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Will Lopes: Good morning, and welcome to Catapult's investor conference call for our first half FY '26 results. I have with me Bob Cruickshank, Catapult's Chief Financial Officer. This morning, Bob and I will present our results, our strategy and outlook and then take questions from participants on the call. It has been a momentous 6 months for Catapult. Just half a year ago, we reported outstanding FY '25 results, meeting the high bar we had set for ourselves and building on the clear inflection point we had achieved in FY '24. Since then, we've continued to accelerate this trajectory. 5 months ago, we announced the acquisition of Perch, the global leader in velocity-based training, shaping the future of athlete monitoring in the weight room. And just last month, we welcomed Impect, the world's foremost innovator in soccer scouting and tactical analytics, whose end-to-end intelligence platform delivers insights unmatched in the game. It's been an extraordinary stretch, one defined by progress, purpose and performance. And today, with another strong set of financial results, we reaffirm that same commitment to innovation and to the promise of what's still ahead. As you can see on Slide 3, the first half brought another milestone. Our customer base has now grown to more than 5,000 teams worldwide, an increase of 400 teams in just 6 months. While our focus, as many of you know, remains squarely on our professional teams, it's encouraging to see this broader growth. It's a reflection of how Catapult continues to define the global standard for performance technology trusted by athletes and organizations across every level of support. Now turning to our results. And before I begin, I'd like to outline that all figures I reference today are reported in U.S. dollars unless otherwise indicated. And to provide a clearer picture of our underlying performance, year-over-year growth rates are presented in constant currency, to remove the noise of foreign exchange and reflect the true trajectory of the business. The first half of FY '25 was another period of strong performance for Catapult, building on the momentum we have created and progress we made in FY '25. As you can see on Slide 6, we continue to advance against our North Star, The Rule of 40, reaching a new high of 33% at the end of the half, up from 31% a year ago and a full 12 percentage point improvement compared to where we stood just 2 years ago. This metric is powered by two core drivers: the pace at which our subscription base is expanding, reflected in the growth of our annual contract values; and the amount of operating profit we retained measured through management EBITDA. Our top line continues to perform exceptionally well, with ACV now up 19% year-on-year at the end of the half. But what's even more encouraging is the leverage we are generating as we scale. Our ability to keep more of every dollar of revenue is growing faster than revenue itself. Management EBITDA reached $10 million for the half. That is a 50% year-over-year increase, delivering an operating profit margin of 14%. That result would have been even stronger were not for an unexpected payroll tax expense of roughly $2 million, which is tied to the strong performance of our share price, something Bob will speak to shortly. Turning to the next slide. Our 19% ACV growth has lifted contracted subscriptions to a new record of USD 116 million. Our total revenue, which includes some nonrecurring items, grew 16% year-over-year to USD 68 million. For those of you who think more naturally in Australian dollars, this marks an important milestone for us. It is a first half in which Catapult has generated more than AUD 100 million in revenue. To put this into perspective, when Catapult first listed on the ASX, our full year revenue was AUD 5 million. The distance between these two numbers says a great deal about just how far we've come. Catapult's SaaS engine remains in excellent health, as shown on Slide 8. Our ACV retention rate once again exceeded 95%, placing Catapult firmly among the most successful enterprise software companies in the world against this measure. It's a testament to the quality of our product, the stickiness of our platform and the value we are delivering to our customers season after season. ACV per Pro team, our core ARPU metric, grew 8% year-over-year. And as in prior periods, the primary driver of this increase is the continued expansion of customers adopting more than one solution, most often adding a video product from our T&C vertical to wearables product in our performance and health verticals. The number of these multi-vertical customers rose 26% year-over-year, underscoring both the differentiated breadth of our product ecosystem, and the value customers unlock when they integrate wearables with videos, a combination that remains unique to catapult in the market. Turning to Slide 9. You can see the depth of operating leverage in our subscription model and the strength of our unit economics. When excluding the unexpected payroll tax expense in the first half, our incremental profit margin is 56%, meaning we kept $0.56 of every additional dollar of revenue as profit from an operating sense. Bob will discuss further how the payroll tax is primarily a first half expense and our treatment of it going forward. But before I hand it over to Bob, I also want to touch on some of the innovations we have delivered to our customers in the first half as we outlined on Slide 10. The rollout of Vector 8 has been a primary focus in the first half of FY '26. While we are still in the early stages of the process, we are already improving the technology and introducing new features as we go, a pace made possible by the new hardware platform that we introduced. Enhancements that once took months on our previous system are now being delivered in just a matter of weeks. In addition to getting devices and docs into the hands of our North American football customers, we are now extending the rollout into more sports and geographies. And we're also delivering major upgrades to our web experience, including faster editing, more streamlined report creation and time-saving performance analysis. The feedback has been excellent, and the rollout will continue through the second half of FY '26 and well into FY '27. Similar to Vector 8, not only did we launch Hub Pro in the first half, but we have also started to expand its features with a new remote workflow that syncs in real time seamlessly with in-office teams, unifying communication, analysis and a feedback loop across the entire coaching staff, no matter where they are in the world. In the first half, as I mentioned, we acquired Perch, and while we've been very focused on the early stages of integration, integrating their velocity-based training technology into our ecosystem, I am pleased to also say that in a very short period of time, the team has introduced Perch Assist, new performance scores and a new enhanced gym analytics, deepening the sophistication of the technology and strengthening our leadership position in gym technology. We also continue to invest in our game day and sideline solutions to better support teams and leagues in real time. During the half, we expanded Focus Live beyond game day and into practice, giving teams the same real-time analysis capabilities during training that they rely on during competition. And in recent weeks, we acquired key IP assets from IsoLynx, a local positioning system provider whose patents were licensed for the use in NFL game day tracking and whose technology has been white labeled by another wearable company as their own LPS solution. When combined with our existing solutions and IP, we believe that this acquisition not only strengthens the backbone of our live operations but also effectively gives Catapult control of the global patent portfolio required to operate an LPS system for tracking athletes and balls in live competition. And across our product suite, we're beginning to see the real benefits of artificial intelligence. AI-driven tagging, data cleaning and content generation are already saving coach's time and helping teams reach insights faster. And while we're only scratching the surface, our uniquely rich first-party data, spanning performance, tactics and now global recruitment gives us the raw material that makes AI truly effective. This foundation will allow us to usher in entirely new solutions and unlock new value for customers, something I will touch on a bit more later. In summary, we've entered FY '26 in excellent shape. We are delivering strong top line growth, demonstrating meaningful operating leverage and giving our customers the best tools and solutions to help them perform at their very best. With that, I'm going to hand it over to Bob to walk you through the financials in more detail. Bob? Robert Cruickshank: Thank you, Will, and good morning, afternoon and evening to those of you joining today. I'm very pleased to present what are another great set of results today. I'll begin with an overview of our key SaaS metrics before taking you through our financial performance in more detail, and then I'll hand it back to Will to comment on our strategy and outlook. I'd like to reiterate that unless I state otherwise, the numbers I'm about to talk to are actual reported numbers in U.S. dollars and that our growth rates, which compare our performance year-on-year, are in constant currency, removing the impact of fluctuations in foreign exchange rates. Starting with the drivers of some of those great numbers Will presented earlier, I will begin by focusing on our primary metric on Slide 12, our annualized contract value, or ACV. In the first half of FY '26, we delivered 19% constant currency growth, finishing the half at $115.8 million. We're normalizing for the onetime impact of closing our Russian business in the second half of FY '25 and the ACV that we acquired with Perch, this was an 18% growth rate. Our strong growth has again been driven by the performance of both core SaaS verticals, which can be seen on Slide 13. I'll start with our P&H vertical, which includes both our wearables and Perch solutions. This vertical continues to be a reliable and predictable growth engine that yet again delivered an excellent growth rate, growing by 21%, driven particularly by success signing more soccer teams in every region and American football in the United States. P&H was again where we felt the impact of exiting Russia as our business in that region was almost entirely in this vertical. Going forward, that impact will drop out of the FY '25 comparative period when we report our FY '26 results. We remain very pleased with our P&H growth and the continued global expansion we are seeing from our P&H vertical. Our T&C vertical, which includes our video solutions, generated 16% ACV growth. This was underpinned by continued growth from new and existing customers in soccer in Europe and supported by Catapult's expanded product suite of video solutions launched in early FY '26 in American football. Going forward, T&C will also include the ACV from Impect, which we're obviously very excited about, not only because as a stand-alone product, it has the potential for strong growth, but because it will also help us unlock more growth from our own Pro video suite. As you can see on Slide 14, our ACV per Pro team continues to expand, primarily driven by our success in cross-selling. Average ACV per Pro team increased by 8% year-over-year, meaning that our average ACV is now exceeding $28,000 per Pro team. This is very encouraging to see and entirely consistent with our strategy, whereby we have a midterm target of growing this number to $40,000 per Pro team, but you'll learn more about from Will in a moment. The chart on the right of this slide expands on our cross-selling success. In the first half of FY '26, we experienced a 26% year-over-year increase in the number of Pro teams using products from two or more of our verticals, which up until now consisted almost entirely of wearables and video. One of the pillars of our strategy is to maintain ACV retention rates above 95%. As you can see on Slide 15, we delivered an ACV retention rate of 95.1% in the first half, the inverse of which being a churn rate of 4.9%. It is important to note that this includes the onetime impact of our exit from Russia, which represented around 1% -- point impact to this number. This continues to be on par with the best retention rates seen among the world's most successful enterprise software companies. We're incredibly proud of this performance and expect to continue delivering retention rates better than our 95% target. And Slide 16 now provides a good overview of the SaaS metrics we have spoken about today. These are the leading indicators of our future growth, and they present a very positive picture of the health of our business. There are two additional numbers to also call out on this slide. First is lifetime duration, which has increased from 7.6 years to 8.1 years, a 7% increase during a period in which we added approximately 600 new teams year-over-year. It's a great sign that even though we are signing new teams, we're building longer and longer tenure into our customer base. And second is our Pro team count, which increased 12% year-on-year, an acceleration from the 8% growth we experienced in the first half of FY '25. We now have more than 3,800 Pro teams as customers, a significant global footprint. And as a reminder, the Pro team count is different from the 5,000-plus total teams mentioned earlier by Will, which includes non-Pro customers. Let's now move on to our financial results. And you can see on Slide 17, the impact that our strong top line growth has had in our P&L. SaaS revenue derived from our ACV balance grew 16% year-over-year. Recurring revenue, which is comprised of both SaaS revenue and revenue from our media business grew by 19%. As it implies, our media business has had another very strong half of growth with 41% growth year-on-year. And finally, on that slide, recurring revenue as a percentage of revenue has been consistently above 90% for some time, finishing at 94% in the first half of FY '26. Now moving to our cost base. And as you may know, we split our cost buckets into variable costs and fixed costs. Let's start with variable costs on Slide 18. You can see the trend of our variable costs compared to the steady growth of our revenue over the last 2 years, and how these costs are declining as a percentage of revenue. Variable costs are the cost of growth, which are made up of COGS, delivery and sales and marketing expenses. These are the costs that will continue to grow in absolute dollar terms as our revenue grows, while also declining as a percentage of revenue as we gain efficiencies and our business scales. As you can see, we continue to make progress on this metric. While our variable costs increased by $2.6 million year-over-year, they declined as a percentage of revenue from 52% to 49%, corresponding to an improvement in the contribution margin from 48% to 51%. The increase in variable costs was almost entirely COGS related, which increased by 16% and was closely correlated to the growth from our media business. Outside of COGS, our sales and marketing and delivery costs increased by just 4%. This is a tremendous achievement from our team. It means that we are now only 4 percentage points away from reaching our target of 45% of revenue. Now moving on to fixed costs on Slide 19. Fixed costs, which reflect our G&A and R&D teams, both expensed and capitalized, increased by 18% year-over-year and were flat as a percentage of revenue at 37%. Our fixed costs were impacted by the larger-than-anticipated payroll tax expense from the vesting of share-based payments, driven by the Catapult share price, which has risen significantly over the last 2 years. Fixed cost growth was also impacted by the addition of R&D operational costs that came with the acquisition of Perch. Both of these items occurred in the first half of FY '26. Excluding the payroll tax and the Perch impact, fixed costs otherwise rose by 7% year-over-year, which is in line with our expectations. And if we exclude the tax impact only, a nonrecurring cost, our fixed costs would have been 35% of revenue, showing that our core trend of seeing fixed cost leverage with revenue growth is on track. We expect this trend to continue as fixed costs rise modestly in absolute dollar terms, while declining as a percentage of revenue as we continue to make progress towards our 25% target. And these concepts all come together on Slide 20, which highlights how our operating leverage is accelerating the growth in our profit margins. You can see the gap that is now opening up between our revenue and our OpEx as a percentage of revenue and the impact that is having on our profit margin at the bottom of the chart. We have now delivered $28 million (sic) [ $29 million ] of positive operating profit margin, management EBITDA in the last 2 years and we are making great strides towards getting to our targeted 30% profit margin, delivering a 14% margin in the first half of this financial year. As revenue grows and our variable and fixed costs continue to approach their targets, our operating profit margin is expected to increase. And on Slide 21, you can see the ongoing improvement in our free cash flow position that has come about because of these increased efficiencies we're delivering in our cost base and are leading to our expanding operating profit margin. Free cash flow increased $3.4 million year-over-year to $8.2 million in the first half when excluding transaction costs, which consists primarily of the $3 million cash component of the purchase price related to the acquisition of Perch, along with related advisory fees. Including this, our cash flow was still a very healthy $4.3 million and meant that at the end of the first half, Catapult had a net cash position of more than $11 million in the balance sheet and with a fully repaid debt facility. Finally, moving to our profit and loss summary on Slide 22. We have already touched on many of these numbers, so I will make a few observations on those we have not. The increase in share-based payments is primarily due to the year-over-year increase in our share price which has an impact on the expense recognized due to changes in the accounting valuation methodology as outlined in the FY '24 results. This increase is not reflective of an increase in dilution. Incremental depreciation and amortization or D&A includes around $2 million of accelerated expense of S7 devices and Thunder as they approach end of life, along with $1 million of intangible asset amortization related to the Perch acquisition. And finally, the change in interest, taxes and other is primarily due to a tax benefit, lower interest costs due to lower utilization of our line of credit and reduced foreign exchange losses year-over-year. I want to call out that going forward, we will be separating out the payroll tax related to share-based payments from our management EBITDA. This expense relates to our employee share plan and is unrelated to our operating profit. We fully expect to continue delivering for shareholders. And if our share price keeps rising, payroll tax will continue to create timing noise in management EBITDA that has nothing to do with the underlying performance of the business. For that reason, we'll be making this adjustment going forward. In closing, we have started FY '26 in excellent shape. Our key metrics and targets are world-class and our financial performance continues to go from strength to strength. We are consistently delivering strong profitable growth, progressing even further on the Rule of 40. With that, I will hand it back to Will to discuss our strategy and outlook further. Will Lopes: Thanks, Bob. Before we wrap up, I'd like to take a moment to reaffirm the scale of the opportunity in front of us, the strategy guiding us and why we remain so energized about Catapult's role in sport for many years to come. Slide 24 highlights the global market opportunity. The professional sports technology market is expected to exceed USD 71 billion by 2030, effectively doubling over the next 5 years. Live sports remains one of the last true pillars of real-time entertainment. And that enduring demand is driving unprecedented levels of investment across leagues, teams and performance infrastructure. Slide 25 illustrates how our platform strategy is delivering true differentiated value. Our unified SaaS platform is designed to help teams make faster and smarter decisions. It saves time, adds context to the data they rely on and fits naturally into the rhythms and workflows of high-performance environments, turning information into an advantage and an advantage into a competitive edge. On Slide 26, you'll see the breadth of the solutions we now offer, including Perch and Impect. With each addition, we are becoming an even more integrated partner across the full spectrum of performance and coaching workflows. And across this platform, the deeper impact of artificial intelligence is just beginning to come into focus. Our greatest strategic advantage lies in the quality and the scale of the data we create. Catapult generates and manages a uniquely comprehensive body of athlete information, over 5 petabytes from gym and on-field performance metrics to the custom tactical tagging done by our customers and now the most extensive global data set in soccer recruitment. Because this data originates in our hardware, flows through our software and is enriched inside our analysis tool, we hold something rare in professional sport, a vertically integrated foundation of first-party data that AI can uniquely refine and learn from. This foundation is already creating meaningful value. As I've mentioned, AI-driven tagging, data cleaning and content generation are saving coaches time and accelerating insights across our products. In Formula 1, our computer vision technology delivers real-time track limit detection. In the weight room, Perch is redefining velocity-based training with a computer vision system unmatched in the market. And across our broader ecosystem, machine learning has long-powered player and sport-specific algorithms built on top of data, no one else can access. These capabilities help elite teams uncover patterns and insights that previously required hours of manual analysis. And they increasingly make high-quality performance intelligence now accessible to new types of customers who lack the resources to uncover those insights today. AI is also reshaping how we build. A meaningful share of our production level code today is now generated through AI, expanding our engineering capacity and allowing teams to focus on the inventive high-impact work that pushes our platform forward. In short, our unified vertically integrated system, one that creates and owns the data, enriches it through AI and transforms it into actionable insights, continue to strengthen as AI's role in sport only grows from here. The value of AI ultimately depends on the richness of the data beneath it, and that foundation is uniquely Catapult's. This integrated system and our ability to generate differentiated data are also what fuels our excitement around our recent acquisition. Perch strengthens our leadership in athlete monitoring by bringing weight room intelligence into our performance and health portfolio. Shred training is the foundation to athletic development, and Perch bridges a long-standing divide, enabling us to build a unified view of athlete performance. While we are early in the integration, we are already seeing the impact. Perch has already moved beyond its American football roots, helping us win competitive renewals in Europe, break into new verticals like elite volleyball in Asia, along with also helping us sign new customers here in Australia. It's a clear evidence of its broad appeal and immediate commercial traction. Impect, even just weeks post transaction, is also expanding our platform advantage. It adds a scalable, data-rich scouting solution powered by a proprietary Packing metric that meaningfully elevate decision-making for teams. Impect strengthens our cross-sell engine at soccer, deepens our share of wallet and unlocks new growth opportunities for our video products. And like Perch, the acquisition is immediately accretive to our progress in the Rule of 40. Now turning to Slide 27. You can see how the pieces of the strategy come together. Catapult has built a competitive moat that is wide, deep and genuinely defensible. Our one-stop platform, our proprietary data stack, our global scale and our multisport intelligence are unmatched in the industry. And as the first half demonstrates, through the strength of our platform, the sophistication of our technology and the growth of our customer base, the moat is only winding. We are expanding our advantage at the very moment the market itself is accelerating, which is exactly where we want to be. Slide 28 outlines our focused go-to-market approach. We land on Performance & Health, we expand with video and now scouting analysis through Tactics & Coaching. We retain more than 95% of our customers annually, and we drive cost efficiencies as we move towards a target of 30% profit margin. Slide 29 details the economics that supports this journey. We've built an enviable global SaaS business designed for profitable growth at scale. The ability to drive our contribution margin through cross-sell and product innovation allows us to improve unit economics while leveraging a stable fixed cost base, yielding higher profitability as we scale. Slide 30 brings us back to where I started today, and that's with the Rule of 40. It is how we measure our success both internally and for you, our shareholders. At the heart of this framework are five key drivers, each critical input powering our ACV growth and management EBITDA. Together, they shape not just our financial outcomes, but the discipline behind our scale. First, Pro team count. With more than 3,800 Pro teams today, we continue to see greenfield opportunities across leagues, regions and sports. Second, ACV per Pro team. We are increasing ARPU through upsell, cross-sell, pricing and product expansion, especially as we convert single vertical teams into multi-vertical customers. And this is where new solutions like Perch and Impect will play an increasingly important role as we unlock their potential through our global scaled sales organization. Third is ACV retention. We're maintaining retention above 95% by consistently delivering value, service and innovation. And as we add new solutions, we deepen the role we play in helping customers make better decisions, strengthening the stickiness of our platform and the trust they placed in us. Fourth is the variable cost efficiencies. We are scaling smart, supporting growth while driving productivity and lowering marginal delivery costs. Fifth and lastly, it's fixed cost discipline. With our foundation now in place, we are positioned to grow without layering in equivalent fixed overhead. Turning to our outlook on Slide 31. Our objective remains to deliver on our strategic priorities with a continued focus on profitable growth. As we communicated last month, in FY '26, we continue to expect ACV growth to remain strong with low churn, continued improvement in cost margins towards our targets and higher free cash flow, excluding transaction costs as our business continues to scale. In closing, we've had a great start to FY '26. We continue to deliver strong profitable growth with a SaaS engine that is driving us forward, with a team that is hitting on high expectations that we set for ourselves. With our all-in-one SaaS platform built exclusively for sport, now strengthened by Perch and Impect, we stand alone in our ability to help teams, athletes optimize their performance. I remain confident in the path we're in and in the vital role we play in unleashing the potential that lives inside every athlete and team on earth. Thank you all for listening, and I will now turn back to the operator for questions. Operator: [Operator Instructions] Your first question comes from Owen Humphries with Canaccord. Owen Humphries: Well done, team. Another set of strong numbers. A couple of questions from me. First one is just on the Pro team count, added 276 my numbers here in the half, but that would have included Perch, which was around 125, my understanding around the time of the acquisition, but that's largely high schools. Can you just maybe talk through what the, I guess, organic Pro team growth was for the first half? Will Lopes: Yes. Thanks for the question, Owen. Yes, I think the amount of teams that came -- Pro teams that came through Perch were quite minimal. I think the overlap that we had during the acquisition between our Pro team and their Pro teams was very high. I don't have the exact number on the top of my head, but I would have assumed the additions that came with Perch were definitely less than 10% of the additions that we've added in Pro, but probably even less than that on it. So most of that addition is organic. Owen Humphries: Right, So strong teams addition, well done. And then just to understand the multi-vertical team growth of, call it, 95%. Now we didn't get a discussion point around the new video solutions, which was around $13 million of ACV in the last result. Can you maybe just talk through how that tracked up? Is it fair to say that 95 teams was largely taking up the new video solutions? Will Lopes: Yes. The primary growth continues to be in multi-verticals is our Performance & Health or wearables customers taking on video solutions. So yes, the primary version of that came in. I would say that the first half of this year, we were really pleased that we saw, as you asked in your first question, really strong growth in new additions of new teams. So I think the sales team was primarily focused on new logos, but also as we started to integrate Perch, upsell within that logo -- within that vertical also took a lot of attention, which would not show up in the multi-vertical numbers. Owen Humphries: Well, actually, can we dive deeper on that because if it's the strongest first half addition in teams, like what has changed in the sales team to go after new logos because you can't really see it in the variable cost of sales and marketing, so like you're adding 50 more people in that team. Could you just talk through some of the drivers, some of the regions, how you're incentivizing what's -- just the drivers of that strong team growth, logo growth? Will Lopes: Yes. Nothing, I think, in particular unique, I think, from the past. I think it's just where the pipeline fell at the first half of the year. We saw good growth in wearables, particularly around all soccer regions. We saw strength, I think, as Bob mentioned, in American football across all the collegiate areas. And then an upsell as we started to introduce Perch into that vertical customer as well. We should -- they just -- that number doesn't show up in the multi-vertical count. Owen Humphries: And just on the fixed OpEx growth here. So the like-to-like growth was, call it, 8-odd percent. Now that you have a bigger balance sheet, can you just talk through any ideas? I know you talk about modest growth going forward. Is that kind of 5%, 10% growth? You guys are not planning a reinvestment strategy given you guys have a more capitalized balance sheet? Will Lopes: No, I think as Bob mentioned, I think we anticipate modest growth from a fixed cost perspective as we have in the past. I think we have -- we feel like we have a good scale foundation. Like-for-like, I think when you remove the addition of Impect -- sorry, when you remove the addition of Perch R&D in the first half, and the tax, the payroll stuff, our growth was actually just 7%, and our anticipation always has been that, that's around the amount you should estimate on R&D expenditures going forward in terms of growth. Owen Humphries: Well done, guys. Good result. Will Lopes: Thank you. Operator: Your next question comes from Evan Karatzas with UBS. Evan Karatzas: One for me. Just keen to -- well, just keen to parse out how you're thinking about the top line growth over the next 12 to 24 months just with the inclusion of Perch, Impect, which are faster growing businesses and I guess, the existing Catapult and you also got the Vector 8 global rollout, just around, I guess, the potential to accelerate that top line growth from here relative to the last couple of years? Will Lopes: Yes. I appreciate the question. Yes, look, I think as we mentioned in our outlook, we anticipate ACV growth from hereon out to remain strong and for us to continue to see churn. I think the Impect -- sorry, the addition of Impect and Perch will, in their own rights, I think, help each of the verticals accelerate to some degree from where we stand today. It's a bit early to say, particularly on Impect. It's been a couple of weeks since I think we closed the deal. A big part of that acquisition was to ensure that we start to play in the scouting area of the vertical as well as help us have some more innovative bundling strategy with our existing Pro video suite. How it impacts growth rate at this stage, I think it's too hard to kind of give you a guidance on a number. But I think as we've said in the past, I think the addition of all of these products as well as the expansion of our hardware on Vector 8 just continues to add more fuel rods to maintain our growth rate and keep it going strong from here on out. Evan Karatzas: Okay. Good one. And then just sort of a quick follow-up there. Just remind us of the Vector 8 rollout and the progress there for the next 18 to 24 months as well? Will Lopes: Yes. I think we continue to be incredibly excited for it. I think -- so we typically start these rollouts a bit slower than you -- sort of to make sure that we're not impacting our customers in any significant way before we kind of really get our entire customer count converted. Our first focus was really around American football in North America. We passed pretty much the Northern Hemisphere summer time introducing the new technology. We are now in the second phase where we're expanding that technology now into other sports and geography. And I think what was really exciting for us is how fast we could bring new features to market. What used to be really months, what would typically takes between seasons, right, new features that we would design from a software perspective, we can now bring to market in a matter of weeks. And I think to your question, we see that really as sort of the underlying opportunity in the Vector 8 platform, which is not only are we collecting these first-party data sets, but the ability to invent and create new software and add value to it that potentially could lead to expansion of share of wallet means that we can move much faster than we have in the past. So we may not have to wait season to season to see some of that impact growth. But I think the caution I think we've always done to the market here is we're a subscription business. And so while we are excited by the platform and what Vector 8 will allow us to do in the future, we don't see the rollout of the hardware as an ACV moment for us. I think later on, as the software starts to improve, that's really where we start to see the AC benefit long term. Operator: The next question comes from Damen Kloeckner with CLSA. Damen Kloeckner: I just wanted to build on a couple of questions that have already been asked. So if the 408 new Pro teams, should we think of that as basically being exclusively driven by soccer across multiple regions and North American football, like if you could [Audio Gap] of 400? And then also just with the multiple verticals, where has the MV penetration been highest? Which teams are you having the most with now over the last few months as you're integrating these new businesses and rolling that out? Will Lopes: Yes. So I think from a -- if I understood your question on the first part, the primary growth driver on sort of new Pro teams, yes, continues to be in global soccer, primarily in sort of Northern Europe, Eastern Europe and Southern Europe, where are still greenfields for us. We also had incredible success in Latin America. The team -- the sales team continues to do a really great job in that region. And we're now finding particularly in the sort of Middle East, Southeast Asia, some really great results there as well. Similarly, I think the North American market continues to be very strong for us. American football has always been an area where we continue to see consistent growth. And I think we're very pleased to see that continue along the way on the Performance & Health growth logos in particular. I think to your second part of your question on the multi-vertical, yes, the primary area where we're finding, I think, the sort of the, I would say, the lowest hanging fruit in converting a wearable client into a multi-vertical client, continues to be in global soccer. That's really been the primary focus, which is why the addition of Impect was to us so exciting is that not only does it allow us to continue to add on the Pro video suite that we've always -- we've been building and feel we have probably the best one out in the market, but now it allows us to combine that with the most sophisticated scouting analysis tool. And if you understand sort of the Pro global soccer industry, what you quickly realize is that actually outside of maybe the top 30, 50 teams in Europe, 95% of the revenue that teams generate globally is through their scouting system. It's basically through building a great athlete and selling that great athlete to some of the big teams in Europe. So the fact that we now have this platform within our ecosystem, coupled with our Pro video stuff, we're very excited that it's going to give us the opportunity to continue to keep our multi-vertical solution growth stronger than it's been this past half. Damen Kloeckner: Okay. And just one more. Can you give us a little bit more color on what is driving the strength in media business? And should we still be thinking of this as exclusively a North American opportunity, is like contained to the U.S.? Or are you seeing opportunities for media services elsewhere? Will Lopes: Yes. I think it continues to be a positive surprise for us. It's not -- it's never been an area where I think it's been a core driver of our business, but it's an area of the business that has always benefited from the platform, the underlying platform we built primarily for video analysis. So it utilizes a lot of the tools and the technology on it. The drivers have been really, I think, what I mentioned, which is the sort of unprecedented demand around sports, and basically, sport being really the last bastion of live entertainment means that the value of the ecosystem and the amount of investment going in continues to be pretty high. So what that's translated for us on that licensing media part of the business is really two things. I think, one, we're seeing a higher demand for content, particularly collegiate content out of the U.S. for highlights, for advertising purpose, and we're also seeing the streamers, the likes of Netflix, Disney, Amazon want to create content around sports and us sort of playing the rights holder role for our clients in that case is benefiting from that demand. Again, we are cautious. We're very excited, having 40-plus percent growth on anything is always incredibly exciting. I think we're always cautious that it's been a part of the organization that has been historically growing in the single digits, 5%, 7% annually. We treat it typically in our minds as something that we anticipate to stay flat. But if this demand continues, I think we'll probably have to rethink how we think about this part of the business for ourselves. Operator: Our next question comes from Lindsay Bettiol with Goldman Sachs. Lindsay Bettiol: Hopefully, you can hear me okay. Will Lopes: Very good. Lindsay Bettiol: Yes, good. Okay. Question, if I have a look at, say, the full year ACV results versus the first half ACV result, like the mix of Pro teams growth and ACV per team is kind of inverted. With the first half, it was ACV per team driven; second half, more Pro teams driven obviously because of Perch. As we go forward, like you've acquired Perch now, Impect comes in, I would think that would kind of, one, accelerate the conversion of video, but also it's just a higher ACV per team anyway. Like how should we think about the mix of your ACV growth going forward? Would you expect that to be more ACV per team driven versus, say, what we've just seen in the first half? Will Lopes: It's hard to give you a real good answer on that at this stage because I think it's still pretty sort of bringing -- we haven't been historically an M&A machine, where we add solutions into the mix. So Perch has only been with us for 5 months Impect for a couple of weeks. Historically, I think the way we tend to think of our ACV growth or at least not to think about it, but historically, how it's come, it's been around 50% driven by new and about a quarter on upsell and a quarter in cross sell -- sorry, a quarter in price increase. My expectation is that at least for the next 12 months or so, I don't see any reason why that ratio changes. I would anticipate that upsell and cross-selling would still primarily drive about a quarter of our ACV growth and new about half of it. But that ratio could become a bit more close to equal if the integration with Impect and the integration with Perch continues to do as well as we imagine, but it's a little bit too early for me to give you any guidance on that at this stage. Lindsay Bettiol: No, brilliant. That's fine. And then just a couple of clarity questions. If I look at your staff numbers, it looks like they ticked up by 20 half-on-half. Could you just remind us how many heads came across as part of the Perch acquisition, please? Will Lopes: How many heads, how much headcount... Lindsay Bettiol: Yes, how many employees? Will Lopes: Yes. So I think Perch was somewhere in the neighborhood of like a team of 10. And I think in Impect, which is not yet reflected in the number, it was probably -- it's probably about a team of 30 to 40 on their corporate side. It's a bit higher on the operations side that sits behind it in the Philippines. I think the number is around 400. So you'll see a tick on head count growth. But again, those are mainly operational headcount. So think of it as like a support center on it. Excluding those, I think our head count is probably minimal from a growth perspective net, right, so probably around 10 to 15. Lindsay Bettiol: And then just final kind of clarity question. I think Bob did call this out, but just to be sure, the Russia impact, that's done now, right? Will Lopes: Yes. So by the end of the year, if that's what your question is, the Russian impact will be excluded -- or not excluded, it's no longer impacted in the numbers. This will be the last time that, that impact on ACV will be there, particularly in churn. So if you exclude that impact now, I think our retention rate was around 96%. I think we had a churn rate of like 3.9%, which would have been compared to last year this time around 3.8%. So virtually flat and an amazing level at all counts. But yes, you shouldn't anticipate that impact going forward. Operator: [Operator Instructions] We have a follow-up question from Owen Humphries with Canaccord. Owen Humphries: I think you just answered it before. But just around that media business, I think you said that you expect that business or way you model it is kind of flat in terms of the run rate revenue to date going forward? Will Lopes: Yes. I actually think -- I would say that we think it's probably running a little high given where historically we've seen. I think the -- I would say that it's somewhere between $10 million to $12 million in annual revenue. It's kind of where we've seen that business run with, let's call it, CPI level increase. I think this year, it's running -- I don't have the number, but it's probably closer to $14 million right now. So while we're delighted to see it there, I think I'm just a bit cautious on that metric because I don't know how long this demand that we're seeing, particularly from the streamers, right, will stay on. We had -- I'll give you an example, Netflix created a show last year around collegiate sports, particularly around American football. We weren't sure if it was going to get renewed. This year, it did get renewed. And so -- but it's still unclear whether the following season it will get renewed. So it's -- I think those are -- they're harder to predict than the other parts of our business. That's why I think we're fairly cautious about it. Owen Humphries: Got you. And if you're an analyst doing some modeling, and obviously, run rating at 16.6%, you kind of said run rate should be around 10% to 12%, but maybe how would we forecast that into future years and also for the game play, but I think that's where the market is focusing on, what it means for growth trajectory next year? Will Lopes: Yes. I think 10% to 12% with some CPI level growth is probably appropriate. But I don't know what else to add to that.
Andre Parize: Good evening, everyone. I'm Andre Parize. Investor Relations Officer at XP. And it's a pleasure to be here with you today. On behalf of the company, I would like to thank you all for your interest and welcome you to our third quarter 2025 earnings call. Today's presentation will be led by our CEO, Thiago Maffra, and our CFO, Victor Mansur, who will both be available for the Q&A session right after the presentation. If you would like to ask a question, please use the raise hand feature on Zoom, and we will address them in the order we received. [Operator Instructions]. Before we begin, please refer to our legal disclaimers on Page 2, where we provide additional information regarding forward-looking statements. You can also find more information in the SEC filings section on our IR website. Now I'll turn it over to Thiago Maffra. Good evening, Maffra. Thiago Maffra: Thank you, Andre. Good evening, everyone. I appreciate you all joining us today for the third quarter 2025 earnings call. 2025 has been a very important year for XP as we have achieved significant progress on our agenda of excellence from the launch of the new way to attend and serve clients, implementing a culture to better understand clients' financial cycles as part of the main KPIs, new and more intelligent segmentation through a brand-new app with much more features and easier data access and new credit card offering. These few examples demonstrate our focus to become the leader in investments in the country while it brings a completely new approach on how Brazilians invest. Despite this advance we have made in different areas, the year has still proven to be challenging. But even with this challenge, our team is fully committed to keep evolving our business to deliver growth and profitability under different circumstances. Now going to the main KPIs. The first one is client assets, AUM and AUA for which we posted BRL 1.9 trillion, a 16% growth year-over-year. Total advisers accounted for 18,200, representing a small decrease year-over-year on the back of many of them becoming employees and our more restrictive policy, which requests higher standards of commercial behavior and productivity. And on activity clients, we posted 4.8 million clients with a 2% growth year-over-year. It's important to mention that we have been growing on core client segments, high income and private banking. For some quarters, we were not investing to capture and maintain low retail clients since it was too expensive to serve them in our old model. But now after some tests, we are almost ready to resume growth in this segment. We already see early stage of development on how to better serve the segment with profitability. Let's wait some quarters to be sure about the way we design to attend retail clients and maybe we'll see the overall number of clients growing again as this dynamic evolves. In the quarter, gross revenues marked BRL 4.9 billion, representing 9% growth year-over-year. EBT is 10% higher year-over-year, making BRL 1.3 billion. These results were positively impacted by the more constructive dynamics in Corporate & Issuer Services segments. Following this positive trend, our bottom line also posted an impressive growth year-over-year, reaching BRL 1.330 billion and representing a 12% growth when compared to the same period last year, which represents a new record. On profitability, we achieved 23% ROE during the quarter, a flat performance year-over-year. This represents our commitment to deliver profitability even in more challenging market scenarios. On capital ratio, we maintain a very comfortable level of 21.2%, which represented an increase of 180 bps quarter-over-quarter. Regarding diluted EPS, we posted 13% growth year-over-year, another quarter in which it grew faster than net income, driven by our share buyback program execution. Now let's see more details on the next slides. Our total client assets combined with the assets under management from our asset management business and with the AUA from our fund administration business totaled over BRL 1.9 trillion, which represented a 16% growth year-over-year. On the right hand of the slide, we show how net new money related to client assets developed in the period. This quarter, we achieved BRL 20 billion in retail net new money and BRL 9 billion in corporate and institutional, which combined represented BRL 5 billion lower than last year, but 3x higher than last quarter. On the retail side, we started to see the early signs of progress on our agenda of excellence we mentioned before, lower noise of some events we had during the first half of the year and better GCM activity towards the end of the quarter. All this combined positively impacted the inflows coming from individuals. Additionally, despite the maintenance of the same market dynamics during the third quarter of the year, we saw better net new money figures, both from SMEs, which are incorporated in retail figures and large corporates. Recent developments in our product range offering and more positive capital markets activities translated into higher net new money for both segments. We are constantly improving our investment platform. And as we mentioned before, enhancing clients' experience through adviser initiatives. This combination reinforced our confidence to achieve our target of around BRL 20 billion in retail net new money per quarter. On the next slide, we will explore our retail strategy. As I mentioned earlier, 2025 has been a year of significant progress in our agenda of excellence. We are constantly enhancing our way of serving clients with the aim of once again disrupt the market with our value proposition focused on service level. Going back to our foundation, XP disrupted the investment industry in Brazil by democratizing access to investments through an open and comprehensive platform of products and service. In a second stage, we scaled this innovative business model by building the largest and most qualified base of financial advisers in the market. We have come this far by offering best-in-class investment products built by top market specialists. Now we are once again disrupting how Brazilians invest by democratizing access to high-quality wealth planning, a service that until now has been reserved for high net worth clients of multifamily offices. We delivered personalized and premium planning for clients with more than BRL 3 million, scaling financial planning for those with over BRL 1 million and offering goal-based investment planning for clients with less than BRL 1 million. Our approach is holistic, encompassing the complete financial lives of our clients, assets, liabilities, expense and savings. Tax and estate planning solutions are also considered. In the end, we are serving our clients with top-tier solutions for both their personal and business finance. We are doing this at scale, powered by proprietary technology we have developed over the past years. This technology enables process standardization, scalability and consistent quality in our servicing model. Examples include our CRM system, proprietary allocation platform and sales activity management, among others, all of them powered by AI. Some of these process KPIs are shown here. Proving that this journey towards excellence is gaining traction day by day. Additionally, combined with all this progress I have just mentioned, we are leading another change in the industry by having an agnostic business model. We are able to serve clients in the way that best fits their needs and preferences. The fee-based model already accounts for 21% of total retail AUC. It started in the wealth service segment, which still has more representativeness in the model, but we are accelerating in the other segments from this year on. We will still capture considerable growth coming from this new way to serve. It will happen in the medium term as we are transforming our business model and our value proposition. Nevertheless, we strongly believe that will give us a sustained competitive advantage in the long run. Finally, XP once again is a pioneer. We are not only leading this redefinition on how clients are served, but we are also uniquely positioned to capture future growth coming from this change in client behavior and new market trends. Retail cross-sell has been one of our focuses to diversify revenue streams during the last years. During Q3, we achieved important milestones in this business segment. Starting with credit card, TPV grew 9% year-over-year, marking BRL 13.1 billion during Q3. As we anticipated last quarter, at the end of Q2, we launched new products targeting affluent and private banking clients. We estimate that with this new segmentation, each one of them with a unique value proposition, we should grow faster in the coming quarters. Life insurance written premium posted 25% growth year-over-year in Q3. As we have mentioned in the past, our insurance business is still in its early stage. Given its significant expansion potential, we expect it to continue growing. On retirement plans, our client assets posted 15% growth year-over-year in Q3 and reached BRL 90 billion. We keep expanding our sales force and our product offering to increase our relevance in this industry. As mentioned before, we see a lot of potential in life insurance business segment with a significant addressable market to penetrate in the coming years. Credit posted 11% growth year-over-year in Q3, achieving BRL 83 million in NII. In new products, we consider FX, global investments, digital accounts and consortium. Altogether, they presented 24% growth year-over-year with revenues reaching BRL 250 million this quarter. Beyond consortium, we also saw FX and digital account posting relevant growth this quarter. Moving to the next slide, we will address our wholesale bank evolution. Taking GCM into consideration, this quarter, we saw a sequential increase in industry volumes when compared to the previous quarter. This growth was pretty much concentrated in the last half of the period, backed by the progress in the tax discussion regarding tax exempt and incentivized instruments. In the third quarter of 2025, we had 10% market share in debt capital markets distribution. We still have a robust pipeline of fixed income offerings and depending on market conditions, we might see these mandates materializing into real deals still in 2025. Regarding XP broker-dealer, it was another positive quarter, and we kept leadership in the local industry with 17% market share. On corporate securities, this quarter, we kept about the same size of our corporate securities book with BRL 33 billion. The quarter started with possible change in taxation of tax-exempt fixed income instruments and finished with many companies taking advantage of low credit spreads to issue new debt. Next year, we can possibly see an increasing volatility and therefore, a reduction in corporate clients' appetite for new offerings. So our strategy, that being the case, is to increase this warehouse book in the last quarter of 2025 to sell it to our retail clients during the next year. As a final message, I would like to once again emphasize our ability to disrupt the market. We are the pioneers of this transformation trend, bringing clients unique value proposition or innovative offering combined with an agnostic business model and strong capital discipline position us as a distinctive player that successfully combines growth potential, profitability and risk management. I would also like to reinforce that our ecosystem today is far more complete than it was just a few years ago and there are multiple opportunities to be explored across all our businesses. We are confident that by executing this strategy, we will achieve our goals of market leadership in investments and deliver sustainable long-term growth. Now I will hand it over to Victor who will provide a deeper look into our financial performance this quarter, and I will be back for the Q&A session. Victor Mansur: Thanks, Maffra. Thank you all for being here today. Now we'll discuss our financial performance for the third quarter. Starting with gross revenues, we posted gross revenue of BRL 4.9 billion, a 9% growth year-over-year and 6% growth quarter-over-quarter. In retail, revenues reached BRL 3.7 billion, representing 6% growth year-over-year and 4% growth quarter-over-quarter. Institutional revenues were stable at BRL 304 million, flat year-over-year and slightly decreased quarter-over-quarter. Corporate & Issuer Services delivering outstanding performance, reaching a historic record of BRL 729 million, a 32% growth year-over-year and 33% growth quarter-over-quarter. This was driven by strong capital markets activity, followed by our leading position in corporate client solutions, which we will discuss in more detail in the next slides. Now starting in retail revenue. The performance was mainly driven by floating from both check and investment accounts, which benefited from higher average volumes and higher interest rates during the period. And second, new verticals included in other retail, such as international investments and global accounts, which delivered strong results. Lastly, it's important to mention that this quarter also includes the revenue of the expert event. If that, the other retail category totaling BRL 757 million, marking 24% growth year-over-year, 19% growth quarter-over-quarter, offsetting a weaker performance from other product lines due to lower ADTV and shorter duration. Now let's move to the next slide in Corporate & Issuer Services. This was the best quarter in our history. The outstanding performance was driven by a pickup in DCM activity compared to the previous quarter, and the continued development of our corporate client franchise. Issuer Services posted BRL 323 million, stable year-over-year and 21% growth quarter-over-quarter. Corporate revenues reached BRL 406 million, representing 77% growth year-over-year and 46% growth quarter-over-quarter. The strong growth reflects our increasing capability to deliver solutions to large corporate clients, particularly in hedging solutions. Moving on to the next slide, we explore SG&A and efficiency ratios. SG&A expenses totaling BRL 1.7 billion in the quarter, representing 10% growth year-over-year and 7% growth quarter-over-quarter. We remain committed to invest in the areas we consider critical for long-term growth including sales force expansion, marketing and technology, as highlighted by Maffra earlier. These initiatives are designed to enhance the client journey and elevate our overall service level. While this strategy may lead to stable or slight softer efficiency ratio in the short term, we see these investments as fundamental to sustain our competitive edge over time. Our last 12 months efficiency ratio was 34.7%. Compared to the last year, the ratio improved by 79 basis points. As usual, in the third quarter, results also reflect the impact of the expert event which once again proved to be outstanding opportunity to connect to our stakeholders. From another angle, the impact of it in the current efficiency ratio was approximately 70 basis points. Moving on to the next slide, let's see our EBT. As a result, our EBT was BRL 1.3 billion, representing 10% growth year-over-year and remaining sequentially stable. The EBT margin expanded 47 basis points on the annual comparison, while compressing 103 basis points quarter-over-quarter. Now looking at the net income, we reached BRL 1.3 billion, a 12% growth year-over-year and 1% increase quarter-over-quarter. The net margin expanded 106 basis points on annual comparison and compressed 112 basis points sequentially, closing the third quarter of 2025 at 28.5%. Now let's focus on capital management. This year, we have been highly active in returning capital to our shareholders. In 2025, we repurchased BRL 2 billion of which BRL 850 million occurred after the end of the third quarter, and therefore, are not reflected in the accounting metrics we are presenting today, such as ROE and EPS. Today, we are announcing the retirement of our outstanding treasury shares bought back during the year and the new 1 billion share buyback program to be executed over the next 12 months. On top of that, we are also announcing a dividend of BRL 500 million to be paid in 2025. This represents BRL 2.4 billion in capital return to shareholders in 2025 approximately 50% payout if you analyze our net income. If you consider the new buyback program, the payout ratio would be around 7% for the year. So let's focus on earnings per share and ROAE detail over the next slides. In the third quarter, our diluted EPS once again outpaced net income growth, reaching BRL 2.47 per share, supported by our activity capital distribution strategy through share buybacks. In this quarter, EPS grew 13% year-over-year and remained stable quarter-over-quarter. On the right-hand side of the slide, ROTE stands at 28% and ROAE at 23%, slightly lower than last quarter, since we had the capital generation without the corresponding distribution, assuming the execution of the new BRL 1 billion buyback program and BRL 500 million dividend payment and ROTE an ROAE would have been 30% and 24%, respectively. Now moving to the next slide. To conclude my presentation, our capital ratio ended the third quarter at 21.2%, and the CET1 at 18.5% well above peers average and the regulatory requirements. This comfortable capital position gives us a strong edge to navigate different scenarios and be ready for the upcoming volatility. Also, during 2026, we expect to have the opportunity to deploy capital in a more efficient manner. It's important to remember that we maintain our guidance for a BIS ratio between 16% and 19% for the end of 2026. Now talking about risk on the right-hand side of the slide, you can see that our RWA totaled BRL 108 billion, representing a 13% growth year-over-year and a 6% increase quarter-over-quarter. Finally, our VaR stood at BRL 29 million or 12 basis points of equity. Even in a quarter of outstanding performance from our wholesale business, we maintain a very conservative risk profile. In this quarter, it's worth to mention that our balance sheet grew 6%, but adjusting for retirement plans and secured funding, it growth would have been lower than the CDI for the period. This increase in retirement plans is associated if a one-off bulk migration we did from other insurance companies to our own, and we don't expect to see it in other quarters. Besides that, as you can see, we kept our market RWA stable and decrease our VaR sequentially, reinforcing our position as a robust ecosystem with strong risk recycling capabilities. And now we can go on to the Q&A. Andre Parize: [Operator Instructions]. The first question is from Eduardo. Eduardo Rosman: I have a couple of questions here on the wholesale business, results were really strong this quarter. Should we expect a similar performance in the fourth quarter? Or do think a slowdown should be expected, right? And my second question is on what Maffra mentioned, right, during the call, right? The strategy to increase the warehousing book in the fourth quarter. If you can give us a little bit more detail -- because you also mentioned that corporate spreads are very low. So wouldn't that be a risky strategy in an election year. Thanks. Thiago Maffra: Hello, Rosman. Thanks for your question, and good evening, everyone. So we are seeing the wholesale banking with a good performance for Q4. So as we mentioned earlier in the last call, we have seen the second half of the year is stronger than the first half of the year, especially for the wholesale bank. Victor Mansur: Rosman, this is Victor. Talking about credit spread first. We think that the credit spreads are really tightened. And if they -- the probability is that they can go a bit more wider over the end of the year and next year. But also, there is a lot of net inflow in fixed income funds that keep putting pressure in the spreads. And it's important to remember that our strategy is to hold high-quality assets and the velocity of turnover of our portfolio is higher than the average of the industry. And we are not as susceptible as credit spread volatility as the rest of the competition. And also in terms of RWA, we expect to sell a bit of what we bought over the third quarter. And depending on the performance of the same, warehouse a bit more to go through the first quarter of 2026. As we all know, the first quarter usually is a quarter with lack of activity in DCM. So it's important to us to have assets to sell in the beginning of the year. Andre Parize: Okay. Next question is from Yuri Fernandes, JPMorgan. Yuri Fernandes: Just to follow up Rosman on corporate. Can you remind what was the 46? I think you mentioned hedging strategy, but I'm not sure what was it? So just trying to understand a little bit again the corporate, inside Corporate & Issuers, the 46% quarter-over-quarter increase. And on bonus, this line was a little bit heavier this quarter, but coming from, I would say, a softer base, right, when we go to the 9 months. I think total bonus is up 80%, 90% year-over-year, so not a big increase. But if you can comment a little bit on what to expect on people, expenses, like salaries, like just to get some idea on SG&A. I would appreciate. And if you want to comment on bonuses also, I think it's also a good point, given it was a little bit higher this quarter. Victor Mansur: Thank you for your question. This is Victor. First, talking about the corporate performance. It's important to remember the corporate business is tied to the DCM activity. So one of the main drivers of P&L in corporate is hedge solutions to company issuing debt. So for example, the company issue a debt tax-exempt corporate bond, inflation-linked bond and it doesn't want the exposure inflation. it hedges against us in CDI plus. That's one of the business, and it's highly correlated with the same activity. Also, another business that is really important is the originator of credit operations that will be securitized and sold to clients in the next quarters. If you go to our credit portfolio, you see that it's flattish. Basically, we sold quasi-sovereign bank notes, and we originated corporate operations, but those operations will be securitized and then sold to clients the same as we did in other quarters. And now moving to bonus. It's normal to see the bonus going higher after the performance of investment banking going higher the way it did over the quarter. So part of that is explained by performance in Wholesale Banking. Another part is explained by the new hires over the year. We hired almost 500 new employees, mostly on sales force expansion over the year. And this is one part of the drivers of salary growth and bonus provisions. Yuri Fernandes: Super clear, Victor and congrats on the net new money improvement for the quarter. Andre Parize: Next question is from Mario Pierry, Bank of America. Mario Pierry: Let me ask 2 questions as well. First one, when we look at your retail revenues growing 6% year-over-year. But if we double-click on that, we see that our fixed income revenues actually contracted year-over-year. They have been contracting 2% even as the AUC grew 22%. So it means there was like significant pressure on take rate. Can you explain why that happens, right? Because when we look at fixed income, revenues were growing like 40%, I think, on average for the past like 6 quarters. So just trying to understand if there was a one-off event that impacted fixed income revenue? And then my second question is related a little bit to what Yuri asked, but when we look at your EBT margin, it had been expanding for past like 3 quarters, I think. In this quarter, it contracted because of the pickup in expenses and you're running below your guidance, right, your medium-term guidance of about, I think, it's 30% to -- 29% to 32%. So just trying to get a sense here also, like should we expect the trend to start to improve in the next quarters? Or do you think that the EBT guidance it's something for more like for the end of 2026. Thank you. Thiago Maffra: This is Thiago. I will take the first question. I can answer the second one and Victor complement myself here. About the fixed income revenue, the main problem here is if you look the take rate for investments, if you compare Q4 last year to Q3 this year, it's down 10 bps overall, okay? So it's a huge draw here, drawdown. And when you look only fixed income, 20 bps, okay? So it's a big decrease in take rate. And it's mainly explained because first one, mix, okay? So if you look CGs with daily liquidity, they used to represent 25% of the new allocations, okay? So 25%, today is 45%. Because of the high SELIC rate, we are selling almost half of everything that we sell for fixed income, it's CGs with daily liquidity. When you compare the revenue we make here, it's basically a daily spread on CGs with daily liquidity against duration times spread, okay? So it's a completely different revenue stream, okay? And the second one is shorter duration, okay? So right now, everyone is only buying like a very short-term durations, okay? So when you combine the mix of more CGs with daily liquidity and shortened duration, we are selling a lot more volume in fixed income, but with a lower take rate. About your second question, we are investing in sales force expansion. We are investing in SMB. We are investing in technology. So we are doing a lot of investments this year, and we are planning to do more investments next year. So I would say that is still possible to get to the -- at the end of the next year to the guidance we gave, but you see because in the past, I would say, 2 years or even more, we have been gaining a lot of efficiency quarter after quarter. I would say that right now, we should be more flattish when you look at the next quarters because we are investing more, okay? So -- but still doable to get to the guidance by the end of the next year. Andre Parize: Okay. Next question is from Gustavo Schroden from Citi. Gustavo Schroden: Hello, guys. Thanks for the opportunity. I have 2 questions as well. The first one is -- sorry to insist in this sales force that you guys mentioned. But because if I'm not wrong, you mentioned something around 500 new employees, and most of them related to sales force. But when we analyze the total number of advisers that you have, it is decreasing, right? So year-on-year and stable quarter-on-quarter at 18,200 advisers, including IFAs and XP's employees. So I'd like to understand what kind of sales force are you hiring? And if it is possible to reconcile with this total number of advisers? And my second question is related to financial expenses. We saw decent decrease quarter-on-quarter and year-on-year, so 28% below quarter-on-quarter, 45% decrease year-on-year despite higher SELIC rate we could see that there was a reduction of BRL 1.5 billion in borrowings. So my question is this reduction is related to these lower borrowings or are there different reasons behind this decrease in financial expenses. Thiago Maffra: Okay. I'll take the first one. About the total number of IFAs, as Victor mentioned, that we are hiring more internal advisers, okay, here, it's because when you look at the IFA, the B2B network, they have been converting some of the IFAs into employees because of the change in regulation that has been happening, I would say, for over a year now. And the second part is because we have been part of the third wave that we mentioned a lot here on quality, the way we serve clients we have been focused a lot more on quality. So more skewed IFAs, okay? So we have been I would say, even forcing some of the low-quality IFAs like to leave the network. So we have been increasing on what we call AAA advisers and we have been decreasing on what we call C and D curve of IFAs, okay? So those are the main reasons why you don't see the number of IFAs growing. But as we don't open the number of what we call AAA IFAs here, but this number has been increasing. So we have been focusing more on more qualified advisers. Victor Mansur: This is Victor taking the second part about the financial expenses. Just remembering here, we went through a reorganization of our conglomerate over the last year, changing the bank to the top of the business. And that has an important effect in financial expenses and also other revenues. So when debt that was a corporate debt inside the holding matures and it is rollover for a debt inside of the bank, it gets out of the financial expense lines and goes inside of net interest margin. So it's just a geographic effect. It goes from the debt to the -- to be a reductor of revenues. And that's also why other revenues is lower quarter-over-quarter. You're going to see that the change between lines, they are closer to each other. That's the -- may affect just a geographic movement between lines. And also, it's important to note that the bank debt is much cheaper than corporate debt. So you do have this geographic movement, but also the overall cost of debt of the company is considerably lower when you compare 2024 to 2025. Andre Parize: Next question is from Daniel Vaz from Safra. Daniel Vaz: I wanted to follow up on Mario's question on fixed income. Instead of looking on the 2% drop, I wanted to talk about the 7% drop quarter-over-quarter. I mean DCM activity improved, right? So we saw that on your insurance services, net new money improved, warehouse of securities did increase, and we had higher business days, right? So it's probably -- it's probable that you distribute a higher volume to the clients. So I heard you on the mix change, but