing our ESG agenda and contributing to long-term value creation for all stakeholders, including the communities we serve. Thank you for your continued trust. I'll now hand the call back to the operator to open the Q&A session. Thank you for your continued trust. I'll now hand the call. Operator: [Operator Instructions] We would like to take this moment to thank you for joining FHipo's Third Quarter 2025 Results Conference Call. We have not received any questions at this point. So that concludes our question-and-answer session. Thank you. I would now like to hand the call back over to Daniel Braatz for some closing remarks. Daniel Michael Zamudio: Thank you all for joining us today. Please don't hesitate to reach out to us if you have any more questions or concerns. We appreciate your interest in the company and look forward to speaking with you soon. Operator: That concludes today's call. You may now disconnect.