this -- I mean, was this a quarter-over-quarter change? I mean the CGs with daily liquidity, went up from 25% to 45% in 1 quarter. Just wanted to touch base on that again, if you could explore a little more of what the change quarter-over-quarter means? And if I may follow up on the guidance, I wanted to check on your comment, Maffra. If you're able to get on the fourth quarter of next year on your EBT margin instead of the full year. Is that correct? Did I understand well? Victor Mansur: Daniel, this is Victor. Taking the first part here in fixed income. If you remember a few questions ago, I told that we sold quasi-sovereign banking notes from our warehouse book, and we warehoused corporate bonds. So basically, that is what happened in real life when Maffra say that client is buying short-term floating rates, that is what's happening. So the products originated by the DCM markets over the quarter are still in our books, and we are going to sell them over the fourth quarter and first quarter of next year and what we saw their short-duration banking notes. That's why we see this behavior in the revenue quarter-over-quarter. Daniel Vaz: And -- sorry, in the guidance, if you can comment on the fourth quarter or full year of EBT margin? Thiago Maffra: Yes. Sorry for that. Yes, we feel that it's possible to target that next year. We don't give guidance quarter-over-quarter. So it's hard to say what's going to be Q1 or Q2 or Q4 next year, but we feel that the 30% is still doable. Andre Parize: Next question is from Thiago Batista, UBS. Thiago Bovolenta Batista: So I have 2 questions. The first one on the buyback. The intention of the BRL 1 billion buyback is to be concluded this year. I know that depends on the price of the shares, et cetera, but the initial intention is to conclude these this year? And the second one, about the IOC in the equity business. We saw that this quarter or the third Q, the IOC was basically flattish Q-over-Q. And we have the BOVESPA in the all-time high now. I've already seen not exactly in the third Q, but more recently, clients trying to move the money towards more risk investments like equities or not yet? Or maybe we need to see SELIC rate, let's say, single digits or something like this. So my question is, are you already seeing this migration from fixed income to high-risk investment? Victor Mansur: Thiago, this is Victor, first on the share buyback. The buyback program is open, and we are going to be buying over the next 12 months. And the same as before. We are going to wait for the best opportunity to deploy the capital and maximize the return to our shareholders. So we cannot give you an idea when it will be complete or if it will be the beginning of the next year or the end of this year. What I can guarantee you that we are going to be buying everything the same as we did in all the other programs we're opening. Thiago Maffra: Yes. And just to complement, Victor, on the payout strategy here. If you guys see -- we still have very high BIS ratio, and we mentioned that we would like to bring it down to something between 16 and 19 by the end of next year. And that's still the case, but why we are not like giving more money like back to the market right now because we believe we will have good opportunities next year. It's going to be a volatile year. And for sure, we will have opportunity to do more buyback next year. So that's why we are not deploying or paying out more capital right now, okay? About the second part of your question is we don't see a big change in mix yet, okay? Because remember that the retail clients is -- they are a little -- of course, it's our job here to help them not to have this behavior, but they are a little bit lagging, okay? So once we start to see rate cuts and other things, price moving up and so on, people start to move money from one asset class to other, okay? But we are seeing a stronger funds platform right now, especially primary offering for closed or open end funds, REITs and so on. So the demand has been increasing for that type of products, but not yet for equities or for some other products, okay? So I would say that we are not in a point that we could say that we are seeing a lot of like a change in the portfolio. As we mentioned for fixed income, it's still the opposite. People are moving even more money to daily liquidity broad CGs because they are seeing 15%, okay? So I would say that we are not there yet. Andre Parize: Okay. Next question is from Tito Labarta, Goldman Sachs. Daer Labarta: A couple of questions also. First, a follow-up on the corporate revenues, right? You mentioned it's related to hedging solutions for companies issuing the tax exempt bonds. Is this a function of, I guess, companies just anticipating tax reform so that remains strong in the second half of the year, but potentially subsides next year? Or do you think that there's more sustainability to that? And then the second question, you saw a jump in retail inflows, right? I mean BRL 20 billion, which is more or less what you've been saying, but it was up significantly from last quarter. So was there anything significant, should we read in this, is just normal volatility? Or should that begin to accelerate from here? Just any color you can give on how that continues to evolve. Victor Mansur: Tito, the first one about corporate revenues. Hedging is related to issuance, but I think the issuance they are a function of the risk of the new tax regulation, but also the level of credit spreads. It's really cheap to raise debt here right now. Next year, we'll be extremely volatile. So I think components are moving around and doing whatever they need to do in terms of ION this year. Also, there is not only hedging solutions. We have power trading, cash management, FX operations, and the credit originate-to-sell as we commented before, I think what the hedging solution was one that gave a bit of highlights for the quarter, but there is still a lot of revenue lines inside of the [ corporate ] franchise. Thiago Maffra: I will take the second one about net new money. Of course, we have been doing a lot of things here, especially on what we call the third wave on increasing the level of service, the value proposition that we delivered to our clients. We mentioned a lot today on the presentation about that. So we have been democratizing the wealth service business to all our retail clients here for the past, I would say, a year or 1.5 years. So we have been developing a lot of technology CRM AI capabilities. So I would say that the level of service that we are delivering to our clients right now, it's much better than it was a year or 2 years ago and much better than most of our competitors. Talking about, of course, here, retail clients, okay? So we are delivering a level of service that nobody provides in the industry in Brazil. That's why we are calling it the third wave. But it's early to say that, that is moving a lot the needle here, okay? So I would say that's more like a medium-term impact, so we are around 20 billion. We have been saying that the level for the past quarters. I don't see any reason right now to change that for up or down here. So we are seeing BRL 20 billion as the level for the next quarters. But again, 16, 18, 22 or 23 for us is the same as BRL 20 billion, okay? So you could see 1 quarter higher than that and 1 quarter lower than that. Daer Labarta: Okay. That's helpful, Maffra. If I can, just one follow-up on that, right? Because just on the revenue guidance, right, you had said 10% for this year. I mean, expectations are that you'll probably be below that, but then also thinking on your 2026 guidance. The bottom end BRL 22.8 billion would be like a 20% jump. I mean is that still -- like what would need to happen for that to be realized? Or is that likely some downside risk just given the tougher macro that we've seen since you initially gave the guidance? Thiago Maffra: Yes. Yes. As we mentioned in the last earnings call, the second half of this year is going to be stronger than the first half in terms of growth, top line growth, but as the first half was soft, it's going to be hard for us to get to the 10%, but we can get close to that. For 2026, I would say it's almost the same rationale here because as 2025 was a little bit soft. Next year, we are going through -- we have to grow, not to give like a number here, but 17% to 20%, okay, still doable, but we might be a little bit short, like to the guidance next year, but if we are short, it's for a bit, not for much. Andre Parize: Okay. Next question is from Marcelo Mizrahi, Bradesco BBI. Marcelo, you may proceed. Marcelo Mizrahi: So my question is -- the first one is regarding the work days. I wanted to understand how the work days impacted the revenues in terms of the other retail revenues, in terms of revenues. So what's the mean back here? And if looking forward, if we will see a reduction of these lines. And the other question is regarding the investments. So you guys are talking about investment in technologies. We were seeing a lot of platforms investing in AI tools, digital tools and also the channel totally -- a robo digital channel. So it's -- are you guys already working on that, using AI to adviser -- to give advisers to the clients, especially to the kinds that the lower income are the lower tickets to bring them a better service and to increase engagement and the revenues. Victor Mansur: This is Victor. Thank you for your question. First year on business days. As expected, business days gave us a positive impact in terms of floating and trading days. But this was compensating the negative way in terms of lower ADTV for [ axis ] and the shortening duration that Maffra explained in the fixed income platform. So those effects goes in positive directions. And the mix overcomes the -- in terms of business days, that's basically what happens. But that's why we see [ axis ] on fixed income, EBITDA and other retail, which have the floating component a bit up over the quarter. Thiago Maffra: On the second question, Mizrahi, yes, we have been working a lot with AI on different verticals here. I will mention some of them. The first one is internal productivity. It can be for engineers. It can be for management people. So we have been working on operations, on customer experience. So we have a lot of use case live right now more on the productivity side. The second one, we have been trying -- I would say, the idea here is not like to replace advisers, but how we enhance our advisers using different agents. It can be a relationship agent, AI agents. Of course, it can be transactional agents. So we have been creating a lot of this type of agents to give more productivity and to increase the level of service that we deliver to our customers. And I would say a third one, we haven't been investing a lot on portfolio allocation of our customers. So we have been creating more rules. We have been creating a centralized portfolio allocation, and we are using a lot of technology to make it happen. So there are many use case here, some already at scale, some at very early stage. Another one that -- it's already at scale. Today, we listen, read, hear everything that our advisers, especially internal advisers today, 100% of them. And we can classify all the conversations, all the interactions with our customers. It's a product offering, if it's only a relationship activity. So the level of information and sales management that we have today, it's very, very high and we will continue to invest on that. But again, not to replace advisers, okay, but to enhance them. Of course, when you go to very small clients, more like a digital or what we call here self-direct clients, then you can have like a fully deployed AI solution, but that's a very small part of our business today. It could grow in the future. But again, the focus here is how we enhance the advisers and how we free them like to focus 100% of their time on relationship, not like on operations or allocation or other activities that don't generate value for our customers. Andre Parize: Okay. We're up the hour. So I would like to thank you once again for participating on our earnings call. And the IR team will be more than happy to attend any further questions you may have. Have a good night, and we're going to keep in touch. Thank you.
Operator: Ladies and gentlemen, thank you for standing by, and welcome to Kanzhun Limited third quarter 2025 financial results conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. At this time, I would like to turn the conference over to Ms. Wenbei Wang, Head of Investor Relations. Please go ahead, ma'am. Wenbei Wang: Thank you, Operator. Good evening, and good morning, everyone. Welcome to our third quarter 2025 earnings conference call. Joining me today are our founder, chairman, and CEO, Mr. Jonathan Zhang, and our director and CFO, Mr. Fu Zhang. Before we start, we would like to remind you that today's discussion may contain forward-looking statements which are based on management's current expectations and observations that involve known and unknown risks, uncertainties, and other factors not under the company's control, which may cause actual results, performance, or achievements of the company to be materially different. The company cautions you not to place undue reliance on forward-looking statements and does not undertake any obligation to update this forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purposes only. For the definition of non-GAAP financial measures and a reconciliation of GAAP to non-GAAP financial results, please see the earnings release issued earlier today. In addition, a webcast replay of this conference call will be available on our website at ir.jipin.com. Now I will turn the call to Jonathan, our founder, chairman, and CEO. Jonathan Zhang: Hello, everyone. Thank you for joining our company's third quarter 2025 earnings conference call. On behalf of the company's employees, management team, and board of directors, I would like to extend our sincere gratitude to our users, investors, and friends who have continuously believed in and supported us. I will briefly walk through our key operational results and business progress this quarter, focusing on three areas. First, recovery in demand through a priority growth in our third quarter performance. Second, the evolving characteristics of recruitment demands across different dimensions. Third, progress in integrating AI into our products, technology, and overall business operations. Let's start with the financial performance. In the third quarter, we generated a total revenue of RMB 2,160,000,000, up 13.2% year on year, with growth accelerating from the previous quarter. Excluding share-based compensation expenses and other income, such as investment gains, our adjusted operating profit grew 949.3% year on year. Our GAAP net profit was RMB 2,718,000,000, up 67.2% year on year, with a net profit margin of 35.8%. Part of this improvement was attributable to a decrease in share-based compensation expenses, which was only RMB 220,000,000 this quarter, marking the third consecutive quarter of sequential declines and a year-on-year drop of 21%. The growth in the third quarter was driven by two key factors. The first and most important driver was continued user growth, supported by our increasing penetration and expanding market share. From January to October, we acquired over 40,000,000 newly verified users. In the third quarter, the average verified monthly active users, which is amazing on the bus ticketing app, reached 63.82 million. User activity is also strong. According to such data, our DAU to MAU ratio has been maintained at a high industry-leading level. The second driver was the rebound in enterprise-side demand, which also helped improve data on the monetization side. In the third quarter, the newly posted job positions increased 25% year on year, while both the number of recruiters posting new jobs and the average number of posts per recruiter grew steadily compared to the previous quarter and the same period last year. From July to September, the average number of daily active enterprise users grew at a faster pace sequentially than job seekers, marking the first time this has happened in three years. The supply-demand balance on our platform, meaning the ratio of enterprise users to job seekers, continued to improve. By September 30, the number of paid enterprise customers in the twelve months grew 13.3% year on year to 8.68 million. Throughout the quarter, the paying ratio among quarterly active users increased both year on year and quarter on quarter. The second agenda item focuses on a service entry point for current demand this quarter from multiple perspectives. From an industry perspective, blue-collar revenue growth continued to lead, with its revenue contribution reaching a record high in the third quarter. Manufacturing industries remain the most robust sector, topping the industry's revenue growth for five consecutive quarters. Taking this opportunity, I would like to do a brief review. Three years ago, the company's strategy for serving manufacturing job seekers and recruiters divided into three stages in terms of priority. The first stage is to improve the online job search environment for blue-collar workers. Between the passage of a solution for the same managed ticket or managed first and profit board second, we chose the second path. The second stage is to develop a user scale for that user base on the platform. And the third stage is to pursue commercial benefits on a reasonable scale. In 2022, we launched the Cont project to purify the job search environment for blue-collar workers, pursuing the authenticity of recruiters, job positions, and compensation, combating false information, and increasing their trust. Over the past three years, the process has been extremely challenging, and the results have gradually emerged. Meanwhile, transportation, logistics, warehousing, and the service industries also delivered solid overall performance. Among the white-collar sectors, industries such as artificial intelligence, Internet service, lifestyle service, new retail, and gaming are experiencing leading growth. One thing worth mentioning among the white-collar segment is that we have noticed a notable increase in participation from small and medium-sized enterprises in the white-collar industry, with paying user numbers growing quickly, while the average spending per customer remains stable, which is an offset to the trend of previous patterns. This, to a certain level, reflects the arrival of the white-collar entrepreneur ecosystem. From the perspective of compute-side demand, in Tier 1 cities is rebounding, Tier 2 cities remain stable, and the revenue contribution from Tier 3 and below cities continues to rise. Among enterprises of different sizes, medium-large enterprises, which means employers with between 500 to 999 employees, are growing the fastest, followed by small and micro enterprises, and then very large enterprises. The third agenda item reviews the progress we made since AI was integrated into the company's business from a product and technology perspective. On the Dosynchron service side, there are two things worth mentioning. First, after a period of continuous iteration, an AI job search assistant has been fully launched for all job seekers. Currently, it can recommend positions for users, answer questions, and also provide suggestions on how to optimize their resumes. In the third quarter, not only was the full rollout of this product achieved, but the number of interactions per user with this AI job search assistant also showed a significant quarter-on-quarter increase. We have also been continuously optimizing the AI interview coaching feature. In the third quarter, the number of job seekers who completed the mock interviews showed further improvement, and their activity level and conversion rate continued to improve compared to the previous quarter. On the recruiter service side, multiple AI products have been gradually launched to provide services. There are four aspects to mention. The AI communication assistance feature is being gradually integrated into existing commercial value-added products. As a result, the average mutual achievement conversion ratio of these products has increased by 7%. A product called AI Quick Hiring, after continuous optimization, is currently under phased rollout. Experiments show that this product not only helps the platform better understand recruiters' intentions but also allows for comparison among all job seekers on the platform, thereby improving matching accuracy. Currently, the reading rate among recruiters participating in the phased rollout campaign is steadily increasing. Third, we have extended the AI interview feature to a number of well-known customers from the contract recruitment side. For example, the AI interview can support multiple rounds of questions and customize interviewer profiles. This product has very strong appeal to students, leading to a high volume of applications in the short term, which is increasing significant pressure for recruiters during campus recruiting activities. The development of AI services has alleviated this pressure. Fourth, we are cautiously exploring AI-hosted recruitment services and AI-powered bulk placement solutions in diverse recruitment scenarios such as high-end white-collar and gold-collar positions, and blue-collar roles in the patroning and manufacturing industry. These initiatives are gradually generating benefits. Among all those enterprise-side AI services, we have been quite cautious to ensure we allow the job seekers to know whenever they are communicating with an AI service. They have the option to close the service. They have the button, and sometimes, someone might choose to close, but someone chooses to continue the communication, and we are continuously collecting related examples. We provide the option for job seekers whether they can communicate with AI or not to guarantee their interest. But, also, we are continuously observing with the intervention of AI what kind of impact it will have on mutual matching, not only on individual topics on a cultural perspective but also from a scalable double-side situation. We are continuing to update and track data. In the third quarter, we delivered high-quality growth with solid progress across user growth, commercialization, and AI technology implementation. In October, the company completed an annual dividend payment of approximately $18,000,000. Looking ahead, we will continue to focus on strengthening our core business ability. We will actively fulfill our commitment to shareholders. That concludes my part of the call. I will now turn it over to our CFO, Phil, for the review of our financials. Thank you. Phil Yu Zhang: Thanks, Jonathan. Hello, everyone. Now let me walk through the details of our financial results for 2025. In this quarter, we delivered high-quality and sustainable top-line and bottom-line growth. Our revenue reached RMB 2,200,000,000 this quarter, with growth accelerating to 13% year on year. The faster revenue growth this quarter was primarily driven by higher enterprise user growth as well as improved monetization levels due to the recovering hiring demand. Our commercialization strategy, grounded in ecological balance, enabled us to effectively and sustainably improve user payment ratios within a relatively better hiring environment. The growth in paid enterprise customers, which grew by 13% to 6,800,000 for the twelve months ended September 30, demonstrates our capability and potential to enhance monetization. Revenue from middle-sized and small-sized accounts showed continued growth momentum, with revenue contribution in this quarter up by 2.2 percentage points, while key accounts growth remained stable. As a result of the structural mix shifting, the overall ARPPU maintained stability. Moving to the cost side, total operating costs and expenses decreased by 7% year on year to RMB 1,500,000,000 in this quarter. Share-based compensation expenses dropped by 21% year on year and 6% quarter on quarter to RMB 216,000,000, shrinking for the third consecutive quarters in both absolute amount and percentage of revenue. Excluding share-based compensation expenses, adjusted income from operations grew by 49% to RMB 9,004,000,000, and our adjusted operating margin reached 41.8%, up by 10.1 percentage points year on year and relatively flat quarter on quarter. Cost of revenues decreased by 2% year on year to RMB 308,000,000 in this quarter, mainly due to the decrease in operational employee-related expenses as a result of improved operational efficiency as we continue to engage AI in our daily operations. Gross margin went up by 2.2 percentage points year on year and 0.4 percentage points quarter on quarter to 85.8%. Sales and marketing expenses decreased by 25% year on year to RMB 394,000,000 during this quarter. As we do not have sports events or marketing campaigns this year, even if we exclude the sports sponsorship costs, our adjusted sales and marketing expenses in this quarter decreased 15% year on year, while we still maintain robust user growth. This double confirms our sustainable increase in marketing efficiency due to our strong brand recognition and network effect. Our R&D expenses decreased by 12% year on year to RMB 408,000,000 in this quarter. Excluding share-based compensation expenses, our adjusted R&D expenses decreased by 8% year on year to RMB 331,000,000 in this quarter and have stayed relatively flat sequentially. Our G&A expenses increased by 28% to RMB 367,000,000 in this quarter, primarily due to a one-off impairment of intangible assets partially offset by a decrease in employee-related expenses. Excluding the impairment, our G&A expenses decreased both year on year and sequentially. Our interest and investment income in the quarter increased by 43% year on year to RMB 228,000,000, primarily due to partial disposal of an equity investment and the increased income from the Hong Kong dollar 2,200,000,000 Hong Kong share offering processed in early July. Our net income increased by 67% to RMB 775,000,000 in this quarter, with adjusted net income increased by 34% to RMB 992,000,000. Net margin improved by 11.6 percentage points year on year to 35.8%, while adjusted net margin reached 45.8%, up 77.2 percentage points year on year. Both of them have maintained sustainable improvement over the past six consecutive quarters. Net cash provided by operating activities reached RMB 1,200,000,000 in this quarter, up 45% year on year. As of September 30, 2025, we continue to maintain a strong cash position of RMB 19,200,000,000. Now for our business follow-up, for 2025, we expect our total revenue to continue the growth momentum and reach between RMB 2,050,000,000 and RMB 2,070,000,000, with a year-on-year increase of 12.4% to 13.5%. With that, concludes our prepared remarks. And now we would like to answer questions. Operator, please go ahead with the call. Operator: Thank you. We will now begin the question and answer session. Please press 11 on your telephone keypad to ask a question. Please wait for your name to be announced. To withdraw your question, please press 11 again. We will now take our first question from the line of Eddy Wong from Morgan Stanley. Please go ahead, Eddy. Eddy Wong: Thank you, management, for taking my question. I have two questions. First, what is the overall recruitment demand recently? We noticed that the unemployment rate in September and October is improving. Do you think this is mainly due to seasonal factors, or is the improving trend a leading indicator of macro recovery? What are the driving factors behind the accelerating growth in the third quarter? My second question is that as we are approaching the end of the year, what is your perception of the key account renewal willingness right now? Are there any noticeable trends in customer renewal rates or the renewal amount? Thank you. Jonathan Zhang: From our data perspective, the recruitment activities from enterprises indeed recovered in the third quarter. The growth rate of monthly active users on the enterprise side is faster compared to the job seeker side. Pressure from the job seeker side has been alleviated. If we recall back in 2021 and 2022, it was a little bit difficult for fresh graduates to find a job. In the opening, whichever was affecting or not happening as we expected, young people, especially young people, found it really difficult to find a job. This year, take July, for example, the fresh graduates' expression for job-seeking demand compared to the same period of last year declined by double digits. Meanwhile, from the enterprise side, the companies that have posted job openings for fresh graduates increased by double digits. From the situation on both ends, especially from the fresh graduate as an example, we quite clearly felt that the pressure which has been accumulating for several years was released a lot in the third quarter. In the third quarter, the ratio between job seekers and recruiters among active users improved compared to last year. The newly added user ratio also improved, and the third quarter is better than the third quarter of the previous year, which gives us continued confidence. So it is quite easy to understand that based on the improving change of supply and demand balance, we treat the recovery of the enterprise side and the improvement of the pay ratio as helping our overall business operation. The first quarter last year was a relatively low base, so from a cautious perspective, we also compared it to 2023 in the same period. It is worth mentioning that the recovery of the white-collar sector, for example, the newly added number of job postings for the white-collar profession in the first quarter, increased significantly compared to the second quarter and the previous three quarters. Based on all these observations and comparisons, I have the confidence to conclude in my prepared remarks that the improved hiring demand drove our third-quarter revenue growth. That is where my confidence comes from regarding the retention situation that you are concerned about. Phil Yu Zhang: So, Eddy, you know, companies renew their contracts individually at different points in time, not only at the year-end. Starting from the year, we have witnessed improving contract renewal rates, improving continuously. Particularly in the third quarter, for the first time in the past two years, the company-level net dollar retention rate started to bottom up. This signals a potential turning point from a previous downward trajectory. We believe this is driven primarily by improved company retention rates and higher renewal spending. We observed that this situation is not only at the key account customers but also at the small and medium-sized enterprises. Typically speaking, the company's renewal contract renewal situation improved sequentially and annually. This once again proved that the higher demand in the economy has been recovering healthily. And that is our answer to your question, Eddy. Operator, please move on to the next. Operator: Thank you. Our next question comes from Wei Xiong from UBS. Please go ahead. Wei Xiong: Thank you, management, for taking my question. Firstly, we observed that our company has continued outgrowing peers for the past few years. So if we look at the enterprise recruiting budget allocation, how much more share can we continue to gain over peers, and how do we sustain that above-peers growth going forward? Looking at next year, if the macro situation improves, will we continue to solidify our leadership, or is it possible to see higher competition pressure because the peers may step up investments? And secondly, on the margin side, given the high base this year, how do we think about the trend for our margin next year? What are the major investment areas, for example, in terms of sales marketing, do we think about the spending plan there? And previously, given the macro uncertainty, we said we want to prioritize profitability. So looking at next year, are we going to continue prioritizing that profitability or leaning towards investing a little bit for growth? Thank you for taking my question. Jonathan Zhang: I would like to start with our number of paid enterprise customers, which grew by 13.3% to 6,800,000 by the trailing twelve months. In fact, the majority, or maybe over 80% of these paid enterprise customers, are small and micro enterprises, which we use our own business model and go-to-market strategy developed over the years. By mentioning this, I would like to clarify two concepts. First, the majority of our main pay-based customers are developed on our own rather than gaining shares from our peers. The second concept is that there is data about China having over 40,000,000 small and medium-sized enterprises, and our entire enterprise cap number of paid enterprise customers is still a small percentage of that. That is why even in a relatively tight macro situation, we still have ample room to grow in terms of our market share. The logical conclusion is that when the market recovers and demand improves, we can achieve better revenue and business growth rates. But on a competitive landscape perspective, we need to admit that for the customers both we and our peers are serving, especially under economic pressure situations, clients normally tend to choose service providers who have better ROI and higher service ability, and we do have some advantages over that. Regarding profitability, which you are concerned about, the current profit margin you observed is actually a strategic selection from our company level. Last year, we decided that facing all of these uncertainties, we want to make sure that the only certainty is to guarantee profit, and this year, you have seen our very strong implementation capability and realized profit numbers. Essentially, this very strong margin profile actually reflects our effective double-sided network effect, further penetration into user mindset, and very efficient and smooth internal management and operation, all of which result in this high margin profile. As a result, I cannot predict if the profit margin for next year will continue to improve. Actually, we will not sacrifice our branding growth to achieve this profitability. So for next year, we still want to guarantee us to be with the 35,000,000 newly verified users. Our pursuit in better serving users and achieving higher revenue growth actually has higher priority compared to our pursuit of profitability. Our strategic level view on our profitability, and we hope you and our investors can better understand what profitability means to us. For your reference, and that is our answer to your question. Operator, please move on to the next. Operator: Thank you. Our next question comes from Timothy Zhao from Goldman Sachs. Please go ahead. Timothy Zhao: Thank you, management, for taking my question, and congrats on the solid results. Two questions from my side. First, as Jonathan just mentioned, we are going to explore more in the different verticals within the recruitment industry. Could management share more progress and updates on this? And what are the potential impacts on our services and monetization in the longer term? Secondly, on the AI-related question, we noticed that OpenAI recently announced its entry into the recruitment industry. Some other AI startups like Merkur have also been evolving their business models. Could management share your view on the competitive landscape between the traditional recruitment platforms and the general AI companies in the recruitment industry? Thank you. Jonathan Zhang: When we are trying to combine AI and human activities, we have some very interesting findings under our conjugate experiments. For example, when a customer is quite angry and cannot contain their temper while facing a customer service representative, they could be quite aggressive. But when the customer knows that the counterpart is AI, they normally take some very harsh words. So the beta complaint from the customer trained AI is, "You are very stupid AI." The second example is for our AI interview coaches product. A lot of job seekers who have used this service repeatedly to train their interview skills once and once again. But we found out that when the job seeker's second scoring is lower than the first one, they will stop this repeat. So you can see the number of interesting findings in our daily experiment. People can control their temper well when facing AI, and also people do not want to bother a real human coach very frequently, but they can do that with AI. All these findings are telling us that when we apply AI technology to a very old, very ancient people and job matching, superior and subordinate matching scenarios, we need to be very cautious while using the new technology. For more than two years, it is really exciting for a sampling model to be able to generate a killer-level application in our industry. Actually, we are not in a hurry, and it actually gave us more time to find a way to harness all this new development and technology. I just mentioned that in certain placement scenarios, both in blue-collar and white-collar recruitment, such as full-cycle hosting recruitment service or semi-cycle hosted recruitment service, we have been very actively trying out new services, but also quite cautiously. So far, we have some achievements, but still not in a stage to massively roll out this. We also noticed that some leading technology companies who have been empowered by AI have expressed their interest in entering the recruitment industry. The new technology combined with old and the questions possibly can generate revolution-level industry change. Like the mobile network and recommendation technology combined with the traditional recruitment demand that have generated faster too fast. This new generation of online recruitment model. Up to today, my thinking is that the combination of AI and recruitment service's key bottleneck is actually not computing power. Merkur, who has in the bottom professionals to do the tagging, actually shows the value of high-quality data. If high-quality data is very critical, then with the foster team, other peers within our industry actually have some certain level advantages. Just to leverage your question, I want to express some observations we noticed from our data operations. And that is all of our answer to your question, Timothy. Thank you. Operator: Thank you. Due to time constraints, that concludes today's question and answer session. At this time, I will turn the conference back to Wenbei Wang for any additional or closing remarks. Wenbei Wang: Thank you once again for joining us today. If you have any further questions, please contact us directly. Thank you. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Ladies and gentlemen, welcome to the conference call on the third quarter 2025 results. I am Mathilde, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Jürgen Rebel, Head of Investor Relations. Please go ahead. Jürgen Rebel: Good morning, everyone. This is Jürgen speaking. We welcome you to today's call on third quarter results for fiscal year 2025. Aldo, our CEO, will comment on business and strategy; Rainer, our CFO, will focus on financials. We are referring to the Q3 earnings call presentation that you can find on our website. There, you'll also find further materials such as the full comprehensive IR presentation. Aldo, please let us have your thoughts on Q3. Aldo Kamper: Thank you, Jürgen, and good morning also from my side. Overall, I would say a good quarter. Our strategic focus is paying off. We delivered strong cash flow and significant growth in the core portfolio on a like-for-like basis. Profitability was better than previous quarter, also supported by a one-off. We reestablished the base savings continue to be ahead of plan. And I'm now on Page 3, looking at the financial performance of the group. Revenues came in at EUR 853 million, above the midpoint of the guidance. We saw an almost double-digit percentage improvement in our semiconductor business. In the auto lamps aftermarket business, we had double-digit seasonal upswing. The weaker U.S. dollar cost us EUR 20 million top line compared to the previous quarter. Year-over-year revenues are down a bit with 3%. This is entirely due to the weaker U.S. dollar. Note the 0.07 difference in the average euro-U.S. dollar exchange rate, which equals approximately EUR 35 million top line. If we truly look at the like-for-like comparison based on today's core portfolio at constant currencies, we have grown by about 6% year-over-year. This includes the traditional auto lamps business. The semiconductor core business, that as we measure our growth, grew approximately 9% on a comparable basis, a really good result in the current market conditions. It clearly shows that our portfolio choices are paying off. Profitability. Adjusted EBITDA margin improved quarter-over-quarter and year-over-year by almost 1 percentage point to 19.5%. In euro terms, adjusted EBITDA improved by EUR 21 million. Within that number, we have a profit of a bit more than EUR 10 million from the sale of some manufacturing assets in our Singapore production facility. Now quickly on the segments. Page 4, look at the traditional halogen lamp business, a classic seasonal upswing. We saw a steep 13% quarter-over-quarter increase in revenues driven by the aftermarket season. The darker months in the Northern Hemisphere make drivers replace their broken lights in their cars more frequently. Nothing particular to report on specialty lamps for industrial and entertainment applications. The business remained at a similar level as last quarter with approximately EUR 40 million of revenues. We sold this business segment to Ushio as part of our accelerated deleveraging plan as we communicated last quarter. Closing is expected around end of first quarter '26. Adjusted EBITDA stayed almost flat. Why? If revenues were up by almost EUR 25 million, the gross profit fall-through from higher volume was eaten up by a meaningful reduction of inventories. Now on semis. I'm on Slide 5. First, business unit OS. The sequential increase in Opto Semis with 6% revenue improvement, EUR 365 million compared to EUR 344 million in the previous quarter. The increase was mainly driven by automotive, but also by the seasonal peak of the horticulture business. The upswing could have been higher if it wasn't for the negative impact on the top line of the weaker U.S. dollar. Coming to profitability, adjusted EBITDA improved by EUR 3 million to EUR 82 million. At first glance, you might have expected a higher fall-through from EUR 20 million more top line. However, the increase was balanced also here by inventory reductions and the absence of onetime effects that were supported in Q2, such as IPCEI funding catch-up. In the end, adjusted EBITDA margin stayed almost flat at 22.6%. Now sensors and ASICs on Slide 6, an encouraging seasonal jump in revenues by 13% to EUR 271 million. Consumer products were in high demand. Indoor business was okay. Products we basically discontinued still saw some further orders that, that live longer as often. Little changes in demand for industrial and medical products. Year-over-year, business grew by 2%, mainly driven by the new sensor products, which are more than compensating for the revenue loss from the phased out noncore portfolio and the top line impact from the weaker U.S. dollar. Adjusted EBITDA jumped to EUR 64 million. However, I mentioned earlier that more than EUR 10 million of windfall profit from selling manufacturing equipment was included there. Now looking at the semi end market in summary, and we are on Slide 7 here. Sequentially, 9% up and year-over-year, 2% down. If we exclude the noncore portfolio that we discontinued last year, the semi core business grew by 9% year-on-year at constant currencies, well in line with our semiconductor growth model and higher than last quarter. First, automotive. LED inventory correction has ended, but no significant restocking in sight. We even hear some customers who want to reduce their inventory reach even further. Book-to-bill hovered around 1 throughout the quarter. Nevertheless, we saw a slight sequential increase in revenues of 4%. The uncertainty in the supply chain persists, we see a lot of short-term ordering, which is now often below normal lead times. Fulfillment channel inventories went further down. We are now between 7 and 8 weeks. In the old days, 8 to 10 weeks were considered healthy and normal. Second, industrial and medical. In line with the slow recovery of the overall market, we saw a sequential improvement of 2%. However, we're still below last year's level and ignoring the weaker U.S. dollar, maybe roughly at the same level. As always, we have to look at the verticals individually. Horticulture revenues had a seasonal peak, professional lighting unchanged. Demand for industrial automation is improving only gradually. Same is true for medical. When we look at the channel, same picture as last quarter, Europe and U.S. relatively stronger than China. Third, consumer, a steep seasonal increase of 22% compared to Q2. Our main business is sensors for smartphones and wearables. Year-over-year, we see the impact of the weaker USD. The slight decline is entirely due to FX. Business-wise, our new sensor product more than compensate for the phaseout of our products. Now let's talk about future business. I'm on Slide 8. Design wins are underpinning our midterm growth model in semis. Traction in the market continued unabated in the third quarter. We are well on track reaching again accumulated lifetime value of EUR 5 billion of new business for the full calendar year. We landed about 800 projects in the September quarter across all verticals. This pushes the total to already EUR 4 billion for the first 9 months. A few wins that we are very proud of are sticking out. First, in automotive. With our industry-leading intelligent RGBi interior lighting solutions, we secured another design win at a leading Chinese OEM. And on top of that, also a large design win for a prestigious car platform at a European premium OEM. Second, consumer. Our spectral and proximity sensors are the best you can get. This once again convinced leading customers the design wins are worth a couple of hundred million euros. With that, let us look at some of our recent advances when it comes to differentiating technology platforms. Now on Slide 9. We do spend a lot of R&D money as we continue to believe in exciting growth opportunities. One part of our R&D is dedicated to mastering the cost pressure in more established technologies by creating cost performance optimized platforms. The other part of R&D is focused on differentiating technologies, especially for new applications that might see a growth inflection in the future. We're also making sure that our customers benefit from an appropriate IP safety for those innovations. For this, we signed a comprehensive cross-license agreement with Nichia covering thousands of patent protected innovations in LED and laser technologies. The new agreement also covers sophisticated LED packages and also includes metric headlamps as an example. As such, we are the right partner for our customers, holding a truly unique IP position in the industry. On Slide 9, you get an impression of our leadership in infrared emitter technologies that are used in a multitude of applications. We are speaking of AlGaAs material systems that provides LED and laser light between 808 and 1130 nanometers, just beyond what a human eye can see, the so-called near infrared. Our LEDs boast industry-leading wall-plug efficiency and red glow suppression. Our laser IOs boast industry-leading efficiency and optical output power. Together with high-quality, cost-effective standard packages, these components are ideally suited for a multitude of applications that deliver already today a revenue contribution in the triple-digit million territory. We see the infrared LEDs in the car for in-cabin sensing and consumer applications or in drones, among many others. Our lasers are very established in material treatment and LiDAR, but these properties also make them ideally suited for future defense applications such as drone defense or even for more visionary applications one day like nuclear fusion -- laser-based nuclear fusion, a technology that could harness the energy generation process of our sun. We think there's much more to come here on this technology platform. Now let's switch to the sensor side of things on Slide 10. We recently introduced the industry-leading 2-dimensional direct time-of-flight sensor platform. By direct, the sensor measures the time of photon traps from the object and back and calculates the distance pretty fancy. I'm very proud of our engineers who delivered industry-leading sensors that feature twice the frame rate at the same resolution as competitor devices or twice resolution at the same frame rate, whatever you need in your application. You can use this performance for gesture and object recognition, but also for 3D distance measurement. It also enables Edge AI sensing applications, for example, in smartphones. You will see the principle in the lower left corner when an image is enhanced with the 3D dimensional depth information from the sensor, you can place objects such as furniture in an environment completely virtually. Just to give you an example here. We see applications for the sensor technology, not only in smartphones, but also in building automation, home appliances, robot drones, consumer electronics, you name it. Completing our technology product to this quarter, I'm on Slide 11 now. We have the leading spectral sensing platform in the industry. Here, you see Honor's latest flagship model, the Magic 8, a high-end premium smartphone with 4 cameras on the world-facing site. Our sensors allow for eye-fatigue protection and professional-grade color accuracy for an enhanced user experience. With this, let us move to bottom line products. We reestablished the base continues to be a great success as it has been so instrumental in mastering many of the headwinds to our bottom line, especially when it comes to gold price this year. We're on Slide 12 here. By the end of September, we have pocketed approximately EUR 185 million of the implemented run rate savings, another EUR 25 million during the last quarter alone. Now this time for more details on the financials. And Rainer, please tell us about the latest progress. Rainer Irle: Thank you, Aldo. Hello, everyone, from my side as well. Let us look at the balance sheet first. With the private placement of an additional EUR 500 million of U.S. dollar and euro senior notes, we increased our cash on hand position to EUR 979 million end of September and end of October, we were even above EUR 1 billion. After the tap in July, we have approximately EUR 651 million equivalent of the U.S. dollar bond and EUR 1.30 billion the Eurobond, both are due on March '29. Last quarter, we got some questions about why we tapped at a particular moment. If you look at the leverage finance market in the last couple of weeks, it turns out that our timing was pretty good. Momentarily, conditions are certainly less favorable. No news on the Malaysia sale and leaseback transaction yet. We continue to talk to interested parties, but we are not yet on the final approach. The value stood almost unchanged at EUR 422 million end of September. This brings us to an almost unchanged net debt position of EUR 2 billion compared to end of June. Having just mentioned the sale and leaseback, we certainly continue full steam in negotiating the indicated asset disposals on top of the sale of the entertainment and specialty lamps that we announced in July to venture realize proceeds well above EUR 500 million. We are fully on track. Minority shares with a value of only EUR 11 million were tendered during the summer months. Consequently, the outstanding minority put options stood at EUR 570 million or 12% outstanding at the end of Q3. Taking cash, the revolver and bilateral lines into account, our available liquidity significantly increased to approximately EUR 1.6 billion. We are prepared for all eventualities, any liquidity concerns in the market should be a thing of the past. And switching to Slide 14, cash flows. A strong improvement in the third quarter operating cash flow. We recorded EUR 88 million. And that's despite us paying the coupon on the high-yield bonds, which, as you know, is always due in Q1 and Q3. So we paid that in Q3, but we also managed inventories well and made sure we are collecting money from litigation and subsidies. Last year in Q3, we had the customer prepayment of approximately EUR 220 million that came as a onetime positive at that time. CapEx stayed in check, EUR 48 million in the third quarter. For the full year, we will land between 6% and 7% of revenues, well below our long-term average ratio of 8%. In total, we finished the quarter with EUR 43 million positive free cash flow. This brings us year-to-date to breakeven in free cash flow. If you exclude the customer prepayment last year, Q3 was the best quarter in a long time, though Q4 is expected to be better with lower interest payments and counting on the promised money from the Austrian government under the European CHIPS Act. We switch to Slide 15, net earnings and earnings per share. On the left, you find the adjusted figures. The adjusted net result improved in line with EBITDA to EUR 27 million in the third quarter. Adjusted EPS developed accordingly. The net financing result came in at EUR 59 million. Income tax stood at just EUR 5 million. So following the rule of thumb that there's always EUR 50 million, EUR 60 million adjustments per quarter due to transformation cost, depreciation of PPA and share-based compensation, we ended up with minus EUR 28 million net result according to IFRS. Consequently, IFRS earnings per share also came in negative EUR 0.28. That concludes my remarks. And with that, I would like to hand back to Aldo for the summary and outlook. Aldo Kamper: Thanks, Rainer. And now on Slide 16, let me summarize the third quarter results again. Looking at the business, we delivered revenues above the midpoint and profitability at the midpoint of the guidance. 9% growth in the core semi business year-over-year on a comparable basis, well in line with our midterm target model. Execution of reestablish the base program is ahead of plan now with EUR 185 million run rate savings implemented. And we are securing future semiconductor business with unabated design win streak, now EUR 4 billion already in the first 9 months of this year. Looking at the deleveraging plan, everything well on track without being able to go into further detail right now. R&D investments I've presented to you, an example of our relentless efforts to find future growth opportunities by investing in differentiated technology with great potential. Today, we talked about infrared emitters and 2-dimensional time-of-flight sensors. With that, let us look at the right-hand side of the slide, the outlook for the fourth quarter. We expect revenues to come in between EUR 790 million and EUR 890 million at an exchange rate of 1.16. Compared to the beginning of the year, the weaker U.S. dollar cost us a middle double-digit million figure in top line. Automotive lamps will see its peak in the annual lighting season. For semis altogether, we expect a small seasonal decline. Industrial medical might be kind of stable, but we sense a lot of uncertainty in the automotive market, maybe flattish at best, whereas in consumer, the smartphone season is cooling off a bit logically. We expect adjusted EBITDA margin to come in at 17.5%, plus or minus 1.5 percentage points in absent, stable compared to Q3, if you back out the windfall profit from the selling of manufacturing assets in Singapore. Looking at cash flow. With year-to-date 0 and keeping up our promise for the full year, we expect free cash flow of more than EUR 100 million in the fourth quarter, certainly also driven by the expected inflows from the Austrian CHIPs Act. With that, I conclude my remarks, and we're now ready for your questions. Operator: [Operator Instructions] The first question comes from the line of Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: The first one is on the automotive market. So do you see the demand building up? It seems that you are coming to the end of the inventory correction, but I'm just curious about the trajectory of growth moving into the next few quarters. And in the short term, have you seen any specific downside to demand linked to Nexperia turmoil or is not something that is affecting the global car production volume for you or your demand? The second question is on the synergies and the cost saving program. You already reached EUR 185 million at the end of Q3, which is well above the target for '25, and you are coming closer to what you expect for 2026. Do you plan to accelerate a little bit more further the cost-cutting action? Or you will stick to EUR 225 million for next year and then you're going to stop cutting the cost base? Aldo Kamper: Yes. Thanks, Sébastien, for those questions. Yes, on the automotive side, I would say inventory situation is okay. We do see that there is a lot of short-term order behavior. And I do also link that partly to the Nexperia topic, just our carmakers also have to be very agile in their production schedules and what they build and when they build it does vary a bit. So I would expect this quarter and next quarter to be impacted a bit by that. But overall, vehicle build volumes globally are actually holding up quite well. And here, it is also important that we have a good position in China as the Chinese market in this is doing -- is growing quite nicely, I have to say. And Europe and the U.S. are struggling a bit. But given our global exposure, we are able to balance that out. So I would say, overall, the story hasn't really changed. We still see more content per vehicle globally that we benefit from a fairly stable vehicle build volume currently and also for next year. At the same time, yes, also the usual price pressure that eats it up a bit. And then, of course, FX that also goes against us. But yes, underlying demand, I would say, is in principle, okay with some short-term hiccups, as explained. On reestablished the base, yes, we were very happy that we are making very good progress, EUR 185 million already. So I would assume that we can get to the EUR 225 million goal also significantly ahead of plan. And we are thinking about how to extend this program after that. But we at the moment, mainly focused on bringing in the savings as quickly as possible of the measures that we've already defined. Operator: The next question comes from the line of Harry Blaiklock from UBS. Harry Blaiklock: The first is just on the consumer business. I know you've had success at one of your big consumer customers in terms of getting a socket rolled out across the whole kind of smartphone portfolio. And historically, you've spoken about potentially getting further socket wins in that business. I was wondering whether you could just provide an update on that. And then my second question is just on whether there's any update you can give us in terms of progress on the further asset disposals for generating over EUR 500 million. Aldo Kamper: Sure, Harry. Thanks for the question. So yes, at the various cell phone customers, we are making good progress and are winning new sockets. And I must say that it goes across both Android and non-Android space in a very steady and good manner, I must say, without calling out one specific socket, but I must say the engagement across the customer base is very strong, and we continue to see good growth potential in this space with our technology. On the asset disposals, yes, it's hard to comment on that in detail, but I can say we are very active in the process and the plan still stands. We will deliver significantly more than EUR 500 million of disposal proceeds. As we have communicated, the first step, the EUR 200 million, on the lamp business, on the entertainment lamp business is in execution. We are progressing well towards closing probably by the end of Q1 next year. And on a second bigger step, we are making good progress, and we'll share that, of course, as soon as we can with all of you. Operator: [Operator Instructions] We now have a question from the line of Reto Huber from Research Partners. Reto Huber: Now I was wondering the adjusted EBITDA, maybe I missed it, that includes the gain from sales of assets, if I understood this correctly. Have you disclosed that number somewhere? And how much is the one-off gain? And then secondly, what is the reduction in year-over-year sales due to disposals? Rainer Irle: Yes. The adjusted EBITDA had a benefit from that asset sale of roughly EUR 10 million, a bit north of EUR 10 million. That's obviously a onetime effect. And yes, if you look at the year-over-year impact from asset disposals from the portfolio, I would say that, that is probably EUR 30 million. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Jürgen Rebel for any closing remarks. Jürgen Rebel: Thanks very much for the interest. We had a lot of people who dialed in. If you have any further questions, don't hesitate to reach out to us. And we're looking forward to receiving your feedback. Thank you. Bye. Rainer Irle: Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Ladies and gentlemen, welcome to the conference call on third quarter 2025 Results. I am Mathilde, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Juergen Rebel, Head of Investor Relations. Please go ahead. Juergen Rebel: Good morning, everyone. This is Juergen speaking. We welcome you to today's call on third quarter results of fiscal year 2025. Aldo, our CEO, will comment on business and strategy; Rainer, our CFO, will focus on financials. We are referring to the Q3 earnings call presentation that you can find on our website. There, you'll also find further materials such as the full comprehensive IR presentation. Aldo, please let us have your thoughts on Q3. Aldo Kamper: Thank you, Juergen, and good morning also from my side. Overall, I would say a good quarter. Our strategic focus is paying off. We delivered strong cash flow and significant growth in the core portfolio on a like-for-like basis. Profitability was better than previous quarter, also supported by a one-off. We established base savings continue to be ahead of plan, and I'm now on Page 3, looking at the financial performance of the group. Revenues came in at EUR 853 million, above the midpoint of the guidance. We saw an almost double-digit percentage improvement in our semiconductor business. In the Auto Lamps aftermarket business, we have double-digit seasonal upswing. The weaker U.S. dollar cost us EUR 20 million top line compared to the previous quarter. Year-over-year revenues are down a bit with 3%. This is entirely due to the weaker U.S. dollar. Note the $0.07 difference in average euro-U.S. dollar exchange rate, which equals approximately EUR 35 million top line. If we truly look at the like-for-like comparison based on today's core portfolio at constant currencies, we have grown by about 6% year-over-year. This includes the traditional Auto Lamps business. The semiconductor core business, against we measure our growth grew approximately 9% on a comparable basis, a really good result in the current market conditions. It clearly shows that our portfolio choices are paying off. Profitability. Adjusted EBITDA margin improved quarter-over-quarter and year-over-year by almost 1 percentage point to 19.5%. In euro terms, adjusted EBITDA improved by EUR 21 million. Within that number, we have a profit of a bit more than EUR 10 million from the sale of some manufacturing assets in our Singapore production facility. Now quickly on the segments. Page 4, look at the traditional Halogen Lamp business, a classic seasonal upswing. We saw a steep 13% quarter-over-quarter increase in revenues driven by the aftermarket season. The darker months in the Northern Hemisphere make drivers replaced their broken lights in the car more frequently. Nothing particular to report on Specialty Lamps for industrial and entertainment applications. The business remained at a similar level as last quarter with approximately EUR 40 million of revenues. We sold this business segment to show as part of our accelerated deleveraging plan as we communicated last quarter. Closing is expected around end of first quarter '26. Adjusted EBITDA stayed almost flat. Why? If revenues were up almost EUR 25 million, the gross profit fall-through from higher volume was even up by a meaningful reduction of inventories. Now on semis, I'm on Slide 5. First, business unit OS. The sequential increase in Opto semis with 6% revenue improvement, EUR 365 million compared to EUR 344 million in the previous quarter. The increase was mainly driven by automotive, but also by the seasonal peak of the Horticulture business. The upswing could have been higher if it wasn't for the negative impact on the top line of the weaker U.S. dollar. Coming to profitability. Adjusted EBITDA improved by EUR 3 million to EUR 82 million. At first glance, you might have expected a higher fall-through from EUR 20 million more top line. However, the increase was balanced also here by inventory reductions and the absence of onetime effects that were supported in Q2, such as [ ease of ] funding catch-up. In the end, adjusted EBITDA margin stayed almost flat at 22.6%. Now Sensors and ASICS on Slide 6. An encouraging seasonal jump in revenues by 13% to EUR 271 million. Consumer products were in high demand and our business was okay. Products, we basically discontinued, still saw some further orders that live longer as often. Little changes in demand for industrial and medical products. Year-over-year, business grew by 2%, mainly driven by the new sensor products, which are more than compensating for the revenue loss from the phased-out non-core portfolio and the top line impact from the weaker U.S. dollar. Adjusted EBITDA jumped to EUR 64 million. However, I mentioned earlier that more EUR 10 million win for profits from selling manufacturing equipment was included there. Now looking at the semi end market in summary, and we are on Slide 7 here. Sequentially, 9% up and year-over-year, 2% down. If we exclude the noncore portfolio that we discontinued last year, the semi core business grew by 9% and year-on-year at constant currencies, well in line with the semiconductor growth model and higher than last quarter. First, automotive. LED inventory correction has ended, but no significant restocking in sight. We even hear from customers who want to reduce their inventory even further. Book-to-bill hovered around 1 throughout the quarter. Nevertheless, we saw a slight sequential increase in revenue of 4%. If the uncertainty in the supply chain persists, we see a lot of short-term ordering, which is now often below normal lead times. Fulfillment channel inventories went further down. We are now between 7 and 8 weeks in the old days, 8 to 10 weeks were considered healthy and normal. Second, Industrial and Medical, in line with the slow recovery of the overall market, we saw a sequential improvement of 2%. However, we're still below last year's level. And ignoring the weaker U.S. dollar, maybe roughly at the same level. As always, we have to look at the verticals individually. Horticulture revenues had a seasonal peak. Professional lighting, unchanged. Demand for initial automation is improving only gradually. Same is true for medical. If we look at the channel, same picture as last quarter, Europe and U.S., relatively stronger than China. Third, Consumer, a steep seasonal increase of 22% compared to Q2. Our main business is sensors for smartphones and wearables. Year-over-year, we see the impact of the weaker USD, a slight decline is entirely due to FX. Business-wise, our new sensor product more than compensate for the phase out noncore products. Now let's talk about future business. I'm on Slide 8. Design wins are underpinning our midterm growth model incentives. Tracks the market continued unabated in the third quarter. We are well on track to reaching again accumulated lifetime value of EUR 5 billion of new business for the full calendar year. We landed about 800 products in the September quarter across all verticals. This pushes the total to already EUR 4 billion for the first 9 months. A few wins that we are very proud of are sticking out. First, in automotive. With our industry-leading intelligent RGB interior lighting solutions, we secured another design win at a leading Chinese OEM. And on top of that, also a large design win for a prestigious car platform at the European premium OEM. Second consumer. Our spectral and proximity sensors are the best you can get. This once again convinced leading customers the design wins are worth a couple of hundred million euros. With that, let us look at some of our recent advances when it comes to differentiating technology platforms. Now on Slide 9. We do spend a lot of R&D money as we continue to believe in exciting growth opportunities. One part of our R&D is dedicated to mastering the cost pressure in more established technologies by creating cost performance optimized platforms. The other part of R&D is focused on differentiating technology, especially for new applications that might see a growth inflection in the future. We're also making sure that our customers benefit from an appropriate IP safety for those innovations. For this, we signed a comprehensive cross-license agreement with Nichia, covering thousands of patents, protected innovations in LED and laser technologies. The new agreement also covers sophisticated LED packages and also includes metric headlamps as an example. As such, we are the right partner for our customers, holding a truly unique IP position in the industry. On Slide 9, you get an impression of our leadership in further emitter technologies that are used in a multitude of applications. We're speaking of AlGaAs material systems that provides LED and laser light between 808 and 1,130 nanometers, just beyond what a human eye can see, the so-called near-infrared. Our LEDs boasts industry-leading wall-plug efficiency and red glow suppression. Our [ laser design ] is post industry-leading efficiency and optical output power, together with high-quality, cost-effective standard packages, these components are ideally suited for a multitude of applications to deliver already today a revenue contribution in the triple-digit million territory, see the infrared LEDs in the car for incumbent sensing and consumer applications or in drones among many others. The lasers are fairly established in material treatment and LiDAR with these properties also making my dealer suited for future defense applications such as drone defense or even for more visionary applications 1 day like nuclear fusion, laser-based nuclear fusion, a technology that could harness the energy generation process of our sun. We think there's much more to come here on this technology platform. Now let's switch to the center side of things on Slide 10. We recently introduced the industry leading to dimensional direct Time-of-Flight sensor platform. Why direct? This sensor measures the time of [ photon transfer ] from the optic come back and calculate the distance. Pretty fancy. I'm very proud of our engineers who delivered industry-leading sensors that featured twice the frame rate at the same resolution as competitor devices or twice the resolution at the same frame rate whatever you need in your application. You can use this performance for gesture and object recognition, but also for 3D distant measurement. It also enables edge AI sensing applications, for example, smartphones. You will see the principle in lower left when it images enhanced with the 3D dimensional information from the sensor, we can place objects such as furniture in an environment completely virtually. Just to give you an example here. We see applications for the sensor technology, not only in smartphones, but also in building automation, home appliances, robot drones, consumer electronics, you name it. Completing our technology product toward this quarter. I'm on Slide 11 now. We have the leading spectral sensing platform in the industry. Here you see on our latest spec model to Magic 8, a high-end premium smartphone with 4 cameras in the world facing side. Our sensors allow for [ eye flicker ] protection and professional grade color accuracy for an enhanced user experience. With this, let us move to bottom line profits. We established the base continues to be a great success as it has been so instrumental in mastering many of the headwinds to our bottom line, especially when it comes to gold price this year. We're on Slide 12 here. By the end of September, we have pocketed approximately EUR 185 million of implemented run rate savings. Another EUR 25 million during last quarter alone. Now this time for more details on the financials. And Rainer, please tell us about the latest progress. Rainer Irle: Thank you, Aldo. Hello, everyone, from my side as well. Let us look at the balance sheet first. With the private placement of an additional EUR 500 million of U.S. dollar in euro senior notes, we increased our cash on hand position to EUR 979 million end of September and end of October were even above EUR 1 billion. After the tap in July, we have approximately EUR 651 million equivalent of the U.S. dollar bond and EUR 1.030 billion with Eurobond, both as during March 29. Last quarter, we got some questions about why we tapped that at a particular moment. If you look at the leveraged finance market in the last couple of weeks in terms that our timing was pretty good, momentarily conditions are certainly less favorable. No news on the Malaysia sale and leaseback transaction yet. We continue to talk to interested parties, but we are not yet on the final approach. The value stood almost unchanged at EUR 422 million end of September. This brings us to an almost unchanged net debt position of EUR 2 billion compared to end of June. Having just mentioned Basel leaseback, we certainly continue full steam in negotiating the indicated asset disposals on top of the sale of the Entertainment and Specialty Lamps that we announced in July. To venture realize proceeds well above EUR 500 million. We are fully on track. Minority shares with the value of only EUR 11 million were tender during the summer months. Consequently, the outstanding minority put options stood at EUR 570 million, 12% outstanding at the end of Q3. Taking cash, the revolver and bilateral lines into account, our available liquidity significantly increased to approximately EUR 1.6 billion. We are prepared for all eventualities any liquidity concerns in the market within of the past. And switching to Slide 14, cash flows. Strong improvement in the third quarter operating cash flow. We recorded EUR 88 million. And that's despite us paying the coupon on the high-yield bonds, which, as you know, is always due in Q1 and Q3. So we paid that in Q3, but we also managed inventories well and make sure we are collecting money from litigation and subsidies. Last year in Q3, we had the customer prepayment of approximately EUR 220 million became as a onetime positive at that time. CapEx base in check, EUR 48 million in the third quarter for the full year, we will land between 6% and 7% of revenues, well below our long-term average ratio of 8%. In total, we finished the quarter with EUR 43 million positive free cash flow. This brings us year-to-date to breakeven in free cash flow. We exclude the customer prepayment last year, Q3 was the best quarter in a long time, though Q4 is expected to be better with lower interest payments and counting on the promise money from the Austrian government under the European Chips Act. We switch to Slide 15, net earnings and earnings per share. On the left, you find adjusted figures. The adjusted net result improved in line with EBITDA to EUR 27 million in the third quarter. Adjusted EPS developed accordingly. The net financing result came in with EUR 59 million. Income tax stood at just EUR 5 million. Following the rule of thumb that there's always EUR 50 million, EUR 60 million adjustments per quarter due to transformation cost depreciation of PPA and share-based compensation, we ended up with minus EUR 28 million net results according to IFRS. Consequently, IFRS earnings per share also came in negative EUR 0.28. That conclude my remarks. And with that, I would like to hand back to Aldo for the summary and outlook. Aldo Kamper: Thanks, Rainer. And now I'm on Slide 16, let me summarize the third quarter results again. Looking at the business, we delivered for revenues above the midpoint and profitability at the midpoint of the guidance. 9% growth in the core semi business year-over-year on a comparable basis, well in line with our midterm target model. Execution of resemblance based program is ahead of plan now with another EUR 85 million run rate savings implemented. And we are securing future semiconductor business with an abated design win streak, now EUR 4 billion already in the first 9 months of this year. Looking at the leveraging plan, everything well on track without being able to go to further detail right now. R&D investments, I've presented to you an example of our relentless efforts to find future growth opportunities by investing in differentiated technology with great potential. Today, we talked about infrared emitter and to 2 dimensional Time-of-Flight sensors. With that, let us look at the right-hand side of the slide, the outlook for the fourth quarter. We expect revenues to come in between EUR 790 million and EUR 890 million at an exchange rate of 1.16. Compared to the beginning of the year, the weaker U.S. dollar cost us a middle double-digit million figure in top line. Automotive lamps will see its beacon annual lighting season. For semis altogether, we expect a small seasonal decline. Industrial medical might be kind of stable, but it sends a lot of uncertainty in the automotive market, maybe flattish at best, where I think consumer, the smartphone season is cooling a bit logically. We expect adjusted EBITDA margin to come in at 17.5%, plus or minus 1.5 percentage points, in absent stable compared to Q3. If you back out the win for profit from the selling of manufacturing assets in Singapore. Looking at cash flow. With easily 0 and keeping our promise for the full year, we expect free cash flow of more than EUR 100 million in the fourth quarter, certainly also driven by the expected inflows from the Chips Act. With this, I conclude my remarks, and we're now ready for your questions. Operator: [Operator Instructions] The first question comes from the line of Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: The first 1 is on the automotive market. So do you see the demand building up, it seems that you are coming to the end of the inventory correction. But I'm just curious about the trajectory of growth moving into the next few quarters? And in the short term, have you seen any specific downside to demand linked to next turmoil or is not something that is affecting the global car production volume for your demand? And the second question is on the synergies and the cost saving program. You already reached EUR 185 million at the end of Q3, which is well above the target for '25 and you are coming closer to what you expect for 2026. Do you plan to accelerate a little bit more further the cost-cutting action or you will stick to EUR 225 million for next year and then are you going to stop cutting the cost base? Aldo Kamper: Yes. Thanks, Sébastien for those questions. Yes, on the automotive side, I would say inventory situation is okay. We do see that there is a lot of short-term order behavior. And I do also link that partly to the Nexperia topic, just our carmakers also have to be very agile in their production schedules and what they build and when they build it does vary a bit. So I would expect this quarter and next quarter to be impacted a bit by that. But overall, vehicle build volumes globally are actually holding up quite well. And here, this is also important that we have a good position in China. The Chinese market is doing -- is growing quite nicely, I have to say. And Europe and the U.S. are struggling a bit. But given our global exposure, we are able to benefit out. So I would say, overall, the story hasn't really changed. We still see more content per vehicle globally that we benefit from a fairly stable vehicle build volume currently and not for next year. At the same time, also the usual price pressure that eat up a bit. And then, of course, FX that also goes against us. But yes, underlying demand, I would say, is a principal okay with some short-term hiccups as explained. On reestablished base, yes, we're very happy that we are making very good progress, EUR 185 million already. So I would assume that we can get to the EUR 225 million goal also significantly ahead of plan, and we are thinking about how to extend this program after that. But we, at the moment, mainly focused on bringing in the savings as quickly as possible of the measure that we've already defined. Operator: The next question comes from the line of Harry Blaiklock from UBS. Harry Blaiklock: First is just on the consumer business. I know you've had success at 1 of your big consumer customers in terms of getting a socket rolled out across the whole kind of smartphone portfolio. And historically, you've spoken about potentially getting further socket wins in that business. I was wondering whether you could just provide an update on that? And then my second question is just on whether there's any update you can give us in terms of progress on the further asset disposals for generating over EUR 500 million? Aldo Kamper: Sure, Harry. Thanks for the question. So yes, at the various cellphone customers, we are making good progress and are winning new sockets. And I must say that it goes across both Android and non-Android space in a very steady and good manner, I must say, without calling out 1 specific socket, but I must say the engagement across the customer base is very strong and we continue to see good growth potential in this space with our technology. On the asset disposals, yes, it's hard to comment on that in detail, but I can say we are very active in the process. And the plan still stands. We will deliver significantly more than EUR 500 million of disposals proceeds. As we have communicated, the first step, EUR 100 million on the lamp business, on the entertainment lamp business is in execution. We are progressing well towards closing, probably by the end of Q1 next year. And on a second bigger step, we are making a good progress, and we'll share that, of course, as soon as we can with all of you. Operator: [Operator Instructions] We now have a question from the line of Reto Huber from Research Partners. Reto Huber: Yes. Thank you very much for your very detailed reporting. Now I was wondering, the adjusted EBITDA maybe I missed it, that includes the gain from sales of assets, if I understood this correctly. Have you disclosed that number somewhere? And how much is the one-off gain? And then secondly, what is the reduction in year-over-year sales due to disposals? Rainer Irle: Yes the adjusted EBITDA had a benefit from that asset sale of roughly EUR 10 million, a bit north of EUR 10 million. That's obviously a onetime impact. And yes, if you look at the year-over-year impact from asset disposals from portfolio, I would say that that's probably EUR 30 million. Operator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Juergen Rebel for any closing remarks. Juergen Rebel: Thanks very much for the interest. We had a lot of people who dialed in. If you have any further questions, don't hesitate to reach out to us. And we're looking forward to receiving your feedback. Thank you. Bye. Aldo Kamper: Bye-bye. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Third Quarter 2025 LATAM Airlines Group Earnings Conference Call. [Operator Instructions]. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F 2025 updated guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. And if there are any members of the press on the call, please note that for the media, this is a listen-only call. I will now hand the conference over to Ricardo Bottas, Chief Financial Officer. Ricardo, please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our third quarter 2025 conference call, and thank you all for joining us today. My name is Ricardo Bottas, and I am the CFO of LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andrés del Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations. And we will present our highlights and results for the third quarter. I will hand it over to Roberto to share his opening remarks. Once finished, I will present the key operational and financial figures as well as provide other updates. Roberto Alvo Milosawlewitsch: Good morning. Thank you, Ricardo, and thanks to all for being here today. This month, 3 years ago, LATAM emerged from financial restructuring. This period was one of learning, designing and executing. LATAM defined a blueprint that has a collection of essential elements we needed to excel. This blueprint was implemented and is working. The group's network is the most expansive in the region, and our loyalty program is by far the largest and most valued. No one else can connect South America within the region and to the world, reward loyalty and provide choice to customers as LATAM Group can. However, these results are the product of more than a co-branded credit card and a map of routes. At LATAM, we are obsessed with execution. Every day, in every interaction, we strive to be better, to depart on time, standard zero on every flight, to improve on what we do, seek and find cost-saving opportunities for each of our activities, to make sure we deliver what was promised to the customer at every interaction and to provide the care and respect that each one of them deserves as they entrust their journey to LATAM. We have made considerable progress, but are not satisfied. I believe we can do better. Looking forward, we must ensure that we remain disciplined, disciplined in execution and disciplined in controlling costs. At the center of all of this is our people, a group of more than 40,000 employees who care about and love what they do every day. People who believe in what they do and what it represents. They are the engine and the spirit that drives LATAM Group forward, and the most important commitment is to them, making sure that they feel that every day it is worth being part of the LATAM family. As we look into the future, I'm confident that we can continue the journey of improvement and deliver on purpose that we have, which is elevating every single journey. Thank you very much. Now back to Ricardo for a description of how we are achieving profitable growth, improving the quality of our traffic, keeping high customer satisfaction and maintaining our cost under control. Ricardo Dourado: Thank you, Roberto. Please join me on Slide 3. This quarter, LATAM Group continues to show the strength of its strategy, its unmatched network footprint, focus on disciplined operational and commercial execution as well as product improvement. In terms of operations, LATAM Group transported over 22.9 million passengers, reinforcing its role as the leading airline group in South America. Capacity grew by 9.3% year-over-year with healthy load factors of 85.4% on a consolidated basis. The group is seeing consistently high levels of customer satisfaction, increased customer preference, especially in the premium segment and sustained customer loyalty. LATAM translated this operational performance into financial results, driven by an 8.4% increase in passenger unit revenues while keeping unit costs broadly stable. Adjusted operating margin expanded to 18.1%, while adjusted EBITDAR reached $1.15 billion during the quarter, and net income totaling $379 million. During this quarter, LATAM executed its second share repurchase program for a total of $433 million with the company's disciplined approach to capital allocation. During this quarter, LATAM Airlines Group signed a major agreement for an acquisition of up to 74 Embraer E2 aircraft. Moving to the next slide about the fleet and this acquisition and the transaction. The E2 will indeed enhance LATAM Group affiliates' regional connectivity in South America and represent an opportunity for our network to open up to 35 new destinations. They also offer a 30% improvement in fuel efficiency per seat compared to previous generation aircraft, reinforcing the group's commitment to sustainability and cost discipline. In total, LATAM Group will receive 24 E2s with 12 deliveries scheduled for the fourth quarter of 2026 and the remaining 12, in 2027. With this addition, LATAM's order book now exceeds 140 aircraft through 2030, supporting the group's long-term growth and fleet modernization strategy. Initial deliveries are set to begin with LATAM Airlines Brazil, which will be the first to deploy these aircraft in its network. In Brazil, this aircraft will enhance capillarity across the country, enabling LATAM Group to expand into under-penetrated regions and destinations that are currently not served by the group. Over time and subject to market conditions and strategic evaluations, other LATAM affiliates may also incorporate the E2s into their operations. Still on this slide, we expect to receive an additional 8 aircraft on this fourth quarter of 2025. And also, we project to receive additional 44 aircraft next year, including the E2s. Let's move to the following slide, Slide 5. As mentioned earlier, LATAM Group delivered another quarter of strong traffic performance, transporting more than -- almost 23 million passengers with a consolidated load factor of 85.4%. LATAM has been committed to profitable growth at the consolidated level, passenger RASK increased by 8.4% year-over-year in U.S. dollars, a result that reflects the strength of LATAM Group's strategy and execution. A clear example of this is Brazil, where LATAM Airlines Brazil grew capacity by over 12% year-over-year. With this expansion, customer preference remained strong, and the load factor even increased by 2.2 percentage points. During the quarter, the Brazilian affiliate launched 6 new domestic routes, further supporting the strategy to deepen its presence and enhance connectivity in this market. In the Spanish-speaking countries, LATAM Group's affiliates have also improved performance during this quarter with passenger RASK increasing 18% year-over-year. In particular, as compared to 2024, LATAM Airlines Colombia experienced a stable domestic industry capacity, also seeing healthy demand. Demand is in the other Spanish-speaking affiliates domestic markets also remained healthy, except for Chile, where industry traffic figures are stable against last year. However, the focus on delivery execution and a higher premium product offering helped fully offset these effects. Meanwhile, the international segment continued to operate with high load factors, reflecting the relevance of the network and LATAM Group's role as the main connector in the region with a diversified network. Altogether, the unit revenues, even in the context of increased capacity reflect the effectiveness of the group's commercial and customer strategy. It is the result of offering the right product in the right markets while executing with discipline. Looking ahead, LATAM Group continues to focus on maintaining a sustained trajectory of discipline and profitable growth. The group is also focused on reaching the goal of high single-digit consolidated capacity growth next year, compared to 2025, supported by an ongoing focus on efficiency, a relevant fleet delivery schedule and a margin preservation on top of a healthy demand environment. Moving to the next slide, Slide 6, regarding our value proposition and customer experience. LATAM Group remains committed to deliver a superior travel experience and increasing customer preference. During the quarter, the group continued advancing initiatives. The new Lima Lounge was inaugurated at recently opened Jorge Chávez International Airport, one of the group's main hubs. This new space offers a modern and comfortable environment and comes in addition to the signature check-in area that was previously inaugurated at the same terminal, both part of a strategy to elevate the end-to-end experience for premium travelers and LATAM Pass members. Looking ahead, LATAM Group also announced the launch of its new Premium Comfort Class, which will begin rolling out in 2027 on long-haul routes. This product reflects a commitment to offering more choices to our passengers for how they want to fly. The new class will be an additional option other than the existing economy and business class cabins, for passengers seeking more space and personalized service. Finally, LATAM Group was once again recognized by APEX as a Five-Star Global Airline for 2026. This marks the fourth consecutive year the group has received these distinctions based on independent passenger feedback data from over 1 million flights worldwide. It's a testament to the team's dedication and to the impact of the investments being made across the network. In addition, LATAM Cargo Group was named Air Cargo Airline of the Year by Air Cargo News, becoming the only South American carrier to win in any category, further underscoring the group's excellence across all segments of the business. Together, these efforts underscore LATAM Group's dedication to continuous improvement and reinforce its strategic commitment to quality, consistency and the passenger experience, a focus that continues to support more passengers choosing to fly with LATAM and the group's ability to capture premium revenues. Next, let's move to the Slide 7. I will now walk you through the financial results for the third quarter, a period in which LATAM once again reflects a solid execution. Total revenues reached $3.9 billion, an increase of 17.3% year-over-year, supported by growth across both Passenger and Cargo segments. Passenger revenue rose by 18.5% with revenues from premium travelers also showing relevant growth, increasing by more than 15% compared to the same period last year, while Cargo revenues grew by 6.3%. On the cost side, total adjusted expenses ex-fuel increased by 21% year-over-year, driven mainly by increased operations, especially international and also a lower base of comparison due to the one-offs impact in the same period of last year. This increase was partially offset by 4.7% year-over-year decrease in jet fuel costs. That said, on the unit cost front, LATAM upheld its firm commitment to cost efficiency, a key pillar of its strategy. As a result, LATAM delivered an adjusted operating margin of 18.1%, testament to LATAM's operational excellence through profitable growth while also holding its cost control performance and advantage. Again, a nonnegotiable and relevant part of LATAM's strategy. Lastly, net income for the quarter totaled $379 million, up 26% year-over-year, even after $105 million negative nonoperational income statement impact related to the liability management exercise completed in last July, as disclosed to the market before. Net income for the 9 months was $976 million, 38% higher than the same period of last year. Now moving to the Slide 8. As you can see on this slide, LATAM operational performance this quarter is a result of consistent and disciplined execution of the group's strategy over the past several years. Since 2019, LATAM has steadily expanded its adjusted operating margin, rising from 7.1%, to 18.1% in the third quarter of 2025. At the same time, LATAM has maintained tight control of its cost base. Adjusted passenger CASK ex-fuel has been stable between $0.042 and $0.043 on the last 12 months basis, despite inflationary pressures and higher activity. This disciplined approach to cost has enabled LATAM to consistently grow margins while preserving efficiency, in order to continue delivering sustainable and profitable growth going forward. With regard to cash generation, as shown on Slide 9. In the third quarter, LATAM delivered strong adjusted operating cash flow generation, reaching $859 million. Interest payments remaining contained at $52 million, mainly as a result of the debt refinancing executed in 2024, which enabled LATAM's significant reduction of the cost of its non-fleet financial liabilities, which continue to translate into meaningful interest savings and overall cost of capital reduction. After both 2024 and 2025, refinance execution, combined interest payment savings expected for next year amount to $151 million compared to last year. And finally, during the quarter, LATAM executed its second share repurchase program for a total of $433 million. This reflects the group's capital allocation strategy and discipline. Let's move to Slide 10 to discuss LATAM's capital structure. LATAM ended the third quarter with a liquidity level of 25.8%, slightly above the upper end of the financial policy range, the execution of the share repurchase program this quarter brought liquidity more in line with the target levels. LATAM ended the quarter with an adjusted net leverage ratio of 1.5x, aligned with the full year guidance and well below the cap from the financial policy. A strong capital structure is not just a financial metric for LATAM. It's a strategic asset. It gives the group the flexibility to pursue growth where it's most profitable, return capital to shareholders when appropriate and manage the most accretive capital structure. This financial strength, combined with assets and cost advantage set LATAM apart from its peers and remains central to its ability to compete, adapt and lead into the region over the long term. Please join me on Slide 11. Given this solid year-to-date performance, supported by continued customer preference and the disciplined execution of a strategy centered on profitable growth, cost efficiency and financial strength, LATAM has updated its full year 2025 guidance. Consolidated capacity is projected to remain broadly in line with previous estimate with -- while revenues are expected to be higher within a tighter range. In terms of margins, adjusted EBITDAR guidance has also been refined to be between $4 billion and $4.1 billion, close to 9% higher than the previous guidance. The updated range reflects a more constructive outlook now positioned higher than the previous estimate. Adjusted passenger CASK ex-fuel was updated to be between $4.35 and $4.40, mainly due to FX variation in this period. Liquidity was also updated after the execution of the share repurchase program, and we are maintaining the same estimate to be above $4 billion by the end of this year. Mainly considered debt adjusted EBITDAR improvement in the cash generation, the forecasted leverage for year-end is now at 1.4x. And for next year, as I mentioned before, the group is focused on reaching the goal of high single-digit capacity growth compared to 2025, supported by our ongoing dedication to efficiency and margin preservation. Finally, and before we move to the Q&A, I'd like to take a moment to remind you that LATAM will be hosting an Investor Day in New York on December 9, 2025. We invite you also to tune into the live webcast on these events. With that, we now open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: Congrats on another pretty strong results. My question is on the international front. When compared to Brazil domestic and Spanish-speaking countries, it looks like the past performance was relatively weaker, although still growing on a year-over-year basis. Can you share more details on how international is tracking, maybe on a per-region basis, which other routes have been pressuring the overall results and which are doing relatively better? Roberto Alvo Milosawlewitsch: So we have seen, in general, stable and healthy demand in most of the international segments. I would say that South America to U.S. is a little bit softer than what we used to see in the last few months. And this is, in our view, linked to people probably avoiding going to the U.S. and moving themselves a little bit into other regions. Also the northern part of South America, the regional traffic, which is international flights on the northern part, is a little bit softer as well. But in general, nothing that we have seen that is worrisome or concerning with respect to the level and the quality of the demand. So in that sense, we remain confident on the prospects for the remainder of the year. Guilherme Mendes: Very clear, Roberto. When you say softer into the U.S., is it more leisure related or even corporate related? Roberto Alvo Milosawlewitsch: No. This is more leisure related. Operator: Your next question comes from the line of Mike Linenberg with Deutsche Bank. Michael Linenberg: I have a couple here. I guess, Roberto, can you just update us on this measure in Brazil to potentially force airlines to offer up a free bag? Is that just domestic? Is that domestic and international? And where is that in the legislative process right now? Roberto Alvo Milosawlewitsch: A few weeks ago, a couple of weeks ago, the lower chamber in Brazil passed a law to allow basically passengers to carry a bag without being charged and also select seat without charge on seat that have no distinction in terms of space. This, as the law was passed, was for both domestic and international flights, it affects eventually therefore, domestic and international carriers into Brazil. The law is -- needs to go to the Senate. It has not been presented at the Senate floor at this point in time, and we have no clarity if that would happen and when it will happen. So for the time being, that still has the second step. Ultimately, presidential veto is also something that the Brazilian constitution allows for laws like this. So we will see. Michael Linenberg: The reason I ask is, and you mentioned international, is that -- all right, domestic is one thing, but international, from the perspective, I know at least from the U.S., they may view it as a potential tax or additional cost that's unilateral and therefore, in violation of the bilateral. So I just wonder how they implement it internationally when international carriers have different ways in how they price their product and obviously are protected by the bilateral arrangements between Brazil and those countries. Roberto Alvo Milosawlewitsch: Yes. I completely agree with you, Michael. And of course, LATAM does not support the passing of the law, and we have together with the IATA and ABEAR in Brazil been making very clear and explaining the impact of this potential measure. This is not good clearly for the industry -- airline industry in Brazil and I think -- I believe has the potential of ending up with higher fares for passengers that fly whether into Brazil or outside or coming to Brazil. So I think that at an industry level, we are making a lot of effort in making sure that everybody understands the impact that this has on traffic and on the industry, and we're completely sure that this would not be a positive measure for us all. Michael Linenberg: Great. And then just my second on capital allocation. And this is Roberto, to you or Ricardo, how you think about it longer term? You've had a nice balance. Obviously -- the dividend is statutory. But you pay the dividend. You've been paying down debt. You've also been buying back stock. As we think about the sort of various levers going forward, should we expect to see, say, regular reductions in shares outstanding? Or was that more of just an opportunistic initiative on your part? Roberto Alvo Milosawlewitsch: Thanks, Mike. So first of all, I mean, as we think about capitalization, do remember that the development of the business and how we see and foresee opportunities for growth, is the priority. So that will always take over other potential decisions. At this point in time, we believe we have done a balanced mix of initiatives, and we remain very close to the target that we have in terms of financial policy. So we're content with what we have done during 2025. Going forward, looking forward, I think we will see -- I mean, this is a Board decision. Ultimately, the dividend payout in Chile per law is a shareholders' meeting, a shareholder decision, which will happen in April. But all options for capital allocation and growth investment remain open. And as we progress in the next few months, the company will, for sure, explain to the market how do we continue depending on our results and of course, the situation in the region and the opportunities we may see. Operator: Your next question comes from the line of Gabriel Rezende with Itau BBA. Gabriel Rezende: Congrats on these very strong results. I would like to follow up on your comments regarding the investments and the efforts you have been putting into bringing a more premium experience to the customers. And just trying to understand how relevant it has been so far in terms of your revenue growth as well as your profitability. So if you could maybe provide some color on how relevant these premium revenue are at this point? You mentioned that it has grown by 15% year-on-year. So just trying to understand how much it represents out of the total passenger revenue at this point? And how much could it represent in the future as you bring more efforts into this? Roberto Alvo Milosawlewitsch: Yes. Thanks for the message -- the question. So first, I think it's important to remark what is what we're experiencing. First, yes, premium revenue is growing faster than capacity. And a relevant portion of the improvement that we see in the RASK for Spanish-speaking domestic Brazil and to an extent, international is due to a change of mix where we have a larger proportion and portion of premium revenue coming from there. And that's both corporate and as well, let me call it, high leisure, I don't know if that's a context or the concept in English, revenue that we're seeing. Now this is a function of, in my mind, 2 things. Most importantly, it's impeccable execution and care in every interaction that we made for the customer. Secondly, it's improvements in products, as you probably saw in the presentation, the Lima Lounge, premium economy in the international and other things. But as we have, in a way, decommoditized, if you want, our product, we have focused very much on experience. And that, I think, has brought a willingness to pay that customers probably had that we were simply not exploiting because our product probably was not as good as they were expecting. And now we are, I think, very clearly seeing the impact that this has in our results. Operator: [Operator Instructions] Our next question comes from the line of Felipe Ballevona with Santander. Felipe Ballevona: Can you hear me? Roberto Alvo Milosawlewitsch: Yes, we can. Felipe Ballevona: Great. Awesome. So well, first of all, congrats on the strong results. I have a couple of questions here. First, following actually on the first question of the Q&A. What was the reason behind the growth slowdown in international traffic recorded in October? Is international traffic being dragged down by Colombia? The last couple of data points of the [ IDOCB ] that have showed a slowdown in your international, not only in the domestic as has been the case for the previous months, but also in the international front. And also my second question, if you have any news regarding a potential buyback? Roberto Alvo Milosawlewitsch: Yes. Felipe, so first of all, our international Colombia operation is very small as compared to the total international traffic. We have not seen, in particular, an impact on international travel in and out of Colombia, and that it's very unsubstantial to the size of our traffic, particularly out of Brazil and secondly, Chile and then Peru. No, I guess this is a function, as I explained in the beginning, softer demand into the U.S., particularly on leisure traffic. We believe that this is linked to people probably deciding to go elsewhere and probably spending more time within their countries and to the region. But we don't see this as a fundamental slowdown in demand. It's probably assigned to more external factors than that. So that's the main reason, okay? Having said that, do remember that we expect that our ASK growth for the whole of 2025 is going to be around 10% to 10.5% increase in capacity, which is a significant increase in capacity, and that's a reflection of a good level of demand that we see to operate this. Felipe Ballevona: That's very good color. And do you have any news regarding a potential buyback or... Roberto Alvo Milosawlewitsch: Sorry. Felipe Ballevona: You're fine. Roberto Alvo Milosawlewitsch: As I said before, at this point in time, we are close to the financial policy targets that we have. Going forward, we will see what the Board decides and do remember that the company has a range of alternatives to allocate capital and also be mindful that the first priority will always be growing the business. And after that, any excess that we believe should go back to shareholders, the company has a few tools to decide on how to do it. So rest -- at least, stay tuned, eventually. Operator: Next question comes from the line of Jens Spiess with Morgan Stanley. Jens Spiess: Congrats on the very strong results. Just wanted to know if you could provide any context on next year, how is the -- like the order book -- the booking curve looking like? And also how much do you expect to grow in terms of ASKs next year based on your fleet plan, that would be very helpful. And if you could remind us how many leases do you have expiring next year, I would very much appreciate that. Roberto Alvo Milosawlewitsch: Yes. Jens, so as we explained in the press release and Ricardo mentioned here, we expect high single-digit ASK growth, or that's our goal for 2026. We will provide more detailed guidance on 2026 in a few more weeks. You asked about -- the first part of the question, fleet. And by the way, yes, fleet. So we have on Slide 4 of the presentation, you can see 41 arrivals of A320 family and 7 E2 aircraft, plus 3 wide-bodies. We have relatively few leases. I don't have the correct figure here, the right figure, but we have the option to, of course, extend them if you want to. And our expectation at this point in time is to end up the year with a total fleet of just over 400 aircraft -- around 410. You can see that as well in the press release, okay? And -- sorry, I'm just looking at a note here they're sending me. Yes. And last thing, they just reminded me to make you feel comfortable that we have the fleet we need to grow for what we're expecting next year. So I don't expect -- we don't expect that we would need to make changes in our fleet plan for the capacity we have planned. The first part of the question you asked me, now, remember, is booking curve into the beginning of the year. Very early still, particularly on domestic markets, the percentage of booked seats is very low. But what we're seeing initially for the first couple of months of the year looks in the current trend that we have seen in third quarter and that we expect for the rest of the year. Operator: Your next question comes from the line of Ewald Stark with BICE. Ewald Stark Bittencourt: I want to know if you can provide any color behind what is driving the lower percentage of hedged fuel during this quarter? Especially I would like to focus on, is anything on booking going forward that is driving this lower percentage of hedged fuel, or maybe you're looking something different about forecast of oil? Unknown Executive: Yes, thanks for the question. If you look at the press release, it's nothing that different for what we usually do. You have about a 47% for Q4 of this year and then 33% for Q1. And of course, as soon as we approach the next quarters, we will have, of course, consistent with the policy, an increase the fuel hedge. But I wouldn't say that this is any different than what you have seen in the past. It's a very standard, I think, coverage that we have today for fuel price, nothing that really deviates from the policy. Ewald Stark Bittencourt: Financial statements say that you have a 26% hedge fuel for the next 12 months. Starting from first quarter of 2026, every quarter is below 30%. Unknown Executive: Yes. If you look at the detail on the earnings release, there's more detail here. I think at the financial, that's sort of on a weighted average of what's it going forward. But here, you have the actual percentages covered for every quarter. Again, 47% for Q4, 33% for Q1. So that's a difference you were look at the financials here. Then as this is as of November 14, 2025, it's more updated. I think, of course, the financials, they call for, I think, September 30, but this is -- you have the most updated vision of the current portfolio, as of November 14. Operator: [Operator Instructions] Your next question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: Regarding the pilot strike in Chile, can you share some potential -- expected impact for the fourth quarter? I understand it should be material, but I just wanted to hear your thoughts on what could we expect from this negotiation. Roberto Alvo Milosawlewitsch: Thank you, Guilherme. At this point in time, we have no clarity of the potential impact. So we will update that if necessary at an appropriate time. Operator: There are no further questions at this time. I will now turn the call back to Ricardo Bottas for closing remarks. Ricardo Dourado: I would like to thank you all to participating in today's call and remind you that we will have our Investor Day again on December 9. So we would love to have all of you participating on that opportunity to get more information from the company and the additional updates. Thank you all, and have a good day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Third Quarter 2025 LATAM Airlines Group Earnings Conference Call. [Operator Instructions]. Before I turn the call over to management, I'd like to remind you that certain statements in this presentation and during Q&A may relate to future events and expectations and as such, constitute forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the company's future plans, objectives and expected performance or guidance are forward-looking statements. These statements are based on a range of assumptions that LATAM believes are reasonable, but are subject to uncertainties and risks that are discussed in detail in the published 20-F 2025 updated guidance, earnings release, financial statements and related CMF and SEC filings. The company's actual results may differ significantly from those projected or suggested in any forward-looking statements due to a variety of factors, which are discussed in detail in our SEC filings. And if there are any members of the press on the call, please note that for the media, this is a listen-only call. I will now hand the conference over to Ricardo Bottas, Chief Financial Officer. Ricardo, please go ahead. Ricardo Dourado: Hello, everyone, and good morning. Welcome to our third quarter 2025 conference call, and thank you all for joining us today. My name is Ricardo Bottas, and I am the CFO of LATAM Airlines Group. Here with me is Roberto Alvo, our CEO; Andrés del Valle, Corporate Finance Director; and Tori Creighton, Head of Investor Relations. And we will present our highlights and results for the third quarter. I will hand it over to Roberto to share his opening remarks. Once finished, I will present the key operational and financial figures as well as provide other updates. Roberto Alvo Milosawlewitsch: Good morning. Thank you, Ricardo, and thanks to all for being here today. This month, 3 years ago, LATAM emerged from financial restructuring. This period was one of learning, designing and executing. LATAM defined a blueprint that has a collection of essential elements we needed to excel. This blueprint was implemented and is working. The group's network is the most expansive in the region, and our loyalty program is by far the largest and most valued. No one else can connect South America within the region and to the world, reward loyalty and provide choice to customers as LATAM Group can. However, these results are the product of more than a co-branded credit card and a map of routes. At LATAM, we are obsessed with execution. Every day, in every interaction, we strive to be better, to depart on time, standard zero on every flight, to improve on what we do, seek and find cost-saving opportunities for each of our activities, to make sure we deliver what was promised to the customer at every interaction and to provide the care and respect that each one of them deserves as they entrust their journey to LATAM. We have made considerable progress, but are not satisfied. I believe we can do better. Looking forward, we must ensure that we remain disciplined, disciplined in execution and disciplined in controlling costs. At the center of all of this is our people, a group of more than 40,000 employees who care about and love what they do every day. People who believe in what they do and what it represents. They are the engine and the spirit that drives LATAM Group forward, and the most important commitment is to them, making sure that they feel that every day it is worth being part of the LATAM family. As we look into the future, I'm confident that we can continue the journey of improvement and deliver on purpose that we have, which is elevating every single journey. Thank you very much. Now back to Ricardo for a description of how we are achieving profitable growth, improving the quality of our traffic, keeping high customer satisfaction and maintaining our cost under control. Ricardo Dourado: Thank you, Roberto. Please join me on Slide 3. This quarter, LATAM Group continues to show the strength of its strategy, its unmatched network footprint, focus on disciplined operational and commercial execution as well as product improvement. In terms of operations, LATAM Group transported over 22.9 million passengers, reinforcing its role as the leading airline group in South America. Capacity grew by 9.3% year-over-year with healthy load factors of 85.4% on a consolidated basis. The group is seeing consistently high levels of customer satisfaction, increased customer preference, especially in the premium segment and sustained customer loyalty. LATAM translated this operational performance into financial results, driven by an 8.4% increase in passenger unit revenues while keeping unit costs broadly stable. Adjusted operating margin expanded to 18.1%, while adjusted EBITDAR reached $1.15 billion during the quarter, and net income totaling $379 million. During this quarter, LATAM executed its second share repurchase program for a total of $433 million with the company's disciplined approach to capital allocation. During this quarter, LATAM Airlines Group signed a major agreement for an acquisition of up to 74 Embraer E2 aircraft. Moving to the next slide about the fleet and this acquisition and the transaction. The E2 will indeed enhance LATAM Group affiliates' regional connectivity in South America and represent an opportunity for our network to open up to 35 new destinations. They also offer a 30% improvement in fuel efficiency per seat compared to previous generation aircraft, reinforcing the group's commitment to sustainability and cost discipline. In total, LATAM Group will receive 24 E2s with 12 deliveries scheduled for the fourth quarter of 2026 and the remaining 12, in 2027. With this addition, LATAM's order book now exceeds 140 aircraft through 2030, supporting the group's long-term growth and fleet modernization strategy. Initial deliveries are set to begin with LATAM Airlines Brazil, which will be the first to deploy these aircraft in its network. In Brazil, this aircraft will enhance capillarity across the country, enabling LATAM Group to expand into under-penetrated regions and destinations that are currently not served by the group. Over time and subject to market conditions and strategic evaluations, other LATAM affiliates may also incorporate the E2s into their operations. Still on this slide, we expect to receive an additional 8 aircraft on this fourth quarter of 2025. And also, we project to receive additional 44 aircraft next year, including the E2s. Let's move to the following slide, Slide 5. As mentioned earlier, LATAM Group delivered another quarter of strong traffic performance, transporting more than -- almost 23 million passengers with a consolidated load factor of 85.4%. LATAM has been committed to profitable growth at the consolidated level, passenger RASK increased by 8.4% year-over-year in U.S. dollars, a result that reflects the strength of LATAM Group's strategy and execution. A clear example of this is Brazil, where LATAM Airlines Brazil grew capacity by over 12% year-over-year. With this expansion, customer preference remained strong, and the load factor even increased by 2.2 percentage points. During the quarter, the Brazilian affiliate launched 6 new domestic routes, further supporting the strategy to deepen its presence and enhance connectivity in this market. In the Spanish-speaking countries, LATAM Group's affiliates have also improved performance during this quarter with passenger RASK increasing 18% year-over-year. In particular, as compared to 2024, LATAM Airlines Colombia experienced a stable domestic industry capacity, also seeing healthy demand. Demand is in the other Spanish-speaking affiliates domestic markets also remained healthy, except for Chile, where industry traffic figures are stable against last year. However, the focus on delivery execution and a higher premium product offering helped fully offset these effects. Meanwhile, the international segment continued to operate with high load factors, reflecting the relevance of the network and LATAM Group's role as the main connector in the region with a diversified network. Altogether, the unit revenues, even in the context of increased capacity reflect the effectiveness of the group's commercial and customer strategy. It is the result of offering the right product in the right markets while executing with discipline. Looking ahead, LATAM Group continues to focus on maintaining a sustained trajectory of discipline and profitable growth. The group is also focused on reaching the goal of high single-digit consolidated capacity growth next year, compared to 2025, supported by an ongoing focus on efficiency, a relevant fleet delivery schedule and a margin preservation on top of a healthy demand environment. Moving to the next slide, Slide 6, regarding our value proposition and customer experience. LATAM Group remains committed to deliver a superior travel experience and increasing customer preference. During the quarter, the group continued advancing initiatives. The new Lima Lounge was inaugurated at recently opened Jorge Chávez International Airport, one of the group's main hubs. This new space offers a modern and comfortable environment and comes in addition to the signature check-in area that was previously inaugurated at the same terminal, both part of a strategy to elevate the end-to-end experience for premium travelers and LATAM Pass members. Looking ahead, LATAM Group also announced the launch of its new Premium Comfort Class, which will begin rolling out in 2027 on long-haul routes. This product reflects a commitment to offering more choices to our passengers for how they want to fly. The new class will be an additional option other than the existing economy and business class cabins, for passengers seeking more space and personalized service. Finally, LATAM Group was once again recognized by APEX as a Five-Star Global Airline for 2026. This marks the fourth consecutive year the group has received these distinctions based on independent passenger feedback data from over 1 million flights worldwide. It's a testament to the team's dedication and to the impact of the investments being made across the network. In addition, LATAM Cargo Group was named Air Cargo Airline of the Year by Air Cargo News, becoming the only South American carrier to win in any category, further underscoring the group's excellence across all segments of the business. Together, these efforts underscore LATAM Group's dedication to continuous improvement and reinforce its strategic commitment to quality, consistency and the passenger experience, a focus that continues to support more passengers choosing to fly with LATAM and the group's ability to capture premium revenues. Next, let's move to the Slide 7. I will now walk you through the financial results for the third quarter, a period in which LATAM once again reflects a solid execution. Total revenues reached $3.9 billion, an increase of 17.3% year-over-year, supported by growth across both Passenger and Cargo segments. Passenger revenue rose by 18.5% with revenues from premium travelers also showing relevant growth, increasing by more than 15% compared to the same period last year, while Cargo revenues grew by 6.3%. On the cost side, total adjusted expenses ex-fuel increased by 21% year-over-year, driven mainly by increased operations, especially international and also a lower base of comparison due to the one-offs impact in the same period of last year. This increase was partially offset by 4.7% year-over-year decrease in jet fuel costs. That said, on the unit cost front, LATAM upheld its firm commitment to cost efficiency, a key pillar of its strategy. As a result, LATAM delivered an adjusted operating margin of 18.1%, testament to LATAM's operational excellence through profitable growth while also holding its cost control performance and advantage. Again, a nonnegotiable and relevant part of LATAM's strategy. Lastly, net income for the quarter totaled $379 million, up 26% year-over-year, even after $105 million negative nonoperational income statement impact related to the liability management exercise completed in last July, as disclosed to the market before. Net income for the 9 months was $976 million, 38% higher than the same period of last year. Now moving to the Slide 8. As you can see on this slide, LATAM operational performance this quarter is a result of consistent and disciplined execution of the group's strategy over the past several years. Since 2019, LATAM has steadily expanded its adjusted operating margin, rising from 7.1%, to 18.1% in the third quarter of 2025. At the same time, LATAM has maintained tight control of its cost base. Adjusted passenger CASK ex-fuel has been stable between $0.042 and $0.043 on the last 12 months basis, despite inflationary pressures and higher activity. This disciplined approach to cost has enabled LATAM to consistently grow margins while preserving efficiency, in order to continue delivering sustainable and profitable growth going forward. With regard to cash generation, as shown on Slide 9. In the third quarter, LATAM delivered strong adjusted operating cash flow generation, reaching $859 million. Interest payments remaining contained at $52 million, mainly as a result of the debt refinancing executed in 2024, which enabled LATAM's significant reduction of the cost of its non-fleet financial liabilities, which continue to translate into meaningful interest savings and overall cost of capital reduction. After both 2024 and 2025, refinance execution, combined interest payment savings expected for next year amount to $151 million compared to last year. And finally, during the quarter, LATAM executed its second share repurchase program for a total of $433 million. This reflects the group's capital allocation strategy and discipline. Let's move to Slide 10 to discuss LATAM's capital structure. LATAM ended the third quarter with a liquidity level of 25.8%, slightly above the upper end of the financial policy range, the execution of the share repurchase program this quarter brought liquidity more in line with the target levels. LATAM ended the quarter with an adjusted net leverage ratio of 1.5x, aligned with the full year guidance and well below the cap from the financial policy. A strong capital structure is not just a financial metric for LATAM. It's a strategic asset. It gives the group the flexibility to pursue growth where it's most profitable, return capital to shareholders when appropriate and manage the most accretive capital structure. This financial strength, combined with assets and cost advantage set LATAM apart from its peers and remains central to its ability to compete, adapt and lead into the region over the long term. Please join me on Slide 11. Given this solid year-to-date performance, supported by continued customer preference and the disciplined execution of a strategy centered on profitable growth, cost efficiency and financial strength, LATAM has updated its full year 2025 guidance. Consolidated capacity is projected to remain broadly in line with previous estimate with -- while revenues are expected to be higher within a tighter range. In terms of margins, adjusted EBITDAR guidance has also been refined to be between $4 billion and $4.1 billion, close to 9% higher than the previous guidance. The updated range reflects a more constructive outlook now positioned higher than the previous estimate. Adjusted passenger CASK ex-fuel was updated to be between $4.35 and $4.40, mainly due to FX variation in this period. Liquidity was also updated after the execution of the share repurchase program, and we are maintaining the same estimate to be above $4 billion by the end of this year. Mainly considered debt adjusted EBITDAR improvement in the cash generation, the forecasted leverage for year-end is now at 1.4x. And for next year, as I mentioned before, the group is focused on reaching the goal of high single-digit capacity growth compared to 2025, supported by our ongoing dedication to efficiency and margin preservation. Finally, and before we move to the Q&A, I'd like to take a moment to remind you that LATAM will be hosting an Investor Day in New York on December 9, 2025. We invite you also to tune into the live webcast on these events. With that, we now open the line for your questions. Operator: [Operator Instructions] Your first question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: Congrats on another pretty strong results. My question is on the international front. When compared to Brazil domestic and Spanish-speaking countries, it looks like the past performance was relatively weaker, although still growing on a year-over-year basis. Can you share more details on how international is tracking, maybe on a per-region basis, which other routes have been pressuring the overall results and which are doing relatively better? Roberto Alvo Milosawlewitsch: So we have seen, in general, stable and healthy demand in most of the international segments. I would say that South America to U.S. is a little bit softer than what we used to see in the last few months. And this is, in our view, linked to people probably avoiding going to the U.S. and moving themselves a little bit into other regions. Also the northern part of South America, the regional traffic, which is international flights on the northern part, is a little bit softer as well. But in general, nothing that we have seen that is worrisome or concerning with respect to the level and the quality of the demand. So in that sense, we remain confident on the prospects for the remainder of the year. Guilherme Mendes: Very clear, Roberto. When you say softer into the U.S., is it more leisure related or even corporate related? Roberto Alvo Milosawlewitsch: No. This is more leisure related. Operator: Your next question comes from the line of Mike Linenberg with Deutsche Bank. Michael Linenberg: I have a couple here. I guess, Roberto, can you just update us on this measure in Brazil to potentially force airlines to offer up a free bag? Is that just domestic? Is that domestic and international? And where is that in the legislative process right now? Roberto Alvo Milosawlewitsch: A few weeks ago, a couple of weeks ago, the lower chamber in Brazil passed a law to allow basically passengers to carry a bag without being charged and also select seat without charge on seat that have no distinction in terms of space. This, as the law was passed, was for both domestic and international flights, it affects eventually therefore, domestic and international carriers into Brazil. The law is -- needs to go to the Senate. It has not been presented at the Senate floor at this point in time, and we have no clarity if that would happen and when it will happen. So for the time being, that still has the second step. Ultimately, presidential veto is also something that the Brazilian constitution allows for laws like this. So we will see. Michael Linenberg: The reason I ask is, and you mentioned international, is that -- all right, domestic is one thing, but international, from the perspective, I know at least from the U.S., they may view it as a potential tax or additional cost that's unilateral and therefore, in violation of the bilateral. So I just wonder how they implement it internationally when international carriers have different ways in how they price their product and obviously are protected by the bilateral arrangements between Brazil and those countries. Roberto Alvo Milosawlewitsch: Yes. I completely agree with you, Michael. And of course, LATAM does not support the passing of the law, and we have together with the IATA and ABEAR in Brazil been making very clear and explaining the impact of this potential measure. This is not good clearly for the industry -- airline industry in Brazil and I think -- I believe has the potential of ending up with higher fares for passengers that fly whether into Brazil or outside or coming to Brazil. So I think that at an industry level, we are making a lot of effort in making sure that everybody understands the impact that this has on traffic and on the industry, and we're completely sure that this would not be a positive measure for us all. Michael Linenberg: Great. And then just my second on capital allocation. And this is Roberto, to you or Ricardo, how you think about it longer term? You've had a nice balance. Obviously -- the dividend is statutory. But you pay the dividend. You've been paying down debt. You've also been buying back stock. As we think about the sort of various levers going forward, should we expect to see, say, regular reductions in shares outstanding? Or was that more of just an opportunistic initiative on your part? Roberto Alvo Milosawlewitsch: Thanks, Mike. So first of all, I mean, as we think about capitalization, do remember that the development of the business and how we see and foresee opportunities for growth, is the priority. So that will always take over other potential decisions. At this point in time, we believe we have done a balanced mix of initiatives, and we remain very close to the target that we have in terms of financial policy. So we're content with what we have done during 2025. Going forward, looking forward, I think we will see -- I mean, this is a Board decision. Ultimately, the dividend payout in Chile per law is a shareholders' meeting, a shareholder decision, which will happen in April. But all options for capital allocation and growth investment remain open. And as we progress in the next few months, the company will, for sure, explain to the market how do we continue depending on our results and of course, the situation in the region and the opportunities we may see. Operator: Your next question comes from the line of Gabriel Rezende with Itau BBA. Gabriel Rezende: Congrats on these very strong results. I would like to follow up on your comments regarding the investments and the efforts you have been putting into bringing a more premium experience to the customers. And just trying to understand how relevant it has been so far in terms of your revenue growth as well as your profitability. So if you could maybe provide some color on how relevant these premium revenue are at this point? You mentioned that it has grown by 15% year-on-year. So just trying to understand how much it represents out of the total passenger revenue at this point? And how much could it represent in the future as you bring more efforts into this? Roberto Alvo Milosawlewitsch: Yes. Thanks for the message -- the question. So first, I think it's important to remark what is what we're experiencing. First, yes, premium revenue is growing faster than capacity. And a relevant portion of the improvement that we see in the RASK for Spanish-speaking domestic Brazil and to an extent, international is due to a change of mix where we have a larger proportion and portion of premium revenue coming from there. And that's both corporate and as well, let me call it, high leisure, I don't know if that's a context or the concept in English, revenue that we're seeing. Now this is a function of, in my mind, 2 things. Most importantly, it's impeccable execution and care in every interaction that we made for the customer. Secondly, it's improvements in products, as you probably saw in the presentation, the Lima Lounge, premium economy in the international and other things. But as we have, in a way, decommoditized, if you want, our product, we have focused very much on experience. And that, I think, has brought a willingness to pay that customers probably had that we were simply not exploiting because our product probably was not as good as they were expecting. And now we are, I think, very clearly seeing the impact that this has in our results. Operator: [Operator Instructions] Our next question comes from the line of Felipe Ballevona with Santander. Felipe Ballevona: Can you hear me? Roberto Alvo Milosawlewitsch: Yes, we can. Felipe Ballevona: Great. Awesome. So well, first of all, congrats on the strong results. I have a couple of questions here. First, following actually on the first question of the Q&A. What was the reason behind the growth slowdown in international traffic recorded in October? Is international traffic being dragged down by Colombia? The last couple of data points of the [ IDOCB ] that have showed a slowdown in your international, not only in the domestic as has been the case for the previous months, but also in the international front. And also my second question, if you have any news regarding a potential buyback? Roberto Alvo Milosawlewitsch: Yes. Felipe, so first of all, our international Colombia operation is very small as compared to the total international traffic. We have not seen, in particular, an impact on international travel in and out of Colombia, and that it's very unsubstantial to the size of our traffic, particularly out of Brazil and secondly, Chile and then Peru. No, I guess this is a function, as I explained in the beginning, softer demand into the U.S., particularly on leisure traffic. We believe that this is linked to people probably deciding to go elsewhere and probably spending more time within their countries and to the region. But we don't see this as a fundamental slowdown in demand. It's probably assigned to more external factors than that. So that's the main reason, okay? Having said that, do remember that we expect that our ASK growth for the whole of 2025 is going to be around 10% to 10.5% increase in capacity, which is a significant increase in capacity, and that's a reflection of a good level of demand that we see to operate this. Felipe Ballevona: That's very good color. And do you have any news regarding a potential buyback or... Roberto Alvo Milosawlewitsch: Sorry. Felipe Ballevona: You're fine. Roberto Alvo Milosawlewitsch: As I said before, at this point in time, we are close to the financial policy targets that we have. Going forward, we will see what the Board decides and do remember that the company has a range of alternatives to allocate capital and also be mindful that the first priority will always be growing the business. And after that, any excess that we believe should go back to shareholders, the company has a few tools to decide on how to do it. So rest -- at least, stay tuned, eventually. Operator: Next question comes from the line of Jens Spiess with Morgan Stanley. Jens Spiess: Congrats on the very strong results. Just wanted to know if you could provide any context on next year, how is the -- like the order book -- the booking curve looking like? And also how much do you expect to grow in terms of ASKs next year based on your fleet plan, that would be very helpful. And if you could remind us how many leases do you have expiring next year, I would very much appreciate that. Roberto Alvo Milosawlewitsch: Yes. Jens, so as we explained in the press release and Ricardo mentioned here, we expect high single-digit ASK growth, or that's our goal for 2026. We will provide more detailed guidance on 2026 in a few more weeks. You asked about -- the first part of the question, fleet. And by the way, yes, fleet. So we have on Slide 4 of the presentation, you can see 41 arrivals of A320 family and 7 E2 aircraft, plus 3 wide-bodies. We have relatively few leases. I don't have the correct figure here, the right figure, but we have the option to, of course, extend them if you want to. And our expectation at this point in time is to end up the year with a total fleet of just over 400 aircraft -- around 410. You can see that as well in the press release, okay? And -- sorry, I'm just looking at a note here they're sending me. Yes. And last thing, they just reminded me to make you feel comfortable that we have the fleet we need to grow for what we're expecting next year. So I don't expect -- we don't expect that we would need to make changes in our fleet plan for the capacity we have planned. The first part of the question you asked me, now, remember, is booking curve into the beginning of the year. Very early still, particularly on domestic markets, the percentage of booked seats is very low. But what we're seeing initially for the first couple of months of the year looks in the current trend that we have seen in third quarter and that we expect for the rest of the year. Operator: Your next question comes from the line of Ewald Stark with BICE. Ewald Stark Bittencourt: I want to know if you can provide any color behind what is driving the lower percentage of hedged fuel during this quarter? Especially I would like to focus on, is anything on booking going forward that is driving this lower percentage of hedged fuel, or maybe you're looking something different about forecast of oil? Unknown Executive: Yes, thanks for the question. If you look at the press release, it's nothing that different for what we usually do. You have about a 47% for Q4 of this year and then 33% for Q1. And of course, as soon as we approach the next quarters, we will have, of course, consistent with the policy, an increase the fuel hedge. But I wouldn't say that this is any different than what you have seen in the past. It's a very standard, I think, coverage that we have today for fuel price, nothing that really deviates from the policy. Ewald Stark Bittencourt: Financial statements say that you have a 26% hedge fuel for the next 12 months. Starting from first quarter of 2026, every quarter is below 30%. Unknown Executive: Yes. If you look at the detail on the earnings release, there's more detail here. I think at the financial, that's sort of on a weighted average of what's it going forward. But here, you have the actual percentages covered for every quarter. Again, 47% for Q4, 33% for Q1. So that's a difference you were look at the financials here. Then as this is as of November 14, 2025, it's more updated. I think, of course, the financials, they call for, I think, September 30, but this is -- you have the most updated vision of the current portfolio, as of November 14. Operator: [Operator Instructions] Your next question comes from the line of Guilherme Mendes with JPMorgan. Guilherme Mendes: Regarding the pilot strike in Chile, can you share some potential -- expected impact for the fourth quarter? I understand it should be material, but I just wanted to hear your thoughts on what could we expect from this negotiation. Roberto Alvo Milosawlewitsch: Thank you, Guilherme. At this point in time, we have no clarity of the potential impact. So we will update that if necessary at an appropriate time. Operator: There are no further questions at this time. I will now turn the call back to Ricardo Bottas for closing remarks. Ricardo Dourado: I would like to thank you all to participating in today's call and remind you that we will have our Investor Day again on December 9. So we would love to have all of you participating on that opportunity to get more information from the company and the additional updates. Thank you all, and have a good day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Good morning, ladies and gentlemen, to a conference devoted to talking about the results of the KGHM Group for the third quarter of first 9 months of 2025. We have President, Anna Sobieraj-Kozakiewicz with us; Mr. Zbigniew Bryja, Deputy Manager for Development; Piotr Krzyzewski, Deputy Board President for Industrial; and Mr. Laskowski, Deputy Board President for Investment and Investor Relations Director. The meeting is broadcasted online, and you will be able to send your questions to -- during the conference and afterwards, and all the answers are going to be published either during the conference or afterwards. And now Mr. President, over to you. Andrzej Szydlo: Welcome, ladies and gentlemen, and apologies to the investors who are watching us from the Western Hemisphere. Apologies for atypical time of the meeting. But due to the tight schedule, we needed to move the time of the conference a little bit back. Due to also the tight schedule I mentioned, I will try to make it very brief today not to get into the competence of further speakers today. So to give you the bird's eye view of our situation, I'll start with an anecdote. But yes, this slide and the trends that we have been seeing for many months about KGHM and influences its results. I think I can jokingly say that maybe LME -- copper prices on LME should be in Polish zloty because what does this slide show us? 5% copper price in terms of USD year-on-year. So 9 months -- first 9 months of 2024. The exchange rate for -- between USD and PLN is minus 4% year-on-year, which gives us the stable results, unchanged results. So the status quo is unchanged. So if the stock market would be in Polish zloty, this chart would be much more predictable. And then average copper price for 9 months were at the level of $9,556 in dollars and PLN 36,257. We see a marked increase in terms of silver price, which is a very important product of KGHM. Let me remind you, we are the second top producer of silver in the world. And here, we have 23% of increase in terms of zloty and 29% of increase in terms of dollars. Of course, that influences our results. However, this increase of copper prices in dollars happened by the end of the reporting period. And strengthening of zloty has been observed throughout 2024. Let me just remind you that at the end of last year, the dollar versus zloty was PLN 4, PLN 4.08, PLN 4.10. Next slide, please. In reference to the previous slide, we see a minus 1% in terms of adjusted EBITDA in KGHM Group. And in KGHM Polska Miedz S.A., we have minus 1%. So almost the same year-on-year, of course. And judging by the fact that the copper prices remained unchanged and in the first half of the year, we had a major renovation in Glogow smelter, so a decreased production year-on-year compared to 2024 by 20,000 tonnes of electrolytic copper. The drop of revenues by 1% can be treated as only 1%. Then adjusted EBITDA of KGHM Polska Miedz plus 5% compared to 2024, and plus 16% in terms of adjusted EBITDA in KGHM Group. And then net profit, a bit of deja vu because the first 6 months -- throughout the first 6 months we had the same results. So it's worse than first 9 months of 2024, both in terms of KGHM Polska Miedz and consolidated. Key production indicators, as I said, 20,000 tonnes of electrolytic copper less. And it is due to planned maintenance on smelter infrastructure in Glogow smelter. So in KGHM Polska Miedz S.A., that was 421,000 compared to 441,000; better results in terms of Sierra Gorda, as you can see, plus 14%, which is almost 8,000 tonnes of copper more in Sierra Gorda. And in KGHM International, a little less than 5,000 tonnes less, which is minus 11%. I think Ms. President will talk about the reasons of decreases in Robinsons mine -- in Robinson mine. So again, I'm not going to precede her part of the presentation. We see a constant trend, about 66%, 67% of payable copper in national, domestic assets comes from own concentrate, KGHM, 1/3 that would be purchased metal, either imported or scrap. This is no surprise. It's a stable level. And we do hope that this stability won't move towards lower production from own concentrate towards purchased metals. And here, we have the production results in terms of other assets. So Sierra Gorda and KGHM International. Silver production slightly higher, plus 1%. TPM production, minus 6%. And molybdenum production markedly higher, plus 95% better efficiency and better molybdenum concentration in Sierra Gorda. And to finish up, what I would like to emphasize, the results are really good, especially the EBITDA. The exchange rate differences affect the net result. And we are very happy that -- with what we've been commenting on for many years -- for many quarters, the cost discipline, because the increase of costs that we had in the previous years, systematic increase due to the cost of work or cost of energy, we have managed to stabilize it. I'm pretty sure that President Krzyzewski will talk about it. There is no increase, even decrease of C1 cost in foreign assets, international assets, domestic assets, the increase of C1 cost is minimal. And if we look at C1 without the tax, we even are dealing with a decrease. Okay. Now Professor Laskowski. Miroslaw Laskowski: Yes, let me give you a bit of details in production. In terms of production results in all the segments, ore extraction, production of copper and concentrate, production of electrolytic copper and metallic silver production, we are within or even above the budget. And the Q3 of 2025, is one of the best production quarters compared to other -- previous year's period and compared to the other -- the previous 5 quarters. So metallic silver, as you can see, plus 1.5% year-on-year. And Q3, as I said, of 2025, 330 tonnes, and this is one of the best results across these 5 quarters that we compare it with here. Electrolytic copper, in Q3, we returned to the production level of 149 tonnes. These are the amounts that we got in Q3, Q4 last year. The President Szydlo talked about the maintenance in electro refinery department in Glogow II smelter, this would contribute to the lower production results of the first 2 quarters of 2025. And in terms of production -- in terms of ore extraction, it's similar to 2024, over 23 million tonnes. And Q3, that would be a level of extraction of 6 -- 7.8 million tonnes, the highest in comparable periods. And production of copper in concentrate, it is slightly, but still higher than the compared 2024 year-on-year. So again, 304,000 tonnes, the highest level of production in compared -- with compared periods. These are really good results. And I need to emphasize that we had unfavorable production calendar. 2024 was an off year, and February had 29 days, 1 production day more for KGHM S.A. is 100 tonnes -- 100 more tonnes of extraction, more concentrate, 1,000 copper in concentrate, 1,700 electrolytic copper or 1,000 tonnes of wire copper. So this is one more day only in our production results. So -- and then one more thing about Zelazny Most reservoir. We have safe level of filling it, 6 million cubic meters of water. This is what we mean by safe. To compare in summer last year, when we got to KGHM, the filling of the reservoir of the main and southern part reached dozens of cubic meters. And one more important thing in terms of Zelazny Most, we have obtained all the agreements and permits to the level of 205. So that gives us a couple of -- or more than a dozen years of safe work in KGHM. Anna Sobieraj-Kozakiewicz: And in terms of production results of international assets, another very good year for that sector in terms of payable copper production. In Sierra Gorda for 55 assets, the level of payable copper production was 64,900 tonnes by -- it's an increase by 14% year-on-year, an increase of the production results. This result is due to the higher grade copper ore as well as higher recovery despite the lower volume of ore produced. Very good results in line with our budget assumptions. It's worth emphasizing that, thanks to the optimization activities, we have stabilized production in Sierra Gorda, and we see more predictability of production, both in terms of copper and molybdenum. In terms of molybdenum production, here, we can boast almost 100% increase of molybdenum production year-on-year. In Q3, that was over 2 million pounds. And so by the end of September, we have 4 million pounds in total. And then molybdenum production starting from May -- end of May, actually, we see a marked increase of that. And this is due to higher concentration of molybdenum in the ore as well as higher recovery despite the lower volume of ore processed. And what we need to emphasize here, molybdenum production in Q3 was one of the highest in the history of Sierra Gorda. In terms of silver and gold production, we see slight decreases, but this is due to lower volume of ore processed. In terms of gold, compared to the budget of this year, we see that we are still higher than our budget expectations, which, thanks to high prices of this metal and good TCRC premiums, contributes to a very good level of C1 below $1 per pound. Next slide, please. When it comes to the production results of KGHM International, the production of payable copper after 9 months is 40,600 of tonnes of payable copper, so a decrease of 11% compared to the reference period, and this is the result of the lower content of copper, lower volume and yield of metal. But here, we need to highlight that we are referencing to the previous year where the results were record high. And this year, the production of ore goes into liberty which has lower parameters of ore. However, we can see that we are within the budget when it comes to the production of copper of 75% of the production. When it comes to the production of the gold in Robinson, we are above the assumptions for the given year. And I was referencing to Robinson mine. Ladies and gentlemen, we can see that the production results of international assets are very good, which transfers to the good financial condition of international units. So at the end of September, we had $240 million, from which $210 million was paid by Sierra Gorda and $30 million KGHM International, and those are payments from guarantees, loans and provision of other services. So I can say that this is a very good year for international assets. Thank you very much. Zbigniew Bryja: So Professor, right now, when it comes to the advancement of development initiatives, we have similar parameters compared to the previous year for the given period. So when it comes to the development plan, it was 62%. Right now, we have 63%. So we can compare those values at the end of the year. In accordance with the conversations that we had with the departments, we can say that we've completed our tasks when it comes to investments and the execution would be at a similar level. So 96%, which is a very good result. Let me remind you, the investment plan, so PLN 3.800 billion, also the reserve that we will not be touching, will not be moving the assets. When it comes to the distribution divisions, as mentioned during the previous conferences, mining industry when it comes to the development spending is PLN 2.492 billion from which PLN 2.406 billion is for financing; leasing, PLN 86 million. So let me tell you 3/4 of 80% is the spendings for mining. When it comes to division for tasks of recreation development, it's 35%. In total, it's not what we would like to see, but this is something that we can do because the recreation and maintenance are very important components that provide us with the chance to survive, and we cannot -- those cannot suffer because of our investment plans. So we need to divide those assets so that every party is happy with the values they receive. So let's go to the next slide right now. Okay. This slide, the circular slide that we can -- this pie chart. So we can go to the segments. So PLN 2 billion -- of the execution, PLN 2.492 billion, 2.019 billion is mining. So of course, outfitting of the mines because we are mentioning that this is a type of activity that every day we are extracting every part of the deposit, let's say, so a part, we should also prepare for the excavation for every other day. So that's why maintenance of the mining region, so the construction of conveyor belts and stuff like that is important. Also, for the construction of the transformer station, those are all basic tasks. There are plenty of basic tasks that make our work in the industry mining -- in the mining industry profitable. So we need to have active mining department. Another very important item in here is replacement of machine park. And we undertaken plenty of actions in here in accordance with the regulations that are in force to rationalize the purchase of machines. And this year, right now in -- for 3 quarters, we have 201 machines, and the goal is 256 machines. And this is the approximate number because every year, depending on the needs, it's always the approximate. So 5 -- plus/minus 5 to 10 machines. And so that's why we shouldn't be mentioning any delays because this is a result of the previous year. So 256 machines. This is something that we want to purchase until the end of the year. The next item, mine dewatering. So we know the problem. So the water in Polkowice-Sieroszowice. So for example, the anti-filtration barrier needs to be prepared under the shaft SW4, so PLN 187 million. The development of the Zelazny Most tailings storage facility, and we are referencing to that because it was all related to Q3 to get all the acceptances, permits for the exploitations, for the construction, the environmental authorizations and licenses as well, so we can proceed with the construction of the storage. So we need to be consistent and go step by step, but this is also complemented by the investment in the construction of the so-called barriers surrounding the reservoir. So in order to decrease the pressure, and this is the so-called -- so those also -- some wells, special wells, relief wells in order to relieve the area. Also, the next part, so the replacement of mines and tailings divisions. So different types of modernizations of conveyors, shafts, ACs, ventilations in the hydro facility, hydrotechnical facility. So for example, pipes, the network of pipes because as you can probably recall, one of the reasons of gathering a substantial amount of water when we arrived to KGHM was exactly that. So the infrastructure of pipelines was not good. So we are removing this downside. And right now, we can maintain the safe level of water of Zelazny Most, and we can proceed. So exploration, this is not significant, so PLN 86 million. And the next year due to the entrance of Bytom Odrzanski, we will be drilling new holes in order to get some more exploration within that region, and this is in perspective. Maintenance of shafts, those are mostly -- so PLN 56 million, and this is mostly for the SW4 shaft complex. So step by step, we need to remove the salt and move the infrastructure. And the biggest part, so deposit access program, so 34% for all investment -- mining investments. And on the first slide, we have 35%. We have development. So this is, in fact, this position, this item plus exploration, of course. So it's still mining and mostly prepared for north, for shafts because a shaft without the possibility of connecting to the mining system becomes a well, and we are not constructing wells. So that's why we are very much interested in the intensification of work for Retkow, [ GG-2 Odra ] and Gaworzyce. And for the plant areas, the gallery areas that we have, for Q1, we have 32.4. So within the plan and the execution is not endangered in here, and we are right now going back to the situation from a year ago. So the excavations were underwater. And right now, they are well prepared and accessible. So we are sort of like trying to get the time back. But the excavations are not everything. And for example, we need conveyor belts for those. We need to prepare roads. Those need to be limited because, of course, we need to prepare the proper conveyor belt systems for that. And it's all when it comes to the basic inflows, and this is also a slide that shows the scope of our works for the upcoming years. And in green, we have the upcoming shafts that we will be constructing in the future. And please pay attention that in June 2023, we have the deconstruction of the shaft. We have been noticing the increase, and it all transfers into the ton of excavation of yield. So right now we have a stabilization of Glogow. So those amounts are not so relevant anymore. But when it comes to the construction of the following shafts, so GG-1 and on the surface and the equipment of the facility, we have the reinforcement prepared for the shaft and anti-weight in -- for one of the machines, so machine 1. And we are also preparing for the construction of the target cage. We are also increasing from 33 to 34 when it comes to AC of megawatts, but it will be given for the exploitation in September '29. And -- so PeBeKa 2 units from our group, so the general contractor for the surface works, so the liquidation of the temporary facilities and Bipromet, so a company that plays a role of the so-called engineer of the contract will be overseeing the progress of work. When it comes to GG-2, apart from the planning work for the municipality because we need to get the permits because as you know, in some other words, the GG-2 will be in different place as compared to what was planned before. And the works are going in accordance with the schedule when it comes to the transformator station. So the first hall is done already. So there will be no dislocation and the shaft will be there. When it comes to Gaworzyce shaft, we have everything prepared. We are preparing for the geological drills right now. So it's all when it comes to the shaft. Let's proceed to the next slide when it comes to the execution in metallurgy. So it's PLN 358 million, and the main investments and the point of interest of ours at the end of the year. There will be a renovation, Cedynia mine conducted. But in general, we are preparing for Glogow 2 that will be taking place next year. So the first contracts, purchases as well, and those are the main points of interest when it comes to metallurgy. When it comes to ZWRs, it's modernization of mills, crushers, ball mills and press fillers -- filters, sorry. And we are counting on ending the Legnica smelter as well. So the new technology without no caps, no cap -- and until the end of the next year, this installation will be accessible and available. So that's all when it comes to the investments, the basic info. Thank you very much. Andrzej Szydlo: I will digress for a moment here. Such detailed presentation by President Bryja results from 2 things. First, his passion; and secondly, the importance KGHM puts on investment and development and providing long-term efficiency of our facilities. Thank you very much, President. You can see -- we can see your enthusiasm and heart, but time is running out. So let's move on. Piotr Krzyzewski: Thank you. So let's move on to financial results. Piotr Krzyzewski. Yes, it's good to be last because I can start from a summary. So I will borrow some of the words that my predecessors used. So to summarize, the Q3, but also all 3 quarters of this year, we've observed and have been observing good production levels with good cost discipline. At the same time, we're using our opportunities. In consequence, we have good financial results and creation of additional value for shareholders and stockholders. This is what we focused on, and you can see that after these 9 months. Before we move on to the presentation, 3 key aspects I would like to emphasize. If I started from finances, I would say the first important element here, President Szydlo mentioned that is the exchange rate. We discussed a lot about tariffs. They are important. However, through the prism of our results, we are able to manage our trade activities so that tariffs do not affect us so much. But the exchange rate affects us just like all the other European economy and all the other industries in Europe. And this is a great challenge in terms of competitiveness for the industrial -- from the European industry. In Poland, it's particularly important because zloty is also very strong right now. So as the President said, on one hand, the copper prices raised by 5%, and our currency also raised by 5%. So at the end of the day, all the national assets, the price of copper in dollars then calculated -- recalculated into zloty has the same value, even though it increased in general. In terms of trade, again, the last quarter was very dynamic. On one hand, spread between LME and CME grew by PLN 3,000 almost. And then we had the 2nd of August when we finished the claim based on Paragraph 232 in the States, and the decision was made of not imposing tariffs on semi-finished products, but raw materials were tariffed -- were taxed. So again, it did not affect us so much. We were able to rechannel our goods and the flow of our goods. So thank you very much for the commercial team and our clients, our logistics department. So we -- there was a lot of time pressure there. But as you can see, the results are impressive. And energy aspects. Again, very volatile, first transactions, first PPAs in the history of the company. We purchased 110-megawatt hours, 2 big wind farms that will provide energy for us next year. To give you the bigger picture, this is 5% of the purchased energy a year. And if we look at it from the perspective of the infrastructure, it's like Legnica will be covered by 72% by wind energy. And from the perspective of ESG, it's like in Scope 2, we reduced Scope 2 by 5% next year. So energy transition is important, but I also have to emphasize the fact that this is a very efficient financial instrument, and it will contribute very well to lower cost of purchasing energy in the next year and years to come. Moving on to the presentation now. In terms of group revenues, it's 1% lower. But as President Laskowski mentioned, it has its reasons. President Szydlo, the maintenance on electro-refinition at Glogow was responsible for that. I will show you what it means. We produced less, but we managed to earn more. And this is something we focus a lot. It's not about production volume, but we want to produce as efficiently as possible in terms of finance. Operating costs, also lower by 1%. What was mentioned during our first quarter conference, we focus on cost discipline. Cost optimization program is working very well. And then if we take into -- exclude depreciation, then it's minus 2%. So this is something we will be doing in the coming periods, as you will see. So the adjusted EBITDA, as you can see, is plus 16% year-on-year. But again, keep in mind the fact that in 2024 for 9 months compared to 9 months 2023, EBITDA -- adjusted EBITDA was plus 43%. So very, very high dynamics of growth. So we're raising the bar. In terms of the contributions, as you can see, over PLN 1 billion higher EBITDA, out of which Sierra Gorda, PLN 7 million, then KGHM Polska Miedz, and KGHM International, also strong contributors as well. President also mentioned Sierra Gorda here. What we do in our domestic assets, we also do in international assets. So we focus on one hand, fulfill our cost discipline. And in Sierra Gorda, it's a low-grade mine. This is the most important aspect. So the financial lever is very important here. And we've made a lot of changes here, both personnel and managerial, minus 1 level, relations with our partners, so far T2 is also doing very well. So the team of the President also contributes in many areas to Sierra Gorda. And the cooperation between the assets is also very good, and we see very positive results of that here. Here, looking at group sales revenue, the first is, yes, the renovation in electro-refinition. You can see the sales -- changes in sales volumes is copper and this is due to the maintenance in electro-refinition. So by 16% own contribution, own concentrate and 4% only in foreign inputs. So it shows how well we are able to adjust. A great thank you for the smelter departments. So we're looking at production through the perspective of finances. And the results are really, really well. The other positions should be connected. So position 2, 3 and 4. If we combine them, we have PLN 800 million plus. So this is how efficiency and management looks like, risk management looks like. This is plus PLN 800 million. To remind you, last year, we have generated PLN 670 million plus. In this year it's over PLN 100 million. And again, our strategies work in a way that they can allow us to participate in exchange rate increase. So this contributed positively to the result. Here, we have the expenses by nature. Again, we're getting very close to the inflation levels, 4%, both in terms of capital group and similarly on domestic assets, again, again, plus 4%. The biggest value positions here are well, tax, unfortunately, plus 10%. In terms of value, I would say, cost of -- labor costs, PLN 300 million, in the capital group in Poland, PLN 200 million. Also here, we have the reserve for the pension expenses. And let's take a look at the use of materials here. It's also going -- it's still going down. And a great work -- a great achievement of the capital group here. Energy and energy factors here, the quantity decided here, the price is lower, but we used more energy, less gas. This was also a result of some of the maintenance activities on steam and gas blocks. So I would say the budget of gas plus energy keeps being optimized, and that contributes to very good results. And that -- that gives us the image we see. So C1 unit cost. In the capital group, we have minus 6%, but if we exclude the tax, the decrease is minus 13%, which is a very good result. And that here is a result of both production efficiency and cost regime. Taking a look at some particular clusters of assets in Poland, plus 2%. But again, if we exclude the tax from that, that would be minus 4%. So from that perspective, again, great cost discipline and all the factors that we could influence determine the fact that C1 go down. And then C1 is recalculated and dependent on the USD rate. So if we exclude that as well, then that would place us on the level of minus 9% almost. So this is the real value if we eliminate both the tax and the exchange rate from our analysis. Then taking a look at KGHM International, as the President mentioned already, good levels of production, both on Robinson mine and TCRC is supporting us here. Logistics costs got down mostly. All that contributed to the fact that C1 in KGHM International got down by almost 40%. And Sierra Gorda marked decrease of almost 50%. And here, TPMs are very, very important. And the facts that were already mentioned, TCRC, molybdenum, all the opportunities on the market we have used. And that is showed in C1. And then the financial results. The first column, let me just mention that it's without -- Sierra Gorda excluded. So KGHM International and domestic assets, positive contribution. And what was mentioned by President Laskowski, I would like to thank the mining departments that contributes very, very well in both assets. And as the President said, the last quarter in Poland in terms of ore extraction is very good in Poland. And we see that this tendency is being continued also now. So these perspectives are really good. Second parameter that contributed positively would be our loans and loans also sent to Sierra Gorda. And the biggest negative element, exchange rate differences. To give you the picture. These are the exchange rate differences resulting from our loans granted to Sierra Gorda. And because of that, the change of exchange rate, the result is around PLN 1 billion. And part of our debt, part of all the bank liabilities we have is also denominated in dollars that contributed positively, gave us PLN 200 million plus, but then we are still minus PLN 800 million -- minus. That influenced detrimentally the financial result of the group. Last thing, cash flow, also very important, if not the most important because cash is what matters in the end. Looking at operational cash flow, comparing it with investing activities, we are very close to financing our investing activities with operating activities. And here, I would like to point one thing to your attention. EBITDA positive -- contributes very positively. But then stock, something that will be connected with the maintenance in Glogow smelter. We have some last corrections on our budget for the next year. We don't want it to influence our cathode production. So we are calculating right now how many anodes we need to create to make it in time without this smelter to provide stability of the company. So by the end of September, in semi-finished products, you probably observed that it's over PLN 1.4 billion semi-finished product, mainly anodes that we are producing right now for stock. We have it very well calculated and it pays off, I have to assure you. It will cost us some of the current assets. But still by the end of the day, it will positively contribute to our results. So I think on the annual conference, we will show you that and this element is going to be growing. It's going to be increasing. One more thing that I would like to mention in the last days, to conclude, the cash flow. We will be emitting our bonds in December. This is a planned transaction that contributes to the strategy, that writes in the strategy of stable financing. One of the important elements apart from bank financing would be bond financing. We have the whole program written down. We already emitted bonds once. Right now, we will refinance that emission and that issuance, we want to prolong the refinancing terms, and we want to use the positive situation, market situation. So this is something that you will be shown by the end of the year for sure. Thank you very much. Operator: I would like to thank the Management Board for the presentation of results. Now feel free to ask the questions. And due to time limitations, please focus on the questions for this presentation today. Do we have any questions from the room? No questions from the room. Janusz Krystosiak: I think I have a question from the Internet, from the web. Jakub Szkopek, Erste. It's pretty long. When it comes to 2 years ago when the Management Board was taking job at KGHM, they were basing their actions on the assumed copper prices. Right now the copper prices are 11,000 increase the prices of gold and silver, increase tax on excavation. When the Management Board will test again and reverse the -- and write-offs, and to reverse the write-offs. Piotr Krzyzewski: Yes. So to answer those questions, when I remember from PLN 8,000, PLN 8,250, right now, we are close to PLN 11,000. We need to add one more parameter. Back then, the exchange rate was PLN 4.10. Right now, it's PLN 3.60. It's a very important element when it comes to the increase because it's not high when it comes to Polish zloty, but some other aspects as well because as I understand, the matter of the change when it comes to the taxation, the tax for the balance date, we'll be talking to the auditor, to the supervisor, and this is an aspect that was -- is being analyzed by us, whether there is a reason for that. So we need to have a broader look, not only through the prism of the copper price itself. Thank you very much. Janusz Krystosiak: And to continue with the questions via e-mails, I think it's for Ms. President and for Mr. President, Piotr Krzyzewski. So 2 questions from Morgan Stanley. Number one, when can we expect an update on the Sierra Gorda development? What areas are the feasibility studies conducted for? Anna Sobieraj-Kozakiewicz: So ladies and gentlemen, we are trying to have a very detailed approach when it comes to investments for Sierra Gorda. At the current stage, we are in the preparation of the feasibility study. For which, the end date is at the end of this year or the beginning of the next year. And only then we'll have the full package of information that will be the basis for our decision. And we can -- we will be able to talk about the further investment decisions. Right now, the gathering information stage is in progress. Janusz Krystosiak: Question number 2 from [ Janusz ]. What part of the turnover capital -- working capital can be reversed in Q4? Piotr Krzyzewski: So as mentioned, the key element will be the matter of the construction of the optimal state of semi-finished products. So -- and what will be the burden of the turnover capital? And we are working on some other elements as well to free up the capital as well, and this is something that you can observe too. So it's very difficult for me to provide the details when it comes to the numbers. But just to add on what Ms. President was saying, our strategy from the very beginning was for our assets to be developed, and we are focusing on what you can see right now, and we have agreed with our partners that, first, the assets need to be produced effectively, the goals, the results need to be reached, and then we can talk about the investments. The first one is executed, reached and needs to be continuously reached. But right now we can talk about the investments. And I think that this aspect is very complex because from the perspective of the fourth line, for green line, this aspect is much more complex. So we are making the drills in the concession area. So the mineralization is in the neighborhood. And the layout, the exact layout of Sierra Gorda, this is something that we are having discussions over. And we are considering all the assets that are developing in terms of operations, and we are looking at the investments from the financial efficiency. Andrzej Szydlo: So I'll just add on this. From the very beginning, so for a longer period of time right now, we have been saying that, first and foremost, the international assets should be organized and optimized, and this is something that is being done. And secondly, not so long ago we had a problem of the due date of loans, [ so Doosan ]. And this problem was resolved too. The third thing, this year, Ms. President was referring to the payment of loans. And it's good that it's happening. So this will also be contributing to -- for us to protect us from the proper levels of the pay of the loans when it comes to the exchange rates. And the last thing, the most important one, the CapEx that are pretty relevant when it comes to the off-sites and the fourth line. And to be truth with you, the burden of the investments, when it comes to the group, we all know it, and we have been signalizing it as a Management Board. The biggest challenge when it comes to the investment is at KGHM S.A. And of course, the project that can be attractive, so increase of the -- increasing the Sierra Gorda production capacity when it comes to the fourth line, provided that it's going to be effective, efficient, can go hand-in-hand with what we are planning when it comes to the finances for KGHM. So for example, if we consider this to be very efficient with relatively short return rate, we need to remember that fourth line is working negative -- in a negative manner for the so-called loans. And we are turning this capital well, it's working well. So when it comes to the answer, we need to search for the proper balance for the investments. First, we need to proceed with the ones that are the most important. So for example, the ones that we need to execute, then we need to proceed with the ones that are the most profitable ones. Anna Sobieraj-Kozakiewicz: So just to add on that answer. The last sentence from me, we would like to focus on the production to be at a foreseeable level, and this is something that we are putting a lot of effort into right now. We're talking about the Millennia CapEx, $700 million for the fourth line of Millennia. So this is something that we need to keep in mind. And what was stated before, the international assets are contributing positively to EBITDA. So right now, 46% of corrected EBITDA. But at this CapEx, we need to be sure that the return rate will be proper. Andrzej Szydlo: So just at the very end, to remember, for Sierra Gorda, the decisions are made with our partners. So we are -- we have 50% of shares, but this is not a monopoly for the decision. So we need to agree upon those and we are co-referencing and searching for proper solutions. Piotr Krzyzewski: I would like to add one more sentence when it comes to financing because ladies and gentlemen, this is something that we have been communicating and saying to you. We are trying to separate the international assets from the banking perspective. So for example, $500 million for Sierra Gorda, there's a bigger option in here to get more financing. KI is getting more financing for different assets as well with our support from the substantial part. So I would like to say that we are not defining the risk of cannibalization of CapEx because I think there is no risk as such. But when it comes to the loans and changing the philosophy not to generate additional loans, yes, this is something that we have been focusing on from the very beginning, and we have been -- so we will be providing the financing from the operational standpoint, but for respective assets. Unknown Analyst: If I can just ask President, Krzyzewski, you said that we produced less but earned more. So at KGHM, Q4 usually was the biggest sales. So what is the prediction for the future that in Q4 we produced more and we sold more and earned more. Is that possible for the future for Q4? Piotr Krzyzewski: A very good question. But I have to answer when it comes from the sort of like the back office perspective. And I think that this is actually publicly available when it comes to the European market. So the benchmark, so [indiscernible] for cathodes is 40% higher compared to this year. So I will not comment on that. But for sure, we will be optimizing that in the long perspective. The company earns as much as possible on its products, of course, depending on the availability of the items on the market. And this is something -- we also need to remember about the geopolitical world. So we are responsible for the 50% of the copper in Europe. So this technological tract is dependent on us in Europe, depending on the partners, depending on the availability of the product and raw materials, too. Janusz Krystosiak: Thank you very much. One more question from mBank from (sic) [ for ] Mr. President, Bryja. When it comes to -- what will be the profile of the expenses for new 3 shafts in time? So the CapEx will be divided in even amounts. Are there any more intensive -- intense periods? Zbigniew Bryja: When it comes to the construction of the shaft, the most expensive part is the deepening part and then equipment of the shaft when it comes to GG-1 and Retkow is of different purposes. And this is transferring to the -- providing proper equipment for the shafts because we need to remember that any additional equipment is sort of like limiting the amount of air within the shaft. When it comes to the first hole drilled in Retkow, we are just waiting for 2 more, the construction of the freezing units, so 44 holes need to be drilled the whole installation. When it comes to the deepening of the hole, we are assuming at 2028, 2029. When it comes to the shaft, it will be deepened and evened out in accordance with our schedule around 2036. And this is the most important part for Retkow, but all the remaining shafts within the period of 2 or 3 years will be going after that shaft. So that will be the concentration of the period from 2034 to 2040. So those will be the expenses in different parts of time for 3 shafts. So Retkow will be finished in 2040, the next one in 2042, and the next one in 2044. So if we are talking about the deepening as being the most expensive part, and then providing the proper infrastructure for the shaft is the 30s, but it's very difficult to indicate a specific year because we haven't started the deepening period yet. So it's a matter of a year or 2 years. So thank you very much. Janusz Krystosiak: Thank you very much. So do we have any questions from the room? If not, then it's... The last question, a bit technical, analytical from me. I will try to answer that and maybe Mr. President will -- so Adam Milewicz from PKO BP. Why in Q3 of this year, why is it the income tax CIT, corporate income tax, is so high? Piotr Krzyzewski: So last year, we've been observing the return of CIT from the previous years, and this is sort of like distorting the analytics part of this tax. And this one that we have right now is a standard level. So please consider that for -- in terms of the previous periods as well. Operator: Right. Thank you very much for attending this conference and feel invited to the next one that will be happening next year. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Eltek Ltd. 2025 Third Quarter Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Before I turn the call over to Mr. Eli Yaffe, Chief Executive Officer; and Ron Freund, Chief Financial Officer, I'd like to remind you that we'll be referring to forward-looking information in today's presentation and in the Q&A. By its nature, information contains forecasts, assumptions and expectations about future outcomes, which are subject to risks and uncertainties outlined here and discussed more fully in Eltek's public disclosure filings. These forward-looking statements are projections and reflect the current beliefs and expectations of the company. Actual events or results may differ materially. We'll also be referring to non-GAAP measures. Eltek undertakes no obligation to publicly release revisions to such forward-looking statements to reflect events or circumstances occurring subsequent to this date. I will now turn the call over to Mr. Eli Yaffe. Mr. Yaffe, please go ahead. Eli Yaffe: Thank you. Good morning. Thank you for joining us for the third quarter fiscal year 2025 earnings call. With me is Ron Freund, our Chief Financial Officer. We will begin by providing you with an overview of our business and a summary of the principal factors that affected our results during the third quarter followed by the details of our financial results. After our prepared remarks, we will be happy to answer any of your questions. By now, everyone should have access to our press release, which was released earlier today. The release will be also available on our website. We ended the third quarter with sales of $13.3 million and sales for the first 9 months totaled $38.6 million. Gross profit for the quarter was $1.6 million with breakeven operating income and net loss of $0.2 million. Our results were affected by the sharp depreciation of the U.S. dollar against the Israeli shekel, which increased our reported NIS-denominated expenses and reduced gross profits. The total impact of the currency erosion on the operation profit was approximately $800,000 compared to the third quarter of 2024. At the end of the second quarter, we updated our pricing model to reflect the currency trends. We expect to see the positive impact of the revised pricing beginning in the coming quarters as the new quotation issued after the end of Q2 2025 to take effect. Our bottom line was further impacted by approximately $0.0 million in financial expenses, primarily reflected the continued depreciation of the U.S. dollar against the shekel. This effect was mainly related to the U.S. dollar-denominated assets, including cash and cash equivalents, short-term deposits and trade receivables net of trade payables. On the operational front, we continue to experience some instability in our production processes. This is primarily related to the ramp-up of a new equipment installed over the past year as well as the integration of the newly recruited engineers and production staff, who are still gaining experience with these systems. As we have mentioned in previous calls, we are in a mindset of transitional period as we absorb significant additional capacity and technology upgrades. In addition to the foreign exchange impact, the key contributor to the operational results in this quarter were: higher depreciation expenses resulting from the purchase of new machine that become operational during this year; increased raw material consumption, driven by fluctuation of process instability during the rebound phase; higher energy costs, reflecting peak summer rates. We expect these effects to gradually be modest as the new line stabilize, process mature and the expand team reached full proficiency. From the market perspective, demand for the products remains strong, led by defense sector, which represents 63% of the quarterly sales, alongside 9% for the industrial and 6% from the medical customers. Rigid flex products accounts for 66% of the quarterly sales and 65% of the first 9 months of this year. We are seeing the entry of several new foreign competitors into our market. While this trend may limit price increase in certain segments, Eltek technological leadership, longstanding customer relationship and specification in high-end complex PCB solution position us well to maintain and, in some cases, expand our competitive advantage. Delivery time across the industry remain extended, reflecting strong global demand and constrained manufacturing capacity. Pricing dynamics also affect by segments. In low volume, high complexity production, competition remains limited, allowing for greater pricing flexibility. In mid- to high-volume production, we are seeing increased competition from new entrants. We are also facing pressure from several large Israeli customers to extend credit terms, which has increased working capital requirement and financial expenses. Encouragingly, the recent improvement in the regional security has positive effect logistics, shorter raw material delivery times now allowed us to gradually reduce inventory level and partially offset the higher working capital requirements. Our production capacity expansion program is progressing well. We're finishing the construction and the preparation of the new production hall, which will house the new coating line. Finally, our RRP project continues to progress according to plan. We are preparing to go live during 2026. The system will be replaced and integrate all company platform, including production satellite system, providing a modern data-driven work environment with greater operational visibility, control and efficiency across all business functions. I will now turn the call over to Ron Freund, our CFO, to discuss our financial results. Ron Freund: Thank you, Eli. I would like to draw your attention to the financial statements for the third quarter of 2025. During this call, I will also discuss certain non-GAAP financial measures. Eltek uses EBITDA as a non-GAAP financial performance measurement. Please see our earnings release for the definition and the reasons for its use. I will now go over the highlights of the 2025 third quarter. All numbers mentioned are in U.S. dollars. Revenues for the third quarter of 2025 were $13.3 million compared to $13.5 million in the third quarter of 2024. Gross profit for Q3 2025 totaled $1.6 million compared to $3.5 million in 2024. Operating profit for the third quarter of 2025 was $50,000 compared to $1.9 million in the same period last year. We recorded financial expenses of $0.3 million in Q3 2025 compared to financial income of $0.3 million in Q3 2024, mainly driven by changes in the shekel exchange rate relative to the U.S. dollar, net of interest earnings on our cash reserves. Net loss for Q3 2025 was $0.2 million or $0.03 per share compared to net income of $1.7 million or $0.25 per share in Q3 2024. EBITDA amounted to $0.6 million in Q3 2025 compared to $2.3 million in the prior year period. In the third quarter of 2025, we generated positive cash flow from operating activities of $2 million compared to $1.6 million in Q3 2024. As of September 30, 2025, our cash balances totaled $11.6 million. We are now ready to answer your questions. Operator: [Operator Instructions] The first question is from Mark Sharogradsky Kepler. Mark Sharogradsky: It's pretty low quarter for you. So I wanted to understand because last quarter, you said that your all operational issues was almost behind you. So how, again, you speak about the operating issues? And then when we will see the improvement of your pricing lift due to USD depreciation? Eli Yaffe: Thank you, Mark. What we report last quarter was about the end of the construction and the dust and the erosion and the wall break and everything that is already behind us as we reported. Now the instability is due to engineering and manpower, the operator itself of the machine. So it's 2 different issues. Regarding -- what was your second question? Mark Sharogradsky: Regarding when we will see the effect of price increases due to the lower USD? Eli Yaffe: Usually, it takes 6 to 9 months until quotation is mature and translated to profits. Mark Sharogradsky: I understand. And when you think you will be behind your operational difficulties? Eli Yaffe: It's tough to say because it depends upon the absorption rate of the employees and the absorption rate of the engineering forces, which is gained from day to day. It's hard to say and hard to predict when it's going to be ended. But of course, it's our goal to reduce this period to as short as possible. Mark Sharogradsky: Okay. I have one more question. You guided for '26, '27 gross margin in the middle term. When approximately we'll be able to reach those gross margins? Ron Freund: So Mark, as we reported in the past, we expect to complete the integration of the new coating line scheduled to arrive soon by the mid of 2026. And this line is expected to streamline our core manufacturing processes and expand our production capacity. We hope also to stabilize our production processes by that time and improve our gross margin. As we have noted in the past, each additional dollar of revenue contributes meaningfully to our gross profit and of course, to net income. So therefore, increasing our sales volume is expected to have a significant positive impact on this profitability. Mark Sharogradsky: Yes, because this quarter was pretty okay on the revenue. But again, I don't understand why all time we have these operational difficulties. Ron Freund: So I think that you should take a look at, first of all, the dollar influence, which is unpredicted and we cannot change it. But except for that, as Eli said before, our production processes are still not enough stable, and we suffer from increased raw material consumption. It is not that production stopped or do we have a problem with the machine. The efficiency is not as we wanted to be and slow. As we move forward, people gain more knowledge in exactly how to work with the new machines. And we hope that it will take us by the end -- by the middle of 2026 to solve also these problems. We are not satisfied with the result as you are, but that's the situation. Operator: The next question is from Ran Su. Unknown Analyst: I wanted to ask 3 questions. First of all is, can you elaborate more about the negative impact, as you said, from new competition? Second, about the price pressure you said you felt this quarter? And third question is, can we assume the negative impact from currency and foreign exchange to U.S. dollars will continue this quarter? Eli Yaffe: Regarding your first question, the competition starts from not in Israel, competition from abroad, from the Far East, but not China. And they start to penetrate more and more to the defense sector. What was your second question? Unknown Analyst: About the price pressure you said you felt this quarter? Eli Yaffe: That's, of course, limited our possibility to increase the price to any level that we would like because they are in the entry level and they put some pressure mainly in the high-volume production to be in the entry level and reduce the price. I think all in the... Unknown Analyst: Is it something sustainable? Eli Yaffe: In the volume, there is less competition right now. Unknown Analyst: Is it something you see as sustainable competition from the new entry? Eli Yaffe: The new entry is going to stay. It's going to stay. The question is, what's going to be the price level? And it's hard to forecast. But right now, the entry-level pricing is hurting us. That's on high-volume production. On low volume production, there is less competition. And we have more flexibility in the pricing, as I said before. What was your third question? Ron Freund: It was in regards to the U.S. dollar erosion. So as I hope you understand, we are getting hit by the erosion of the U.S. dollar in finance expenses, but also in the operating income. So as long as the dollar keeps to be eroded, we are going to have additional financing expenses and also our denominated expenses -- NIS-denominated expenses are going to be in a higher level. As we said previously, we hope that the new pricing will let us to cover these extra dollar expenses. But I think that you ask for the next quarter, the fourth quarter, I think that as long as the dollar is -- the exchange rate is less than it was at the end of the third quarter, then you should expect finance expenses and also operating income to be affected by it. Unknown Analyst: So as I understand, we should feel like compounded pressure both from the top line because of the new entry and from the foreign exchange in the fourth quarter? Eli Yaffe: The new entry guys will give us a limit to the new quotations that we can send. Operator: There are no further questions at this time. Before I ask Mr. Yaffe to go ahead with his closing statement, I would like to remind the participants that a replay of this call will be available tomorrow on our website. Eli Yaffe: In closing, I would like to thank the company employees and the management teams to their hard work during this time and to thank our customers and our investors for their continued support. Operator: This concludes the Eltek Ltd. 2025 Third Quarter Financial Results Conference Call. Thank you for your participation. You may go ahead and disconnect.
Chris Hunt: Good morning. Thank you for joining this webcast covering ICG's results for the 6 months ended 30th of September 2025 and the strategic partnership with Amundi we've announced this morning. The slides are available on our website, along with both accompanying announcements. As a reminder, unless otherwise stated, all financial information discussed today is based on alternative performance measures, which exclude the consolidation of some of our fund structures required under IFRS. This morning, I'm joined by our CEO and CIO, Benoit Durteste; our CFO, David Bicarregui. They will give an overview of our performance during the period, and we will then take questions. You can submit these through the webcast message function or by telephone, details of which are on the portal. And with that, I'll hand over to Benoit. Benoît Durteste: Thank you, Chris, and good morning, everyone. It's a pleasure to reflect today on the progress ICG has made during the first half. And this is an even more exciting than usual results announcement. We're not only reporting impressive H1 results, we're also announcing a major distribution agreement and strategic partnership with Amundi. From a group perspective, our growing breadth and scale is continuing to drive visible benefits for our clients and shareholders. And our deliberate tilt over the last decade towards higher returning strategies is clearly bearing fruit. Our track record and reputation for an unwavering focus on risk and investment performance are key factors in our recent success. Institutional clients are increasingly scrutinizing performance and in particular, realized performance or DPI. In a market where a number of players' pursuit of AUM and volume is leading to some unreasonable risk taking in our view, predominantly but not exclusively in credit and private debt, our clients recognize that we remain at heart investors squarely focused on consistency of performance through cycles. All of which means that we see substantial opportunity to grow our existing strategies and our institutional client base. This will drive significant organic growth in the coming years. And we are also well-positioned strategically and financially to continue to innovate new strategies and products where we see opportunities. These strong growth prospects are further enhanced by the announcement today of our strategic partnership with Amundi, which is a meaningful step forward in the development of our wealth strategy and will help shape appropriate product offerings for that market. It's an incredibly exciting opportunity, potentially very additive to both parties, and I'll speak about it further later in this presentation. I'll start with a few highlights on the last 6 months. Fundraising of $9 billion surpassed our expectations coming into the year with Europe IX raising more quickly than we had anticipated and Infrastructure II having a very strong run into its final close, achieving hard cap at more than double the size of the previous vintage. Our secondaries franchise continues to excite us in an area we have built entirely organically and which is now our third largest asset class by AUM. We are in the market with the subsequent vintage of LP secondaries, so Vintage 2. We are launching a European evergreen secondaries vehicle, and we are also launching a mid-market version of our strategic equity fund, which is our GP-led secondaries strategy in order to further cement our global leadership position in that asset class. On the financial side, fee-earning AUM now stands at $84 billion, up 6% in the last 6 months on a constant currency basis, and we have substantial dry powder to continue our investment programs. Management fees for the 6 months were up 16% at GBP 334 million, while expenses are being well managed and demonstrating operating leverage. At a group level, our operating cash flow was up meaningfully at GBP 450 million. So in short, we're enjoying significant growth and cash flow generation. Putting that into a longer-term perspective, you could see how our business has evolved rapidly over the last 5 years and the financial impact that's having. On the left-hand side of this chart, we set out our growth by asset class, which has been diversified, but really driven by higher return strategies in structured capital, secondaries and real assets equity. Private debt in comparison has grown but at a slower pace and remains an area where we continue to be highly disciplined, prioritizing long-term performance over aggressive deployment. We have attracted substantial capital into these higher returning strategies, leading to almost doubling our fee-earning AUM over the past 5 years, entirely organically. And we have grown our weighted average management fee rate from 85 bps at March '21 to just under 1% today. As a result, we are larger, more diversified, more resilient and more profitable. A key theme of our strategy has been scaling our higher return strategies, specifically private equity secondaries, structured capital, real assets equity, that's real estate equity and infrastructure equity. This takes time, but the successful execution of this is clearly visible in the middle of this page. In March '21, these strategies represented 1/3 of our fee earning. Since then, they have grown by 3.2x. That's compared to doubling of fee-earning AUM at the group level. And today, they represent 57% of our fee-earning AUM. From a purely financial perspective, this has been the key driver of the growth in our management fee rate I just spoke about and of course, our operating margin. But the broader rationale is arguably more important. These strategies are inherently more complex with higher barriers to entry. And this allows us to differentiate, generate outperformance for our clients, demonstrate our investment excellence, and in the process, charge higher management fees on committed capital as well as generate over time, more performance fees. These strategies are also harder to commoditize, which will help protect management fee rates and is reinforcing ICG's brand equity with our clients. These are not volume vanilla products. And what is particularly exciting is that all of these funds or strategies have significant room to grow organically for years to come. As a result of this shift, the future value of our fee-earning AUM is materially higher than 5 years ago. It is earning higher fees and is more relevant to clients' wider markets portfolios. Today, we are proud of our European heritage and of our global reach. We have presence in 18 countries, attract capital from clients around the world and invest in all the largest geographies for private markets, including 1/4 of our deployed capital being invested in the U.S. From a product perspective, we have a number of leading positions in structured capital, GP-led secondaries, European direct lending as well as an exciting array of earlier-stage strategies, including in real assets. And this has not been by chance. It is anchored in some very basic beliefs about what it takes to succeed in the long term, which is one, a focus on investment performance, always; two, a waterfront of strategies that provides something different to clients; and three, a platform that is scalable to be relevant to the largest investors globally. I'm proud that today's results show how we are continuing to build that at ICG, how they help underline the success of that execution to date and how they help demonstrate the opportunity ahead of us. Turning now to the current environment. Fundraising across the wider market remains challenging. Global private capital raised this year is likely to be lower for the fourth consecutive year. And to quote a recent Bain Report, fundraising has never been so hard. The statistic that there is about $3 of demand for every dollar likely to be raised is remarkable. It has existential consequences for many managers, some of whom simply are not and will not be able to raise capital. We're already seeing some firms effectively going into runoff or shrinking substantially, and I expect to see more of that. This will incidentally create some opportunities at the very least for hiring new talent, and we are already benefiting. One of the consequences of this is that LPs are increasingly selective with many looking to diversify towards Europe and focusing both on certain strategies such as structured capital and real assets as well as being very focused on investment performance and DPI in particular. For firms such as ICG who have a range of products and we're able to raise capital, doing so is reinforcing our position with clients. Stepping back, the real takeaway from this is that although the market has been challenging for a few years now, for firms such as ICG who have a range of products and are successfully raising capital, this is a very good time to differentiate, gain market share, and it is allowing us to set the firm up for even greater long-term success and growth. I mentioned the strong focus of investors on realized performance or DPI, how quickly you return cash to clients. And here is a slide that I showed at our Investor Days in London, New York, and Tokyo this past September and October. And this slide really resonates with our clients. To have this number of strategies as top decile or at the very least top quartile from a DPI perspective is highly unusual. It's very impressive. It's a track record we're incredibly proud of and a quantitative validation of how our focus on investment performance is delivering for clients. Importantly, this is not by chance, right? It is not new to ICG. Our investors know this well. Those of you who have known us for some time will have heard me speak about it many times in the past, how discipline in realizing assets, derisking funds is key to consistency of performance over a long period. Discipline, a consistent focus on risk return performance, not just return. This is what makes a real difference with investors today. The result of all this is that we are continuing to see strong client demand, and that's reflected in our fundraising. We have raised $9 billion in the last 6 months, which is particularly noteworthy, not just because we have surpassed our expectations, but because as we have previously indicated, we are this year and next at a structurally lower point of our own fundraising cycle. Europe IX continues to raise well with $2.8 billion raised in the period and the fund now standing at $7.5 billion, so well on the way to meeting or exceeding the previous vintage, which was just over EUR 8 billion. Infrastructure II held its final close in the period at EUR 3.15 billion. So that's over 2x larger than the prior vintage. It has been a standout success. We had a re-up rate of 85% and attracted capital from a wide range of clients. 1/4 of the capital came from North America, reinforcing the growing strength of our brand there and the appeal of high-performing European products for certain North American investors. From a shareholder perspective, we reduced the balance sheet commitment from EUR 200 million in Fund I to EUR 150 million in Fund II, so moving from 13% of total fund size in the first vintage to under 5% in Fund II. More broadly, over the past 15 months, we have had five funds close at or above their hard cap and not just flagship scaling strategies as well. In any environment, that would be remarkable. But in this environment, with fundraising under such pressure, as we discussed earlier, that's a real achievement. All of which comes from and supports our client growth. We have continued to attract new institutional clients during the period. Since we announced our fundraising guidance in May '24, 43% of new LPs came from North America and 9% from the Middle East. And looking ahead, we will continue to broaden our reach through innovating new products and diversifying our sources of capital, always with an absolute focus on developing products that are appropriate to those channels where we can deliver attractive investment returns. Today, as part of that continued broadening of our client base, we're excited to announce a long-term strategic partnership with Amundi. This partnership significantly accelerates our ambitions in the private wealth space and combines ICG's investment expertise and track record of product innovation with Amundi's global distribution capabilities and structuring know-how. We have historically taken a much more cautious approach to the wealth channel than most of our peers. While there is obviously an enormous potential for capital raising, we have also seen how it can shift investment priorities of GPs towards a more volume-driven approach to the detriment of performance, which is precisely at the opposite end of the spectrum of what ICG is about and what we want to be, uncompromisingly focused on investment quality, risk and performance. And this is where the partnership with Amundi is incredibly exciting. We have found that we have a like-minded approach to investment to delivering the best results for end clients. We share key values, and this is essential for the success of our collaboration. Our common goal is to be an important force in shaping access for individuals to private markets investments while maintaining an unflinching focus on generating attractive risk-adjusted investment performance. We see a significant long-term opportunity to develop a range of products appropriate to the wealth market and believe that together, we have the right complementary capabilities to execute on that. I'm convinced that by working together in this way, we can create significant value for our clients and respective shareholders. As you're well aware, Amundi is the largest European traditional asset manager, one of the largest globally with some EUR 2.3 trillion of assets under management and access through its distribution network to over 200 million individual clients. It is the ideal partner for ICG in this transaction, bringing scale, access, and expertise that are highly complementary to our own existing capabilities. Looking at the two components of the partnership in a bit more detail. The commercial agreement, which covers distribution and product structuring will have an initial term of 10 years. Our immediate focus will be on developing and launching two evergreen funds, one for LP secondaries and one for private credit. Globally, outside of the U.S. and Australia and New Zealand, Amundi will be the exclusive distributor in the wealth channel for ICG's Evergreen and certain other products with ICG being Amundi's exclusive provider for those products to Amundi's distribution business. Over time, we will seek to develop more products and strategies that are well suited to the wealth market. And this is a very exciting long-term prospect of this partnership. We see a real opportunity to shape the market to ensure that products are appropriate and deliver what investors are looking for, structured in ways that enable returns to be generated over the long term. To align our interest and reinforce the long-term nature of this partnership, Amundi will acquire a 9.9% economic interest in ICG in a way that is non-dilutive to our current shareholders. The structure is set out in brief here and in more detail in the appendix and in the RNS we released this morning on this partnership. As part of this, Amundi will be entitled to nominate one non-executive director to our Board, and I look forward to working with that individual and the wider Amundi team to make a success of what I consider to be a meaningful alignment of two leading European-based firms to help shape the wealth market for private investments in the years to come. So looking ahead, future -- our future growth has a number of encouraging tailwinds. Our waterfront of strategies is significantly exposed to some of the fastest-growing asset classes in private markets, providing a constructive backdrop for our strategies. I'm very positive on the long-term opportunity ahead of us and our ability to execute on that, a trajectory that is reinforced by the results we are reporting today and the partnership with Amundi. And with that, I'll pass over to David. David Christopher Bicarregui: Thank you, Benoit, and thank you all for joining us today. I'm pleased to report that we have published strong results this morning with growth across key financial metrics. Fee-earning AUM grew 6% on a constant currency basis, ending at $84 billion. It has grown every year in the last 5 years in dollar terms and over that period has increased at an annualized rate of 14%. In the past 6 months, we have raised $5 billion for strategies that charge fees on committed capital and deployed $6 billion in strategies that charge fees on invested capital. We also have $19 billion of AUM not yet earning fees, largely in private debt, which has the potential to generate approximately GBP 130 million in additional management fees. Our visible recurring management fees remain the key driver of revenue growth. As of the 30th of September, management fees reached GBP 334 million for the last 6 months, an increase of 16% year-on-year. As we discussed in October, performance fees are becoming an important contributor to our revenue mix, reflecting the growth of higher return strategies that Benoit described earlier. In the period, we recognized total performance fee revenue of GBP 98 million, including the one-off impact of GBP 72 million due to the change in recognition method. We received GBP 62 million of cash from performance fees, up from GBP 40 million in H1 of last year. Our total balance sheet returns for the period were GBP 112 million, up 57% compared to the previous year. And preempting the inevitable question on first brands, the impact was minimal, less than GBP 5 million, and the assumptions on our CLO valuations provided by third-party valuation agent are broadly unchanged compared to March. Stepping back, the revenue profile in the period underlines the trajectory that Benoit spoke about earlier. These results reinforce our continued successful long-term execution. Over 70 -- sorry, 60% of our revenue in the last 6 months is from management fees, which have grown at an annualized rate of 19% over the last 5 years and over 80% of our revenue was fee-based. As we continue to scale up and scale out our investment strategies, I expect this trajectory to continue with the balance sheet remaining an important asset to enable this growth while becoming less meaningful to our revenue mix. Group operating expenses have grown 1% year-on-year. Over the medium term, we would still expect these to grow at mid-to-high single-digit percentage. We are clearly seeing operating leverage come through as our funds get bigger and we raise subsequent vintages, benefiting from the compounding fees on fees profile. This is a theme we've spoken about a lot in recent years, and it's very visible when you compare the 11% annualized growth rate of OpEx over the last 5 years to the 19% annualized growth of our management fees. The combination of management fee centricity and operating leverage is even clearer if we look at it on an FRE or fee-related earnings basis. This metric takes our management fees and deduct all of our group cash costs. The precise methodology is in the appendix. There's no entirely consistent market approach, and the team can certainly talk you through this offline. But over the last 5 years, our FRE has grown at an annualized rate of 26%. What this serves to highlight is the visible growing earnings power of our management fees, the operating leverage we achieve as management fees grow, and given its cash is a highly valuable earnings stream for shareholders. Over time, FRE growth is an important indicator of how successfully we are executing our strategy of scaling up and scaling out. The Amundi partnership we announced this morning is a great example of scaling up our credit and LP secondaries platforms. Management fees generated as a result of this partnership should have strong flow-through to FRE given our high embedded operating leverage. And over the long term, our combined ability to develop new products that are suitable for the wealth market will help to further diversify and grow our management fee base, which again should be visible in our FRE growth, all of which underlines why we think this might be an interesting metric to look at. And of course, we welcome feedback. As well as our higher earnings, our growing fee income is generating increased amounts of cash, and our balance sheet is structurally cash flow positive. In the last 6 months, we generated operating cash flow of GBP 450 million, up 143% year-on-year, driven by higher management fees, realized performance fees, and total balance sheet returns. We ended the period with total available liquidity of GBP 1.3 billion, net debt of GBP 401 million and net gearing of 0.15x. During the period, Fitch upgraded our credit outlook to BBB+ Stable, and we are now rated BBB+ Stable from both agencies. NAV per share as of the 30th of September was GBP 9. We have ample liquidity and financial resources, which we can use through market cycles to pursue our strategic ambitions of reinforcing our relevance to clients by scaling new strategies and new products. The current market backdrop is a great opportunity to reinforce our position as a global leader, and we're doing just that. So drawing this all together, our ability to deliver breadth at scale is having clear benefits, which are visible in our financial results. Since September 2020, ICG has generated over GBP 2.3 billion of cumulative earnings with nearly half returned to shareholders via dividends. We have a clear and disciplined approach to capital allocation, focused on generating recurring and sustainable growth for shareholders. And I look forward to discussing these results and our outlook with many of you in the coming weeks. So with that, I'll hand it back to Chris for questions. Chris Hunt: Thank you, David. Thank you, Benoit. [Operator Instructions] And we have a few questions already on the phone, so should we go first of talk to Oliver Carruthers from Goldman Sachs. Oliver Carruthers: I've got two questions from my side. The first one on the Amundi partnership. When you think of the scope and depth of private markets for Amundi's 200 million wealth clients, what level of penetration do you think this partnership could be taken to, particularly, Benoit, given your comments on product appropriateness, but also the direction of travel the industry seems to be -- it looks like it could be kind of moving towards in terms of potentially combining public and private investment content into a single product. So that's the first question. And then the second question, maybe a 2-part question on private equity secondaries. Obviously, an asset class with a lot of growth. First part, could you talk to the mid-market strategic equity launch in terms of both the timing and the scale of the opportunity? I think this probably has a potential to be pretty accretive to FMC economics because its investment capabilities and deal flow that lines up with your existing strategic equity franchise. And then second part of the secondaries question, your comment, Benoit, on industry consolidation in fundraising and the potential for some GPs to go into runoff, LPs will obviously be quite sensitive to this. So how do you think about that comment as you're growing your LP secondaries franchise? And do you expect this will create investment opportunities on the LP-led secondary side? Benoît Durteste: Thank you. I think that was three questions, practically put into two. So -- and the first one is quite broad. So your first question on the scope and depth of the wealth market for private assets. I mean, it's early days. And so no one really knows. But in theory, the potential is considerable because up until now, wealth and more broadly retail clients have not had access or very limited access to private assets, which has created a very meaningful divergence between the portfolio composition of institutional investors and that of the wealth channel or more broadly the retail channel. So the potential there is undeniably very significant. But as you rightly pointed out, you mentioned the potential need to structure a product by potentially mixing some private and public. I think a lot of the growth will be dependent on our ability to structure those products, which is why I'm so excited by the partnership with Amundi because they're thinking exactly along the same lines. I think by and large, today, what the market has done is try to chew on illiquid private products into the channel. And there are significant limitations and perhaps risk as well to that. But it can be structured in the right way where you're providing some liquidity without losing some of the key advantages of private asset investments. And so that's what we're -- that's clearly what we're going to be focusing on. In a sense, we're going -- initially, we're going for the relatively low-hanging fruits, the easy wins in areas that are structurally more liquid or offer more liquidity, such as credit and LP secondaries, but there's much more that can be done and that we've already started discussing. So I'm very excited. But I mean, you know us, we never want to overpromise and these things can also take time. But if I think long term, I think this partnership has enormous potential. And for us, it's really important that we're not just part and benefiting from this shift because there are many ways in which we could have benefited from this long-term shift, but that with and we'll be able to actually influence it to actually craft or steer the market in a direction that we think is the most sensible. On -- your second question was on key secondaries, and we don't talk about potential size of fund. But yes, you're right that this should be very accretive because it's not very difficult for us to roll out a mid-market version of our strategic equity strategy, very much in the way we've done that for European corporate. But having said that, I always a word of caution, even though we are the global leader in the space, and we benefit from a very strong track record, it's still, in a way, a first-time fund. So we always have to be a bit cautious about the speed of fund raise for that. But yes, medium term makes a lot of sense. It should be very accretive. And for us, strategically, it matters a lot as well because it enables us to essentially occupy the whole space in terms of size and so that we keep maintaining the first-mover advantage that we have in that asset class. So yes, very promising. And finally, you squeezed in a third question on some of the shakeup in the industry with some players will clearly struggle or already struggling. Will that generate opportunities in the secondary space? Perhaps. I'd be somewhat cautious there because if you think about it, we operate in two segments of secondaries, one which is the more traditional LP secondaries. And typically there, you want to be looking at strong managers with strong assets. Can you develop a more distressed play as part of that? Perhaps, but I'd be wary of that. I mean if a manager has underperformed and gone into one-off, there's probably a good reason. So not so sure for LP secondaries. And likewise, in GP-led secondaries, you clearly want to be backing only very strong assets with very strong managers. So if there are opportunities that come out of some pain in the market, I think it might be a more direct investment potentially in our structured capital strategy. This is where potentially we could see some opportunities. And depending on how broad-based this phenomenon is, we might revise our recovery fund, which we dust off every time there is a bit of a market crisis, but we're not there yet, right? So this is maybe in the future. Chris Hunt: Thank you, Benoit. Shall we keep on the phones for now? And should we go to David McCann at Deutsche Bank, please. David McCann: Congratulations on the results from the deal. So sticking with the theme largely of Amundi for the first questions really. Amundi on their own slides are talking about 5% EPS accretion linked to the ICG deal from 2028. Is this purely just their share of the profit from their anticipated 9.9% ownership? Or can we read anything into that in terms of the partnership ambition with that? And also sort of linked to Amundi, noting that this is excluding the U.S., would you be looking for a similar partnership in the U.S.? Or how would you -- how do you anticipate to address the U.S. market? That's really the first question. Second question is a more technical one probably for David. Can you just help us understand the CLO dividend income is obviously very strong in the period, much more so than normal, but that contrasted obviously with some mark-to-market credit losses. So how could we kind of square the circle? Why are we seeing sort of good news on one side, but then sort of bad news on the other side of what is obviously a related piece. Chris Hunt: Thanks, David. That was again three questions under the pretending to two. I'll take the first one very briefly. No, you can read nothing into that number. That's a question for Amundi, but there's nothing you can read into that figure as regards to partnership at all. Benoit, do you want to pick up the sort of the wealth strategy in the U.S.? And then David, maybe you talk about the CLO question. Benoît Durteste: Sure. So a couple of things. One is even though we've generally been more cautious. We haven't been standing still. So we have been addressing the wealth channel in the U.S. for a number of years. You may remember that we were an early investor in case, which is a distributor. We still are, by the way, and that's been -- in itself, that's been a very, very good investment for us. But obviously, that's one way for us to deploy, particularly in secondaries, both GP-led and LP secondaries. But also, I mean, we've had relationship with a number of banks, of large banks distributing a number of our strategies in the U.S. and that is -- that will continue. I think the exclusion here reflects the fact that this is not a geography where we has significant presence. So yes, so that's the answer on the U.S. part of our strategy. David Christopher Bicarregui: Yes. And then, David, on your more technical question about CLOs, I mean, as you said, I think you have to look at this in the round. The total returns across all the asset classes on the balance sheet were positive, including the credit business stripe. As you say, dividends are actually a little higher than where they've run historically, that tells you more about the performance of the underlying funds being good and performing in line with expectations, hence, the generation of dividends. And we'll continue to mark the book in accordance with the third-party model. And there's nothing certainly in the data that gives us any broader concern at this point. Chris Hunt: Hubert Lam from BofA. Hubert Lam: I've got two of them. Firstly, on Amundi again. So how much could the Amundi partnership bring you think in terms of flows over the next few years? How should we think about the opportunity here? And when do you think we should start seeing meaningful benefits of flows starting to come through? First question. The second question is on, again, the balance sheet and net investment return. Again, it was pretty -- it was at 5%, I think, for the period. So when do you think we can start getting back to the high single-digit or low double-digit growth, which you're targeting over the midterm? Benoît Durteste: Well, I'll take the first question, but I think that's the same question as from Oliver at Goldman Sachs. So I'll make the same answer. I think the long-term potential is very significant, but I'm always cautious about overpromising in the short to medium term, particularly since in a number of areas, essentially, we're going to be creating the market. So there are some -- I mentioned there are some easy wins. And yes, we'll benefit from that. But the biggest surprise is what we'll do in the longer term. That's where you'll see some very significant or potentially see some very significant impact. But yes, I think that's -- at this point, that's all that we can say. David Christopher Bicarregui: On the balance sheet, Hubert, I mean you know this, but the balance sheet is an outcome of how the funds are performing over periods of time. And again, we don't manage the balance sheet is an independent exercise. It's going to be what the funds perform over time. If you look at the NIR over time, 5 years about 9% now and total balance sheet return is about 11%. So clearly, over the medium to long term, it's reflecting fund performance as you'd expect it to. Benoît Durteste: And I think it might be worth reminding everyone, David, that -- I mean, as you said, I mean, the performance of the balance sheet has to be looked at over the long run because over short periods of time, what's mostly influencing it is our pace of deployment because increased deployment because we keep the valuations flat for -- typically for a year, when we increase deployment, it has a short-term negative impact on the -- or perceived negative impact on the balance sheet performance. But obviously, that evens out over time. Chris Hunt: [indiscernible]. We've had a quick question online around the status of fundraising for real estate equity. So as a reminder, we raised just over $1 billion in real estate equity in Europe during this half. But Benoit, do you have any broader observations or comments around the real estate fundraising market at the moment? Benoît Durteste: Sure. I mean it's been incredibly difficult these past few years because that is -- it is one of the asset class where the pain has been taken. Valuations have come down. And so LPs have suffered some significant losses or at least underperformance in their existing real estate portfolio. So generally, that creates a pause in the fundraising appetite. For us, that creates an opportunity because we did not have legacy real estate equity strategies or funds, which means that we don't have to be firefighting on older vintages. Essentially, we're starting from a clean slate. So it's a very -- our timing is very good in terms of establishing ourselves in the market. It's creating a window. But obviously, it takes a bit longer because the fundraising has been -- environment has been more difficult. It's starting to reopen. I think I mentioned during the presentation that some of the asset classes strategies that LPs are looking at right now, that includes real assets. There's increased appetite for real assets and real estate. And so we're starting to see that. So it takes time and it's early days for us, but I'm very confident that for us, the real estate asset class is going to be an area of significant growth in the next 5 to 10 years, and we're taking the cycle exactly at the right time. So we're starting to progressively see that it's speeding up. We're raising more. But I think fast forward 5 years from now, I mean, you'll see that our real estate franchise will be a bigger part of what we do. Chris Hunt: Thank you. One question online around the economics of the emerging partnership and how that will work. I'll take that. It will obviously vary by product. We obviously don't disclose terms of individual funds and strategies. But as David alluded to or mentioned earlier, we think over the medium term, this is a very exciting opportunity, and there's a lot of value to be created for all of the stakeholders involved in this, including the end clients. That's how we're thinking about the economics of that partnership. Another on the partnership, and this may be one for you, David. Look, the structure looks clear, the end outcome, 9.9% economic share, 4.9% voting rights looks clear. Would you mind just running through briefly the steps of how we're getting there from today to by the 30th of June 2027, please? David Christopher Bicarregui: Yes, sure, happy to do that. So actually, the best page, if you have it to refer to is probably Page 25 of our presentation, where we lay out a little bit more detail on the steps that will take place. As you can see, as we've discussed, through the steps, Amundi is going to acquire 9.9% economic stake. I think the key point here, though, is that there's no dilution to ICG shareholders and Amundi is going to be paying for all the voting and nonvoting shares using their own cash reserves. The first step is for Amundi to acquire 4.64% ordinary shares in the secondary market. Then ICG has agreed to repurchase 5.26% of ordinary shares to be canceled with Amundi then subscribing to non-voting shares that basically have the same economic ownership. So they happen in tranches over time. And as Chris mentioned, it will be completed by the 30th of June 2027. So ownership stakes, share buyback activities will be disclosed in the normal way as all of these steps progress. But I also want to emphasize the structure ensures no dilution to existing shareholders and no change to the ICG balance sheet P&L or cash position. Chris Hunt: Okay. Thank you. A couple of another question on the phone from Angeliki at JPMorgan. Angeliki Bairaktari: Just a couple from myself as well, please. First of all, with regards to the Amundi partnership, can you explain the rationale behind the exclusivity in distribution? We know that many of your peers in private markets actually distribute at the moment in Europe across several different distributors. So are you not limiting yourselves a little bit by just going exclusive with only one partner? And second question on Europe IX. You mentioned that the fund is now at EUR 7.5 billion. Can it exceed the EUR 10 billion target? And can you give us an update on when we should be expecting the final close of this strategy, please? Benoît Durteste: Yes. Thanks, Angeliki. On the I mean, the important part is that this is mutually exclusive, right? So are we limiting ourselves? Yes, you could say we could also distribute through others, but Amundi is by far the largest asset manager, traditional asset manager in Europe, and they're going exclusive with us as well. So I mean, it's -- I think it's incredibly valuable for both parties and should enable us to accelerate our position in the wealth market in a way that we would not have been able to had we gone through just normal commercial agreements on a fund-by-fund basis. And by the way, I mean, the way typically these agreements work is those distributors always ask for exclusivity at least for a period of time when they're distributing a fund. So even if you're going fund by fund, you're still giving exclusivity to JPMorgan, for instance. You've been distributing some of our products for a period of time. So no, I think it's only on that point, I think it's only positive. I think it's very, very positive for both parties. On Europe IX, we don't comment on ultimate target. The one thing I would say is that, as always, we're not obsessed with size. I mean, for me, the key criteria on the size of a fund is ability to deploy it well in a 3- to 4-year period. And so as always, when we're sizing a fund, we take a look at the speed of deployment in the first year or the first 18 months of the life of the fund, so in parallel with the fundraising effort, and we're right in the middle of that right now. And depending on that and our own assessment of the market, we either push the size up or we remain more cautious. It's too early to say. Chris Hunt: And just to build on -- Angeliki, just to build on the first question. This isn't going exclusive with one person, right? Amundi have got relation, a network of more than 600 distributors and over 200 million individual clients. So this doesn't limit us. This opens up a significant opportunity. So I think definitely, we're thinking about it in that way. We -- there's another question now online around private credit and how we see the deployment pipeline in private credit. Benoit, do you want to make some comments around that market as a whole? Benoît Durteste: Sure. So broad context is that the buyout market remains slow, certainly slower than it was 4, 5 years ago. And that has an impact on the credit and the private debt market because these markets are essentially aligned with the private equity buyout space. So that's for the general environment. Within that, it's obviously easier if you benefit from a long history and a large existing portfolio because those existing portfolios generate their own financing opportunities. If I look at where we deploy quite significantly in Europe, we deployed EUR 3 billion, EUR 4 billion per year. Actually, this year, we're on track to be at the upper end. But a significant portion of that, call it, 2/3 to 3/4 is by taking advantage of mining our existing portfolio. So that has a very big impact on our ability to deploy and deploy well. So that's a competitive advantage, if you will. Overall, it's -- we are cautious in this market environment. I mean, there are areas of the market where we feel it's overheating. It's probably more pronounced in the U.S. than Europe, but Europe is not immune. So we remain cautious in the way we deploy and particularly, we remain very cautious on the quality of legal protections and legal documentations where we're seeing in some instances, things that we find are unsatisfactory and so we stay with. Chris Hunt: And then two final questions online, both of which sound like possibly for you, David. First of all, FMC costs were flat year-on-year in H1. How should we -- can you just remind us, and I think you've mentioned this before, how should we think about growth in the medium term and cost base as a whole? David Christopher Bicarregui: Yes. So as I said in my sort of prepared remarks, I wouldn't read too much into a 1% change in cost base. There has been, as we mentioned in the presentation, there are quite a lot of cost discipline in the system. Our headcount is actually slightly down period-on-period. As we continue to scale the business up, we've made a lot of investments in the past that we've spoken about and actually, a lot of that is now in place. So that's a good and positive backdrop. But I'd still guide people to cost base increase more between the 5% and 10% range at this point because there'll be some seasonal effects anyway when you're looking at this over the 6 months. So that's how I'd guide for the future. Chris Hunt: And then what looks like the final question. FRE seems new disclosure this half. Could you sort of talk through a bit about the rationale and why now? David Christopher Bicarregui: Yes. So FRE, as I said, I think, is another way to think about our business. It's obviously one that many others use to compare asset management companies and their growth potential. So actually having a comparable metric, I think, in the public domain is helpful. Many analysts obviously do it already. So here's us explaining how we think about it internally. It brings together also a number of the themes I touched on in the presentation. If you think about our management fee growth of 19% over 5 years, cost growth of 11% over 5 years, it comes together into a very powerful FRE outcome. It's grown 26%. So for now and for the future, this is probably another one that we should watch and monitor, and we'll continue to evolve our financial disclosure as always, and I appreciate the feedback. Chris Hunt: Absolutely. And just for clarity, that's 26% annualized FRE growth over the last 5 years. With that, we have come to the end of the questions. So thanks ever so much for joining us, and this concludes the presentation. Thank you.
Operator: Thank you for joining us for Navios Maritime Partners' Third Quarter 2025 Earnings Conference Call. With us today from the company are Chairman and CEO, Mr. Angeliki Frangou, Chief Operating Officer, Mr. Efstratios Desypris, Chief Financial Officer; Mrs. Erifili Tsironi and Chief Trading Officer, Mr. Vincent Vandewalle. As a reminder, this conference call is being webcast. To access the webcast, please go to the Investors section of Navios Partners' website at www.navios-mlp.com. You'll see the webcasting link in the middle of the page and a copy of the presentation referenced in today's earnings conference call will also be found there. Now I will review the safe harbor statement. This conference call could contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 about Navios Partners. Forward-looking statements are statements that are not historical facts. Such forward-looking statements are based upon the current beliefs and expectations of Navios Partners' management and are subject to risks and uncertainties and which could cause actual results to differ materially from the forward-looking statements. Such risks are not fully discussed in Navios Partners' filings with the Securities and Exchange Commission. The information set forth herein should be understood in light of such risks. Navios Partners does not assume any obligation to update the information contained in this conference call. The agenda for today's call is as follows: First, Ms. Frangou will offer opening remarks. Next, Mr. Desypris will give an overview of Navios Partners' segment data. Next, Mr. Tsironi will give an overview of Navios Partners' financial results. Then Mr. Vandewalle, who will provide an industry overview. And lastly, we'll open the call to take questions. Now I turn the call over to Navios Partners' Chairwoman and CEO; Ms. Angeliki Frangou. Angeliki? Angeliki Frangou: Good morning, and thank you all for joining us on today's call. I am pleased with the results for the third quarter and first 9 months of 2025 and which reported revenue of $346.9 million and $978.6 million, respectively. We also reported EBITDA of $193.9 million and $519.8 million respectively, and net income of $56.3 million and $168 million, respectively. Earnings per common unit was $1.90 for the quarter and $5.52 for the 9-month period. For the past 5 years, it seems as if we have been addressing constant change, not operating environment driven by geopolitical and other brands. Yet, we have remained laser-focused on our business, modernizing our fleet. As you can see on Slide 3, our fleet has an average age of 9.7 years compared to an industry average of 13.5 years for our 3 segments. Our reinvestment program puts us in a fortunate position of having a fleet that is almost 30% [indiscernible] than the have an almost half when you look at our tanker fleet. Angeliki Frangou: Please turn to Slide 4. Navios is a leading maritime transportation company owning operating a charter and modern fleet of 171 vessels across 3 segments, and 15 asset classes. As it split about 1/3 in its category by vessel number and vessel values. Vessel values are $6.3 billion in gross value and $3.8 billion net equity. We also enjoy a low net LTV of 34.5% and have $412 million available liquidity and strong credit rating of Ba3 by Moody's and BB by S&P. Angeliki Frangou: Please turn to Slide 5. We believe that diversification is strength when embedded in the culture of risk management, we have a business providing significant optionality in our decision-making process. For example, on charter-in, if we are able to secure long-term charters that provide a reasonable return on our investment will limit our exposure to short-term waiting for sector opportunity to return. We approached the allocation of capital similarly, patiently observing the market for either opportunistic purchases or acquisitions that can be held by long-term charters with the credit was counterparty. These activities are accompanied by deleverage cost we maintain strong balance sheet and a target net F&D of 20%, 25%. I would offer that all this works because of our strong lease management case. We are continuously monitoring and assessing as we evaluate and structure our transactions with risk management professionals who are equal partners in all our activities. We also obtained robust insurance coverage for liability and losses. And we have implemented many tools to manage operational risk and crew training. Angeliki Frangou: Please turn to Slide 6. Our gross LTV was 40.6% at the end of the third quarter. Net LTV was 34.5% in and we aim to continue to drive net LTV lows. We added $745 million of long-term contracted revenue during the quarter and net revenue backlog is $3.7 billion. Currently, virtually all of the fleet is covered for the fourth quarter of 2025. Angeliki Frangou: Please turn to Slide 7. I would like to focus on prospects for 2026, which are shaping up nicely. We have covered 58% of our days induced a cash breakeven to $894 per day for the remaining remaining 23,387 open and index days. You can see the breakdown of each segment on the right part of the slide, 92% of our container base and 7 [indiscernible] of our tankers are fixed we drive bank base, representing most of our market exposure by a number of days. Angeliki Frangou: Please turn to Slide 8. A few weeks ago, we took the opportunity to offer a $300 million senior secured bond in the Norwegian market. We drive one at par at a coupon of 7.75% with a -- the profit and usually paid $292.3 million of floating rate debt and the bias for issuance fees and for general corporate purposes. This transaction has no impact on our leverage rate because the profits are used to refinance existing debt, but we believe opportunistic financing reduces interest rate risk by replacing floating rate debt with a fixed interest rate. It also releases collateral, and we have around $1.2 billion of debt-free vessels. Pro forma for this transaction, we have 41% of our debt fixed at an average interest rate of 6.2%. [indiscernible] won't also introduce us to the Norwegian market, providing a targeted source of financing. Angeliki Frangou: Please turn to Slide 9 where we outlined a term capital program. As you can see here to date, we have returned $42.2 million under the dividend and unit repurchase program. Today, we purchased almost 5% of the number of units outstanding determined as of the date we launched the program. We have $37.3 million purchase power enable. These purchases have resulted in $4.6 per unit value creation, assuming the annual estimate of NAV of around $138 per unit. Angeliki Frangou: Please turn to Slide 10. Navios is a proven platform that has been executing its strategy in a challenging environment. I refer to the many uncertainties when we started this discussion, certainly the geopolitical risk, regional conflict change in global tariff regime and evolving trend patterns and unprecedented in recent history. We have remained focused on over the past 4 years. We have built [indiscernible] with an EBITDA run rate of about $750 million while increasing our book of contracted revenue to $3.7 billion and a vessel value to $6.3 billion. At the same time, we have decreased a net NPV by 33% to 34.5%. We have more to do, but we believe that this proven platform containing a divisive freight fleet with a risk management is the way to do it. I now turn the presentation over to Mr. Efstratios Desypris, Navios Partners Chief Operating Officer. Despyris? Efstratios Desypris: Thank you, Angeliki, and good morning all. Please turn to Slide 11, which details operating free cash flow potential for Q4 of 2025 and 2026. For Q4 2025, we fixed 88% of our available days at a net average rate of $24,871 per day. Contracted revenue exceeds estimated total cash operating costs by about $86 million, and we have 1,594 remaining open or index-linked base that should provide additional cash flow. For 2026, we have fixed about 58% of available days at a net average rate of $27,088 per day, generating about $860 million in revenue. This almost covers our ultimate cash operating cost for the year, resulting in a breakeven of $894 per day on our 23,387 open index dates. . Efstratios Desypris: Please turn to Slide 12. We are constantly renewing our fleet in order to maintain a young profile. We reduced our carbon footprint by modernizing our fleet, benefiting from new technologies and advanced environmental trading features. During Q3, we acquired 4 new building, 8,800 TEU contracts for a total $460 million. These vessels have already been chartered out for a fair period of over 5 years at a net rate of $44,145 per day, generating revenues of $336 million. We have 25 new building vessels delivered into our fleet since 2028, representing $1.9 billion of investment. Based on our financing, both are billing process, we have about $250 million of equity remaining to be paid. In container ships, we have 8 vessels to be delivered with a total acquisition price of about $0.9 billion. We have mitigated the residual value risk with long-term credit working charges expected to generate about $0.6 billion in revenue over a 5-year average stated duration. In tankers, we have 17 vessels to be delivered for a total price of $1 billion. We chartered out 11 of these vessels for an average period of 5 years, expected to generate aggregate contracted revenue of about $0.6 million. We also continue to opportunistically sell all the vessels. In 2025, we sold 12 rent vessels, 6 dry bulk, 3 targets and 3 containerships with average age of over 18 years for a total of about $275 million. Efstratios Desypris: Moving to Slide 13. We continue to maintain a strong backlog of contracted revenue that creates visibility in an uncertain environment. During the quarter, we added $745 million of contracted revenue. $595 million from containerships, including the $336 million on the 4 new building vessels, $138 million on tankers and $12 million on dry bulk vessels. Total contracted revenue amounts to $3.7 billion, $1.3 billion relates to our tankers fleet, $0.2 billion relates to our dry bulk fleet, and $2.2 billion relates to our containerships. Charters are extending through 2037 with diverse group of quality counterparties. I now pass the call to Erifili Tsironi, our CFO, who will take you through the financial highlights. Eri?. Erifili Tsironi: Thank you, Stratos, and good morning all. I will briefly review our unaudited financial results for the third quarter and the 9 months ended September 30, 2025. The financial information is included in the press release and is summarized in the slide presentation available on the company's website. Moving to the earnings highlights on Slide 14. Total revenue for the third quarter of 2025 increased by 1.8% to $347 million compared to $341 million for the same period in 2024 due to higher fleet combined time charter equivalent rate despite lower available days. Our combined TCE rate for the third quarter of 2025 increased by 2.4% to $24,167 per day, while our available days decreased by 0.8% to 13,443 days compared to Q3 '24. In terms of sector performance, a CCLA for our combined container and tanker fleet increased by 3.7% and 1.7% to 31,832 and 26,238 per day, respectively. In contrast, our TC rate for our dry bulk fleet was 3.5% lower at $17,976 per day. for the third quarter and first 9 months of '25 was adjusted as explained in the slide footnote. Adjusted EBITDA for Q3 25 decreased by $1.4 million to $194 million compared to Q3 20 million. The decrease was primarily driven by a $4.5 million decrease in other income net, mainly due to the decrease in foreign exchange gains and a $3.2 million increase in vessel operating expenses mainly due to a $3.4 million increase in OpEx pay and a $2 million increase in general and administrative expenses in accordance with our administrative services agreement. The above decrease was partially mitigated by a $6.1 million increase in time charter and voyage revenues and a $2.2 million decrease in time charter and voyage expenses, mainly due to the decrease in banker expenses as a result of lower freight volume base in the third quarter of '25. Our average combined OpEx rate was 6,798 per day, only $10 more than Q3 '24. Adjusted net income for Q3 '25 was $84 million compared to $97 million in Q3 '24. The decrease is mainly due to a $9 million increase in depreciation and amortization and a $2 million increase in interest expense and finance cost net. Adjusted earnings and earnings per common unit for the third quarter '25 were $2.8 and $1.9, respectively. For the first 9 months of '25, revenue decreased by $33 million to $979 million, adjusted EBITDA decreased by $29 million to $520 million and adjusted net income decreased by $67 million to $196 million compared to the same period in 2024. Our combined PCE rates the first 9 months of '25 was [indiscernible] per day. In terms of performance, the TCE rate for our containers increased by 3.1% to $31,213 per day compared to the same period in '24. In contrast, our dry bulk and tanker TCE rates were approximately 9.2% and 3.5% lower, respectively. TCE rates for our dry bulk vessels stood at $15,369 per day and for our tankers $26,290 per day for the first 9 months of '25. Our average combined OpEx rate was 2.4% higher compared to the first 9 months of '24 at $6,161 per day, also as a result of the change in the composition of our fleet. Adjusted earnings -- per common unit for the first 9 months of 25 was $6.6 and $5.60, respectively. Erifili Tsironi: Turning to Slide 15. I will briefly discus some key balance sheet data. As of September 30 '25, cash and cash equivalents, including restricted cash and time deposits in excess of 3 months were $382 million. During the first 9 months of '25, we paid $178 million underwriting building program, net of debt. We concluded the sale of 6 vessels for $75 million, adding about $49 million cash after debt repayment. Long-term borrowings yielding the current portion, net of deferred fees, increased to $0.2 billion following the delivery of 6 vessels during the first 9 months of the year. Net debt to book capitalization improved to 33.8%. Erifili Tsironi: We Slide 16 highlights our debt profile. With our recent $300 million senior unsecured bonds, we further diversified our funding new sources in addition to bank debt and leasing structures. The bond has a fixed interest rate of 7.75% and pro forma for the bond 41% of our debt is fixed at an average rate of 6.2%. We also have mitigated part of the increased interest rate cost by reducing the average margin for our floating debt and bareboat liabilities for -- in water fleet to 1.8%. I would like to note that the average margins for the completed undrawn floating rate debt of our new building program is 1.5%. Our maturity profile is targeted with no significant volumes due in any single year until 2030 when the bond matures. In Q3 '25, Navios Partners' completed 3 facilities for a total amount of $246 million, 1 additional facility of $68 million was signed in October. Efstratios Desypris: I now pass the call to Vincent Vandewalle, Navios Partners', Chief Trading Officer, to take you through the investor section. Vincent? Vincent Vandewalle: Thank you, Eri. Please turn to Slide 18. Geopolitical developments continue to shift worldwhile trading routes caused by the tariff war, restricted Suez Canal passages, Ukraine war and Port fee impositions by U.S. and China. Announced tariffs and the implementation pauses in effect, are not expected to have a significant effect on tankers and dry bulk trade apart from steel. Tariff impacts on grain and container ships are expected to reduce following the recent trade deal between U.S. and China. The Red Sea entrance leading to the Suez Canal continues to operate at restricted transit levels increasing -- for most vessel types. Since the Gaza ceasefire, Houthis announced that they have ceased the tax on shipping, but there were several piracy incidents of Somalia at the beginning of November. Ukraine war is shift in trading patterns, limiting grain exports out of the Black Sea and benefiting exports out of Brazil and U.S.A. Russian crude and product exports are adjusting to tie to sanctions on Russian oil producers, Rosneft and LUKOIL, elevating rates for non-sanctioned vessels. USTR port fees on Chinese vessels and similar Chinese port fee on U.S. vessels have been put on hold for the year, while the 2 countries negotiate a more permanent solution. Vincent Vandewalle: Please turn to Slide 20 for the review of the dry bulk industry. Demand growth for dry bulk has been relatively stable over the last 25 years at about 4% average annual ton mile growth. The current order book stands at about 11% of the total fee and will remain low due to high newbuilding prices, uncertainty about new fuel regulations and availability and general market outlook. The fleet is aging quickly with 39% of the vessels 15 years old, and with the older vessels for [indiscernible] on order, supply should be constrained over the medium term. Vincent Vandewalle: Please turn to Slide 21. The main driver of dry bulk demand will be strong Atlantic basin item growth over the next several years with new projects in Guinea and Brazil. The biggest new project is Simadou in Guinea starting now, which will ramp up to 120 million by '27. Also, Vale in Brazil has 3 new projects totaling 50 million tons expected to start exporting by the end of '26. The total of 170 million tonnes are all long-haul ton mile trades, creating demand for an additional 234 capes -- with the current order book of only 173 capes, the further tightening of supply and demand is expected over the next few years, benefiting rates. Overall, the dry bulk market looks positive based on steady long-term demand growth and a constrained supply of vessels. Vincent Vandewalle: Please turn to Slide 23 for the review of the tank industry. Reviewing the supply side as in dry, we see a relatively low tanker order book of 6% with 51% of the fleet already over 15 years old, rising quickly in the next few years. With all vessels exceeding the order book and the [indiscernible] offering first deliveries in late '28, supply is set to be tight for several years. Vincent Vandewalle: Please turn to Slide 24. The U.S. Office of Foreign Asset Control, OFAC, the EU and the U.K. continue to sanction Russian, Venezuelan and Iranian oil revenue and the ship is delivering their crude and products. These tighter sanctions have 2 main effects. Sanctioned oil volumes from these 3 countries have more difficulty finding willing buyers, raising demand for compliant barrels and nonsanctioned vessels to carry that all. Secondly, with 785 tankers now sanctioned, the fleet has already seen a significant reduction of about 14% of total capacity. The tanker market also looks positive over the medium term based on a low order book and aging fleet and a reduced fleet due to sanctions. Vincent Vandewalle: Please turn now to Slide 26 for a review of the container industry. After the COVID pandemics, containership ordering focusing mainly on the biggest units with fleet expansion in large vessels set to continue from high levels this year into next. Currently, 80% of the order book is for bigger ships with 9,000 TEU capacity or greater, and only 70% of the order book is for 2,000 to 9,000 TEU capacity where Navios is most active. Smaller segments of the fleets are well positioned to take advantage of shifting trading patterns. As shown on the right hand graph, growth non-Mainland trades, far exceeds the traditional mainly trades to the U.S. and Europe due to tariffs and higher growth in developing economies. It involving the Southern Hemisphere, mostly served by smaller-sized vessels are expected to see continued help growth as this trade shift continues. Overall, Navios Fleet is well positioned within the container market and continues to benefit from long-term employment with our high-quality charters. This concludes our presentation. I would now like to turn the call over to Angeliki Frangou for her final comments. Angeliki? Angeliki Frangou: Thank you, Vincent. And this concludes our formal presentation, and we'll open the questions. Operator: [Operator Instructions] We'll take our first question from Omar Nokta with Jefferies. Omar Nokta: Slide 11 has a really nice summary that shows and by '26, how you have 42% of your available days open to say the spot market or index rates yet given how much target could you have, you only need $894 to breakeven on those ships. Clearly, a great place to be, gives you plenty of flexibility. With that, how does that shape your interest in fixing your vessel kind of going forward from here, at least into '26. Do you keep what's available now to the spot market to keep those free and open given you've got that, say, flexibility? Or do you want to continue to put these ships on contract and fix the coverage out. . Angeliki Frangou: Let me take you through, and I think throughout the -- like to add a couple of things. One of the things we are doing is we use maximum flexibility. So you will see that the [indiscernible] the vessels that are open for 2026 is the majority is dry bulk. And basically, those vessels are on -- a lot of them are index-based with the premiums. So those we are actually very comfortable on how we are reaching that quarter forward, depending on what we have shown on the market. This is a very nice position wherein majority of our container vessels have been fixed. And basically, that is the area where we see a lot of upside. We also are seeing for the first time after quite some period that we see a fixed period for dry bulk that we haven't seen for some time. And with that, I'd like Efstratios to give you a little bit of feedback. Efstratios Desypris: Just asking to what [indiscernible] in 2026, we said [indiscernible] the container ship is covered. So there is an exposure in that sector, which is a sector that has -- people are discussing a lot of uncertainty. The majority, I would say, more than 50% of the tankers of CapEx. So the majority of the exposures in detail. You see that with the contracted revenue, we only have $20 million to cover for the next year, and we have 23,400 days approximately with basically [indiscernible]. We have seen a very big strength of the dry bulk sector recently, with rates across all the sectors of dry bulk being very healthy. And we have seen also the forward [indiscernible] being very healthy. So the exposure that we have today provides a very good opportunity for us, and it shows how much of the upside you can have on this portfolio. Omar Nokta: And just a follow-up. Clearly, we're seeing a pretty healthy containership chartering market and you've been able to take advantage of really good, strong, I would say, liner interest to build ships against contracts. And you've been fairly active in recent years in that 5,000 to maybe, say, 9,000 TEU range. There's been some focus recently or at least it feels like there's been a shift where liners are starting to look more at the feeder size kind of the net sub 2000 TEU size range. You don't have a big focus on that in today's -- with your fleet today. But is that something you see an opportunity in? Are there opportunities to build these smaller ships against contracts? Or is that more just talk at this point? Angeliki Frangou: There is always projects, and I will tell you that we see a lot of activity in every side. What you have to be very good is counterparty and duration because newbuilding prices remain at the levels we have seen. So it's very important, the [indiscernible], you mentioned into a value of the risk factor. But we see an increased activity. I mean it is quite interesting that there is a focus. We see a lot of inefficiency in the market, the trading patterns and it seems that the smaller vessels give more flexibility to the lines in order to achieve their this may -- this ever changing trading patterns. It's almost on a yearly basis, you will have new -- I mean, we saw China and United States having a 1-year agreement. So -- and basically, we see that it will happen in a lot of other areas. So you need to be alert and smaller vessels gives us flexibility. Omar Nokta: That makes sense. Okay. And maybe just finally, you had the successful $300 million bond issue last month, unsecured good rate. How are you thinking about those proceeds in terms of how you plan to employ them? Angeliki Frangou: As you said, I mean, addressing the market, [indiscernible] market is quite important. It hasn't been open for quite a time, I think, almost 10 years for the Maritime section. So what we achieved with that is we fixed our interest rate at 41% at 6.2%. We got a diversification in sources but also very importantly, we've got $1.2 billion of debt reverses. Basically, our net debt is the same before and after. And that gives us about $1 billion of debt-free vessels that gives us the most important thing that we get optionality. And this is a nice -- but we will see how to -- you have 1.2% of your vessels of 6.6%, basically that are... Omar Nokta: Very good. I'll turn it over. . Operator: And now I will turn the call back to Angeliki for final comments. Angeliki Frangou: Thank you, this concludes Q3 results. . Operator: Thank you, ladies and gentlemen. This does conclude today's program. Thank you for your participation, and you may disconnect at any time.
Joanna: Morning. My name is Joanna, and I will be your conference operator today. At this time, I would like to welcome everyone to Energizer Holdings, Inc.'s Fourth Quarter and Fiscal Year 2025 Conference Call. After the speakers' remarks, there will be a question and answer session. As a reminder, this call is being recorded. I would now like to turn the conference over to Jonathan P. Poldan, Vice President Treasurer and Investor Relations. You may begin your conference. Good morning. Jonathan P. Poldan: And welcome to Energizer Holdings, Inc.'s Fourth Quarter and Fiscal 2025 Conference Call. Joining me today are Mark S. LaVigne, President Chief Executive Officer, and John J. Drabik, Executive Vice President and Chief Financial Officer. In just a moment, Mark will share a few opening comments, and then we will take your questions. A replay of this call will be available on the Investor Relations section of our energizerholdings.com. In addition, please note that our earnings release, prepared remarks, and a slide deck are also posted on our website. During the call, we will make forward-looking statements about the company's future business and financial performance, among other matters, and are subject to risks and uncertainties. These statements are based on management's current expectations, which may cause actual results to differ materially from these statements. We do not undertake to update these forward-looking statements. Other factors that could cause actual results to differ materially from these statements are included in reports we file with the SEC. We also refer in our presentation to non-GAAP financial measures. A reconciliation of non-GAAP financial measures to comparable GAAP measures is shown in our press release issued earlier today, which is available on our website. Information concerning our categories and estimated market share discussed in this call relates to the categories where we compete and is based on Energizer Holdings, Inc.'s internal data, data from industry analysis, and estimates we believe to be reasonable. The battery category information includes both brick-and-mortar and e-commerce retail sales. Unless otherwise noted, all comments regarding the quarter and year pertain to Energizer Holdings, Inc.'s fiscal year, and all comparisons to the prior year relate to the same period in fiscal 2024. With that, I would like to turn the call over to Mark. Good morning, and thanks for joining us today. We delivered strong earnings in fiscal 2025 by staying agile and focused in the face of a disruptive environment and shifting trade policies. We moved quickly, capitalized on opportunities, and executed with discipline to achieve outstanding results. Our decisive actions to reshape our operational footprint, combined with strategic investments and strong execution, have established an elevated earnings base positioning Energizer Holdings, Inc. to win as we close 2025 and move into 2026. Let me share a few highlights that define our progress in 2025. We grew net sales in a challenging environment driven by significant growth in e-commerce, international expansion, and meaningful innovation in auto care. We made necessary changes to our network and executed targeted pricing to mitigate tariffs and preserve margins. Project Momentum achieved over $200 million in savings to date. As we announced this morning, we have extended it into a 2.3% to nearly $3 billion. Adjusted earnings per share increased 6% to $3.52, supported by organic growth, disciplined cost management, and manufacturing production credits, enabled by our investments in U.S. production. We also returned $177 million to shareholders in fiscal 2025 through dividends and share repurchases, reducing our outstanding shares by roughly 5%. The macro environment continues to evolve. Tariffs have increased our costs, consumer demand softened late in the year, and supply chains required rapid rebalancing. We responded quickly, realigning our manufacturing footprint to minimize tariff exposure and executing pricing actions to protect margins. These steps were not easy, but they were necessary and created a solid foundation for future growth. As we enter fiscal 2026, we know the first quarter will reflect a challenging sales comparison, transitional tariff-related costs, and moderating consumer sentiment. But beyond Q1, the benefits of our actions, including network realignment, accelerated APS integration, and Project Momentum savings, will build. And we expect these initiatives to drive double-digit adjusted earnings per share growth over the final three quarters of the year. In short, fiscal 2025 was a year of resilience, agility, and progress. We faced a challenging environment head-on, made bold decisions, and strengthened our foundation for the future. I want to thank our colleagues, suppliers, and customers for the collaboration that helped us overcome these headwinds and deliver. This year-over-year growth reflects disciplined execution and the strength of the partnerships built on trust and shared commitment to solving challenges together. Thank you for your continued confidence in Energizer Holdings, Inc. Together, we are ready to compete, win, and grow. With that, let's open the call for questions. Joanna: Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. We do ask that you limit yourself to one question and one follow-up. You may certainly re-queue if you have additional questions. The first question comes from Peter K. Grom at UBS. Please go ahead. Peter K. Grom: Great. Thank you. Good morning, guys. Hope you are doing well. So I wanted to pick up on that last point and just on the phasing end of the year, specifically just kind of the ramp needed to hit the full year following a challenging first quarter. So can you maybe just speak to the degree of confidence or maybe the visibility you have on the implied ramp just given how difficult and dynamic the operating environment continues to be? And then just related, I mean, what is the level of flexibility or cushion you have kind of embedded in the outlook at this stage? Thanks. Mark S. LaVigne: Thanks, Peter. Look. Let me start. I am going to hand it to John, and then I will maybe finish and kind of how we were how we approach providing outlook for the year. I mean, look, we acknowledge that we expected a stronger Q4. But I still think we want to take a step back at least as we get started. And really reflect and be proud of what the organization achieved in '25. And to do that, I think you have to go back to we launched Project Momentum three years ago, and the objective behind that was to restore gross margins, enhance free cash flow, strengthen the balance sheet. We have delivered across all of those metrics over that three-year period with $200 million in savings. We have recovered 350 basis points in gross margin. And momentum has enhanced free cash flow played a part in enhancing free cash flow. We delivered more than $740 million in free cash flow that time period. The result over that time period is nearly 5% EPS growth on average over that time period. And over 3% EBITDA growth. As we started momentum, we understood the need for supply chain agility. And in FY 2025, put that to an early test. And with the tariff and trade policies, we needed to adjust fast, and we did. We overhauled our network. We preserved margins in '25, and this will get Peter to your question. Essentially do that in '26 once you incorporate kind of the APS margin integration that we are going to go through. So there is a transitional period which we saw in Q4, you are going to see in Q1, but the pieces are in place and the plans are mostly complete. For the ramp that John's going to describe. So it has really been a remarkable transformation and, as you said, in a really disruptive volatile environment over the last three years, which ended in a sort of six-month sprint. Where we needed to rebalance our network to make sure that we took into account new trade policy. So as we exit that sprint at the '1, we are really set up from Q2, three, and four to get back to more historical wells performance from a financial perspective. So, John, you want to talk to Durant? Yeah. Yeah. Let me start with the first quarter and then we can kind of go into what we see Q2 through Q4. So on the top line in the first quarter, we are getting we have got both that storm comp and the shift in display timing that we called out. Both of those we view as one-time or timing in nature. And then kind of as you look at the rest of it, the category overall we are calling down for the quarter about 300 to 400 basis points, but we see that improving as we kind of go throughout the quarter and then into the rest of the year. So our outlook for the full year on the category you know, kind of contemplates back to, you know, roughly flat in the back half. And then we are going to lean into other areas for growth that have been driving us for the last year or two. And that is really international markets, as well as transitioning that APS business into our Energizer Holdings, Inc. branded portfolio. That is a big driver in the back half of our fiscal year. And then we are going to continue to see growth in e-commerce and some of the innovation that we expect to launch this year. So when you put those in place, I think we are going to get past the first quarter and start to see better growth in the back half of the year, really starting in Q2. Then gross margin is also getting impacted in the first quarter. So as we get past the first quarter, we should benefit getting past the transitional operational inefficiencies that we really generated over the summer and into fall. As we kind of moved our supply chain around to offset the tariffs. Then we will further benefit from transitioning the APS business to our branded portfolio think that will help us on the margin side. So as we look at kind of Q2 through Q4, I think low single-digit top-line growth normalized gross margins with some of the momentum savings should allow us to generate that EPS growth of kind of low double digits. And then Peter, to wrap up on your final question, how do we approach '26? I mean, look. There is a lot of stuff we cannot control. And so what we tried to do is be really clear-eyed about what we are seeing in the environment today. We did not rely on anything necessarily changing except for the progression that we will talk about it from a category standpoint. But we basically said the battery category is going to be down roughly 2% for the year. Trade policies are going to stay in place. Things that are macro factors, we basically took them as they are and enrolled them forward. And so if you look at our EPS call, there is growth at the higher end of our range. And as we were contemplating it, we felt it was appropriate to build in some downside just so that we can absorb some shocks to the system, which we have seen over the last couple of years and not having to change our outlook. So we were a little bit conservative in terms of the EPS growth. We did not build in anything out of our control to cooperate over the year. And so I think we feel like it is an appropriate call and one that we can achieve as we go through the year. Yeah. That is going to inevitably change along the way. Peter K. Grom: Got it. That makes a ton of sense. I will pass it on. Thank you so much. Mark S. LaVigne: Thanks, Peter. Joanna: Thank you. The next question comes from Lauren Rae Lieberman at Barclays. Please go ahead. Lauren Rae Lieberman: Great. Thanks so much. Good morning. Just wanted to take a step back maybe and like, a bigger picture look. You know, consumer slowdown softening, just wanted to get your perspective on maybe what has changed since we last spoke, you know, both August and then you were at our conference sort of what has changed, what has not, and how are you thinking about the consumer and cost environment from here? Thanks. Mark S. LaVigne: Laura, I think so if I start with gross margin, we saw the landscape changing we had plans in place. So I would say the gross margin projection largely as we expected. We knew Q4 was going to get hit by some of these costs. We expected them to continue into '26. They have, but we have also executed the plans to make them go away as we exit Q1. Would say the biggest changes we have just seen is softening consumer sentiment. You have heard it from a lot of our peers. You have certainly seen it in some of the macro data that as we progress from August September and into October, you really did see softening consumer sentiment. And we are seeing it in the category data for batteries. We are seeing some of the more recent time periods, some improvement in that. But we did not feel like it was appropriate to rely on that continuing to ramp up long term. We are still very bullish on the battery category. We expect it to be kind of a low single-digit grower, but we are going through a disruptive time. And I think it is important to call that from a consumer standpoint as we have. Gross margin, we have controlled what we can. Overall for the year, again, I just mentioned in Peter's question, down 2% is our call for value. But we are going to be able to offset that with some growth in other areas of our business. Lauren Rae Lieberman: Okay. Okay. Great. So just Oh, one other thing, Laura. I am sorry to cut you off. I just as we progress through the year, this is one thing I failed to mention. So the category we are assuming is down 3% to 4% in the first quarter. As we progress, we are expecting stabilization in the category. We are going to start to lap some softer comps that you saw in '25. I failed to mention that. Lauren Rae Lieberman: Okay. Okay. And that is a big part of the driver of the sort of projected improvement in trends after January. Or the comp? Mark S. LaVigne: Yes. Okay. Okay. Great. Alright. I will pass it on. Thank you so much. Mark S. LaVigne: Thanks, Lauren. Joanna: Thank you. The next question comes from Robert Edward Ottenstein at Evercore. Please go ahead. Robert Edward Ottenstein: Great. Thank you very much. I was just wondering if you could talk a little bit about channel dynamics. Obviously, weaker consumer, how is the consumer responding in this environment in terms of which channels they are going to and shopping? What is going on at Amazon with you and the category, and how are you responding to these different changes in consumer dynamics and shopping patterns? Thank you. Mark S. LaVigne: Good morning, Robert. Consumers are certainly seeking value. They are cautious. They are very comfortable shifting channels to be able to find the value of the product and to meet their needs. That manifests itself in a lot of different ways. You have got brands, pack sizes, as you mentioned channel, Certainly e-commerce is a big part of that channel shift that is going on. It has been a point of emphasis for us to make sure that we win in e-commerce. We had a really strong Q4 in e-commerce. We saw our e-commerce business grow more than 35%. In Q4, we saw it grow 25% for the year. As we look ahead to '26, we expect 15% growth off of that. As we go into '26. So it has been an area we have invested in. It is an area where we are winning. And, you know, over that time period, if I look in the aggregate, over a four, thirteen, and fifty-two week period, we are winning with consumers because Energizer Holdings, Inc. is gaining share over each of those time periods. So as consumers are seeking value, our broad portfolio of premium and value brands are there to meet consumers where they are. And we are capturing we are capturing consumers. Robert Edward Ottenstein: Great. Thank you very much. Mark S. LaVigne: Thanks, Robert. Joanna: Thank you. The next question comes from Andrea Faria Teixeira at JPMorgan. Please go ahead. Shovana Chowdhury: Hi, this is Shovana Chowdhury on for Andrea. Thanks for taking our question. Your management commentary, one of the levers to restore gross margin includes optimizing US manufacturing to a your future benefits from production credits. As such, can you give us a sense of magnitude of incremental benefit from your prior estimate of $35 to $40 million annually? Mark S. LaVigne: Yeah. We are continuing to invest in domestic production to drive those credits. We think there could be upside $15 million to $20 million over what we have generated to date per year. So that is where we will continue to focus and try to recoup those. Shovana Chowdhury: Thank you. And quickly, just to clarify, and is that something that would be a benefit starting fiscal 2026 possibly, or is that, like, more of fiscal 2027 onwards story if you get this incremental benefit? Mark S. LaVigne: Yeah. That is we anticipate that in '26. So kind of that level. Shovana Chowdhury: Sounds good. Thanks. I will pass it on. Joanna: Thank you. The next question comes from William Michael Reuter at Bank of America. Please go ahead. William Michael Reuter: Hi. My first question on the weakness that you are seeing in consumers, do you expect that they are just reducing the amount of product that they have in their pantries, or do you believe that their behavior is changing such that they are utilizing devices that need batteries less? I am just kind of trying to dig a little more into your expectation that the category is down. By two or three or 4% this year, and then it bounces back in for future years. Mark S. LaVigne: Consumers are changing. I mean, what we see is consumers will typically drain household inventory. Consumers will typically maybe skip a purchase cycle. And so what you see that play out over a multiple quarter period, but then everything stabilizes and consumers go back to that historical low single-digit growth that we expect to see out of the category. So we believe these are temporary behaviors out of consumers. It will you know, it also manifests itself with channel shifting, pack size changes, and other things that come through in the category data. But we do expect a reversion back to more normalized behavior as we head into '26. William Michael Reuter: Got it. And then just a follow-up for me. I think that there had been an algorithm of an expectation of kind of half a turn of deleverage annually. And if I kind of look back over the last handful of years, leverage really has not moved a whole lot. So I guess, what is your expectation for that deleveraging path? And, I guess, in that context, will you think about allocation relative to share repurchases, which you guys did $90 million this year? Mark S. LaVigne: Yeah. Look. First priority is going to be to pay down debt. We think we can get back to resumption of normalized cash in twenty-five or cash flow twenty-five you know, we were down and that was really largely due to our press plastic-free packaging transition in North America. We invested in both inventories, so working capital was way up for the year. We invested in a lot of CapEx, frankly, to make that product. That should normalize both of those as we head into '26. So we think that we can get that kind of somewhere north of 10% on free cash flow we would focus on paying down $150 to $200 million of debt. I think the, you know, the offset from a leverage perspective will be where the earnings ends up. So we will, you know, we will have to see where that comes in, but it will not probably be all the way to half a turn. It would be something less than that if the earnings fall off. I will say that, you know, we generated decent cash as we finished up the fourth quarter. And we paid down about $80 million of debt so far in the quarter. So we are making good progress and will continue to push there. William Michael Reuter: Great. That is all for me. Thank you. Mark S. LaVigne: Thank you. Joanna: Thank you. Ladies and gentlemen, as a reminder, if you have any questions, please press 1. The next question comes from Brian Christopher McNamara at Canaccord Genuity. Please go ahead. Brian Christopher McNamara: Good morning, guys. Thanks for taking the question. I am curious how your retail partners are behaving as it relates to channel inventories. We have heard a variety of takes from other companies but the predominance has generally been they have been pretty tight on inventories heading into the holiday season. I am curious how your categories are being impacted by that. Mark S. LaVigne: Good question, Brian. I think that plays a part in kind of Q4, Q1 dynamic that we were highlighting today. So we saw displays going at the end of that we thought were going to go in Q1. And then obviously with some softening in the consumer sentiment in the category, you have seen lighter replenishment as we have gotten into Q1 simply because they are managing inventory more tightly. We have expected that, you know, for purposes of what the outlook we are providing, we are expecting that to continue for the balance of this year. I think we do expect tighter inventory management as we progress through '26. Brian Christopher McNamara: Great. And my other question was already asked, so thanks. Appreciate it. Mark S. LaVigne: Thanks, Ryan. Joanna: Thank you. We have no further questions. I will turn the call back over to Mark S. LaVigne for closing comments. Mark S. LaVigne: Thanks, everyone, for joining today. Have a good rest of the day. Joanna: Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your line.
Operator: Greetings. And welcome to The Home Depot Third Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Isabelle Janci. Isabel Janci: Thank you, Christine, and good morning, everyone. Welcome to Home Depot's Third Quarter 2025 Earnings Call. Joining us on our call today are Ted Decker, Chair President and CEO; Ann-Marie Campbell, Senior Executive Vice President; Billy Bastek, Executive Vice President of Merchandise Inc.; and Richard McPhail, Executive Vice President and Chief Financial Officer. [Operator Instructions] If we are unable to get to your question during the call, please call our Investor Relations department at (770) 384-2387. Before I turn the call over to Ted, let me remind you that today's press release and the presentations made by our executives include forward-looking statements under the federal securities laws, including as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to the factors identified in the release in our most recent annual report on Form 10-K, and in our other filings with the Securities and Exchange Commission. Today's presentation will also include certain non-GAAP measures including, but not limited to adjusted operating margin, adjusted diluted earnings per share and return on invested capital. For a reconciliation of these and other non-GAAP measures to the corresponding GAAP measures, please refer to our earnings press release and our website. Now let me turn the call over to Ted. Edward Decker: Thank you, Isabel, and good morning, everyone. Sales for the third quarter were $41.4 billion, up 2.8% from the same period last year. Comp sales increased 0.2% from the same period last year, and comps in the U.S. increased 0.1%. Adjusted diluted earnings per share were $3.74 in the third quarter, compared to $3.78 in the third quarter last year. In local currency, Canada and Mexico posted positive comps. Our results missed our expectations primarily due to the lack of storms in the third quarter which resulted in greater-than-expected pressure in certain categories. Additionally, while underlying demand in the business remain relatively stable sequentially, an expected increase in demand in the third quarter did not materialize. We believe the consumer uncertainty and continued pressure in housing are disproportionately impacting home improvement demand. Today, we've revised our guidance for fiscal 2025, which Rich will take you through in a moment. We remain focused on controlling what we can control. Our teams are executing at a high level, and we believe we are growing market share. We continue to invest across the business, supporting our associates and delivering the value proposition expected by our customers. In September, SRS completed the acquisition of GMS, a leading distributor of specialty building products, including drywall, ceiling and steel framing related to remodeling in construction projects. GMS further enhances SRS' position as the leading multi-category building materials distributor, bringing differentiated capabilities, product categories in customer relationships that are highly complementary to SRS' existing business. We could not be more excited to welcome GMS to the family and look forward to bringing a truly differentiated value proposition to our Pro customers. We're excited to see many of you in person in a few weeks at our investor conference, the New York Stock Exchange on December 9. We will update you on our strategic initiatives, our unique positioning in the marketplace, our investments and the traction we are seeing with our customers as we continue to position ourselves to win market share in both the near and long term. In closing, I would like to thank our store associates, merchants, supply chain teams and vendor partners who continue to take care of our customers and execute at a high level. With that, let me turn the call over to Ann. Ann-Marie Campbell: Thanks, Ted, and good morning, everyone. Our associates did an incredible job focusing on our customers and delivering exceptional customer service in our stores during the quarter. We continue to lean in on initiatives that help our associates do their jobs more effectively while also driving productivity in our operations. I'm going to highlight our progress across a number of initiatives that have helped improve the associate experience and are resulting in a better customer experience and increased customer satisfaction. Last year, we rolled out our [ freight flow ] application to all our stores, which has improved our freight processes and driven efficiency in our operations. This initiative has significantly improved our cartons per hour metric resulting in greater efficiency in our onload and packout process. We also continue to focus on-shelf availability and through computer vision and [indiscernible] we have reached record in-stock and on-shelf availability levels, Lastly, our faster fulfillment efforts leveraging both our stores and distribution centers that you've heard about over the last few quarters have driven an over 400 basis point increase in our customer satisfaction scores. In addition, we continue to focus on our Pro ecosystem, maturing the new capabilities we have built for Pros working on complex projects while enhancing the tools we have to serve Pros. We are pleased with the progress we are seeing as our customers engage with our capabilities. There are two new tools we have deployed over the last several months that help us differentiate our offering. The first is a new project planning tool that we launched in September, which allows our Pros to create and manage material lift and track orders and deliveries. The second tool, blueprint takeoffs, will transform the way Pros plan and prepare for their projects. This new tool leverages advanced AI and proprietary algorithms to deliver accurate blueprint takeoffs and material estimates in record time. Both can then quickly and easily purchase all materials they need for their project through The Home Depot, simplifying this complex process by going through a single supplier. This technology replaces a manual intensive process that took weeks to complete increase in accuracy and reliability. Adding this advanced technology to our ecosystem of capabilities to better serve the Pro working on complex projects will further enable us to be the one-stop shop for all project needs from initial planning to material delivery, saving [ our ] Pros time and money. We look forward to seeing you in a few weeks in New York to provide a holistic view of how our full ecosystem is resonating with our Pros and allowing us to gain traction and win in the market. With that, let me turn the call over to Billy. William Bastek: Thank you, Ann, and good morning, everyone. I want to start by also thanking all of our associates and supplier partners for their ongoing commitment to serving our customers and communities. As you heard from Ted, the underlying demand in the quarter was relatively similar to what we saw in the second quarter. However, our results were below our expectations, largely due to a lack of storms relative to historic norms which most notably impacted areas of the business such as roofing, power generation and plywood to name a few. Turning to our merchandising department comp performance for the third quarter, 9 of our 16 merchandising departments posted positive comps, including kitchen, bath, outdoor garden, storage, electrical, plumbing, millwork, hardware and appliances. During the third quarter, our comp average ticket increased 1.8% and comp transactions decreased 1.6%. The growth in comp average ticket primarily reflects a greater mix of higher ticket items, customers continuing to trade up for new and innovative products, as well as modest price increases. Big ticket comp transactions for those over $1,000 were positive 2.3% compared to the third quarter of last year. We were pleased with the performance we saw in categories such as appliances, portable power and gypsum. However, we continue to see softer engagement in larger discretionary projects where customers typically use financing to fund renovation projects. During the third quarter, both Pro and DIY comp sales were positive and relatively in line with one another. We saw strength across Pro-heavy categories like gypsum, insulation, siding and plumbing. In DIY, we saw strength across our seasonal product offerings, including live goods, hardscapes and other garden products. Turning to total company online comp sales, sales leveraging our digital platforms increased approximately 11% compared to the third quarter of last year. We're excited about the continued success we're seeing across our interconnected platforms, our faster delivery speeds of resonating with customers and driving greater engagement and sales. We know that as we remove friction from the experience, we see incremental customer engagement, leading to greater sales across all points of interaction. During the third quarter, we hosted our annual supplier partnership meeting, where we focused on how we will continue to work together to bring the best products to market, deliver innovative solutions that simplify the project, and offer great value with best-in-class features and benefits. At the event, we recognized a number of vendors across categories who continue to transform the industry with the innovation they bring to our customers on a daily basis. They include [ Leaderson ], [ Cover Torque ], [ Feather River ], Milwaukee, RYOBI, [indiscernible], DEWALT, [ Rigid ], [ Diablo ], Husky and many more. We are proud of the innovation and partnership that our suppliers bring to The Home Depot, and the value we're able to offer both our Pro and DIY customers. As we turn our attention to the fourth quarter, we're looking forward to the excitement we will bring with our annual holiday, Black Friday and Gift Center events. In our Gift Center event, we continue to lean into brands that matter most for our customers with our assortment of Milwaukee, RYOBI, [indiscernible], DEWALT, [ Rigid ], [ Diablo ], Husky and more. We'll have something for everyone, whether it's our wide assortment of [ cordless ] RYOBI tools for Milwaukee hand tools. And in appliances for Black Friday, we have exciting offers on LG, Samsung, [ Bosch, Whirlpool, GE and Frigidaire ]. Our assortment includes multiple exclusive products like LG stainless steel front store refrigerator with craft ice, and [indiscernible] new gallery dishwasher with a wash cycle time of only 50 minutes. This quarter, I'm also excited to announce the addition of PGT Windows to a wide assortment of exclusive retail brands, including American Craftsman and Anderson windows. PGT's impact-resistant windows are engineered to meet some of the highest performance standards in the industry, reducing storm damage risk, providing energy efficiency, UV protection and sound reduction. And they will be exclusive to The Home Depot in the big box channel. Our merchandising organization remains focused on being our customers' advocate for value. This means continuing to provide a broad assortment of best-in-class products that are in stock and available for our customers. It is the power of our vendor relationships, coupled with our best-in-class merchant organization that allows us to offer our customers the best brands with the most innovation to solve pain points, increase functionality and enhance performance at the best value in the market. With that, I'd like to turn the call over to Richard. Richard McPhail: Thank an you, Billy, and good morning, everyone. In the third quarter, total sales were $41.4 billion, an increase of $1.1 billion, or approximately 3% from last year. Total sales include approximately $900 million from the recent acquisition of GMS, which represents approximately 8 weeks of sales in the quarter. During the third quarter, our total company comps were positive 0.2%, with comps of positive 2% in August, positive 0.5% in September, and negative 1.5% in October. Comps in the U.S. were positive 0.1% for the quarter with comps of positive 2.2% in August, positive 0.3% in September and negative 1.7% in October. For the quarter and in local currency, Canada and Mexico posted positive comps. In the third quarter, our gross margin was 33.4%, flat compared to the third quarter of 2024, which was in line with our expectations. During the third quarter, operating expense as a percent of sales increased approximately 55 basis points to 20.5% compared to the third quarter of 2024. Our operating expense included transaction fees related to the acquisition of GMS, but otherwise were in line with our expectations. Our operating margin for the third quarter was 12.9%, compared to 13.5% in the third quarter of 2024. In the quarter, pretax intangible asset amortization was $158 million. Excluding the intangible asset amortization in the quarter, our adjusted operating margin for the third quarter was 13.3%, compared to 13.8% in the third quarter of 2024. Interest and other expense for the third quarter was $596 million, which is in line with our expectations. In the third quarter, our effective tax rate was 24.3%, compared to 24.4% in the third quarter of fiscal 2024. Our diluted earnings per share for the third quarter were $3.62, compared to $3.67 in the third quarter of 2024. Excluding intangible asset amortization, our adjusted diluted earnings per share for the third quarter were $3.74, compared to $3.78 in the third quarter of 2024. During the third quarter, we opened 3 new stores, bringing our total store count to 2,356. At the end of the quarter, merchandise inventories were $26.2 billion, up approximately $2.3 billion compared to the third quarter of 2024 and inventory turns or 4.5x, down from 4.8x last year. Turning to capital allocation. During the third quarter, we invested approximately $900 million back into our business in the form of capital expenditures, and we paid approximately $2.3 billion in dividends to our shareholders. Computed on the average of beginning and ending long-term debt and equity for the trailing 12 months, return on invested capital was 26.3%, down from 31.5% in the third quarter of fiscal 2024. Now I will comment on our outlook for fiscal 2025. Today, we are updating our fiscal 2025 guidance to include softer-than-expected results in the third quarter, continued pressure in the fourth quarter from the lack of storm activity, ongoing consumer uncertainty and housing pressure, as well as the inclusion of the GMS acquisition into our consolidated results. For fiscal 2025, we expect total sales growth of approximately positive 3% with GMS expected to contribute approximately $2 billion in incremental sales, and comp sales growth percent to be slightly positive compared to fiscal 2024. Our gross margin is expected to be approximately 33.2%. Further, we expect operating margin of approximately 12.6% and adjusted operating margin of approximately 13%. Our effective tax rate is targeted at approximately 24.5%. We expect net interest expense of approximately $2.3 billion. We expect our diluted earnings per share to decline approximately 6% compared to fiscal 2024, when comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024. And we expect our adjusted diluted earnings per share to decline approximately 5% compared to fiscal 2024, when comparing the 52 weeks in fiscal 2025 to the 53 weeks in fiscal 2024. We plan to continue investing in our business with capital expenditures of approximately 2.5% of sales for fiscal 2025. We believe that we will grow market share in any environment by strengthening our competitive position with our customers and delivering the best customer experience in home improvement. Thank you for your participation in today's call. And Christine, we are now ready for questions. Question & Answer Session Operator: [Operator Instructions] Our first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: My first question is more short term on the fourth quarter. So when you guided for the full year after the second quarter, we didn't have GMS in the numbers. Now we do. And then we now know your third quarter came in a little light, and that the fourth quarter may be a little lighter on revenue as well. So there's some deleverage. We're having a tough time getting to the full amount of, call it, EBIT dollar shortfall, because GMS looks like they made money last year. Are there any expenses that are tied to it? Or how do we think about the deleverage? Richard McPhail: Yes. Simeon, thanks for the question. I think you could look at it two ways. Let's talk about fiscal year and then let's talk about Q4. So fiscal year, as you know, we've revised our guidance by 40 basis points from 13.4% adjusted operating margin to 13% operating margin. The walk there, let's talk about the most significant item, which is GMS, the inclusion of GMS in our results. If you take their likely impact to 2025, and you add the transaction expenses to it, you're basically at 20 basis points of year-over-year impact to operating margin. You then take into account the decrease in our comp sales from one comp to slightly positive. And then we -- so that assumption would have obviously deleverage that we've spoken of previously. And then with respect to SRS and its impact. First, SRS continues to perform extremely well. There is significant pressure in the roofing market. We know that shipments are down double digits from the absence of storm activity this year. SRS actually comped flat for Q3. And so we think that they are taking significant share. But as our expectations have weakened slightly for them in the full year, rather than seeing them grow at mid-single digits, they're likely to grow low single digits. You do some see some deleverage in SRS in the supply chain and in OpEx. And so you add those together and get your revision to the fiscal year guide. And really, you just add to that if you're talking about Q4, you have all the same dynamics, but let's not forget, you're comparing Q4 last year has 14 weeks of expense. Q4 this year has 13 weeks of expense. And so you've got 50-ish basis points of operating expense deleverage in the quarter. So hopefully, that will help you with the walk. Simeon Gutman: Yes, that helps a lot. And then a follow-up. You mentioned on this call and in the release that there was an expectation of increased or improving demand. I guess, for the remainder of the year at one point. Was that an expectation based on housing or an expectation that there would be storms? And if there was any volatility related to government shutdown, do you have enough time looking backwards since the reopening that there's been an improvement in how the consumer is behaving. Edward Decker: Yes, Simeon, let me step back and just paint a broader picture of what we're seeing with the consumer in our sector. Our comps definitely slowed as the quarter progressed, but great work by the team to register the positive comp for the entire quarter. And as we said, the primary driver of that sales pressure was the lack of storm activity in the quarter. We don't plan per storms per se, but there's always some weather impact in the baseline. And given last year, a pretty significant storm activity in this year, truly zero. There was no storm activity this year. So we saw that most acutely in October. That was the single heaviest impacted month, and that's where, as Richard called out, the comp progression return negative in October. And then you talked about the overall economy in housing, we did expect to start seeing some pickup in demand in the second half of the year. And this wasn't just the calendar dynamic of things will be better in the second half. We're expecting interest rates and mortgage rates to come down, which they did, that would have been some assistance to housing. But we really just saw ongoing consumer uncertainty and pressure in housing that are disproportionately impacting home improvement demand. I think the good news is the team, as I said, is executing at a very high level, and we believe we're taking share. And if you adjust for the storm activity, our Q3 comp, the underlying business comp, was essentially the exact same as Q2. In adjusting, again, for storm and weather, call that underlying business to be about a 1% comp in each of Q2 and Q3. So now here we are going into Q4, and we're going to see even more quarter-over-quarter pressure from the storm activity. So again, there's nothing that's happened this year. The storm activity and the rebuild and repair continued into Q4 last year. So we'll have even more storm pressure year-over-year in Q4. And then we just don't see the catalyst to increase that underlying storm adjusted demand in the market. So it's certainly a very interesting consumer dynamic out there. On the one hand, you look at certain economic indicators and you say, geez, things are pretty good. You look at GDP, you look at PCE, those are both strong. But on the other hand, what's impacting us and home improvement is the ongoing pressure in housing, in incremental consumer uncertainty. So take housing. I mean, housing has been soft for some time. We all know the higher interest rates and affordability concerns. But what we're seeing now is even less turnover, the housing activity is truly a 40-year lows as a percentage of housing stock. I think we're at 2.9% turnover. And then home prices have started to adjust in even more markets over this past quarter. And then when you look at the consumer, what's going to spark the consumer? We still believe we have one of the healthiest consumer segments in the whole economy. But again, the economic uncertainty continues largely now due to living costs, affordability's a word that's being used a lot. Layoffs, increased job concerns, et cetera. So that's why we don't see an uptick in that underlying storm adjusted demand in the business. So as I said earlier, we're going to keep controlling what we can control, support our associates and deliver just a great value proposition for the customer, and I believe we took share in Q3, and year-to-date this year, and do the same thing in Q4. Operator: Our next question comes from the line of Zack Fadem with Wells Fargo. Zachary Fadem: Wanted to start on the average ticket. I guess, any call-outs on commodities versus same-SKU inflation? And then with last quarter ticking down on promo, curious how Q3 played out, and whether you'd expect the industry to be more or less promotional this Q4? William Bastek: Zack, it's Billy. Thanks for the question. As it relates to ticket, as we've talked about on the few calls, I mean we've continued to see customers trade up for innovation. In fact, we really haven't seen any trade down that we haven't spoken about in previous calls as it relates to that. So a modest increase in ticket, but most notably, that was from people, innovation and things in the marketplace that we've seen. As it relates to the promotional activity, it's really consistent year-over-year, both in Q3 and Q4. And as Ted mentioned, the fundamental demand in our business, while it didn't increase certainly was very consistent with what we saw in Q2 outside as we mentioned, in the storm impact. So from a fundamental standpoint, feel very good about that and continue to see customers engage projects, as I mentioned, they're going to continue to have pressure where they're financed. But from a promotional activity standpoint, it's really a similar environment than it was in really for the balance of the year, and certainly as it relates to Q4 a year ago, it's a similar environment for us as well. Zachary Fadem: Got it. And then, Richard, a couple of follow-ups on GMS. First of all, on operating expenses. Could you help us understand what's onetime in terms of impact transactions, et cetera, on Q3 and Q4? And then on the inventory growth, up about 10%, any color you can offer on how much is GMS versus underlying volume versus pricing? Richard McPhail: Sure. You can think about the GMS transaction fees is about 5 basis points of margin to the year, or 5 basis points of expense when you put it. About 15 basis points for the quarter. Obviously, Q3 is one of our larger quarters. And you can think of the impact is about $0.05 of EPS for the year for GMS transaction fees, and those all occurred in Q3. With respect to the inventory, inventory increases reflect, principally, the inclusion of GMS now in our balance sheet. And the fact that we've leaned into investments, in particular investments with respect to hitting our speed promise. So we've seen fantastic results from improving our speed and reliability of delivery over the last year. That's something we've leaned into. We have our DFC network, which we think is unmatched in our market. And as we see results from it, and obviously, this quarter, you saw an 11% comp online, we're going to continue to lean into that investment. So for the most part, it's investments in the business. Operator: Our next question comes from the line of Michael Lasser with UBS. Michael Lasser: Given all the comments from this morning, [indiscernible] question, can home improvement demand recover without some assistance from either an increase in underlying housing activity or a reduction in interest rates? And how should this faster the market's expectation towards the recovery, or potential recovery in 2026? Edward Decker: Thanks, Michael. We've talked about all the different drivers of demand in our segment. And there are leads and lags in all of them, and we've clearly called out over time the most statistically relevant would be home price appreciation and household formation and housing turnover. Those three right now are pressured for sure. But we also know that we've more than worked our way through the pull forward of the COVID years. And there are many industry reports and calculations of now under spend per household. So on one hand, we're looking at something as much as a $50 billion cumulative under spend in normal repair and remodel activity in U.S. housing. On the other hand, we have less turnover and home price appreciation. So that tension is going to have to balance itself out as we work through the rest of this year and into next year. But fundamentally, our job is to put great value propositions in front of the customer and take share in any environment. So can The Home Depot grow? The answer is yes. Will the industry have some shorter-term pressures with turnover in home price? Yes, as well. Michael Lasser: My second question is, as The Home Depot has taken a significant number of big steps over the last few years to gain market share, particularly in the Pro segment, has The Home Depot increased its fixed cost structure such that it's now experiencing deleverage as sales are under pressure, but this can act as a significant tailwind to the earnings outlook as sales improve? Edward Decker: Yes. I mean you're right, Mike. We have had a number of big steps on Pro. It's -- we've talked about the size of the overall home improvement TAM at $1-plus trillion and evenly split between Pro and consumer, and how strong we've always been in both sectors out of our stores, the Pro and the consumer. But identified real opportunity to bring increased value proposition to that Pro space by building out wholesale [indiscernible] type capabilities to capture more share of wallet with that customer. And that's what we've been doing, and we'll talk a lot about that more in a few weeks in New York, but we're very, very happy with all the initiatives and the organic investments we've made to build out those capabilities. And then we've augmented that with two acquisitions very, very strong wholesale platforms with each of SRS [ and ] GMS. Your question specifically on fixed cost structure. What's interesting, we've mentioned this several times, the organic effort is reasonably asset light. This -- the -- regardless of whether we lease our DCs or not, the capital deployed in those DCs is first and foremost for general store replenishment. It's an added benefit that we're able then to deliver to the customer out of those buildings. And as Richard said, the speed equation is a flywheel that works and all our investments in our direct fulfillment centers, regardless of what we're doing with the Pro, that's to serve all customers and increase the speed, which we have done very effectively. And then all the other related operating costs, we have variable incentive pay structures for our outside salespeople. We lease trucks, and we add trucks and take trucks away from markets as volume ebbs and flows through the season. So really other than an IT spend, which is modest investment in the scheme of things, there's not been a lot of incremental fixed cost put into the business to support the Pro organic initiatives. Operator: Our next question comes from the line of Christopher Horvers with JPMorgan. Christopher Horvers: So I wanted to follow up on the implied 4Q operating margin question. It looks like you're saying about 10.3%. Did you say that 50 basis points of that was the 53rd week lap? And is there anything like unique that we should think about that this is not -- this is or is not the right level to start to think about building the business as we look to the out year? So for example, 53rd week lap, or perhaps the seasonality of the SRS and GMS business structurally changing the normal flow of operating margin over the year? Richard McPhail: I would -- yes, thanks, Chris. I would use our full year guide as the appropriate jumping off point, I think Q4 has a couple items of noise. The first was the 53rd week. The second actually is the shape of the business. And if you look, you can actually see, for instance, the public filings of GMS when they were a public company and see the Q4, or rather our Q4, is a significant low point from a volume perspective. That's true for SRS as well. And so SRS and GMS see seasonal swings that are greater than Home Depot you're going to just see that amplified if you hold Q4 in isolation. And so that's why I would really point you to the full year as the right jumping off point for your modeling. Christopher Horvers: That's super helpful. I mean if you step back about... Richard McPhail: And the 53rd week is a year-over-year contract. So it doesn't impact your 2025 numbers, but it does impact the year-over-year. Christopher Horvers: Got it. Makes sense. If you think about this quarter, I mean if you look at the monthly basis, even with the really tough weather/hurricane driven compare in October. Maybe you also look at the last -- the first 3 quarters of the year. The 2-year trend seems to be improving on the line, which points to replacement cycle demand and maybe some pricing and just life moves on. I guess -- and then there's some research out there that points to maybe the consumer is waiting for the full effect of the head. We have a couple of meetings coming up and you had all this noise with a government shutdown that impacted even retailers that sell milk and eggs, and take share every day. So why wouldn't we think that the launch point into 2026 is, sort of one, or if not better, than this 1%, sort of, underlying demand? Just because uncertainty goes away, full effect to the Fed, housing stock ages and life moves on and replacement cycle demand continues to build. Edward Decker: Yes. And Chris, another positive add. There'll be more robust tax returns and the tax rates going into effect in '26. So yes, there is a positive story there. But again, the underlying 1% that is what it was. And this ongoing consumer uncertainty we're talking about and specifically housing turnover and now price, those are near-term and newer phenomenon. Richard McPhail: Let me -- Chris, I mean I'll just circle back. I was focusing on your question in context of Q4 being a jumping off point and thinking about 53rd week. Let me add something, though, when you pro forma GMS, we do need to take that into account. So on a pro forma basis, recall, we've sort of guided you to within The Home Depot numbers now with SRS included, SRS changes our margin profile by about 80 basis points of gross margin and about 40 basis points of operating margin. GMS, which was about half the size of SRS, is about half the impact. So you've got a pro forma, this is not fiscal year, but a pro forma impact of about 40 basis points of GMS and about 20 basis points -- and about 20 basis points of operating margin for GMS. So 40, 20. You add those together, you roughly have a change in our profile with both of them together of 120 basis points of gross margin and 60 basis points of operating margin. Now when you're talking fiscal year 2025, Obviously, we have some wonkiness in the comparison periods. We've owned SRS for a full year of 2025, but only on a partial year in 2024. We owned GMS for about 5 months in 2025, and own them for no months in 2024. So I'm just going to avoid all the steps in the math and tell you on a fiscal year perspective, you've got about a 55 basis point impact to gross margin year-over-year, reflecting the ownership of both SRS and GMS, and about a 35 basis point impact to operating margin mix, reflecting the year-over-year comparison of those ownership periods of SRS and GMS. We'll clarify this more just one more time when we move forward and in the future talk about future years. But hopefully, that gives you a little bit more clarity. So I do want to put an asterisk. The jumping off point is our full year guidance, but you also have to include that comparison, or rather the full year impacts of GMS next year. Christopher Horvers: Right, offset by a tick of transaction fees? Richard McPhail: That would be correct. Yes. Operator: Our next question comes from the line of Zhihan Ma with Bernstein. Zhihan Ma: I wanted to follow up on the complex Pro and GMS side. So firstly, a short-term question, the $2 billion contribution to sales from GMS this year, I think if we do the math based on the reported numbers last year, kind of implies a high single-digit percentage decline on a year-over-year basis. I don't know if I completely got the math right? If that's true, how much of that is macro weakness versus underlying [ CR ] dynamics? And is there any additional color you can provide on that underlying market? Richard McPhail: So basically, you're owning it for a quarter plus 8 weeks, and you're heading into the lowest quarter of the year for GMS' fiscal year. There was also weather impact Home Depot, SRS and GMS. No one was immune to the broader weather impacts in the market. And so $2 billion is an approximation. We know that GMS continues to take share. We continue to take shares in enterprise and particularly in all of GMS' categories, and we feel great about that business going forward. Zhihan Ma: Got it. And then a long-term question to your point about the current margin dilution impact from the acquisitions. Is there a long-term argument that as you further consolidate, assume if you further consolidate in the complex Pro space, is there a path for you to structurally improve or recover your margins as you start to gain more [indiscernible] power versus suppliers? Edward Decker: Well, there's structural differences in the margins of the wholesale business in retail. I mean, at the highest level, retail would have higher gross and lower operating cost in the inverse with wholesale. Of course, as we drive synergies between the two platforms, and the most important synergy is the cross-sell and the value proposition to the Pro, we'll be able to leverage incremental sales in both retail and wholesale platforms to leverage the businesses and, of course, just operating efficiencies across a larger scale business, we'll be able to drive efficiencies as well. But the fundamental difference of wholesale margin structure and retail margin structure would be the case going forward. Those wouldn't dramatically change. Operator: Our next question comes from the line of Seth Sigman with Barclays. Seth Sigman: I had a couple of follow-up questions. Just first on transactions slowed while ticket accelerated this quarter. Just curious, how do you read that? Are there any signs of elasticity? Maybe just elaborate on price changes that you made in the quarter? Or is the slowdown in transaction just really storm related? William Bastek: Yes. Thanks, Seth. It's Billy. I'll answer your last question first. As it relates to the transaction that was really related strictly to the storm impact that we called out. As I mentioned, in our Q2 call after some policy changes were made around tariffs, we would take some moderate price moves with the entire strategy to make sure we protected the project. And so as it relates to elasticity, it's a little early, and then you couple that with a lot of dynamics in the marketplace over the last 60 days, 90 days since our last call, it's a little early to say how much of that was going to -- the elasticity piece will play out. I'm thrilled with the work that the team has done. If you go into our stores right now and look at Gift Center and all the value that we have there, and certainly with our holiday program, same thing. So we're watching that. Again, our entire goal was to project the project. And it bears also to point out that over 50% of our inventory is not part of tariffs and it's obviously sourced domestically. So we'll continue to watch that and look forward to the Q4. Seth Sigman: Okay. And then just to follow up on some of the demand comments today and what seems like a more cautious view on the consumer, I'm just trying to figure out how to reconcile that with big ticket still outperforming? You've had a few quarters of big ticket being positive that continued this quarter. And I guess just based on what you've seen historically, should that be a leading indicator for big projects that have still been pressured? How do you think about that? William Bastek: Well, I mean, you pointed out correctly and in my prepared comments, I talked about big ticket transactions over $1,000, or positive 2.3%. But I wouldn't read into that from a project standpoint. Think about appliances. Think about power tools, and some of those pieces. Those are individual items as we've kind of talked about that metric in the past, versus more of the project-oriented pieces that customers are still challenged with based on all the things that we talked about earlier. Edward Decker: I think some of that -- some of the big ticket as well, we've called out, there was pressure on commodities overall. But some of that big ticket is the success in our Pro initiatives. I mean the managed accounts, the activities that [indiscernible] and team are driving to capture more share of larger pro complex purchase. That is also driving that. So it's not so much that it's an indicator of demand as it is an indication of our taking share in bigger ticket Pro oriented project. Operator: Our next question comes from the line of Chuck Grom with Gordon Haskett. Charles Grom: There's a lot of talk about a [ K-shaped ] economy right now, but we're starting to see more evidence of job losses for white collar employees. So I guess I'm curious when you look at your data, is there anything you see that supports more fatigue in your upper income customer base? And I guess as a follow-up, anything regionally that you'd call out over the past couple of months? Edward Decker: Well, I think that regionally, the most acute difference, again, is the storm and weather patterns. On the larger, the higher income cohort, we don't see anything specific. As Billy said, there has not been a lot of trade down and we've talked in the past. Things like countertops, there's been some trade down, but we have still not seen trade down across the broader assortment in the store. If there's an indication of maybe some fatigue in taking on bigger projects, we have seen Pro backlogs and larger backlogs start to diminish a little bit. So our Pros are reporting months that they're booked out. As we know some time ago, you couldn't find a Pro. And then they all had full books and we're seeing a little softening in larger project backlog. I can't say we've tied that directly to an income cohort, so we've definitely seen the dynamic. Charles Grom: Okay. And then just, Richard, can we just double click on the opportunity to improve the margin structures of both GMS and SRS? It sounds like 35 basis points of pressure this year. You probably have some wrap of that into '26. But just like broader picture over the next few years, I mean, how should we think about the improvement line for those 2 businesses? Richard McPhail: Well, we don't like to separate them out. While they do operate independently, as Ted said, the name of the game here is synergies and synergies in the form of cross-selling. And so I think the leverage in the businesses is going to be a function of how we create a differentiated value proposition across the entire enterprise, including SRS and GMS. So look, SRS, the combined entity is an engine for growth for The Home Depot. And so we're just getting started. So I wouldn't put a formula on it. But it's all going to be a function of how fast we can drive cross-sell. Operator: Our next question comes from the line of Steve Forbes with Guggenheim. Steven Forbes: Maybe, Richard, on the idea of cross-selling, I would love to sort of hear high-level thoughts on -- I don't know if you can like rank order how you guys see the cross-selling opportunities to get today now that GMS is integrated. Sort of what are you sort of building the business for from a cross-selling standpoint as we head into next year? Like rank order the opportunities would be great? Unknown Executive: Yes. I mean, it's Mike here. Thanks for the question. We see just from the relationships that have already been established between the outside sales force that we've got, we're here within Home Depot, combined with the sales forces that they have originally with SRS and now with GMS, there is account handoffs that happened. So a great example, recently, with GMS engaged in a large roofing sale on a property. The customer was looking for much more in terms of product, in terms of whether it be framing, flooring and more. And that relationship than that SRS introduced to The Home Depot outside sales force to come in and sell that engagement to the contractor work quite successful. And that's just one example of many that have happened, and they happen both ways. Whereby the Home Depot sales organization recognizes a large roofing opportunity that they can pass over to SRS, or a large drywall opportunity that they can pass over to GMS. And those engagements are happening on a daily and weekly basis. Steven Forbes: And then just a quick follow-up. I was hoping to maybe explore the branch growth opportunity across SRS, DMS and heritage. So I don't know, Ted, if you can provide a current update on branch counts across the various assets? And then -- and then like what's the right way to think about or think through the out-year branch growth opportunity? And I don't know if you can, sort of, talk about like what's the end state as you see it today, versus the [ 1,200 ] you have today? How do we sort of think about the footprint evolving over the next 3, 5 or so years? Edward Decker: Yes. We'll certainly go into a lot more detail in a few weeks. But the model that SRS deploys is very similar to GMS that they will -- they'll drive organic comp growth through existing branches. They open greenfield branches, and then they'll focus on tuck-in customer list expansion-oriented acquisitions. And they've been doing that quite successfully on the branches. Think of SRS, GMS 40 to 50 branches a year. And they've been sort of running at that pace since we acquired SRS. And then they've done a handful of little tuck-in acquisitions. And again, these can be a one branch, $5-ish million acquisition, or a smaller regional $30 million, $40 million, $50 million a couple of few branch operations. So it's going really, really well, and we see that continuing a key part of their business model. Richard McPhail: And I mean, just to -- it's not just about our plans, it's actually happening right now. If you talk about our noncomp sales, putting new stores and new SRS branches together, you've got about 0.5 point of sales growth driven by those two investments. And so we're thrilled with that. Operator: Our final question will come from the line of Steven Zaccone with Citi. Steven Zaccone: I wanted to follow up on the storm impact. So it sounds like it was 80 basis points for the third quarter, pressure to same-store sales. How large will that be in the fourth quarter? And then we should be mindful that that's also a headwind to think about in the first half of next year? Richard McPhail: Well, thanks. As Ted said, the underlying demand for the business was sort of similar Q2 to Q3. If you talk about storm Q3 to Q4, we absolutely are lapping strong results, in fact, even slightly higher sales last year in Q4 than in Q3. Let's call it relatively even. So let's say, you basically -- if you've got underlying minus the storm impact, you've got pretty much similar run rates for Q3 and Q4. Steven Zaccone: Okay. Understood. And then your comments on the housing pressure, how does that inform you maybe near to medium-term outlook for SRS and GMS, right? Like these are new assets for Home Depot. So should we think that original expectation of mid-single-digit growth for SRS stepping down to low single digits, is that kind of a run rate we should consider for the near to medium term? Edward Decker: I mean I wouldn't say that. We'll, again, talk more about this in a few weeks. But the first thing to remember is SRS is much more in the reroof than new construction. So they're 80-plus percent reroof. So yes, they're 15%, 20% of the business that goes into new construction is impacted. But the fundamental business is reroof activity. Again, which is why it's disproportionately impacted with storms, particularly in their home and biggest market, which is Texas, which is by far, we think of hurricanes, we think of hail and other wind events. There was none such in 2025. So no, we look at SRS is a long-term mid-single-digit grower. And this is principally a storm impacted dynamic that's taken them down to flattish right now. But as Richard said earlier, we think roofing shipments, you can see this [ at the ] reported data, roofing square shipments into the market are down mid-teens and SRS was flat. So clearly taking share. Isabel Janci: Christine, I'd like to turn the floor back over to you for closing comments. Isabel Janci: Thanks, Christine, and thank you all for joining us today. We look forward to speaking with you at our investor conference on December 9. Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to the BellRing Brands Fourth Quarter Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Meyer. Please go ahead. Jennifer Meyer: Good morning, and thank you for joining us today for BellRing Brands Fourth Quarter Fiscal 2025 Earnings Call. With me today are Darcy Davenport, our President and CEO; and Paul Rode, our CFO. Darcy and Paul will begin with prepared remarks, and afterwards, we'll have a brief question-and-answer session. The press release and supplemental slide presentation that support these remarks are posted on our website in both the Investor Relations and the SEC Filings sections at bellring.com. In addition, the release and slides are available on the SEC's website. Before we continue, I would like to remind you that this call will contain forward-looking statements, which are subject to risks and uncertainties that should be carefully considered by investors as actual results could differ materially from these statements. These forward-looking statements are current as of the date of this call, and management undertakes no obligation to update these statements. As a reminder, this call is being recorded, and an audio replay will be available on our website. And finally, this call will discuss certain non-GAAP measures. For a reconciliation of these non-GAAP measures to the nearest GAAP measure, see our press release issued yesterday and posted on our website. With that, I will turn the call over to Darcy. Darcy Davenport: Thanks, Jennifer, and thank you all for joining this morning. Fiscal year '25 was a strong year for BellRing Brands. Net sales grew 16% and adjusted EBITDA margin reached 20.8%. We launched our first media campaign since '21, delivering compelling returns, expanded distribution while elevating retailer partnerships and accelerated our multiyear innovation strategy. We also advanced our savings program, enhancing flexibility to reinvest in future growth. Our strong track record of cash generation continued this year, and we meaningfully stepped up our share repurchases, buying approximately 7% of our shares outstanding. We expect another successful year in fiscal '26 with a softer Q1 followed by a stronger balance of the year. Paul and I will provide additional detail on our guidance and quarterly cadence. Turning to the fourth quarter. The ready-to-drink shake category grew 15%, while Premier shake consumption grew 20%, driven by incremental promotion events. Premier continues to have category-leading metrics, including the #1 household penetration and the category's highest repeat rate. Notably, both household penetration and buy rate increased during the quarter, reinforcing the brand's unmatched strength and consumer loyalty. Now turning to the category. RTD shakes are one of the fastest-growing CPG categories, fueled by consumer health and wellness trends, functional beverage preferences and GLP-1 usage. Household penetration of 54% highlights a long runway for growth as it trails mature CPG categories, which are often at 80% to 90%. Retailers are leaning into this opportunity, increasing category space, testing higher traffic aisle locations and expanding display space to capture growing consumer demand. The success of this category, which has doubled in retail sales since 2019 to $8.7 billion has naturally attracted competition. Currently, the 2 leaders, including Premier Protein, have approximately 50% market share. The other participants include newer insurgent and crossover brands and some declining legacy brands. Of note, legacy brands, which collectively represent approximately 30% of the category, have been meaningful share donors for several years now. Over time, we expect retailers to consolidate the shelf behind a handful of the best-performing brands and move them to more heavily trafficked aisles. We believe that mainstream appeal, high repeat rates and execution capabilities will determine the long-term winners. Premier Protein is well positioned to benefit from these developments and continue to lead the category. Over the next few years, we expect RTD shake category dollar growth to be high-single to low-double-digit, with volume the primary driver. In late '25, a major club retailer significantly expanded their RTD assortment. While we do not know for certainty, we assumed the expanded assortment continues through fiscal '26. We expect pricing benefits to subside and promotional spending to slightly increase as new brands work to establish themselves in the market. These near-term dynamics lead us to expect category growth in the high single digits for '26. In the medium-to-long-term, we expect more marketing spending, expanded shelf space, innovation and the mainstreaming and affordability of GLP-1s to drive higher household penetration and category growth. We are confident in our continued strength of the category. Premier's deep category knowledge, strong brand equity, scalable manufacturing network and robust retailer relationships give us confidence that we will continue to be the category leader and capture meaningful share of long-term growth. I'll now turn to our long-term targets. BellRing began its journey as a public company 6 years ago with $850 million in revenue. Our total revenue base is now $2.3 billion, and our Premier Protein shake revenue has tripled. Since IPO, we have delivered a net sales CAGR of 18%, significantly ahead of our long-term revenue growth projection of 10% to 12% shared at the time of our listing. There are multiple ways to achieve strong growth in our business. However, it becomes more difficult to grow at double-digit rates of a larger revenue base. And in the near term, we are expecting a more competitive environment. As a result, we are updating our long-term revenue growth algorithm from low double digits to high single digits, specifically 7% to 9%, with Premier Protein driving our growth. This assumes that Premier Protein, the #1 market share brand will continue to grow relatively in line with the RTD category, while Dymatize slightly weighs down our growth rate. We are maintaining our adjusted EBITDA margin algorithm of 18% to 20%, which embeds higher levels of brand investment enabled by our cost savings agenda. These investments are designed to reinforce our brand strength and position us for sustained profitable growth over the long term. Our updated revenue growth algorithm is healthy. And together with attractive margins and our asset-light model, we expect to continue to generate strong cash flow and create significant value for our shareholders. Turning to our outlook for '26. Our '26 net sales guidance is a range of 4% to 8% growth with adjusted EBITDA margins of 18%. At the midpoint, sales for the year are expected to be modestly below our long-term algorithm because of the softer first quarter driven by specific items and near-term competitive dynamics. We expect performance to strengthen with the remainder of the year at the top end of our algorithm. Adjusted EBITDA margin is expected to be at the lower end of our range, primarily due to significant commodity inflation and tariffs, along with the lagged revenue impact of increased brand investments. For Q1, we expect flat consumption for premier RTD shakes with October and November lapping the toughest club channel comparisons, including a nonrecurring promotion. For context, we are lapping 23% consumption growth in the first quarter of '25, which included very strong club consumption with the smallest number of new brand entrants in an incremental promotion. Q1 net sales largely follows consumption with some additional timing-related headwinds impacting sales, resulting in a roughly 5% decrease in net sales. Paul will provide more detail later. We expect consumption along with net sales to accelerate starting in mid-December. As we move through the year, our FDM merchandising initiatives, advertising and innovation become more meaningful contributors to our growth and club comparisons ease as we lap expanded assortment. Now I'll provide additional details on our operating plans for '26. Our priorities for this year include: one, continuing to grow our distribution both in and out of aisle; two, increase advertising investment while elevating its impact; and three, launch innovation that provides consumer excitement, adds occasions and drives trial. Distribution, both in and out of the aisle is a major opportunity. Starting with club, we intend to bolster our position in club channel with new products, increased sampling and additional promotional spending. We expect our performance in club to improve as we move through the year. Our Premier shake TDP increases driven primarily in mass, food, drug and e-commerce channels grew by more than 20% in '25, and we have strong plans to expand at similar rates in '26. As I mentioned last quarter, we have partnered with a new broker to significantly expand store level coverage and launched an internal retail sales team focused on securing in-store displays, especially singles and entry price point multipacks. In late Q1, we will launch a partnership with a major mass retailer that includes placements across pharmacy and grocery aisles plus extensive displays and end caps. This program will also include the first launch of new shake innovation targeting incremental occasions, which I'll discuss later in my remarks. Our second priority is advertising. We saw a strong return on investment in fiscal '25 and decided to further invest and elevate our creative in '26. Premier has the highest unaided brand awareness in the category, though there remains significant opportunity for expansion. We have strengthened our agency roster and we'll be launching a new creative campaign designed to drive household penetration, strengthen emotional connections and bring fresh energy and relevance to the brand. The campaign kicks off in late December and includes national TV and strong digital components. Turning to innovation. In fiscal '25, we conducted a comprehensive demand study and incorporated the results into our multiyear innovation strategy. The study validated our product focus for '26 and identified several white space opportunities, some of which that we have accelerated launching in late '26 and early '27. Specifically, in '26, we are intensifying our focus on innovation across flavors, consumer segments and occasions. In June of '25, we launched almond milkshakes, our first non-dairy protein offering, with the strategy of bringing new consumers into our brand. Although early, it is already the #2 turning 4 count in the non-dairy RTD set. We are seeing strong incrementality with nearly half of the buyers new to the brand. Almond milkshakes are expanding distribution throughout '26 and supported by advertising. About a year ago, we launched our indulgent line with the goal of driving incremental occasions, it worked. In '26, we will build on that success as well as the success of our Café Latte core shake flavor with our new Coffeehouse or proffee shake line. Each shake provides 30 grams of protein and the caffeine equivalent of 1 cup of coffee, meeting the protein and energy consumer need, which is incremental to our core baseline. It will be offered in Carmel Macchiato and Mocha targeting a sweeter taste palate. Coffeehouse launches in mid-December in both mass and e-commerce channels. The launch will be fully supported with paid media influencer partnerships and in-store signage and sampling. And lastly, Premier is known for its flavor innovation, and we will continue to bring flavor excitement to category throughout the year. In closing, Premier has a history of strong growth and is the #1 brand in one of the fastest-growing categories in retail. The power of the brand is evident in our record high household penetration and repeat rates. Our first-mover advantage lies in being a scaled pure-play company with attractive margins and a deep category expertise. Retailers see the category's potential, and they are partnering with Premier as they develop their growth plans. Q1 has some unique dynamics that are causing near-term challenges, but growth in the balance of the year is strong. The brand and business fundamentals are robust, and I have confidence in delivering the year. We are investing in our brands, sharpening our execution and innovation plans and driving our sales -- our savings agenda to enable our next phase of growth. I remain confident in our future and our ability to create sustained long-term value for shareholders. Thank you for your interest in the company. I will now turn the call over to Paul. Paul Rode: Thanks, Darcy, good morning, everyone. Fiscal '25 was a year of strong performance for BellRing with net sales growth of 16%, adjusted EBITDA of $482 million and an adjusted EBITDA margin of 20.8%. Our business generated $261 million in cash flow from operations, and we ended the year at net leverage ratio of 2.1x. Our strong balance sheet enabled us to repurchase 9 million shares or $473 million in total or approximately 7% of shares outstanding. We've continued to repurchase shares in October with $40 million repurchased to date in the first quarter. In the fourth quarter, net sales were ahead of our expectations at $648 million, up 17% over the prior year. We delivered adjusted EBITDA of $117 million at a margin of 18.1%. Premier Protein net sales grew 15% and were in line with our expectations with strong volume growth for our RTD shakes and putters. RTD shake sales grew 14%, driven by volume growth from incremental promotional events and distribution gains offset partially by unfavorable price mix. As expected, Premier shake dollar consumption was up 20% and outpaced revenue growth. This difference was driven by expected changes in trade inventory, primarily the previously noted e-commerce fee load as well as the pricing impact from our incremental promotional events, which had an outsized impact to our net sales compared to consumption at retail prices. Dymatize net sales growth of 33% was well ahead of our expectations, driven by strong volumes. International benefited from strong consumption and a volume pull forward ahead of our late Q1 price increase with the latter and expected headwind to Q1 growth. Adjusted gross profit, which excludes mark-to-market adjustments on commodity hedges, was $192 million and declined 4% from prior year. Adjusted gross profit margin of 29.7% decreased 620 basis points. The decline was driven by mid-single-digit input cost inflation, increased promotional activity and onetime packaging redesign cost. Protein costs stepped up in the quarter across both powders and shakes, and we expect these headwinds, most notably on powders to continue into fiscal '26. SG&A expenses were $81 million and delivered significant leverage at 12.5% of sales versus 16% of sales in the prior year quarter. The reduction in expenses was driven by lower marketing and advertising expenses as expected as we lapped a period of heavier media and [indiscernible] testing. I'd now like to discuss our long-term targets and capital allocation priorities, followed by our 2026 financial guidance. As Darcy discussed in her remarks, we now target long-term annual net sales growth of 7% to 9%. We expect our business to maintain strong profitability and are reiterating our long-term adjusted EBITDA margin algorithm of 18% to 20%. In 2023 through 2025, we exceeded our adjusted EBITDA margin algorithm. That performance reflected strong sales growth with favorable pricing and a more constructive commodity cost environment prior to the second half of fiscal 2021. Advertising spend as a percentage of net sales was also relatively low at approximately 3% given past supply constraints. Looking ahead, our adjusted EBITDA margin algorithm reflects a healthier level of Premier brand support with total company advertising investment increasing to 4% to 5% of net sales and promotional spending at competitive levels. Our adjusted EBITDA margin algorithm also now incorporates the impact of tariffs. As previously communicated, tariffs will begin to impact our P&L starting in fiscal '26. While we have mitigated much of our tariff exposure, we do expect an ongoing annualized impact to our margins of approximately 120 basis points. We continue to evaluate ways to further mitigate these impacts. To bolster our margin target, we have accelerated cost savings initiatives across our organization. The primary areas of savings involve more efficiently utilizing our co-manufacturing, warehousing and transportation networks as well as procurement savings from ingredients and packaging. Longer term, our cost savings efforts, normalization of record highway protein costs in 2026 and modest SG&A leverage are expected to be supportive of improvement in our EBITDA margins. Our disciplined capital allocation priorities remain unchanged. We will first invest in growth initiatives, including innovation, marketing and systems and process capabilities. Second, we expect to remain asset light with low capital expenditures. After investing in our business, we expect to be aggressive and opportunistically repurchasing our shares with M&A being a longer-term priority. Turning to our fiscal '26 outlook. We expect net sales of $2.41 billion to $2.49 billion. This represents 4% to 8% growth. Adjusted EBITDA is expected to be $425 million to $455 million with a margin of 18%. From a brand perspective, we expect high single-digit sales growth from Premier Protein at the midpoint. Premier's volume growth is expected to be driven by continued category tailwinds, distribution gains, including innovation and brand investments. Volume performance is expected to be partially offset by low single-digit headwind from promotional investments as Darcy mentioned in her remarks. We expect high single-digit sales declines for the rest of the portfolio. For Dymatize, we're executing a price increase beginning in late Q1 to offset meaningful Whey protein inflation and have prudently modeled in elasticities. Additionally, we are reducing brand investment as we navigate high protein costs and the brand has a difficult sales comparison in Q4. Specific to Q1, total net sales are expected to be down approximately 5% of both Premier and Dymatize declining largely in line with our overall decrease. Consumption growth for Premier Protein shakes is expected to be flat. In Club, Q1 is our toughest comparison of the year where we lapped a period with fewer new entrants and chose not to repeat promotions for Premier and Dymatize. Additionally, Dymatize had a strong fourth quarter and benefited from a sales pull forward from Q1 of approximately $8 million, mostly related to shipments ahead of our late Q1 price increase. Together, the non-repeating promotions and sales pull forward are a 4-percentage-point headwind to our first quarter growth. As we move into Q2, we expect an acceleration in both consumption and net sales with the balance of the year sales to grow at the high end of the algorithm at the midpoint of our guidance. This is driven by Premier, which we expect to outpace overall company growth for the balance of the year, as a robust merchandising programs in the FDM channel phase-in for Q2 and beyond and Club comparables ease. Moving to fiscal 2026 adjusted EBITDA. We expect adjusted EBITDA margins to decline 280 basis points at the midpoint with lower adjusted gross margins, the primary driver. Adjusted gross margins are expected to be pressured by significant input cost inflation, particularly whey protein, the primary input costs for our powders, the introduction of tariff cost and promotional investment with margin pressure primarily in the first half of the year. Tariffs are expected to have an unfavorable impact of 80 basis points on our gross margins, net of mitigation and the impact of timing. The remaining EBITDA margin impact is primarily due to increased advertising, which is partially offset by SG&A leverage. Advertising as a percentage of sales is expected to be approximately 4%, with the largest year-over-year dollar increases in Q2 and Q3. We expect Q1 adjusted EBITDA dollars to be below prior year levels with a margin of approximately 16% to midpoint, primarily driven by lower sales and gross margins. In Q2, adjusted EBITDA dollars are expected to improve sequentially, with margin rate approximately 100 basis points lower sequentially due to a combination of higher sales, inclusive of Dymatize pricing, continued high commodity inflation and the timing of advertising support. We anticipate adjusted EBITDA growth in the second half due to higher sales growth, easing commodity inflation and higher cost savings. In closing, fiscal '25 was a strong year, highlighted by robust top line growth and strong profitability. We feel confident in our plans and ability to deliver our 2026 guidance and long-term outlook. Premier is the #1 shake brand with durable competitive advantages in an attractive category, and we expect the investments we are making this year to bolster our long-term position. Finally, our cash-generative business and strong balance sheet enable us to fund our growth plans while also opportunistically repurchasing shares. I will now turn it over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Steve Powers of Deutsche Bank. Stephen Robert Powers: Darcy, I think it's fair to say that a lot has changed over the last 6 months in your categories and around your business. Maybe just -- could you start off by summarizing what you've observed and how that's influenced your '26 plans as well as your updated long-term views. And why you believe the outlook you've landed on is the right one, both in the year ahead and longer term? Darcy Davenport: Sure. I would actually start with what has not changed. I think what has not changed is the momentum in the category. There is -- I mean, the household penetrate -- it's still a low household penetration category, call it 50% with a ton of upside. There -- I mean, you could actually argue there's more momentum in the category. And what has also not changed is Premier's position in the category. So we are the #1 brand, #1 household penetration, #1 repeat, strong national supply chain, et cetera. So I think those are kind of the mainstays. I would -- so I think what has changed is it's more competitive, which I think is expected. I mean the way I view the category in total is that there are -- they're kind of -- and I walked through some of this in my prepared remarks, but they are the leading brands, which include Premier, which represents about 50% of the category. There are these insurgent and crossover brands, which represent about 10% of the category. And then there are declining legacy brands, which represent about 30% of the category, who have been kind of meaningful shared donors through the year. As I look forward, what we expect to see is the leading brands keep leading and winning. The insurgent brands are -- there's going to be some mix. There's going to be kind of a shake-up, where some will make it and some will not. And then the declining brands will continue to decline. So as I look at our guidance and our plan for '26, I feel really good. We have a tough Q1. There's some unique dynamics going on with Q1 with -- in the club side of the business. We're lapping a period with fewer new entrants and one major club customer. And we're lapping some non-repeating promos in the other. So it's a tough quarter, but that does not represent the business. The last 3 quarters are much like every other quarter that we've had, which has strong, strong growth. And the reasons to believe there is the category is healthy. We have strong plans. The rest of the business is growing very rapidly. We've got a couple of really exciting partnerships, like we have a partnership with this mass retailer that I talked about, which really is, I think, a sign of what we're going to see in other grocery accounts and then advertising hitting as well as innovation. So I think there is the reason to believe as well as my view on the category. Operator: Our next question comes from Andrew Lazar with Barclays. Andrew Lazar: Darcy, I remember last quarter, you did not yet have as much clarity as you wanted around the repeat rate for some of the new entrants or the insurgence that have come into the category, particularly at your largest customer. I'm assuming you at least have some additional clarity now on some of this. And I guess, more importantly, what that means for sort of the -- your expected shelf set, right? For the year ahead at your largest club customer. I was hoping you could maybe update us a bit on that dynamic. I think that was one of the main reasons why last quarter, you weren't yet in a position to sort of provide '26 guidance as I think many had kind of hoped at the time. Darcy Davenport: Yes, sure. So yes. As I said in my remarks, that one of the changes is that we do expect that our major club customer will keep that expanded set. So that is a change versus what we had assumed before. So we think that the competitive set will be bigger and remain the same. I think that we wanted to watch repeat rates. I would say we're continuing to monitor. I think what is clear is that not all of these kind of insurgent brands are going to make it. There is definitely going to be a shakeout. These thresholds that you have to hit at these club customers are high. And so I think that we will continue to see sort of a rotation of different kind of smaller brands, bringing news, but also kind of just coming in and out. I would say what we have learned, we are -- our fifth pallet in that customer will -- as we expected, will be -- will transition out. The rest of our business is super strong. I think that what I've learned, and what we have learned is that I think that -- the category is strong, it's expandable. I think that they're -- from an insurgent brand standpoint, there will be winners and losers, and it's really hard to hit those thresholds. I think that we are really well positioned versus consumption. When we look at the interaction between us and many of the competitors, we have a clear position and our repeat rates are only getting stronger. So -- and we're also source -- we are sourcing some volume from those competitors. So I think I feel really good about our business in the long term despite there's kind of a little bit of messiness in this quarter. Operator: Our next question comes from Megan Clapp with Morgan Stanley. Megan Christine Alexander: I just wanted to ask about the club channel, again, maybe following up a bit on Andrew's question. There's been a lot of unique dynamics, not just here in the first quarter, but all year in the club channel. And clearly, it's an important channel for the category a bit more mature for you. But when we think about the acceleration that you talked about that you're going to see in mid-December and the kind of down 5% to up 9% or so embedded in the guide. How much is driven by the Club channel in particular? And can you just tell us what that means for what you're expecting for growth in the club channel this year? And how the various headwinds and tailwinds kind of shake out in your mind as you think about that channel. Darcy Davenport: Yes. So what we expect is that -- the growth is -- the major growth is largely coming from outside of the club channel. I mean we've been seeing stronger growth for many, many quarters from our FDM, the food, drug, mass and e-commerce channels. So that is where we see -- that's where we have kind of the most potential, and where we see kind of the most opportunity for the category as well as us. So what our guidance assumes is that the club comparisons get better throughout the quarters. But the growth is largely coming from the rest of the channels. So I think that -- and in our -- in my remarks, I talked about kind of the reason to believe just around distribution, merchandising, advertising and innovation. Operator: Our next question comes from David Palmer with Evercore ISI. David Palmer: Thanks for the commentary on your general areas of investment. A lot of us are going to be looking at the all-channel scanner data, the consumption data. I wonder how you're thinking about what we will see in that consumption trend through the rest of the fourth quarter. And I presume which will be a ramp into 2Q? How you're thinking what we would see based on what your plans are -- and to the degree that you can, can you tell us how you're factoring in increased competition that you see and perhaps some room for surprises and your innovation contribution to growth. Darcy Davenport: From a consumption standpoint, we are expecting, in November, we'll continue to see Tough Club comps and remember, we have that non -- that Club promotion that we are not recurring. So expect kind of slightly negative kind of low-single digits, continuing through November. What we start seeing when you'll start seeing an acceleration in sort of the back half of December as New Year. So we have the mass partnership, so kind of expect low double digits in all of December, but it will ramp up towards the end. And then that momentum will continue through kind of Jan, Feb, March and on. So there really is some unique things going on right now within the club channel, then ease out. Obviously, the nonrecurring-club promo is very specific in October and November. But after that, I think that what happens is that it continues to accelerate as we layer on these demand drivers. David, what was the other question? David Palmer: Well, how you're thinking about increased competition being headwind, perhaps including some room for surprises there, but also contribution to growth, and how you're thinking about just the innovation giving you some help on some of the consumption numbers you're thinking about? Darcy Davenport: Yes. I would say that our guidance is very, I would say, it's prudent. It's conservative. It puts in assumptions around continued competition. And so I think it's one of the reasons why I feel really good about -- I feel really good about delivering the year quarter by quarter. Operator: Next question comes from Brian Holland with D.A. Davidson. Brian Holland: I wanted to maybe follow up on the conversation around compares over the balance of the year. I mean if I look at Premier Protein's consumption, a little bit softer in Q2 and Q3 prior year in club. Overall, consumption pretty strong throughout the year. So I know you did a longer promo event at your largest club customer this past August, September. So just a little more -- just a little better understanding about why, or how you view the compare as being easier over the balance of the year? And what level of visibility do you actually have into competitor shelf placement as we go through the year? Darcy Davenport: So I'll start, and then, Paul, if you want to add on anything? Yes, so our club comparisons do get easier. So if you remember, in our largest club customer, the expanded that started easing in Q3 and then expanded more in Q4. So we are lapping, so especially in Q1 and into Q2, we are lapping a period with kind of less competition. So the comps are more difficult in the front end. I think what -- as we move forward, I would say we have -- the visibility on competitive entrant is -- I mean, I would say, pretty good for the first half. And then we have -- I mean, we don't even know about our reset for the back half. Here's what I would say is -- as the #1 brand within the category, our retail partners are choosing us to figure out what they're going to do in this -- in their category. So there's some exciting things going on. And I'm going to -- I referred to this in my remarks, but in several retailers, a club retailer as well as some major food retailers. They're testing higher traffic dials to move the category. And they're not just -- they're not moving the entire category. What they're deciding to do is they're selecting the best performing brands the ones that have the most mainstream appeal, and they're moving those into these new higher traffic sets. Obviously, that includes Premier Protein. But some of the legacy brands will stay back in kind of the pharmacy. So that dynamic is not something they're testing it right now. So we're not seeing that necessarily make its way into consumption, but it will in the medium to long term, probably -- actually not even long term, medium term. So some of those dynamics are really exciting. And I think show you where the category is going, and whereas the #1 brand where we will be going. Paul Rode: So obviously, we had very strong distribution gains in fiscal '25. And so we'll obviously get the full year benefit of that in fiscal '26, including some pretty significant distribution gains in our fourth quarter, in particular at a mass retailer that reset shelf. And so obviously, we'll get a full year benefit of that reset as well, including -- in our first quarter, we have some innovation that's also shipping out. So as you kind of get into Q2 and beyond, some of that innovation will start shipping. Q2 obviously is a very big pulse period for us of advertising. So we're stepping up our advertising, stepping up our merchandising, stepping up our promotional events, especially in FDM. And so those are the reasons we think that sales and consumption will accelerate as we move into Q2 and beyond with additional innovation hitting later in the year. So those are the big pieces for the reasons for why we believe consumption will accelerate as we move throughout the year. Operator: Our next question comes from Thomas Palmer with JPMorgan. Thomas Palmer: I wanted to maybe bridge a little bit more on your EBITDA margin, down around 280 basis points year-over-year. You noted, I think, around 80 basis points from tariffs and your comments suggest maybe another 80 basis points for stepped-up advertising. So when we're kind of thinking through the remaining 120 basis points, maybe a little help kind of bridging like SG&A leverage, excluding advertising, inflationary pressure, excluding tariffs? And then maybe thinking through some of the cost savings that you noted. Paul Rode: So as you've highlighted, we're calling for our EBITDA margins to be down about 280 basis points compared to a year ago. And as you mentioned, about 80 basis points of that is tariff. From a line item perspective, we expect gross margins to be down, that's the lion's share of that decrease. And then SG&A, we would expect to be modestly down with advertising an 80 basis point headwind, and then there's offset partially by some G&A leverage. When you look at within gross margins, we were calling for inclusive of tariffs, a low to mid-single-digit inflation headwind. Much of that is on whey proteins, which is the input cost on our powders, we are taking pricing for late in Q1. So obviously, that will start to get offset as we move into Q2 and beyond. On our shake business, we do have a little bit of a step-up in Q1 and then inflation is pretty flat to slightly up as we kind of go through the year on shakes. And so the puts and takes are, we have some additional inflation, especially on our powder business, which were pricing. On our shake business, we have some modest inflation as we go through the year, but we also have cost savings initiatives that are more impactful in the second half of the year. So one of the things I want to point out here is that if you look at our margins, kind of by quarter, the first half obviously has -- we're lapping a very, very strong margin first half last year. We had gross margins nearly 35%. And so that's -- so as you look at kind of the headwinds throughout the year, first quarter has the biggest headwinds on a margin perspective versus a year ago. Q2 also has a sizable headwind, but less than Q1. And then as we get to the second half, things are actually fairly similar versus a year ago from a margin perspective. So it's really the first half where we have the biggest headwind related to margins. And again, largely driven by inflation, but also our stepped up promotions as well. Operator: Our next question comes from Peter Grom with UBS. Peter Grom: So I wanted to go back to the market share discussion and a follow-up to Andrew and Steve's question. And I guess specifically on what you are seeing from the insurgent brands. And I guess -- do you think they have the potential to see similar market shares to what the category leaders are at today? And I ask this more around the debate around what the competitive landscape looks like. I think some point to the potential that we could -- this industry could be similar to what we see in energy drinks, where you have a duopoly versus maybe some others where you have 5, 6 brands with similar shares. So Darcy, I know you mentioned that you think it's -- some of these brands are going to go away, but maybe you can take the other side of it, I'm curious if you think any of these insurgent brands have potential to become more real competitive threat over time? Darcy Davenport: I mean I'll just -- you guys have been along with our journey, and I think you even see it with our major competitor. It takes a long time to build a national network of a national supply chain. And so I think that from a -- I think it's -- I think you can -- some of these insurgent brands can do well in one retailer. But I think expanding out, and we've done it. This is kind of -- in many ways, this is our playbook, right? Like we started in club, we expanded outside of it. It is incredibly complicated. So it is complicated to -- it's a complicated supply chain, the expertise that you need to have the sophistication around expanding and being able to service multiple different channels simultaneously as well as the back end of -- on the co-man side. And then even if you're self-manufactured, that's a whole another piece. So I am assuming, we are assuming that, of course, there's going to be -- there are going to be a couple of these insurgent brands that probably make it. But it is going to take a while. And I think that what we're seeing, but I think there will be many more that don't. And that -- and I just do not want to underestimate the move from one kind of club customer to go national is very complicated. It takes multiple years, and it's a different skill set. So yes, I think that ultimately, I think this category is going to consolidate around kind of the most successful brands, a handful of them. And I clearly think that's going that's obviously going to include us as the #1 brand. Operator: Our next question comes from Alexia Howard with Bernstein. Alexia Howard: Can I ask about pricing expectations, price versus volumes embedded within your guidance. You're obviously taking a list price increase on Dymatize. With the rest of the portfolio, do you expect promotional activity step-up to actually bring pricing downwards? And does that cadence vary through the year? Paul Rode: Yes. So for -- I'm going to break it into brand. So for Premier Protein, we would expect a modest kind of a low single-digit headwind related to pricing. So that incorporates our stepped-up trade investments, offset by -- we expect some favorable mix. So there is a low single-digit headwind we're expecting on our shake business, which obviously is the biggest part of our business. On Dymatize, we're taking a price increase on powders, but we expect mix to play a big part of this because we now have RTD shakes and Dymatize, and those are at a much lower price per pound than powder. So it throws off a really funky mix. So net overall for total BellRing, I would expect a low single-digit headwind overall with Premier similar and then Dymatize, even though we're taking a price increase, may look like it's negative because of just mix. Operator: Our next question comes from Matt Smith with Stifel. Matthew Smith: Darcy, following up on the discussion or Paul, around higher promotional activity over the next year. We've seen a step-up in promotional intensity from insurgence in recent weeks. As you look forward, do you expect Premier promotional activity to be moving higher more on a frequency or a depth basis? And do you expect that to be focused in certain channels? It sounds like maybe club promotion should be similar relative to the prior year once we get past the first quarter? Darcy Davenport: Yes, I think that's me, right, Paul. Yes. So you're exactly right. We're expecting to see a little bit of a step-up of promotion in '26. And yes, I think, it's interesting that just October, especially in the club channel is usually not a high promotion time period, and it was a little bit more, and it's coming from the insurgent brands. So from our standpoint -- and also, I would just say that just remember that this category is actually fairly low promotion compared to many categories. It's just about -- it's about 25% to 30% sold on deal. So just keep that in mind as you're thinking about just this category kind of in the macro. But as far as our business, we are going to see a little bit of uptick in promotion mostly as we talked about, our emphasis, specifically in FDM as we are getting out of the aisle, as I've talked to you guys before, the key is for us is getting out of the aisle to get that trial, to get that -- and then with our 50% repeat, we get the repeat. So that's a big emphasis. It's why we brought on the brokers. It's why we have a new internal team focused on this, around singles and entry point priced multipacks. So because of that, when you have that merchandising, you usually have to do some sort of a TPR. So we are going to see a little bit of a step-up of promotion that comes along with that expanded merchandising. Operator: Our next question comes from Yasmine Deswandhy with Bank of America. Yasmine Deswandhy: So I just had a quick one on longer-term strategy. So you guys walked away from the PowerBar business a couple of years ago. And considering that the convenient nutrition category is expanding outside those traditional products. Have you given any thought into, say, going back into bars or expanding into breakfast offerings like waffles, pancakes and cereal. I guess I'm just asking as well because given the recent -- the press release of the recently announced Board appointment, it highlighted David's finance M&A background. So I also don't know if there's -- has there been any change in your capital allocation priorities, particularly around M&A and your product portfolio as well. Darcy Davenport: Why don't I hit the portfolio piece and Paul, you can hit capital allocation. So from a portfolio standpoint, we really -- we believe in our category, specifically ready-to-drink shakes and secondarily powders. We think that there is a ton of opportunity. I talked about in my prepared remarks just around this demand landscape study that we did. A key part of that demand landscape study was to evaluate and make sure that there was going to be a ton of room to grow, and there were many years of strong growth kind of a ton of white space that we could capture. So it confirmed that. So we love this category. We think there's a lot of opportunity. We have a great brand to compete. Now having said that, we also do participate in some of these -- we have a great brand that we have learned that can travel to heavier traffic aisles. We are competing in some of these other areas, but we're doing it through licensing. So if you -- we actually have a frozen pancake, we have a frozen waffle. We have a dry pancake mix. We have a cereal, and we're actually expanding some of those, but we do it through licensing because we want -- I want this organization laser-focused in what we believe is the biggest opportunity, which is ready-to-drink shakes and powders. So no, we do not have any plans to go back into bars. It's a highly competitive area, low barriers to entry, et cetera. So -- but we love the area that we in and we think there's a lot of upside, and I'll pass it over to Paul for capital allocation. Paul Rode: Yes, thanks, Darcy. Yes, on capital allocation, I would say that our priorities haven't shifted really that much. Obviously, our first priority is always investing in the business. And as we talked about, we are making investments this year within trade and promotions continue to drive this business. Outside of that, because we generate really strong cash flow, we're not expecting to change our asset-light model. We have low CapEx. Obviously, that provides us a lot of cash flow that we can obviously allocate from recently, and we still think is the most attractive is share repurchases. We've obviously leaned into share repurchases. And so that's still our near-term priority, but M&A, we're always looking at M&A. We're looking all the time. We get pitch things all the time. And so we'll definitely keep an eye out on M&A, and that's something I think that is becoming -- I wouldn't call it near term, but it's more kind of in the mid- to longer-term priorities for us. And yes, David, coming to the Board obviously brings a lot of strength in that area. So that's great for us. And so yes -- but yes, M&A is something we're always looking at. And if we find the right opportunity, we certainly would go after it. Darcy Davenport: Yes. And on the Board side, we're really happy to have David on board. I think he brings a great skill set, and we're always looking at expanding and improving the skill set on our board. Our Board has been incredible over the years, and we just want to continue to make it better and increase the skill set. And I think David does that. Operator: Next question comes from John Baumgartner with Mizuho Securities. John Baumgartner: I'd like to ask about RTD category segmentation. Fairlife Core Power, they've established that Premium segment in ultrafiltered milk, but now we've seen two legacy competitors relaunched with ultrafiltered, some of the newer entrants, the insurgents private label, they're adopting ultrafiltered. So I'm curious, Darcy, why the category is making this shift with ultrafiltered becoming more of a standard recipe? Is it tied to raw materials availability? Is it due to the license to move more Premium? Is there a specific consumer you sense they're chasing? Just curious your thoughts there on that recipe shift? And how might this shift position Premier differently relative to history? Darcy Davenport: Yes. Yes, I think the category is maturing. I think that it is -- when we did our demand landscape study, I think that what became very clear and our head of innovation, I will quote her, and she described the landscape is like there's different strokes for different folks. Meaning some -- when the category is more nascent, kind of everybody kind of wanted the same thing. But as it expands, there are different preferences. And so for instance, some people want thickshakes. Some people want thinner shakes. Some people want dairy shakes, some people want plant. So I think what's the good news for us is that our core 30-gram shake addresses the biggest consumer needs, but it doesn't address every consumer need. And so as we now are kind of growing up, we hit with the 30-gram with our core offering, we hit the biggest one, but now we're launching innovation to go after some of these other needs. And like -- I mean, I think a good example of that is, so when you're talking about ultra-filtered milk, that is an innovation. It's a thinner offering. It's more of a beverage. Ours is more of a thicker shake. Ours is more of a meal replacement. So I think that starts explaining why there's actually not that much interaction between the two. It's going after kind of a different consumer, different occasion. We launched almond milkshake, that's a non-dairy. We knew that was an opportunity. We think it's a smaller opportunity than the dairy side of things, but it's an incremental opportunity. And I think our numbers that we're getting from almond milkshake, even though it is early, are showing exactly that, 50% incremental, we're getting to new people. So that is a key aspect of our innovation strategy is really going after -- make sure that our 30-gram core business is strong. We always are looking at making it better. We're always looking at bringing in news and flavor innovation, et cetera. But at the same time, we also are going after some of these other incremental consumer needs with other innovation. Operator: Our next question comes from Jon Andersen with William Blair. Jon Andersen: We talked a lot about the insurgent brands this morning. And Darcy, you mentioned you expect over time there to be a bit of a shakeout, which makes sense to me with some winners and some not meeting the thresholds. But in your kind of experience, how long would you expect kind of a process like that to kind of take or to play out. And the reason I ask is because it seems like the competitive dynamic that is weighing a bit today, it could remain difficult until that kind of shakeout period -- shakeout event kind of plays out more broadly in the market. Darcy Davenport: Yes. I mean it's a great question. I think that we're seeing it right now, obviously, we're seeing brands that are not making the thresholds. I think what -- I think I would zoom out a little bit. So I think the reason why even in Steve's very first question, just about our view of the category these insurgent and kind of crossover brands, they're getting a lot of attention. They only represent 10% of the category, and there are a lot of them. So -- and I think that remembering, and I think that what is important is where the growth is coming from, it's coming from the leading brands, bringing in more households and then also sourcing volume from those declining legacy brands, which are not insignificant. 30% of the market share is in these kind of declining legacy brands. So what's happening is that, yes, there's going to be some churn in the insurgent kind of crossover brands. Some are going to make it, some of them not. There's always going to be new news. It's an exciting category. I mean you see it in energy. There's always like this group that kind of starts turning. But like if you zoom out the leading brands, which have established, which has -- they have high -- let's just talk about Premier, #1 household penetration, #1 repeat, national supply chain that we've built over years and years and years. We have -- we're now invested, we have capacity. We're now investing in the brand, we're leaning in, we're partnering with retailers to figure out where in the store that this category should be, and how it should be merchandised, and how to maximize it. They're choosing us to do that. So the leading brands are just going to -- they're going to keep on winning. There's going to be churn around the insurgent brands. And then the legacy brands are going to be the ones, I think, that continue to be -- they have been shared donors for years, and they're going to -- and that is just -- it's kind of accelerating. So your question around how long is it going to take? I mean, I think there's going to always be this kind of churn of insurgent brands. And I think it's an exciting category. We watch it for sure. But I think that there will -- I think the focus in my mind is -- and they're actually sourcing some volume from the declining legacy brands. So -- but I think the focus is that we definitely expect there to be a consolidation and the most successful brands are the ones that are going to really propel forward. Operator: Our next question comes from Robert Moskow with TD Cowen. Jacob Henry: This is Jacob Henry on for Rob. Just one question for me. I think I heard you guys mention that your fifth pallet at the large club customer is transitioning out. I'm just wondering if you have any insight into when, and why that's happening. Darcy Davenport: Yes, it was always going to be -- it was always going to be a temporary SKU. So it went in -- it's coming out in Q2. So it will phase out. Operator: And I'm not showing any further questions at this time. And as such, this does end today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Welcome to the EON Resources Inc. announces Third Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, David Smith. Sir, the floor is yours. David M. Smith, Esq.: Good afternoon to everyone. I'm David Smith. I'm General Counsel for the company. Glad to join you this afternoon. I need to, as we get started, go to review our safe harbor statement regarding today's conference call. Please note that on this call, we will be making forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and assumptions, which are subject to risks and uncertainties. These statements reflect our views only as of today. They should not be relied upon as representative of views as of any subsequent date, and we undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, in light of new information or future events. These statements are subject to a variety of risks and uncertainties that could cause actual results to differ materially from expectations. Further information regarding these and other risks and uncertainties, are included in the company's annual report on Form 10-K for the fiscal year ended December 31, 2024, and in other documents filed with the U.S. Securities and Exchange Commission. Today, I would like to introduce our presenters, the executive management staff of the company. You'll see on the slide, if you're participating in the webcast, Dante Caravaggio, he is our CEO; Mitchell Trotter, our Chief Financial Officer; myself; and Jesse Allen, who is our Vice President of Operations. To get started and to kick this off, I'd like to make a few points about the third quarter. It was a remarkable quarter. We had record net income of $5.6 billion. We retired all $41 million of senior and seller debt. We retired all preferred shares that had a redemption value of $27 million, and we increased shareholder equity by $22.7 million. In addition, we acquired a 10% override with the original seller group who had retained it when we purchased the Grayburg-Jackson Field and the company that owned it. Additionally, we were able to Farmout the San Andres formation for a Horizontal Well Drilling Program in which we retain a 35% working interest throughout that program. This is in addition to the retention and continued development of the formations other than the San Andres, which includes our current wells and producing programs. So those are unaffected by this drilling program, that will kick off next year. The thing to really note is this was all done and closed on September 9, and we took on absolutely no debt to achieve these results. So a remarkable time. The drilling program that I described will be over the next 5 years. We expect to drill as many as 92 wells under that program. We will continue to [ maintain ] that 35% working interest in that development. And there are multiple pay zones throughout our acreage, not just the San Andres, so we're going to continue to develop all that we can, in that respect. Our current production is typically out of the Seven River formation and our waterflood. We're seeing results already from our balance sheet being cleaned up with this transaction. Our ability to raise capital has really been enhanced -- it's really the look of a new company. Our phone has been ringing off the hook with opportunities. We're looking at acquisitions. We're always looking at enhancing reserves. But of course, throughout all of this, our main focus is to get the stock price up. That drives us every day. Those are the highlights. That's what strikes me in my role here as General Counsel as to what we're doing. I'm very excited about the future and really pleased to introduce Dante Caravaggio now to take it up from where I've described. Dante, go ahead. Dante Caravaggio: Well, thank you, David. And I'll just start off by saying happy Thanksgiving and Merry Christmas because this, I believe, is our last shareholder earnings call until next year, and I think the main thought we want to leave with everybody is, let's get the party started. So we really had a mountain to climb. We wanted to fulfill all the promises and commitments that we made to our shareholders. And really, as David said, on September 9, we really did that, and we didn't leave a mess. So the balance sheet is clean. The debt story is a good one. So we're attractive for investors that will help us raise capital, buy new properties and kind of off we go. And I think the other thought I'll leave you with is inventory. This deal we did with Virtus, we've got in there the potential of drilling 92 horizontal wells. You have to really look hard at a lot of oil companies much larger than us to find 92 drillable wells in inventory. Well, we've got them, and these are going to be big wells. The other thing we've got, again, I'll use that word inventory. We've got 350 producers sitting there at Grayburg-Jackson, waiting for us to stimulate them, perforate them and make them do better than they're doing. And we're now in a position where the cash is there, we can invest in these things and get that to go, and our primary focus with regard to that is conversion of another 150 SVR waterflood patterns. And by way of history, this field at one point was down to 300 barrels a day. It made it up to over 1,000 barrels a day primarily by converting current wells to SVR injectors and producers. Well, we're going to continue doing that same thing. The other thing we added to, I'll say, inventory of workovers, is the purchase of the South Justis field. So that field was down to 50 barrels a day. It's got 200 wells on it. We're going to activate those wells, and those wells, on average, make double or triple on a per well basis, the oil per day that Grayburg-Jackson does. So if I recap this, yes, we raised $45 million. We cleaned up the balance sheet with that. We sold an interest to Virtus to do some drilling in the San Andres, included in that is a $2 million fund, to do some experimental workovers to test their theory of completions in the San Andres. So that's going to give us a near-term kick in production. The Farmout, I think we discussed that, and then going forward from that, we've got an awful lot of work just to increase production, I believe, by 500 barrels a day without drilling over the next 6 to 9 months, not counting what Virtus is going to be, and that includes completing the water injection line, you're going to hear Jesse talk about that, continuing to bring on wells that are offline by using the 4 rigs that are running and then through stimulations. So with that, I'm going to turn it over first to Mitchell Trotter to talk about the finances. Mitchell Trotter: All right. Please advance to the financing highlights. Good. Well, thank you, Dante, and hello, I am Mitchell Trotter, the CFO, and I thank all of you for attending today. And as Dante and David so articulated, the September 9 funding resulted in major improvements to our Q3 financials. This highlight slide, it's the same one, that's in the funding call deck. We've been through it before. I have it there mainly for reference so that you have the deck, and it can help you understand as I go through the parts of the financials. The sources of the $40.5 million of volumetric/ORRI funding and the $5 million from the Farmout agreement, they have many parts with different GAAP treatments. So we'll kind of go through that a little bit, and the same thing for the uses where we retired the senior debt, we acquired the seller ORRI, and we retired those preferred shares, all those major impacts flew through the balance sheet and some of the income statement. So let's move on to the balance sheet slide, and then let me kind of show where some of the big parts are, on that. Again, this is a major improvement. I can't say it more times. But the slide you have here is a condensed version of what's actually in the 10-Q, and it best illustrates the impacts. So how do we clean up the balance sheet with respect to debt, which has by far the largest impact. Again, we retired $21 million of senior debt, and with that, we have a $1.5 million reduction in the debt that you will see comes through as a gain on the income statement, and I'll explain that in a little bit. We also retired that senior debt of $15 million with the seller, and it also eliminated a $5 million accrued interest, and we did all that for $7 million, thus creating a $13 million gain that you'll also see when we go through the income statement in a minute. Do note that the convertible notes, they're still there, but we reduced them to $5.4 million from the original $9.8 million that was private loans and warrant obligations by the end of the quarter. So the end result of all of this cleaning up of debt is, we only have $1 million left of current debt and the other $4.4 million is long-term debt, and we have a huge drop in our accrued liabilities. So that was all good. Now shareholder equity, that's also been transformed as well. The preferred shares, as David stated, that had a $27 million redemption value and it was retired for only 1.5 million common shares, that we announced back on September 9. And this eliminated all the minority interest. So our equity is cleaned up with respect to all the miscellaneous things. The end result of our shareholder equity, the end result of the financing, the elimination of the debt instruments, the related gains and all of that flowing through, our shareholder equity went up by over $22 million from Q2 to Q3. So with that, let's go ahead and move on to the income statement slide, please. And then this, too, is a condensed version, just like the balance sheet to hopefully let you see things a little bit better. And this, again, is a reset of our P&L going forward. The Q3 net income was the highest level to date of $5.6 million for the quarter. While most of that net income came from below the line, those gains were definitely earned by all the hard work we did. And David did a really good job of articulating how we got there. So what does that mean below the line? There's that $13.4 million of gain. That's a combination of the seller note reduction, how the various ORRIs and all the related costs relating to that are recorded for GAAP purposes. And then there's that $1.8 million gain, and that comes from the senior debt retirement plus a gain from settling an old fee. Now offsetting these gains, there's $1.1 million of onetime expenses that GAAP has us, include up in the G&A versus down below the line. GAAP retired required this grouping of the $1.1 million onetime charges in G&A, which personally I think is misleading, but that's where it is. The actual recurring G&A expenses continue to decline quarter-over-quarter, and that's a huge improvement. That's what we've been talking about all year long, and we're pleased to say that. Another cost reduction, as we stated on the Funding Call, is a decrease of interest expense of up to $500,000 a month. Most of the interest for September was eliminated with the September 9 funding, and you can see that in the reduction of about $1.7 million down to $1.2 million interest expense for the quarter. And as always, I will tell you, we'll take questions at the end of this presentation and willing to have individual discussions as well. With that, reach out to Mike Porter, our Investment Relations guy, and we'll do that. We've done that plenty of times with many of you. So with that, I do want to move on to Jesse to review operations. So please advance to Jesse's slide. Jesse Allen: Thank you. Yes. Good afternoon. I'm Jesse Allen, VP of Operations. And today, I'll talk about some of the third quarter highlights from an operations viewpoint, in other words, our daily operations. And then I'll make a few comments about the San Andres Farmout to Virtus and some of those details. So with that, safety. That's always foremost one of our -- the most important things that we can do is make sure that all our employees are safe. And as a matter of fact, we've had no reportable incidents in this quarter, and we've not had any reportable incidents since we took over operations back in November of 2023. Combined production remains consistent above 1,000 gross barrels of oil per day in the 2 fields, the Grayburg-Jackson field and our South Justis field. Currently, we have 4 well service rigs operating across both fields. We have 3 rigs in the Grayburg-Jackson field, which is just outside Loco Hills, New Mexico, and then 1 rig in the South Justice field area, which is just outside of Jal, New Mexico. One of the big projects that has been ongoing is the installation of 2 miles of injection pipeline. We're in the pressure testing mode right now and hooking up of the injection wells and each of the injection well headers. And so that's ongoing currently. And then we get to the biggie here, which is the San Andres Farmout to Virtus, which we can't say enough it was a really good deal for both parties. We signed that on the 9th of September of 2025. A few of the really big highlights are that horizontal drilling is scheduled to begin there in 2026, and depending on the length of time it takes to get the BLM permits, that would be the Federal Drilling Permits, we think it will probably be in the second quarter of 2026. Now I need to let you all know that on our website, which is eon-r.com, you can find our horizontal drilling package or deck that details a little bit of what I'm going to talk about today. And on our site, you go, first, on the home page, you click on operations, then click the Grayburg-Jackson Field and then page down to the Horizontal Operations and then click on Horizontal Drilling, and that will get you that presentation. But a few of those highlights. As a result of our Farmout to Virtus, we got a cash consideration of $5 million. The post-deal working interest will be 65% Virtus and 35% for EON. The plan is to drill 10 to 20 wells per year for the next 5 years. Initial production from those wells will be in the range of 300 to 500 barrels of oil per day per well. That's what we anticipate, and the cost of each of those wells will be in the $3.5 million to $4 million range. So with that, I'll turn the call back over to Dante Caravaggio, our CEO and President. Dante Caravaggio: Yes. Thanks, Jesse. So what's next? Some of you may ask, are we a one-trick pony? Is this third quarter going to repeat? Was that a onetime deal? And the answer is no. We have not rested on our laurels, since we got the deal done, and maybe sometimes we got to get some stuff out of David, so we would sit on them. So I have to work that out there, and we're not happy with our costs. We want to cut about $200,000 a month out of our lease operating expense and another $200,000 a month out of the G&As. And as Mitch said, we had a lot of onetime charges that hit us in Q3 that caused those costs to kind of go up and they're gone. And you might say, what was it? Well, we had a lot of help. We had a lot of brokers. We had a lot of attorneys, and they did a fabulous job. But now they're gone. They're off the payroll. So back to what's next? And it's back to the inventories that I talked about before. We got 92 wells we believe we can drill between the 2 fields we've got. We've got 500 producers that we can do workovers on, and we can't get that all done in 1 year or even 2 years. But over 3 years, we're going to be busy. And what that does is, increases production, and a lot of oil fields are in a decline mode. And people will use the term, you're buying a melting ice cube. And it's hot. It's hot here today in Houston, Texas, but we're not that. We are a company rich with opportunity, and we are raising money to make sure we get this and get it going, and every quarter, we expect to see increased production in an increasing amount. And so one of my slides here, my top bullet says, "We're going to improve financials with increased production through 2026". Well, we can see all the way to 2030. These numbers are just going to keep going up well beyond 2030. That's the magic, I think, of what we've got. Near-term production increase, we got to get the waterline energized. Jesse talked about that. We think that within 90 days, we're going to get a kick in oil production because our waterflood is [ water star ] because this 4-inch supply line is not running. And it's been that way for a year. And frankly, you haven't seen the effect of it because Jesse has been so good with stimulating wells, keeping them all going. You just haven't seen that effect. When we kick that thing in, it's going to be a real boost. I've got here, we're going to do a material acquisition the first half of next year. I'm just going to say we see big numbers without taking on debt and without selling any shares, where we can be creative to buy properties. And we are looking at these. We cannot tell you about it because it's top, top secret, but I can tell you we're working on it diligently to the point of how we're going to operate, how we're going to raise the funds, how do we do this without diluting shares, how do we do this without taking on debt? And we've got most of those questions answered. So it's really going to be fun when we can talk about it. The horizontal drilling should commence in the second quarter of next year. That's going to be a blast. You're going to get a glimpse of that when Virtus does some workovers, and we expect those workovers to happen in the next 60 days, and we'll do our best to report that, although that might be kept secret if it's too good because these guys are -- they've got something good and they're under our hood. So it's actually a battle to share much of that with everybody. The downside, oil prices are weak. We'd like them to stay above $60, and we're encouraging everybody out there to drive to your destination, fill it up with premium and stay under the speed limit and be safe. We're mostly debt-free, that helps us weather the storm. If we've got low oil prices and lower income, we can offset that with a savings of close to $400,000 a month that we don't pay an interest. So that expense is gone. We also can help that by just increasing production. So we're in a good position, if the worst happens and oil prices drop. Gas prices are increasing. So that's a good thing, but we struggle to sell all our gas. The midstream buyer has struggled keeping their plant running, and we're looking at options. And we've got some shareholders reaching out to us, which we thank, with regard to using gas-fired turbines to generate power that could save us $70,000 a month. We could also use the same turbines to power up data centers or to power up Bitcoin mining. So all those things are being done by our competitors. And we're not -- we really don't have the funds to experiment, but we are going to piggyback a proven solution. So with that, I'm going to just wrap it up and say we're excited about where we're at. We're no melting ice cube, and we've got great inventory to certainly carry us through the rest of this decade. And with that, I'll turn it back over to David and Matt. David M. Smith, Esq.: And this is David here. Thank you, if you will go forward with a question-and-answer period that we've arranged. Operator: This is David here. If you will go forward with the question-and-answer period that we've arranged. Operator: [Operator Instructions] Your first question is coming from William Peters. William Peters: Great balance sheet cleanup. Your stock seems to be [indiscernible] in the rough. My question was answered already, but I just wanted to reaffirm supplying energy to data centers, AI, mining, et cetera. It seems like a great future for the company, if they could form some type of affiliation with somebody. I know you said money was tight, but to have that correlation would be great for the future. Dante Caravaggio: William. Yes, thank you. The only note I'd say there is we just don't know enough yet. We're dabbling in it. We don't have a proposal, but we're asking for proposals, for people who know how to take our gas and monetize it. So thank you for bringing that up. Operator: [Operator Instructions] That concludes our verbal Q&A. [Operator Instructions] I will now turn the call over to Mitchell Trotter for remaining questions. Mitchell Trotter: All right. Thank you, Matthew. The first two questions are very similar, and I think we've answered, but I am going to read through them or paraphrase them, so Dante can answer a little bit more, if needed. Just so the questions are to you, Dante. When do you expect the first horizontal drilling to start up? And with respect to the future and exploring the reserves that we've identified in the past and opportunities with this drill? Dante Caravaggio: Yes. So once a month, Jesse or I are meeting with Lance Taylor and his team, and they've pretty much picked out the locations where they want to go, I'll say the first dozen. So the steps they have to go through is, go ahead and get those permitted, and as a lot of folks know, the BLM was shut down and the Trump Administration is saying, he's going to put the pedal to the metal to get drilling permits approved. But my best guess, and I base it on the feedback I have from my colleagues at Virtus is that the permitting should get into the Feds this year and then hopefully, it gets approved the end of first quarter and then maybe the end of second quarter next year, we're drilling. We should see results, we think, in June or July of '26. And by the way, the plan is to drill 10 to 20 wells a year, starting out with maybe 6 wells start out, something like that. And these things are not decided yet. And we do want a healthy oil price above $60 a barrel, it's a no-brainer. Below $60, we have to do some hard thinking. So that's the best indication I can give you. Mitchell Trotter: Thank you, Dante. The next question, I will say is for me. And the question is that EON warrants, they have two different expiration dates at two separate brokerage accounts. Any idea why? Well, there is only one expiration date, and that's 5 years from when we became the public company in November. We have found that more than two brokers have, whatever they keyed in the wrong date into people's accounts, as to when the expirations of the warrants go. So it is November of '28. So we can't control the brokers, but that's what they've done. We've reached out to them. Dante Caravaggio: Why don't we do this on that one, Mitch, just because -- that -- I want to run that question by Matt, our SEC Attorney and just double check that because -- and I'm just saying this from memory, and I apologize guys for thinking on a call like this. But -- some warrants were available by investors before we went public, and I don't know if the dates did cascade in their, depending where we bought them before we went public. Mitchell Trotter: They're all gone. This is the IPO warrants, all from the initial IPO. The brokerage accounts have admitted that they've got it wrong. So -- but we will reconfirm the date, and I think that's important... Dante Caravaggio: Because I'm confused, and I think it's an excellent question. Let's just put it on the website so everybody knows, including me, because -- yes, it's not clear in my head. So I apologize, guys. Mitchell Trotter: Yes. No, no, that's fair. And just so everyone knows, we have an FAQ under our website on the Investor page. I think it's under the Governance or the Documents that's up on the right. We'll just add that FAQ to it and so that we can then answer it there, so people can go look at it. Okay. Good point. So okay. I think, Dante, you've answered this one, but I'll give it to you again. At what barrel price does EON Resources start making money? Dante Caravaggio: Well, we make money now. I mean, really, if you look at what we're doing, we're in the red about $100,000. Mitch and I look at this. Today, we're in the red about $100,000, and I've asked Mitch, who controls G&As and Jesse, who controls lease operating expense to each cut $200,000. So if we -- and they've got a plan. So I believe we're profitable right now at today's oil price. Certainly, if we can get oil prices to go up to $65 or $70, then we don't have to work so hard, and certainly, if we buy some additional acquisitions, especially ones that don't cause the G&As to go up, which is what we believe is the case of what we're looking at, then we really get a shot in the arm. So I'm looking at really high-quality, highly profitable properties that will help us, but we don't really need anything to be profitable today. We just need to be a little better at controlling our costs, and it's well within our range. Remember, we got rid of a $700,000 principal in interest payment. So we've got lots of room to work, and we were still paying down debt. But sadly, we leaned too hard on the ELOC, which created more shares in circulation. So we are doing our best to not do that at all and make a go of it, with just the production coming out of the ground, controlling our costs and adding one or two acquisitions, hopefully, in the next 6 to 9 months, something like that. I hope that answers the question. Mitchell Trotter: Thank you. And let me give this one to Jesse. What issues are you facing selling the gas? Jesse Allen: Well, let's see. We're currently making about 600 to 700 Mcf per day or 700,000 standard cubic feet per day to a plant that's -- it's an older plant, the Maljamar Plant, and they've been doing a lot of maintenance recently on their gas treating trains and then they've been putting in some new lines. So it's not only us that are being curtailed. It's also all the other operators that produce into that plant. The operator of the Maljamar Plant, they've actually got another plant that they just got online and they're lining that out now. And so we anticipate that in the not-too-distant future, we shouldn't have this issue of getting rid of all our gas, and I'm sure that the genesis of that question probably came from, well, once you start drilling the horizontal wells and you're making a lot more gas, what are you going to do with that gas? So that gas will go to that same plant. But by that time, they should have worked out all the maintenance issues that they're having to perform. And then some of that gas will go to the new plant. And so we don't anticipate in the future having any gas sales issues and getting rid of our gas. I hope that answers the question right there. Mitchell Trotter: It sounds like it does. Okay. This one, Dante, is for you. Congratulations on the great third quarter with regards to the first 3 wells by Virtus. We'll be drilling by mid-'26. In your agreement with them, are they required to drill at least these first 3 wells regardless of the oil price at the time? Dante Caravaggio: It's really their option when to drill. Those first 3 are solid gold to us because we call it a carry. We don't have to pay a dime. They front all that money. But I believe they're going to drill as long as oil prices are -- as long as oil prices don't collapse, I believe they're going to drill. So I mean, it is $55 okay? Is $50 okay? Is $45 okay? I don't know the answer to that, but they have 5 years to drill 18 wells to hold the rights to our San Andreas formation. And we just feel confident. I mean, I'll just have to give my outlook on oil prices. If oil prices decline much below $60, it's not attractive for anybody to drill. And so what happens is the drillers and the oil producers all shut down. And then what happens? The fields just start declining. And so oil prices will start going up as oil production drops. So now oil production drops, oil prices go up, drilling starts picking up. So it's kind of a self-controlling loop. If oil prices go down, drilling slows down, decrease in production increases, U.S. slows down producing oil, oil prices go back up. Then as it goes up, drilling picks back up, production goes back up, oil prices come down. So I think the search for equilibrium is what everybody is guessing. The number is probably going to be slightly above where people would drill. And people -- frankly, they're reluctant to drill at $60. Our formation is pretty good. So we feel we have healthy economics at $60. A lot of people can't drill without $70. So if you said, where will this sort of level out and where will it be? And how does all this stuff kind of work? I mean, I feel like oil prices are going to hang in there, $60 to $70 with some excursions below that range and above that range. And that's the best I can tell you. I hope that answers your question. Mitchell Trotter: Okay. We have time for a few more questions, a couple more, but let me -- this one is for me. What convertible notes were redeemed and which have not been redeemed? And how did you decide which in the order to redeem. Going back in time, we've talked about converting the private loans and the warrant obligations into convertible notes all the way back into the end of '24, and as we have been stating really every quarter, our intent is to try to clean up all of this by the end of this year, at least with respect to the non-insiders, and that's what we've just about done. All of these private loans came from people that were close to us when we were a SPAC and had no source of income. So that's what got us across the line to begin with. So we have redeemed to date all now, all but $250,000 of non-insider in the last under $2 million is insiders, and we can't do them right now anyway. So that's kind of how we pick them and who's redeemed and who's not redeemed. Dante Caravaggio: Yes. I want to add something to that. As a management team, we take great pride that nobody who has invested with us has lost a dime. And we view that as a sacred trust with our investors and shareholders. And for those that hold the shares, trust me, I'm one of those that paid north of $2 for these shares. And I'm not going to rest until this stock is really, Joe and I talked about it, $100 a share. Now am I going to get that done this year? Probably not. In fact, I almost bet I won't get that done this year. But I think before the end of the decade, that's my goal. I'm just going to say that. Mitchell Trotter: Okay. I've got about three more questions that I think we have time for. The next one actually, next two will be for me, but the first one is very close to that. What is the dilution risk either from the current notes converting or other things? And on the $250,000 of shares, that's -- excuse me, convertible notes, that's at $0.50 a day, that's about 0.5 million shares. So it's not huge in the grand scheme of things, though we are trying to -- and as Dante had alluded to, we have the ELOC that we've talked about for -- since October of '22, and we use it very sparingly and small amounts not to drive anything. And so that's kind of the dilution risk. And when we look at these acquisitions, and this is anything else, we look at acquisitions, we're looking at the proper balance of debt whether its volumetric funding or equity, if it's accretive, if it makes sense. So like the mean 5 shares that we took out the preferred shares, that made sense because it took out $27 million of redemption value for really a minor amount of the number of shares that could have been converted, I mean. So that's how we address that. The next one is also for me. What is the '26 crude oil price value that you anticipate to hedge? We have hedged 1/4 of our production through the first quarter of '26 at $62.50, and we watch it, and we'll probably get up into the 50% max 70%. Now, if it goes crazy, we'll get closer to 70% -- oil price goes. But we watch it. I check it every day. And if the price goes up enough to lock in more over $62.50, I may, but I really want it to be much higher than that. But we're going to have to watch it, the market, what's going on at the time, what we've got going on at the time and to make certain that we are properly covered. We don't have any bank covenants or anything like that, that requires it. And so that's where we are with respect to the hedging. And this will be a good one for you to finish, Dante. So this will be the last question, I believe. An acquisition by a big player, can that be considered? Dante Caravaggio: I don't understand the question. An acquisition by a big -- can we be acquired by a big player? Mitchell Trotter: I'm guessing that's what it's saying, but are we willing -- I take it both ways. Are we to be swallowed or would we swallow somebody else? Dante Caravaggio: Yes. Okay. I'll handle that. I mean, for $1 trillion, we'll sell for $1 trillion. The issue is the marketplace is very sophisticated. They're not going to give us what we're worth. And almost very few people will pay us what the value is of the oil in the ground. They will pay us for the value of the oil barrels coming out of the ground that have been doing so for the last, say, year or 2. So with us, where we have a huge inventory of drilling and workovers, nobody is going to pay us what we're worth. So I don't think -- and we're not going to sell unless somebody paid us what we're worth. So I think the answer is for bargain basement hunter, we're not for sale. For somebody that wants 92 wells to drill and wants 500 wells to work-over and a management team that knows how to do things without selling much stock and without taking on debt, yes, for the right price, sure. But I think we're way better off serving our shareholders by doing what we've been doing, keeping our promise, buy more quality assets with a lot of inventory baked in, paying them nothing for the inventory, paying them a fair price for their PDP producing, developed, producing proven reserves and getting a crazy good return on our money for our shareholders. So we think the future is bright, and we think there's no better place to be. We're all motivated. We've had almost no turnover in our management ranks. We think our employees are happy and they're working safe. So you add all that up, and I think we're a good bet. So I'll turn it back over to Matthew to wrap it up, please. Operator: Thank you. And everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Operator: Good morning, and welcome to the Gorilla Technology Group's Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to our speakers today, Jay Chandan, Chairman and Chief Executive Officer; and Bruce Bower, Chief Financial Officer. Thank you. Please go ahead, gentlemen. Jayesh Chandan: Thank you very much. Good morning, everyone. Q3 marks the strongest quarter in Gorilla's history with revenue ahead of expectations, operating profit firmly positive and the bottom line at breakeven. Now we've delivered a clear swing in profitability. We've built a cash position about over $119 million. We've reduced debt to a point of $15.1 million, and we've advanced our AI infrastructure programs across Southeast Asia, Latin America and the Middle East, securing multibillion-dollar projects, but at the same time, we're also creating a historic pipeline for this business. The simple message is that Gorilla is now operating above the analyst model and scaling faster than the market expected. Thank you. Bruce, anything you want to say? Bruce Bower: Yes. I'd just like to take a walk through some of the highlights from the quarter and then in terms of where we are overall. So the first, as Jay mentioned, it was a record quarter for us in terms of revenue. The balance sheet, as Jay mentioned, $121.4 million of cash total. That breaks down to $109 million of unrestricted free cash and then the balance in restricted cash. Debt of $15.1 million means that we're in a significant net cash position of $106 million. This follows on the performance of the business and also in terms of the -- it was helped by a fundraise that we did in July. In terms of where we are as a business how and we're performing, you can see that we're on track to meet the guidance for 2025, which is in the range of $100 million to $110 million in terms of revenue. And then we were talking about EBITDA margins in the 20% plus range and net income margins in the 15% to 20% range. So we remain on track to hit all of those. The gross margins through the 9 months have been a bit over 35%. That's a little bit lower than we'd expect for the full year. So I think that we'll be on track to hit the 35% to 40% range for the full year. At the end of the quarter, we had accounts receivable of $36 million, and I know people are looking at that and worried. I'd just like to say that we expect the business to be collecting or some of those we've already collected on in the fourth quarter, a couple of significant outstandings in Asia and then some remaining in the Middle East, we expect to collect on. For the 9 months of the year, we had operating cash flow of minus $15 million, and we still expect to either have breakeven or positive operating cash flow for the total year. Another thing speaking about going into the next year is we issued guidance for the next year of $137 million to $200 million. I just wanted to talk a little bit more about how that works, and Jay can help me out as well. But basically, this is how we forecast guidance is based on contractual backlog, which is the revenue that we expect to realize from signed contracts and then also where we have delivery time lines and specified contractual milestones. In this case, we have a signed contract. And in the case of 2026, we have a large signed contract with FREYR, and we have individual deployment as part of that contract. The timing is more or less certain, but still subject to some change, which is why we opted for a wide range to reflect our conservatism in making our guidance. Nonetheless, the fair contract is still a large contract at $1.4 billion overall. So that means over $400 million annualized. And that will be when up and running, $400 million annualized. But the rollout will be through 2026. So the contribution will hit starting in 2026, but it's still -- it won't be the full amount. Nonetheless, we also have a strong pipeline, as we alluded to, which Jay can talk about in a second, which makes us optimistic about hitting the full year guidance for 2026. A couple of other things to point out about 2026 is we have been talking to the market for a long time now about where we're going to grow, diversifying the business and derisking it. What we've seen is that the contract wins and then the pipeline is mostly in Southeast Asia, which would lead to us hitting our target of over 50% coming from Southeast Asia next year. It's also a good mix between government and enterprise. So we'll be diversifying and reducing the government share of our revenue. And then the corporates are investment grade and then the government clients that we're talking to or that we've converted are investment grade as well. So we see an improving credit quality from our end customer. All of this points, I think, to an improving business mix. a diversified revenue base on all measures and then improving client quality. The last thing I'd like to do is Jay is a bit too modest to do this, so I'll do it for him, is the track record is now piling up to the point where I think we have many proof points. When this business went public in 2022 via de-SPAC, the revenue for that year was $22 million. The guidance for this year is $100 million to $110 million. So that's obviously a significant increase in a short period of time. Looking at the guidance for next year, that marks 2 things. One is it's a large absolute increase. The second is that the percentage growth rate actually for next year would be an acceleration over the percentage growth rate for 2025. So it's, I think, quite a testament to the management team to see an improvement in the revenue growth rate and also after a 5x increase in revenue since going public. And then that's not the only highlight. several other highlights. So first of all, we have, as I mentioned, over $100 million of net cash. This is after being in net debt when we went public. We had a very painful or even toxic financing mix earlier in 2022, 2023, all of which has been cleaned up. So the cap table is almost all common equity. And then when we talk about winning new contracts now or executing on contracts that we signed, looking at the balance sheet now, we have the ability to fund significant new deployments from our own resources and then from project level finance that we have on the table from several banks. So we anticipate overall a good year to finish up in 2025. We're quite excited about the outlook for 2026. And then with that, I'd like to turn it over to Jay for anything else that he'd like to add about the outlook, the pipeline, et cetera. Jayesh Chandan: Thank you, Bruce. Yes, it was a very good quarter, rather, wasn't it? But if anyone is still wondering whether this is structural, I would gently suggest that they may need a new pair of spectacles. Now just to highlight on what Bruce talked about and clarifying some of the proof points to all the naysayers out there, our revenue, the consensus analyst model was roughly about $26 million to $26.2 million. Our actuals were at $26.5 million. Gross profit estimate was $9.5 million. We did about $9.9 million. Our operating income, IFRS operating income was to be at minus $6 million. We did a positive of $4.4 million. That's a big swing. And our adjusted EBITDA was about $5.6 million estimated, we did $6.8 million. Adjusted net income was about $3.5 million. We completed quarter 3 at $6 million. Our EPS non-IFRS was $0.26, and we came in at the Gorilla actual was about $0.257, which is in line. Our EPS IFRS was expected to be at negative 0.8. We completed it at breakeven, which is 0.00, which is a 100% improvement. Our analyst implied debt was at about $21 million. Gorilla's actual was at about $15.1 million, and we're looking to reduce that substantially before the end of this year. What we also had modeled for was the unrestricted cash, the restricted cash and the total cash position, and we are predominantly on top of everything today. Why? Because we delivered profitability at an operating level, not adjusted, not sprinkled with ferry dust, not if you squint, you can't see it, so on and so forth. This is proper profitability. We ran the business efficiently. We delivered on big projects across the region. We are delivering big projects across the region. We controlled our costs, but most importantly, we generated a real operating profit. This is not a one-off. This is what we call discipline. Second, we did this at the same time, we were scaling at pace. Now most companies only turn profitable when they stop investing. We turned profitable while executing national infrastructure programs across Southeast Asia, Middle East, LatAm and so on. Anyone who has ever worked in this sector will tell you that is not just coincidence. It is pure operational muscle. Third, we have visibility. And when I say visibility, I mean proper visibility. The $1.4 billion Southeast Asia data center project is not a rumor. It's not a letter of intent. It is not a win. It is a contract and is underway already flowing into our scheduling and revenue plans for 2026 and onwards, of course. The first phase alone provides for $100 million of annual revenue for the first 3 years. This is the definition of structural. Now people also asked me about the pipeline of $7 billion. I'm going to show you this is not something we found under a sofa cushion, okay? It has come from governments, telcos, serious institutions that are designing their national AI and digital sovereignty strategy. Our role in those programs is not episodic. It is recurring, expandable and is increasingly indispensable. Now our balance sheet is also a strategic weapon for us. Over $110 million of unrestricted cash, $15 million plus of debt and working with major partners like Telstra with us on data centers, we are not just hoping to deliver, we are capitalizing to deliver. And finally, with the deepening partnerships with the likes of Intel, Edgecore, HPE and NVIDIA and expanding our sovereign 5G local interception cybersecurity platform, we're not a one-hit wonder. These are partnerships that stick because we execute. So just to go back into the question-and-answer session now, we're not at a peak today. If anything, this is the foothill before the climb. Our numbers are consistent. The profitability is real. The backlog is defined and the demand curve ahead of us, particularly on AI data centers and national infrastructure programs is significantly larger than what is formally in the guidance today. With that, I'd love to turn this over for question and answers. Operator: [Operator Instructions] Our first question today comes from Mike Latimore from Northland Capital Markets. Mike Latimore: Congrats on the great results here. In terms of the guidance for '26, what are you assuming on this large deal contribution kind of low end to high end of guidance? Or what are the factors that get you to the lower high end of that guidance? Jayesh Chandan: Mike, good to hear from you. Let me answer it with numbers first, Mike. For 2026, we've guided a revenue range of roughly around $137 million to $200 million. This is built on only 2 things. One is our contracted backlog with very clear delivery milestones. Number two, the first phase of the Southeast Asia data center project, which alone contributes $100 million from '26 to '28. Now there is 0 revenue in that guidance from databases of the $1.4 billion program and 0 from any other new mandates that are being structured. Now the reality is that the remaining phases of the AI data center program are much larger than the Phase 1. As the time lines and the site consequences are finalized with the customers, we will then extend both our '26 and '27 revenue base quite materially as well. Now on top of that, as you know, we've also built a pipeline. Inside of these are several national projects in late stage that also touch data centers, public safety, network intelligence, our 5G offer inception programs and so on. None of that is in the current guidance of 2026. So the question you've asked me is the range we have given you is based on the backlog driven by a base case assumption. It is also dependent significantly on some of the very important issues we're facing today. One is material shortages of semiconductors, deliveries from likes of NVIDIA, Dell, HPE, Super Micro and so on and so forth. But that said, the upside from additional AI data center phases and new sovereign mandates will sit about all of these, and they will crystallize and therefore, they will become our future guidance as well. So I personally believe that we published a very sensible conservative number, and that's why we have deliberately left the rest out of them for now. Mike Latimore: All right. Perfect. Any color on EBITDA margins, what you think they might do in '26? Jayesh Chandan: Sure. Bruce, do you want to take that? Bruce Bower: Sure. So we would guide for a sort of 15% to 25% range. Mike Latimore: Okay. Good. And I guess just last one for me. The -- what -- can you provide a little more detail on the deliverables on this large contract in '26? Like what is the thing you're going to be delivering in the first quarter and throughout '26? Jayesh Chandan: That's a good question. So the right way, Mike, to see the first $100 million is the run rate it builds. Personally, for me, I think most people expect that you've signed a $1.4 billion contract, it's a light switch and the revenue starts flowing in. No, it doesn't work that way. I'm sure you know data centers very well. We've been communicating on this for quite some time. The first one is basically about 6 to 8 megawatts. That's several hundred high-density AI rack. And we do not like them all in one day, as you can imagine. They come online in plan based as the power, cooling, all of the network zones are commissioned. So revenue ramps up in each batch as they are energized. Second, when you look at the GPU capacity, that becomes a very important factor as it follows in through these waves. As the racks go live, for example, we drop in the cluster through our NVIDIA and partner ecosystem, which drives up the GPU as a service usage line. Now on top of that, we stack our services over a period of time. So not all at once. You can't just do a big bang approach. It's video intelligence, say, for example, for cities, transports and borders, big data analytics, building your large language models for both the government and telco, bringing your inference engines and so on, your cybersecurity, your network appliances and intelligence platforms and things like even the environmental intelligence and smart policing. So as the national workloads move into the platform and the utilization grows, typically from 30%, 40% all the way up to, let's say, 70%, 80%, that deepens our revenue at the same time at the same levels as the physical capacity. So for -- just to take a leap from what Bruce said earlier, if you want us to be doing about $300 million to $400 million steady-state revenue, the GPUs all need to be in motion and be sinking harmoniously at the same time. So the part to that is a controlled ramp, as I said, is not a big bang. So we're anticipating, again, working very closely with NVIDIA on this. We're anticipating that we will get all of this commissioned and to go live by the end of 2026. Operator: Our next question comes from David Williams from Benchmark. Unknown Analyst: Congratulations on the progress and success here, gentlemen. I guess maybe one of the first questions is kind of around the guidance. Obviously, you talked about this a bit earlier, but it feels like there is some potential upside there. And I guess if you kind of think about the risks in the market and maybe from the supply side and just the market dynamics, what do you think -- I mean, how would you gauge that from the midpoint of the guidance up to the upper end? And I would suspect that there's more upside opportunity than downside risk. Is that fair to assume? Jayesh Chandan: David, it is absolutely fair to assume there is more upside. Why? Because see, let me give you the risks to the guidance. I think there are 2 parts to your question. First is the timing of the customer deployment. Large AI infrastructure and data center programs rely on client site readiness. There has to be site access, as you know, the market very well, power allocation, import clearances, customer procurement cycles, they can all shift from one quarter to the other. And even a slight change in a week or 2 changes that significantly. Number two, your supply chain constraints are also -- there is a big challenge today. If you look at the demand, there's a high demand for GPU servers, not just in the United States, but across the globe, right? And then if you're looking at things like networking equipment, they can also create longer lead times. I don't know if you've seen recently, the price of memory has shot up 40% in the last 2 months. Then you've got the things like regulatory and compliance approvals, you've got things like project phasing on multiyear platforms. You'll have to take -- we take into account even geopolitical sensitivities in certain regions like Southeast Asia, Middle East, Latin America and so on and so forth. But then if you look at the upside for us, I did talk about it previously. For us, it's about when these programs come live. Now our aim is to get all of these live by 2026 and make sure that we drop all of these clusters to our NVIDIA partnership and our partner ecosystem and make sure that we drive the GPU as a service usage line. Now once we've driven that -- and remember, these are all purpose-built data centers. That means there's one customer occupying 100% occupancy, okay? That means our revenue would hit scale as soon as the switch is switched on. So what we are trying to do is we are working very closely. I mean, I did mention to you the risks. But taking all those risks into mind, we're also looking at the upside. And we want to make sure that our upside actually helps negate the risks on the lower end. I hope that answers your question. Unknown Analyst: Can I add something to... Bruce Bower: So a couple of other things, David, to keep in mind. The first is the data center opportunity -- the data center contract we have is an umbrella contract with Freyr. When we announced it, the $1.4 billion was based on the scheduled deployments that we had then. there is always the possibility that there are more deployments added to that. So that would be another source of potential upside. The second thing is, of course, while we're talking about the contractual backlog, and we talked about the data center side, we haven't talked about anything else. So Gorilla is still actively bidding for government contracts. And so we put in several bids recently, and we're staying tuned for good news from a couple of governments in Asia. The other thing is that we've talked many times about one Amazon and some of the MOUs that we've signed with government customers in the past. None of those are in the guidance now because they haven't yet turned into a date and an amount. But as soon as we know and have crystal clear vision on the date and the amount, then those would also be added to the guidance for next year. So it's not just about delivering everything from the data center contract, although that's the biggest mover. There are many ways for Gorilla to win next year. Unknown Analyst: And then maybe, Bruce, is there a way to size kind of the magnitude of your backlog? You've talked about a few things. You don't have the amounts or maybe even dates to. But if we were kind of thinking about your total backlog and kind of what you're anticipating for next year, how do you -- how should we size that? Bruce Bower: So the backlog for us is -- we go with a strict definition. So $85 million is the backlog for 2026, where we have the exact date and time and it's signed and it's being implemented now. Then we have, as we mentioned, the data center contract where it's signed, it is being implemented, but the exact timing of the deployment is still -- we have a good idea, but it's not definite yet. As Jay mentioned, there are some [ DUCs ] that we have to get in a row or there are other people that we have to work with before we can define that. The pipeline is where we have a qualified lead, where we think that they'll make a decision in the next 3 to 6 months, where they have budgets, but that doesn't have a signed contract or with an amount and a date next to it. So there's 2 parts. One is the backlog is very strict. And then the pipeline for us is really about converting from customer either where it's signed, but it's not amount and dated or where they sign up and then they sign a contract and we know the amounts and the dates and can then move that into the backlog. Jayesh Chandan: If I add some color to that, David, as well, the pipeline has grown rather enthusiastically, if I may. If it grows any faster, I think I might need to send a congratulatory card for myself. But that said, the deals are also very mature. If you look at what we did a couple of years ago and where we were last year, we were building POCs, we're signing MOUs and so on and so forth, whether it was part Asian in the U.K. or the Middle East, LatAm and so on and so forth. The data center project has accelerated beyond our expectations. And I don't want people to think that we're only building the data centers. There's a lot of ancillary support services we provide on top of that as well. So the $1.4 billion, for example, was only a catalyst. Once governments and telcos saw that we could deliver sovereign grade AI infrastructure, that basically kind of triggered a surge of interest. Now without giving names, the demand wave behind the FRR is significantly larger than Freyr itself. That is one of the primary reasons why our pipeline is well north of $7 billion. Now if you look at the GPU infrastructure, it has moved away from ambition for us to urgency. Through our engagements with likes of NVIDIA and Edgecore and including our own appliances within the kind of the government, we're seeing that strategic infrastructure as an essential, not optional. So now what has happened? We've also started working with the likes of Telstra in Brazil who's providing capital and looking to build some seriously large data centers as well. So these are all kind of whole country platforms as opposed to just incremental pilots. And then finally, what we are doing is that we're making sure that we can formally count a large portion, let's say, even if it's 20% to 30% of the $7 billion to be signed very quickly in 2026. And that allows us to actually be much more confident of our multiyear expansion. So in short, David, the opportunity is pretty comfortably substantial for us, but it's also growing at the same time. And it's not definitely a single year anomaly. Unknown Analyst: Okay. And one more, if I may here. Just if you kind of think about your competitors in the market and the 800-pound Gorilla, so to speak, you're competing against there. Why are they choosing Gorilla? What gives you the edge? And why are you winning? Jayesh Chandan: That's a good question. Why we're winning? I think we've proven ourselves, okay, to where we are today. We believe that we work with governments to make sure that we understand what their requirements are, what their commission requirements are, what their ecosystem requirements are, and then we help them build national workloads. Now Gorilla has been in this space for a very long time. As you can imagine, we've been here for 24 years. We're going to be celebrating 25 next year, right? We are a full stack AI operator. And I think I kind of talked about this in my first speech at the NASDAQ, and I said we want to be an AI stack operator. We design the architecture, we build the data centers. We integrate the GPU stacks. We operate the platform, and we stay as a long-term partner for the governments and telco. Now apart from that, they also -- we offer these customers of ours, both enterprise as well as the government level, sovereign control and predictable economics. And that is very, very, very important because our customers know exactly who runs their infrastructure, who carries the responsibility for their uptime and performance. And then finally, it's about capability. Now as you know, we've been delivering national cybersecurity infrastructure. We built 4 data centers in Egypt for our $270 million contract. We're executing multimillion-dollar projects, national projects across Southeast Asia, Middle East, LatAm and so on. What has happened is we are moving faster than our competitors. Our speed of execution, our ability to structure these projects and our operational discipline is making us the preferred partner where you understand this probably better than most people do, AI infrastructure cannot fail. It does -- it cannot fail. It just cannot fail. And it has to be with people who can have a very strong operational discipline. I think that's the responsibility we take. So we will build, operate and manage responsibly. So think about it this way. Everybody is trying to sell buildings and servers. We're trying to sell outcomes. That's it. That's as simple as that. Bruce Bower: And one thing to add on to that, as the numbers guy, is when I was investigating why we win, so to prepare some investor materials, all of that came out. The other thing is that given our history and our relationships with hardware vendors in Taiwan and then using our own software to create appliances out of the hardware, we actually deliver a significant cost savings over a competitor. I mean, obviously, the biggest cost item will be NVIDIA GPUs and there's not much flexibility. But on items where there's flexibility, we can deliver like a 30%, 40% cost savings with better performance, and that will reduce the overall cost of the data center by 5% to 7%. And 5% to 7% may not sound like much, but when you're talking $1 billion data center, that's a significant cash savings. So not only is it sort of everything that the customer is looking for in terms of sovereign data infrastructure, faster time to market, but it's also cheaper. So in the end, there's enough that stacks up, it becomes very difficult to look at a competitor by comparison. Operator: Our next question comes from John Roy from Water Tower Research. John Marc Roy: Obviously, a lot of discussion around '26. I want to step back for half a second and look beyond that. And kind of these questions are related. One is, do you need to grow your sales team to turn that pipeline into backlog? And can you give us some color on the pipeline beyond '26? And the last thing is, what are you going to plan to do with all that cash? Is it for growth? What's it for? Just kind of curious. Jayesh Chandan: That's really, really good. No, no, that's a good question. You caught me off God there. No, but listen, I can tell you that my pipeline is $7 billion, and I can sign all of these deals, and it's all going to be hunky dory. It is not. It is going to take its own challenge. It's got its own challenges. Am I going to expand my sales team? Our sales teams are already well established. We have more than what, 250-plus people today. Full time, we have more than 200-plus contractors. So we're stretching our bottles right now. The sales guy -- there's one sales guy who gets everything done, which is myself. I make sure that I'm there in front of every single customer, every single project. It doesn't matter whether it's a $1 million project or a $1 billion project, I make sure that I'm there so that I can give them the confidence in the guidance. Where are we aiming for -- I think you kind of touched upon this as to what your -- what the future looks like. For me, personally, right, if the programs and partnerships in front of us land the way I expect it to be in the next, let's say, 3 to 6 months, I would like us to be -- and this is my personal target, please do not assume that this is going to be the company's target, around $500 million of annual revenue by '27. That's not a formal guidance, by the way. This is my target for what the platform is capable of delivering. Now that's what I am focused on. I want to get there, but we need to make sure that we've built all the LEGO blocks in place. to make sure that we're no longer a project shop, make sure that our pipeline is real and growing, make sure that we can have more cash and that it meets our ambition. And more importantly, it talks about what kind of acquisitions we're also able to do so that we are able to support. We need teams, we need people. Just to give you the scale, we've gone on a massive hiring free in Taiwan. Thailand is almost what, 60-plus people. We are looking at India. We've got about 150-plus new recruits going on in India. And we're looking at acquisitions as well for the first time in India as well as in the U.S. So that's -- keep your eyes peeled, and I'm sure we'll be able to provide you more updates in due course. John Marc Roy: No, that sounds good. And the cash, maybe, Bruce, can you give us some highlights on where that cash might be headed? Bruce Bower: Yes. So for all of the major contracts, there is a capital needs from Gorilla side. Sometimes with government customers, that can be for performance guarantees and for working capital. For some of these data center projects, we have to fund the CapEx upfront and then deliver it to the customer. In this case, we are in active negotiations with banks. I mean, Jay and myself are in New York this week, meeting with banks. So we have term sheets on the table from lenders, which will finance the vast majority of it. But just like getting a mortgage for a house, there's an equity component and the equity component would come from the balance sheet. We anticipate that we have more than enough cash on balance sheet now to fund the first deployment or 2 and hopefully even more than that. Like I mentioned, the business should generate substantial cash in the fourth quarter. And so that will see us into much higher revenue numbers in the coming 3 to 6 months. Operator: Our next question comes from Brian Kinstlinger from Alliance Global Partners. Brian Kinstlinger: Congrats on all the business development achievements over the last few months. As it relates to as it relates to the Freyr contract, I'm curious or I assume the margins are substantially higher than the operating margin of your existing business. The offset is the CapEx side. So the cash returns maybe aren't what the EBITDA margins are, but the EBITDA margins are super high. I just want to see if my assumption is right. Jayesh Chandan: You're right, Brian. First of all, good to hear from you. First of all, Freyr is not a construction gig. For me, it's a long-term AI infrastructure relationship across Indonesia, Malaysia, Thailand, Vietnam, Philippines and so on. Now what we are doing is we're designing, building, operating and monetizing it over the years. Now once that data center is live, we're not just there to host the racks. We're also layering a lot of services on top of it. So video intelligence, like I said, big data analytics for government, cybersecurity platform, smart policing and so on and so forth. So for me, Freyr is the doorway. The real value is what we sell on top of it and everything inside that footprint. So what we -- when you look at it from that perspective, yes, you're absolutely right. It carries a higher margin, your EBITDA is much higher. But in terms of cash generation, it might actually because of the CapEx -- extensive investment of the CapEx, it's going to be slightly full cycle. But what we will do is we will then deploy our own operations team. And more importantly, we will also apply our own stack of our solutions on top of them, helping them go from building large language models to inference engines and moving up the value chain going from let's say, H100 to 200 to GB 200, GB 300 and what comes after. And so look at it this way. For me, building data centers is only one part of it. Think of us as creating, curating, hosting and protecting your data. That's what we do. Brian Kinstlinger: Great. And then as we enter 2026, regarding your first large contract, which was the Egypt Smart City contract, how do you see the economics change in '26 versus '25 in terms of revenue? Are we increasing, declining, kind of steady state? And then how did the mix change from '26 compared to '25? Jayesh Chandan: That's a really good question. So if you recollect about a couple of years ago, Brian, when we first spoke, I said my first job was to derisk the business. And it was to derisk our delivery profile in 3 ways. I mentioned this to you, and I'm going to stick to my guns here. First, we secured the contracted program. Once we did the technical validation with the government of Egypt, we then score our revenues and so on and so forth. And as you know, 95% of our revenues came from government customers. So what we did was we wanted to move away from projects to long-term milestone-based predictable collections so that our cash exposure is limited. It took us about 1.5 years to build that. And today, we're seeing that we're able to strengthen our balance sheet, but more importantly, we're able to reduce debt. Now what has happened, and this has allowed us to give us the breathing space to reengineer our business and to build our, what I call, capabilities at the same time. So look at it from having project-based schedules and programs to a full fledged deployment. These factors kind of helped us reduce our execution risk, revenue timing and financial risk. So going into '26, I can say with confidence that we are able to now have a more predictable, more stable quarter upon quarter as opposed to what we had previously. that answers your question? Brian Kinstlinger: Yes, somewhat. I'll take some of it offline. And then I'm curious, you had a number of MOUs, including Amazon One, there's a smart city contract. Any update on your progress? And I don't need to go over each one of them, but maybe where you're seeing more progress headed towards the finish line of any of the MOUs that are very large. Jayesh Chandan: Yes. So the One Amazon project is going full steam ahead. As you know, we've already completed the proof of concept in Panama, and now we're running into Mato Grosso. You saw the signing happen sometime last month. So there's an initial $100 million program where we have received -- we expect to receive a good chunk of that in our tech deployment. Now of course, there are lots of issues we need to worry about because we have to worry about the sensors, the way they deployed, how every active is being monitored, how it becomes a stream of environment and health intelligence and so on and so forth. And these are monetized for decades. So we've already started work on that. It's growing, and that is not part of our guidance for 2026. We've also signed, as I said, with our MOUs with the likes of nTelastra, for example. This is not a single site. We're talking about 120-plus megawatts to be done over the next 24 months. So that also tie that to our Freyr project and so on and so forth, we're expecting that to also convert into a portfolio of other AI infrastructure projects, which are repeatable. We're also working very closely with the projects, and I know what is on the tip of the tongue of everybody in Thailand, for example, we are working very closely with the government and to give you some confidence that we are sure that there would be an outcome and light at the end of the tunnel over the next few months. In terms of the overall One Amazon and the other MOUs, which we've already signed, our team has been working day in and day out, and we're making sure that each of the platform builds the digital backbone and make sure that we are sitting on top of their infrastructure play. So again, all these are not included in the guidance for 2026. Brian Kinstlinger: Great. My last question, that was helpful. You highlighted, Jay, accurately that you invest to grow. You made a comment about that, and you've done that. But given the solid awards, the growing pipeline, are there any key investments you need to make now in terms of personnel, staff, facilities to take advantage of the opportunities in front of you? Anything meaningful that you can talk about or can quantify? Jayesh Chandan: Absolutely. I think I touched upon this, Brian. This is very, very, very important because I think most people think that, no, we're a small company, we don't have the means to do what we do. So what we are doing right now, and just give it to you straight, right? These are all numbers back. So we are focused heavily on our M&A story as well because that brings in deep execution legs for us. But at the same time, we're also looking at how we expand ourselves into some of the fastest-growing economies in the world. So first, India. if you look at the India AI market today, and I mean, I may be slightly off on these numbers, but we're looking at about $9.5 billion today, and that's expected by 2032, I think, or '23, it's going to be about $130 billion. There's a tenfold expansion of the AI market. The country is also -- I was there recently, the country is also doubling its data center capacity from 950 megawatts to roughly around 1,800, 2,000 megawatts. By 2026, we're talking about a transformational change. So this is a massive national shift when it comes to AI compute cloud and digital sovereignty. So our investment into India is not cosmetic. Our acquisition potentially is also not very cosmetic. It positions us in a triple-digit billion dollar economy and where we are building our own local team, our own regulatory posture, but more importantly, we are looking at sovereign grade projects at scale today. So India is one big market for us going forward. The second market, which we talked about and which is also going to give us scale and people to help deploy in the local market is the United States. Now the U.S., as everybody knows, the largest AI market on the planet, represents roughly around 36% to 38% of the global AI spend today. But that said, it is also true that public safety, digital infrastructure, your GPU demand, defense and so on and so forth are all running into tens of billions of dollars apart from the data center market and the AI market. So for me, the acquisition there we're pursuing is very deliberate. It gives us established platform. It gives us huge customer potential. And more importantly, it gives us execution depth. And that's something you asked me to talk about as well to deliver, can I deliver real AI infrastructure and public safety programs in a country like the United States or India? This is how we're going to do it. So the U.S. for us becomes what we call a second engine for Gorilla for the next 2 to 3 years, not just a size project. So look at it this way. We're not buying revenue, we're buying capability. So that gives us scale. So India gives us scale in the hypergrowth market. U.S. gives us credibility in the world's most mature AI and law enforcement ecosystem. Operator: Our last question comes from [ Bart Boone ] from Red Chip. Unknown Analyst: Jay, Bruce, congratulations on a great quarter. Jayesh Chandan: Thank you. Unknown Analyst: I just have a few questions here. First, we know you design, build and operate AI data centers, provide GPU as a service and you're rolling out your own branded AI GPU platforms with partners like EdgeCore and Intel. At the same time, you're deepening your relationship with NVIDIA and the wider GPU ecosystem. So how should investors think about the unified flywheel you're building and Gorilla's strategic role inside the next wave of AI compute infrastructure? Jayesh Chandan: That's a very interesting question. Well, I'll keep it short. The short answer to that is that we're not playing in one corner of the AI infrastructure. And I think the market needs to understand that. Why? Because we're building the whole engine. The data centers are just an anchor, [ Bart ]. We design them, we build them, we run them. We sit on them because they're long-term hosting and power and capacity contracts and so on and so forth. On top of that, we stack the GPU as a service using our NVIDIA-based platforms with our partners. That gives us usage-based recurring revenue as the workload scale. And this is a very important term, which the market needs to understand. As we scale, we will scale as well. And as our customers scale, our revenues will scale automatically. That term is called usage-based recurring revenue as the workload scale. Now on top of that, we talked about the flywheel. The flywheel is very simple. Data centers drive GPU demand. your GPU demand pull through our software, the software then locks in longer and deeper national engagement. Think of it as a 3-pronged approach. So how should someone see us, whether it's investors or customers, they should see us as a sovereign grade AI operator, not just as a project contributor or a box shifter. We're surely not a box shifter. Unknown Analyst: Thank you, Jerry. I think that adds a lot of color there. Now shifting away from the data center conversation. You've spoken about Quantum-safe networks and the Intelligent Network Director platform for lawful interception and network intelligence. How should we think about these as commercial gateways into larger sovereign infrastructure and national security programs rather than stand-alone products, right? How do they all work together? Jayesh Chandan: The quantum question. I love that. [ Bart ], let me keep this tight. I know we're running short on time. This is one of the most misunderstood parts of our business. First of all, the market is enormous, right? Post-quantum cryptography alone is expected to cross over $100 billion to $150 billion globally over the next decade as governments upgrade everything from national networks to their financial systems to their defense communications and so on and so forth. Now look at this, every country will need this not want, but they will need it. That's an absolute must. Our Intelligent Network Director is never just a product. What we do is when a country lets you monitor its entire network flows, your lawful interception, your cyber posture, they're not just trialing a tool. They're effectively handing you the keys of their national nervous system. And this is what the market has misunderstood. We're not trying to sell a product. We're actually managing their national nervous system. Now that becomes a gateway into data centers, into sovereign cloud, into your public safety modernization, your AI workloads and your full national security stack and so on and so forth. Now as we move forward, right, the quantum-safe network opens the door even wider for us. Why? If you look at the way we protect country's backbone communications, we're automatically in the room. I mean, whether it's Taiwan, whether it's Thailand, whether it's Egypt, whether it's LatAm, it doesn't matter where it is. We are in that room for the next phases of their data centers, their GPU infrastructure, all of the national analytics, all of their secure workloads and all of their critical infrastructure protection. We signed 2 projects, as you know. And these were 5G lawful interception protecting national critical infrastructure. Now these technologies are the starting point for the programs that run into hundreds of millions of dollars over their lifetime. So what is Gorilla doing? We're sitting in that room. We're negotiating. We may sign tens of millions of dollars today, but my aim is to convert them to hundreds of millions of dollars over their lifetime. So think of it this way, whether it's your Intelligent Network Director or your Quantum-safe, we're not stand-alone. Think of them as a handshake that goes together over larger sovereign scale national infrastructure program. That's how I look at it from our IND perspective. Unknown Analyst: That's very helpful. I just have one more question to leave you with. So over the past few years, you've gone from survival mode to a position where you have record revenue, strong profitability, a multiyear AI data center mandate and a multibillion-dollar pipeline. What do you think the market is missing about Gorilla's trajectory when you look at the next 2, 3 years? Jayesh Chandan: You put me on the spot there, about it. Okay. So first of all, I want everybody to understand this. We're no longer a project shop. we are becoming the sovereign AI infrastructure operator, right? Our Phase 1, for example, just in Southeast Asia, we're talking hundreds of billions of revenue per year. Later phases are just larger in scope. And the duration and none of that is in the guidance as yet. Again, I want to repeat that, it's not in the guidance. Second, our pipeline is growing. We're now sitting on our pipeline about what, $7 billion across telcos, law enforcement, infrastructure and government. These are multiyear national platforms. Now once we have proven that we can deliver, you're rarely a one contract supplier and the market knows that. Now if you look at the third part of it, balance sheet. And I think there's been quite a few questions on that. We have more than, like I said, $119-plus million of unrestricted cash -- sorry, $107 million of unrestricted cash and total of about $120 million of total cash left on the books. Now that means we can go fund serious data center builds without even blinking. A year ago, and you said it very rightfully, so we were managing survival. Today, we're designing national architectures. We're also making very clear, we're trying to make sure that we do not dilute our shareholders as a default. We're exploring a very range -- wide range of creative structures with our partners from project-level vehicles to revenue sharing and other funky options that let us scale hard without handing away the company to them. Now I did talk about my ambition. And again, this is my personal ambition, and this is not in guidance. This is not target. But I would like to see that the way things are moving forward and all the partnerships in front of us, I would like to be operating at about $500 million of revenue -- annual revenue by 2027 and increasing from there going forward as well. And finally, I think Brian talked about the flywheel question previously and so did you, [ Bart ]. Every data center for us brings in long-term GPU and hosting revenue. On top of that, as we evolve, the more infrastructure we operate, the more software intelligence we can pull through. What is the market missing? I think that was your question. The market is missing the fact that Gorilla is shifting from a small cap story of survival into a multi-region sovereign AI operator with long duration of contracts, expanding margins and a very serious revenue ambition. Most people are looking at it as the Gorilla yesterday. That yesterday was in [ Weber ] at $22 million of revenue. Trust me, when I hit $27 million, if my personal ambitions fulfilled are fulfilled and we hit $500 million, that's an exponential growth, which not many people have seen before. So the gorilla that they will meet in the next year will be a very different animal [ Bart ], and that's what the market is missing. Operator: We have no further questions. I'd like to turn the call back over to management for any closing remarks. Jayesh Chandan: Thank you very much. Thank you, everybody, for taking your time and listening to us. To our institutional and retail investors, I'm going to say this out loud, and I haven't written this or practiced the speech before. Your conviction has carried us from survival to scale. Now people ask me about survival. This is very important. You stood with me, Bruce and the rest of the team through every single battle we have bought to get you. Now we enter a new phase. We're not just winning contracts. We're building the AI infrastructure of nation. Your belief has shaped this company, and it will definitely define everything we've been building in the years ahead. Most importantly, I want to thank every single one of you, naming people like Sam, people like Christian, people like Gunther, who actually stood by me while the world was still playing catch-up. And I intend to repay the trust with performance. So thank you. And thanks, everybody, for listening in. Have a lovely day. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and welcome, everyone joining Helmerich & Payne's Fiscal Fourth Quarter and Full Year Earnings Call. [Operator Instructions] Please note this call is being recorded. [Operator Instructions] It is now my pleasure to turn the meeting over to Mr. Kevin Vann, CFO. Please go ahead. J. Vann: Thank you, and welcome, everyone, to Helmerich & Payne's Conference Call and Webcast for the Fourth Quarter and Fiscal Full Year 2025. Before we get started, I first wanted to extend a warm welcome to Kris Nicol, who has joined the company as Vice President of Investor Relations. Kris Nicol: Thank you, Kevin. Kevin will be joined on the call today by John Lindsay, CEO; Trey Adams, President; and Mike Lennox, Executive Vice President of the Western Hemisphere. Before we begin our prepared remarks, I'd like to remind everyone that this call will include forward-looking statements as defined under securities laws. Although management believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that the expectations will prove to be correct. Please refer to our filings with the SEC for a list of factors that may cause actual results to differ materially from those in the forward-looking statements made during this call. Reconciliations of direct margin and certain GAAP to non-GAAP measures can be found in our earnings release. With that, I'll turn the call over to John. John Lindsay: Thank you, Kris. Hello, everyone, and thank you for joining us. We appreciate your interest in H&P. Fiscal 2025 was a pivotal year for H&P. We overcame several challenges, and I am immensely proud of how our global team closed the year with strong fourth quarter results, setting the stage for continued success in fiscal 2026. While the oil and gas industry is inherently cyclical, we are increasingly encouraged by the resilience of our business and the positive long-term prospects. We have long held the view that the upstream sector will need to invest for decades to come in order to sustain, if not grow production from current levels. We are pleased to see increasing alignment with this view. The recent update from IEA now projects robust demand growth for oil over the next quarter century under the current policy scenario with energy security and affordability remaining critical global concerns. On the gas side, the rise of AI and the surging power needs for data centers is rapidly creating a new source of demand. Coupled with the build-out of significant LNG capacity on the Gulf Coast, we see strong activity in the gas-rich basins over the next several years. Ultimately, technology-driven drilling as demand continues to grow and basins become more geologically complex will be essential for decades and is a key differentiator for H&P. Operationally and financially, our North America Solutions segment has positioned H&P as the leading driller in the U.S. land market. Customers are increasingly demanding efficiency and devising more complex well designs with longer laterals to maximize returns. Our success in delivering value, safety and performance is rooted in the strong partnerships we built with both large and small customers. As acreage quality becomes more challenging in unconventional shale plays, deploying the most capable rigs and cutting-edge technology is crucial for success. This past year was particularly historic for our International Land segment. After years of effort to develop a larger and more diverse international footprint, we exported 8 FlexRigs to Saudi Arabia and completed the KCAD acquisition, making H&P the largest active land driller globally. We're also very pleased to announce that 7 suspended rigs will be reactivated in the coming months in Saudi Arabia. This exciting development will call for intensifying our efforts to execute strategic priorities, deliver customer value and meet our financial objectives. The KCAD acquisition also brought us a global offshore labor contract business that complemented our existing offshore Gulf of America operations. We now operate in 6 countries, have a blue-chip customer base supported by strong contractual coverage and a global geographic palette of growth for this business going forward. Despite the challenges faced by the oilfield services sector, we remain optimistic that the market is stabilizing, and our expanded footprint will offer new opportunities. We anticipate the first half of 2026 will mirror 2025 with oil prices range bound between the upper 50s and mid-60s and rig activity aligning with these trends. Through the cycles, OFS companies must be able to make a return for our shareholders. I'm confident in our team's ability to continue refining and executing the H&P way, demonstrating leadership in international markets as we have in North America Solutions. Alongside legacy KCAD, our team has forged robust global partnerships in the Middle East and other strategic regions, enabling us to enhance our unique capabilities and strengthen customer collaborations. We're committed to nurturing leadership and promoting talent within our organization to prepare for the future. In line with this commitment, I was very pleased to announce earlier in the quarter the promotions of several key members of the management team, reflecting their strong contribution to H&P. Most notably, Mike Lennox became EVP of Western Hemisphere. John Bell became EVP of Eastern Hemisphere. And lastly, Trey Adams has been promoted to President as we position for the next phase of growth at H&P. And with that, I will turn the call over to Trey to provide more details of Q4 performance and the 2026 outlook for our 3 segments. Raymond Adams: Thank you, John. I will start by walking through North America Solutions. We had solid fourth quarter results driven by our ability to work safely and to deliver outsized drilling efficiencies for our customers. Our operations and sales teams continue to do an excellent job managing rig churn and creating customer value. On the operational front, average lateral lengths increased 5%, while our average drilled footage per day grew at the same rate. Encouragingly, the use of our advanced digital solutions and applications increased 20% over the year. The combination of the right rigs, right people and right solutions continue to drive efficiencies for our customers over the fiscal year. In the Permian Basin, the total rig count declined throughout the year as several E&Ps reduced drilling activity in the face of softening oil price fundamentals. Despite these rig drops, our rig fleet showed great resilience. We actually expanded our share position in the Permian throughout the year. At the same time, natural gas-oriented activity picked up through the year. Our footprint and outcome-oriented approach will position us well for continued natural gas activity expansion. An important point to highlight is that the industry utilization of super-spec rigs is tighter than it's peers. Utilization rates of rigs that have been idled less than 12 months remains strong at more than 80%. In addition to the relative tightness of the market, lateral lengths continue to expand. Over 40% of our wells today are over 3-mile laterals and technology and drilling efficiencies continue to be a primary focus for customers. We believe that this combination provides a strong platform for North America Solutions in fiscal year 2026. Safety and customer value will continue to be our focus looking forward, and both will be underpinned by our great rig crews and continued commercial and technological innovation. Moving to our international operations. Our new footprint is exciting and energizing. We now have meaningful positions in Saudi Arabia, Kuwait, Oman, Argentina, Europe, along with other countries poised for growth. As John mentioned, in Saudi Arabia, we will be resuming operations on 7 previously idled rigs in fiscal year '26, with operations resuming in the second fiscal quarter and continuing into the third fiscal quarter. With these 7 reactivated rigs, we will go from 17 active rigs to 24. As you know, we encountered several challenges in fiscal 2025, particularly in the Eastern Hemisphere. However, through every challenge, there is an opportunity. We have taken advantage of the past year to reorganize, retool and get our forward strategies aligned. Our 8 FlexRigs in Saudi Arabia continue to improve on all fronts with a focus on safety and performance. We also continue to see margin health improve across those 8 rigs and intend to realize our expected run rate margins by the end of the fiscal year 2026. The addition of 7 rigs in Saudi Arabia adds scale. And as those rigs are resumptions, we expect the learning curve to be expeditious and to hit the ground running in the second and third fiscal periods. Our business in Oman continues to be a particular bright spot with strong NOC and IOC relationships, providing a constructive long-term backdrop. Our combined organization enables further expansion across the MENA region. We now have a foundation that enables more realistic and long-term oriented discussions with IOC and NOC customers across the globe. Our Offshore Segment continues to provide stable long-horizon revenues for our consolidated business. We are active today in the Gulf of America, Caspian Sea, Norway and U.K. North Sea, Africa and Canada and have roughly 30% share of the global platform operations and maintenance business. Our expanded geographic exposure strategically positions us to benefit from the anticipated strong offshore investment cycle. In addition to our geographical positioning, the integration of our operating models and safety execution between our land and offshore businesses will continue to be additive for us in the near and long term. Many of our offshore customers have robust land activity. The transference of models, approaches, technology and relationships uniquely positions us to deliver differentiated value for customers across our global operations. With that, I will turn the call over to Kevin to walk through the financial results. J. Vann: Thanks, Trey. Today, I will review our fiscal fourth quarter and full year 2025 operating results and provide operational guidance for the first fiscal quarter of 2026. Additionally, I will spend some time outlining our annual fiscal 2026 projections, our financial position and provide an update on where we stand with our deleveraging efforts and cost reduction goals. Let me start with highlights for the recently completed fourth quarter and fiscal year ended September 30, 2025 where we exceeded our direct margin guidance in all operating regions despite the challenging market environment. Alongside our continued commercial success, we also made strong progress on the deleveraging front as we have currently paid off $210 million on our term loan, and we're significantly ahead of the debt reduction goals we laid out earlier this year. During the quarter, the company generated quarterly revenues of a little over $1 billion, which is the third consecutive quarter over that $1 billion mark. Correspondingly, total direct operating costs were $715 million for the fourth quarter versus $735 million for the previous quarter. General and administrative expenses totaled $78 million for the fourth quarter and $287 million for fiscal 2025. These results include a $10 million write-off related to one of our investment securities. Normalizing for that, we were in line with our full year guidance. Also included in the fourth quarter results was an approximate $40 million write-off of the investment in that same company for which we held the note receivable. To summarize fourth quarter's results, we are operating -- we are reporting a net loss of $0.58 per diluted share versus a net loss of $1.64 in the previous quarter. Earnings per share for the full year were a net loss of $1.66 per share. The quarterly results were negatively impacted by some unusual and noncash items and absent those items would have been a loss of $0.01 per share. Capital expenditures for the fourth quarter were $64 million, with full year 2025 totaling $426 million. This outcome was primarily driven by accelerated CapEx investment in the Eastern Hemisphere and increased investment in harmonizing our ERP footprint. Currently, we operate in 3 distinct ERP platforms, and our ultimate goal is to get to one platform for the company. We are continuing to invest now to capture additional synergies and cost savings in the future. Looking ahead to 2026, we expect significantly reduced capital investment levels even with the announced rig reactivations. This reflects current fleet conditions with maintenance capital expenditures approaching historically low figures and an ongoing emphasis on capital discipline. H&P generated $207 million in operating cash flow in the fourth quarter and a total of $543 million during the full year. Our cash flow generation helped fund $100 million in base dividends in addition to the significant progress on paying down our term loan. As we have stated, we are now on track to pay this completely down by June of 2026. Now turning to our 3 segments, beginning with North American Solutions. We averaged 141 contracted rigs during the fourth quarter, which was down from the third quarter, but consistent with industry activity and our expectations. We exited the fourth quarter with 144 rigs running. Segment direct margin for North America Solutions was $242 million, which was above the midpoint of our guidance range. Overall, margins were slightly down from the third quarter, but again consistent with our expectations and guidance. Looking ahead to the first quarter of fiscal 2026 for North American Solutions, we are anticipating our margins to stay in the same ZIP code of our industry-leading fourth quarter numbers, and we also expect our operated rig count to stay relatively flat with fiscal fourth quarter results. Our North American Solutions team continues to deliver. Despite some moderate headwinds we saw during 2025, they brought there A-game to the table, helping our customers and us to win-win outcomes. We are extremely grateful to the folks out in the field on the rigs and our great sales and marketing teams that help our customers find the solutions they need. This outcome is also evidence of our commitment to our customers and shareholders. For our customers, we benefit when they benefit via our performance-based contracts. Ultimately, our goal is to help them meet their objectives of drilling consistent and timely wells and setting them up for a clean and efficient completion and production process. As of today, approximately 50% of the U.S. active fleet is on a term contract. Additionally, as our performance contracts continue to drive alignment with our customers, we currently have roughly 50% of our rigs on them. In the North American Solutions segment, we expect direct margins in our first quarter to range between $225 million to $250 million as we don't see a material change in expected margins based on our current contractual structure, expectations around operating costs and anticipated rig count. Our International Solutions segment ended the fourth quarter with 61 rigs working and generated approximately $30 million in direct margins, above the midpoint of our expectations. This result is slightly down from the third quarter, but was toward the top end of our guidance. As a reminder, we had fewer rigs working during this past quarter as many of the final Saudi rig suspensions received during the third quarter had a full negative effect during the period. As we already stated, we are ready to get back to work and are very pleased about the announced rig reactivations. For the first quarter, we are anticipating between $13 million and $23 million of direct margin for the International segment. This is reflective of the reactivation costs anticipated in the first quarter that are not capitalized. This trend will persist through the first half of 2026 with direct margin expected to step up materially thereafter. Further, we expect the average first quarter operating rig count to be approximately 57 to 63 rigs. For the first time, we are laying out expectations for the full year international rig count to provide greater visibility on our outlook. For fiscal 2026, we believe the rig count will average between 56 to 68 rigs, which includes the rigs being reactivated in Saudi. Please note that the rig count includes only partial years for those reactivated rigs and includes the expectation for some lower rig counts in non-core countries where the current EBITDA contribution is minimal. Finally, with our Offshore Solutions segment, we generated a direct margin of approximately $35 million during the quarter, which was above our guidance range as well. Again, we are excited about this business and the consistent and stable results that it continues to deliver. As John and Trey said, it requires minimal capital and generate steady cash flow from a set of blue-chip customers. As we look toward the first quarter of fiscal 2026 for this segment, we expect that it will generate between $27 million and $33 million in direct margin with 30 to 35 management contracts and operated rigs on average. Now I want to transition to the first quarter and full year 2026 for certain consolidated and corporate items. In 2026, our strategy begins with optimizing our financial position to continue to pay down the term loan and generate free cash flow that will help us get closer to our goal of returning the balance sheet strength that has always been a priority at H&P. Fiscal 2026 gross capital expenditures are expected to be approximately $280 million to $320 million. Maintenance, fleet upgrades and reactivation capital across the global fleet of operating drilling rigs is expected to be approximately $230 million and $250 million and includes all of the estimated capital for the 7 rigs being reactivated in Saudi Arabia. Also included in our capital program is $40 million to $60 million of investments in our North American solution operations related to customer demand and funds the necessary upgrades to maintain our technology-leading position across the market. Depreciation for fiscal 2026 is expected to be approximately $690 million. Our sales, general and administrative expenses for the full fiscal '26 year are expected to be between $265 million and $285 million, which includes $50 million in savings from our original pro forma run rate. We, as a company, are culturally more focused on managing costs than ever. We have our eyes set on generating further savings as we evaluate systems alignment across both our Eastern and Western Hemisphere operating models. Our investment in research and development remains largely focused on solutions for our customers, such as drilling automation, wellbore quality and power management. We anticipate R&D expenditures to be roughly $25 million in 2026. Based upon our estimated fiscal '26 operating results and CapEx, we are projecting a consolidated cash tax range of $95 million to $145 million. And lastly, we are expecting interest expense of $100 million during 2026. Now looking at our financial position. We had cash and short-term investments of approximately $218 million on September 30, 2025, including the availability under our revolving credit facility, our total liquidity is approximately $1.2 billion. As I mentioned earlier, as part of our deleveraging efforts, we are pleased with the progress we have made on paying down the $400 million term loan with only $190 million currently outstanding and a clear line of sight to have it paid off by June of next year. Regarding cash returns to shareholders, we plan to maintain our long-standing base dividend of approximately $100 million in 2026. Longer term, as we delever, we will have additional flexibility to direct free cash flow to both enhance shareholder returns and invest for growth. And that concludes our prepared comments for the quarter, and we'll now turn it back to the operator for questions. Operator: [Operator Instructions] Our first question comes from Saurabh Pant with Bank of America. Saurabh Pant: John, Kevin, I don't know who wants to address this, but I want to start on the international side of things, if you don't mind. And then really, I'm thinking about 2 things. First is the rig count. Of course, it's great to see the 7 Saudi rigs coming back. But maybe just help us think about the potential for more Saudi rigs to come back as we move through fiscal '26 and then maybe like you said, the pluses and minuses in any of the other regions. And then the other thing that I'm thinking about is international margins. Like you said, Kevin, I think it's being weighed down by reactivation cost and a bunch of short-term-ish things. How should we think about normalized margins once all of that is settled? John Lindsay: Saurabh, thanks for the question. It is very, very positive, and we're very pleased about the reactivations. And as you can imagine, we're laser-focused on execution. We think this is going to be a phased approach to the reactivations. We think we'll be finished with mid-2026, working really closely with the customer. I'm going to let Trey. Trey has been over there recently and have him give a little feedback on what they're seeing. Raymond Adams: Yes, happy to. As John pointed out, we're thrilled about the 7 reactivations in Saudi Arabia. As it relates to longer-term growth in Saudi right now, we're focused on these 7 resumptions and focused on our core business there and getting those rig fleets back and aligned. But obviously, having a number of conversations more broadly across the region, myself and the teams are very active and very engaged in the Middle East today. We're encouraged by some IOC entry into the region. Obviously, there's been some long-standing IOCs in the MENA region, but continued interest from some new players. It positions us well through '26 and then really sets a good table for 2027. And then as some of those discrete rigs that Kevin mentioned in his prepared remarks, many of those rigs that you saw have fallen off of our international count have come in really low scale single rig, single string countries. And as we've kind of reorganized and continue to refocus our efforts around Saudi Arabia and core Middle Eastern countries, we're going to continue to see further growth and enhancements there. On our margins, you can expect, right, that the first half of fiscal '26 with the reactivations and continued to getting our FlexRig fleet aligned that we're going to have some new and increased costs, and Kevin talked about that, both on the OpEx and CapEx side of the fence. But we expect that to abate mid-'26 and really expect to see some full run rate margins towards the end of the fiscal year. J. Vann: Yes. Just to further elaborate on that. I think what we had mentioned on the last call was we felt like the fourth quarter was kind of a bottoming out of margins as the FlexRigs kind of caught their stride, and we expected to see further improvement, and we do -- continue to expect to see further improvement in those margins throughout fiscal year 2026. So absent the rig reactivation charges that are going to hit over the next couple of quarters, you're going to continue to see just further margin improvement across the region. Operator: We'll now move on to Doug Becker with Capital One. Doug Becker: I wanted to touch base on North America. Revenue per day has been very resilient despite some industry headwinds. Guidance does imply daily margin declining a few hundred dollars in fiscal first quarter. Just wanted to get a little sense for how you see daily revenue and daily operating expenses going forward because there was a pretty sizable bump in OpEx per day. And then if you look in your crystal ball, just when might daily margins trough based on a relatively stable rig count outlook from today? Michael Lennox: Doug, I'll take it. This is Mike. I appreciate the question. We see the NAS market is going to remain consistent as long as commodity prices and demand are intact. We do continue to expect rigs to churn. Our publics, they've gone down year after year by about 9 rigs. Our privates actually churn at about 4x of what the publics do, but that's given us a good opportunity to work for new customers. In the last year, we worked for 19 new customers. And so a lot of great hard work and effort by our sales team, really proud of what they do, keeping these rigs working. We expect demand for longer wells, more complex wells, as John mentioned in his opening remarks, and that positions H&P very, very well. We've made investments in our rig fleet for the past few years. We'll continue to do that this next year, allowing for 1 million pound setbacks, high torque top drives. We've also continued to deploy and invest in technology. Trey mentioned in his remarks of a 20% improvement on apps per rig. We've also -- on 1/3 of our fleet now, we've got rig floor automation, which includes HexGrips and slip lifters that provides a lot of consistency and reliability for our customers as they're going to continue to drill longer and longer wells. And then we've continued to invest in our people. I think that's something we're very proud of. We bring our drillers in, continue to invest in them and train them. As far as the oil and gas basins, we've seen an uptick in the Haynesville and in the Northeast. We went from 3 rigs earlier in the year to 8. We expect that demand to continue to be there. And then on the oil side, in the Permian, I think Trey mentioned it in his remarks, we went from 33% market share to 37% market share. So we've seen growth in that, even though rig count has been slightly down. We've seen growth in our market share. And then on the performance contracts, that's a lever or a tool that we're going to continue to use to -- you asked the question on revenue. We have the leading over our peers in revenue. OpEx we lead on that. We're the lowest and there's a lot of work that goes into keeping that OpEx in check, and we fully expect to keep it in check. And so I just really want to applaud our people, all the hard work that they're doing to keep all that in line. Doug Becker: And just any -- would you expect daily operating expenses to decline this quarter from fiscal fourth... Michael Lennox: Yes, we've seen some, what I call seasonal rigs churn, we see some costs that go up, potentially -- it's welding costs, tubular costs, trucking costs. It comes and goes. And so we expect it to come down. There's some onetime costs that are in there this last quarter. We do expect it to come down. But again, as long as those rigs are churning, we fully expect there to be some costs in there. John Lindsay: And the rigs just continue to work at a much higher and higher level quarter-over-quarter. And so that drives costs higher as well, as Mike had mentioned. Operator: We'll now move on to Scott Gruber with Citi. Scott Gruber: I may have missed it, but did you guys quantify the reactivation expense that's reflected in your fiscal first quarter international income? J. Vann: No. Scott, this is Kevin. No, we did not. And I think what I mentioned was if you go back and you look at the margins that we were able to achieve during this last -- during the fourth quarter for international, we kind of felt like what we had stated previously was that was a good kind of trough for bottoming out of the margins that we expected. And that absent those items, you would have probably continued to at least achieve the mark that we saw during the fourth quarter from a margin perspective and then with some anticipated improvement from there. Scott Gruber: Okay. Okay. And then it looks like cash taxes will step down in fiscal '26. Curious, is there a benefit from the recent tax law changes in the U.S. I'm just trying to think through if there's a benefit in fiscal '26 that then lapse and doesn't recur in '27? Or are you guys able to kind of chop that down over time? How sustainable is cash tax rate? J. Vann: It is somewhat -- yes, there are some benefit -- there is some benefit in that cash tax number that we're projecting for 2026 because of the one big beautiful bill. But going forward, the benefit will always be contingent upon the amount of capital that we're spending as well because there's certain portions of the bill that allow you to accelerate some capital investment that wasn't previously being allowed to be written off for tax purposes during the current year. But we have -- I guess, yes, it's in there. And then going forward, it's all going to be based upon capital expenditures. Scott Gruber: Yes. I imagine international activity levels. Operator: We'll now move on to Eddie Kim with Barclays. Edward Kim: Sorry if this was asked already, maybe even in the previous question, but just wondering if you could dig down deeper in the full year CapEx guidance. So you highlighted $230 million to $250 million of CapEx reflects both maintenance and reactivation-related CapEx. Are you able to let us know how much is just the reactivation-related CapEx specifically? And then tied to that, the reactivation-related OpEx, is that going to be a similar amount to the CapEx? If you could just provide some more color there, that would be great. J. Vann: Yes. No, the $230 million to $250 million, yes, does include all of the rig reactivation costs. And it's difficult to give an exact number per rig because it all depends upon which rigs are going to be -- the rigs being reactivated. So it's not a homogenous number across all the rigs. So I hate to give you -- if we got more rig reactivations, you could expect another x amount per rig. But the $230 million to $250 million includes all of the maintenance and rig reactivation cost. And the question, yes, in terms of the margin, it's not one for one. There's more CapEx than there is costs that are hitting operating costs. There's more capital cost than what's hitting the margins themselves. And most of the margin stuff is, again, going to be cleared out hopefully during the first quarter fiscal quarter, but there'll be some of that will bleed over into the second quarter as well. But again, if you look at what our fourth quarter performance was from a margin perspective internationally, we felt like that was kind of a low point for us, and we expected improvement from there. Absent the additional cost that's hitting the margins, our international margins from the rig reactivations, you would have -- we would have anticipated a little bit more improvement. Operator: [Operator Instructions] We'll now move on to Dan Kutz with Morgan Stanley. Daniel Kutz: So sorry to belabor this, but maybe just kind of coming at the CapEx guide question from a different angle. Anything you can share in terms of maintenance CapEx for a U.S. versus international rig or by segment? Yes, anything you could share in terms of what's contemplated for the maintenance component of that number would be really helpful. J. Vann: Yes. I think -- this is Kevin again, and I'll let Mike and Trey contribute. The -- what we've publicly said historically is that the maintenance CapEx on a domestic rig is somewhere around $1 million per rig. That number is coming in slightly lower than that now, but roughly $1 million per rig. And then on the international front, call it, $1.3 million to $1.5 million per rig for the maintenance CapEx. And that's generally, again, depending upon the rig and what needed to be done to it in 2026, that's generally kind of where we are. Michael Lennox: Yes. And I can give some color on NAS, just it's come down post COVID. It spiked up coming out of that, and then it's been down year after year. And again, we've been making investments, like I mentioned earlier, to drill these longer laterals. So that's the setback upgrades, the high torque top drives, the rig floor automation. Again, that removes people from the exposures of on the rig floor, but also helps as we drill the longer laterals, make up and break out of tubulars. And we expect and will continue to do some of those in 2026. So that's what most of the CapEx is made up of for NAS. Daniel Kutz: Awesome. That's really helpful. And then maybe -- sorry if I missed this or if you guys have talked about it, but just kind of you guys have made a ton of progress kind of penetrating the U.S. market with the legacy H&P technology portfolio, seeing and hearing a little bit more interest internationally in the Middle East, in particular, of operators kind of adopting and appreciating some of the efficiency benefits and productivity benefits of leveraging technology like you guys offer. So just was hoping for an update or any plans or any conversations around your -- leveraging your technology profile outside of the U.S. Raymond Adams: Yes. This is Trey. I'll answer that one. And what I'll share is that the answer is absolutely yes. So it's a big focus for us today. Conversations with customers across the Eastern Hemisphere, everyone is very interested in the technology evolution and advancements we've had in the U.S. unconventional space. And they're all wanting to get more active in that arena. And so our -- one of our focuses in '25 and going into '26 will continue to be, as Kevin pointed out in his prepared remarks, this drilling automation trend that we're continuing to progress. We believe that there's a lot of efficiencies and value to be created in the Western and Eastern hemispheres. And then if you couple that with a lot of the technology that Mike was describing with rig floor automation and other advancements we continue to make, there's just a tremendous amount of opportunity on the safety and performance fronts in front of us and a lot of customer value to be created. So the answer in short is yes. That evolution and transformation, obviously, will be taking shape in earnest, primarily in the Middle East, but other markets will continue to adopt and accelerate technology. We see a lot of interest in Argentina and Australia, Europe, name it. So really excited about that evolution. Operator: We'll now move on to Don Crist with Johnson Rice. Donald Crist: I wanted to kind of expand on the last answer you just gave. On the international side, I'm just kind of curious about timing in places outside of the traditional Middle East like Libya or Turkey and Australia, kind of timing on conversations for unconventional drilling there and when you think that rig count could kind of start to pick up over the next couple of years or so? Raymond Adams: This is Trey. I think it depends on where you're talking, but I'll start in Australia. Obviously, we've been in the Beetaloo for some time, continue to see future growth opportunities there and in other parts in Australia as well. We're delivering. We have a second FlexRig in country that arrived about a month ago that will be going to work for a long string of customers and stay working in Australia for some time. And then flipping over to North Africa, obviously, there's a ton of energy around Algeria and Libya. We're involved in all those conversations. We're having deep and involved technology conversations with NOCs in both regions. We're actively engaged with IOCs, and you know who those are that have signed long-term agreements in Algeria. We think the future is bright, and we think that the transference of U.S. unconventional and shale expertise into those regions is going to be critical for growth. As it relates to timing, it all manifests over long horizons. Mike talked about private E&P churn in the Lower 48. We're not talking about a 30-day window. These programs take a while to get formed up. But we hope over the next couple of quarters that we can update you all on our progression. And then obviously, some of the E&Ps as they progress in their drilling programs and build up their plans for '26 and '27, that will be notable as well. But we're very bullish on our positioning in both of those areas. Donald Crist: I appreciate that color. And one just last one for me. Any progress on the sale of Utica Square? I know there was a comp here in Oklahoma City. Just any kind of update there? John Lindsay: This is John. Really, the update is the process is going on. It's going well. We have multiple parties that are interested. We're hopeful that we'll have more news by the end of the year to the first half of 2026 is what we're hoping for. So it looks positive, but that's about all we have. Process is going well. Operator: We'll now move on to Tom Curran with Seaport Research Partners. Thomas Patrick Curran: Trey, you just referenced the second rig that will be going to work in Australia's Beetaloo Basin where you have invested in and partnered with Tamboran Resources, which I think of as sort of like a best of U.S. shale PayPal story with the Sheffield and Liberty Energy also involved. But beyond Australia, has H&P put any rigs to work or contracted to deploy any rigs for any of the existing or planned drilling campaigns in foreign shale plays by leading U.S. E&Ps? And here, I'm asking specifically about E&Ps, not the major. So Continental push into Turkey and Argentina's Vaca Muerta or EOGs moving to Bahrain, maybe other such cases that haven't been publicized yet. Could you just expound on where H&P is at within that story and maybe your strategy more broadly beyond Australia? Raymond Adams: Yes. No, that's a great comment. And I'd point you to we have a long history of putting rigs to work, and I've done this multiple times, not working on a super major portfolio, but working with IOCs in Argentina. Across the rest of Eastern Hemisphere, the conversations are very active. Obviously, you know our positioning with those companies that you just referenced here in the Lower 48. We have a long history of a lot of value creation. And so we've been in a lot of conversations recently and I mean, very active even at ADIPEC a couple of weeks ago with key IOCs, obviously, and super majors alike. Everyone wants to transfer this U.S. shale unconventional expertise into these geographies. And so we look forward to talking about how these programs get to scale and more into a firm footing. Many of them today are still in exploration phases. But as those programs mature, they're going to need a partner like H&P, and we're well positioned to deliver value for them. Thomas Patrick Curran: So it's safe for us to assume that you're right on the nexus of those conversations like you should be. Raymond Adams: Absolutely. We're not missing a conversation these days. Operator: We'll now move on to John Daniels with Daniel Energy Partners. John Daniel: Just a quick question on the fiscal year '26 guidance for activity. I know you say in the release, it's based on current market trends. Just trying to make sure there's no embedded assumptions about either potential customer M&A and implications or upside from new E&P start-ups? And then does the guidance try to take into consideration any future drilling efficiency gains? Raymond Adams: Yes. I'll take that one, John, and just start and say that, obviously, you know the history of the organization. And as Mike pointed out, our share increase in the Permian Basin, even in the face of rig count declines, we're anticipating a pretty range-bound rig count in the U.S. Lower 48 as we look forward. Obviously, we've been impacted by customer consolidation, just like everyone has, but we believe that our impact and our rig count range binding has been able to really hold us up. It's an interesting one, but you mentioned new E&P formations. I think this last year and for almost 106-year-old company like H&P, we worked for 19 new E&Ps that we hadn't worked for in the last 5 years, just in the last year. As we sit here, and I think Mike referenced this, we sit in a great share position, top share position with super majors, with large caps, with small and mid-caps. We have more private E&P activity than anyone. So I feel like we're going to be in a good position to be pretty durable with rig counts even in the face of additional consolidation headwinds. John Daniel: Okay. Got it. And if you said this on the call, I completely missed it, but did you say where you're -- what you are in terms of working count contracted today? Michael Lennox: Yes. John, this is Mike. It's 144 today. Operator: At this time, there are no further questions in queue. I will now turn the meeting back to John Lindsay. John Lindsay: Thank you, everyone, for participating in today's call. I just want to leave you with some brief closing thoughts. Fiscal year 2025 was pivotal for H&P. And while we faced several challenges, the construct as we look forward is increasingly positive. We now have a platform where H&P can drive profitable growth across diversed global markets. Our forward-thinking commercial strategies and advanced technologies set H&P apart from the competition, and our financial strength underpins growth, dividend stability and disciplined deleveraging. Our differentiation is clear, and H&P's positioning continues to deliver strong results for our customers and our shareholders. So thank you all. And operator, you may now close the call. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Hello, and thank you for standing by. Welcome to Solana Company Third Quarter Operating Results Conference Call. At this time, participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. I would now like to hand the conference over to Serena Jassy, Investor Relations. You may begin. Serena Jassy: Before we begin, I would like to inform you that comments and responses to your questions during today's call reflect management's views as of today, November 18, 2025, only, and will include forward-looking statements and opinion statements including predictions, estimates, plans, expectations, and other similar information. Actual results may differ materially from those expressed or implied as a result of certain risks and uncertainties. These risks and uncertainties are more fully described in our press release issued earlier today and in the sections entitled Risk Factors in our annual report on Form 10-K filed with the United States Securities and Exchange Commission or the SEC on March 25, 2025, and in other subsequent filings with the SEC. Our SEC filings can be found on our website or on the SEC's website. Investors are cautioned not to place undue reliance on forward-looking statements. We disclaim any obligation to update or revise these forward-looking statements. Please note that this conference call will be available for audio replay on our website under the news and events section of our Investor Relations page. With that, I would now like to turn the call over to Solana Company's Executive Chairman, Joseph Chi. Thank you. Joseph Chi: Good morning, everyone, and welcome to our first earnings call since we successfully raised over $500 million to fund our digital asset treasury strategy in September. I'm Joseph Chi, the Executive Chairman of Solana Company. I'm honored and pleased to be able to work with the capable board of directors and team closely since my appointment. Additionally, since 2017, I have served as the founder and chairman of Summit Capital, one of the earliest licensed funds in Asia that invest in the crypto blockchain sector. One of the co-sponsors for the PIPE transaction and now one of two strategic advisers to Solana Company. The Solana digital edge rate digital treasury strategy and the PIPE transaction mark a new beginning for Solana Company as its shareholders. Pantera Summer is committed to providing strategic support to accelerate the growth of the company going forward. The US dollar's $120 million investment by Pantera is the single largest cash investment in Pantera history. Pantera, together with Summer Capital and its ecosystem partners, accounted for roughly half of the total capital raised, underscoring their conviction in Solana Company's strategy and long-term potential, and the company's commitment to deliver results. I believe the background experience that Pantera and Summer give HSCT both global reach and institutional credibility. Since the closing of the PIPE transaction, we are now squarely focused on executing our digital asset treasury strategy. We aim to incorporate all of the learnings from our strategic investors about what has worked well, and what hasn't worked to really hone the plan. As we look forward, there are three pillars of execution we are focused on: advocacy, capital markets, and treasury management. First, let's talk about advocacy. Our goal is to maximize shareholder value and we believe we can do so through maximizing Solana per share accumulation. One key underlying assumption here is that Solana itself is worthy of investment. Therefore, our number one job is advocating for Solana or telling the Solana story to help investors understand why Solana is a compelling asset. Solana has become the most widely adopted and financially productive blockchain in the world. It now processes close to 80 million transactions per day with a median fee below one-tenth of a cent and provides a native staking yield of more than 7%. That combination of throughput, affordability, and productivity is why we believe Solana is the only blockchain that's both economically sustainable and institutionally relevant. We see that in the numbers, Solana is the number one chain in decentralized exchange volumes, the leading platform for stablecoin payments through integration with PayPal and Stripe, and one of the fastest-growing ecosystems for real-world asset tokenization with activities from firms like BlackRock, Franklin Templeton, and Apollo. It is definitely one of the most secure and decentralized blockchains built for institutional adoption. Our focus at HSDG has been on advocating for Solana matters not only to the crypto-native community but also to mainstream and traditional financial institutions globally. We believe this broader audience will ultimately determine which assets are relevant. As part of the effort, we have been productive in reaching outside of the crypto echo chamber and bringing Solana's story to the institutional world. Since our launch, HSDD has already appeared more than 10 times on main media such as CNBC and Bloomberg, helping bridge the conversation between traditional equity investors and the Solana ecosystem. Our adviser, Dan Moorhead, my partner, Cosmo Zhang, and I have been actively participating in media interviews, podcasts, relevant conferences, and events to promote Solana Company and its underlying assets not only in the US and UK but also in Asia and the Middle East. We and the Solana Company were featured in many local print and digital press in the regions mentioned. Each of these opportunities reinforces our central message: Solana's speed, cost efficiency, and real-world adoption make it one of the most credible and investable assets in our industry worldwide. Since we are the designated DAT to support Solana Foundation APAC region, we have traveled with the Solana Foundation senior management to Beijing, Shanghai, Hangzhou, Shenzhen, Hong Kong, and Singapore in the last two months. By organizing and attending multiple conferences, panels, and gatherings intensively over a few weeks, we have managed to reach out to thousands of people, including developers, investors, universities, research institutions, regulators, and industry partners, including major tech companies, to advocate for the Solana blockchain ecosystem. The enthusiastic participation on location and the conversations we had with the local communities made us realize that Asia is probably the single largest underpenetrated market with the highest potential for Solana. We believe it also has the largest population of keen users, developers, tech companies, and entrepreneurs ready to embrace the high-performance Solana blockchain. This outreach is translating into results. Trading volume in HSCT has meaningfully outperformed the average of peer DATs, including other Solana DATs, reflecting a growing awareness of Solana's fundamental confidence in a DAT model. We view this as an early indicator that our advocacy strategy is working, and investors are starting to view HSTT as the public gateway to Solana. As we committed to the investors during the fundraising process for the PIPE transaction, we have been focused on running the business with best market practices and the highest level of governance, diligence, and care. Cosmo will go through the outstanding results we achieved with the instantaneous activation of the ATM for fundraising, the tactical approach to Solana accumulation, and the rigor and discipline we apply through staking. We believe Pantera as the asset manager has delivered stellar results all around since we started with a new strategy. Just to reiterate, we are attempting to build a Berkshire Hathaway of the Solana ecosystem that compounds shareholder value and trades at a premium with a strong balance sheet, a clear strategy, and the expertise of a team that's experienced with DATs and is shareholder aligned with meaningful ownership. With that, I will turn it over to Cosmo to elaborate more on our strategy in Capital Markets and treasury management, and let's take a closer look at our third-quarter financials. Cosmo Jiang: Thank you, Joseph. I'm Cosmo Jiang, a Director for Solana Company and General Partner at Pantera Capital. Pantera brings deep experience as a digital asset specialist investment firm. Pantera was the first blockchain-dedicated institutional investment firm starting in 2013. Pantera anchored the first deals that catalyzed the digital asset treasury boom earlier this year, including coining the term DAT or debt. And as such, have unmatched experience in digital asset treasuries as well as the U.S. Capital markets broadly. I will now discuss the market environment and our launch progress. Now let me take a step back. It is important to acknowledge the broader market backdrop. Over the past several months, the digital asset treasury market has cooled after a period of rapid expansion earlier in the year. That is not unexpected. From an investor's lens, when I think back to what I mapped out as the white space roughly six months ago, now in our view, much of that white space has been taken. We just witnessed the creation of a whole new category of businesses over the last seven months, and the creation of a new category can only happen once. I believe this initial genesis phase of new dApps being launched is now largely over. Now that we see the white space as largely taken, we believe the industry is entering the execution and consolidation phase. The barriers to entry are a lot higher now for new entrants. Most DATs will be outcompeted and have uninteresting outcomes, ultimately resulting in healthy industry consolidation. We at Solana Company anticipate that this will be where the strongest DATs will prove themselves out and win out through operational excellence and capital discipline. We believe the best DATs can be amazing long-term outcomes for both shareholders and token holders. Those with credible management teams, transparent reporting, and durable token per share growth. We believe we have the ingredients to do so here at Solana Company. Our balance sheet strength, institutional sponsorship, and operational focus give us the foundation to continue building even in a more selective environment. As part of the company's continued commitment to maximize SOL per share through disciplined execution of its digital asset treasury strategy, including capital deployment, active on-chain management, and transparent reporting, Solana Company has increased its holdings of SOL by $100,000 or $100,000 in the first month of operation to a total of over 2,300,000 tokens. The company also still holds $9,800,000 of cash and stablecoins, which it intends to use to further the digital asset treasury. For the month of October, the company's average gross staking yield was 7.3% APY. This performance was approximately 36 basis points better than the 6.67% APY stake-weighted average of the top 10 largest validators over the same period. Solana Company's SOL holdings are primarily through institutional-grade validator infrastructure with rewards automatically restaked to compound returns. This staking yield translates to consistent daily on-chain revenue generation while preserving full liquidity and custody of underlying assets. Let me elaborate on the next two of our execution pillars, capital markets and treasury management. Capital market strategy is one of our pillars for execution, a driver of Solana per share growth. The objective is straightforward: to maximize tokens per share, disciplined capital formation, and balance sheet management. We are focused on ensuring that every financing decision, whether equity or equity-linked, is structured to be accretive, meaning it increases the number of SOL per share for our existing shareholders. As mentioned earlier, we have launched our ATM program and recently also announced a share buyback. The ATM is an important tool for a DAT. It allows us to access liquidity continuously and on efficient spreads rather than relying on episodic and uncertain capital raises. The buyback is an important complement. Whether we are trading at a premium or a discount to MNAV, we now have the flexibility to act in ways that maximize Solana per share growth. When we trade above our NAV, the ATM allows us to issue accretively. When we trade below NAV, we can use other tools such as share buybacks. Beyond that, we are evaluating structured equity transactions including convertible debt and warrant-linked financings that could provide flexible, non-dilutive growth capital while monetizing Solana's inherent volatility. Finally, we are open to participating in M&A within the DAT ecosystem. As we move from the launch phase of the market into the execution phase, we believe consolidation will naturally occur. HSCT is well-positioned to be an acquirer where it makes strategic sense, particularly in cases where smaller DATs trade below 1x MNAS and can be integrated accretively. Now to treasury management. As the asset manager, Pantera's expertise is really helpful here. That experience is already reflected in our execution. On our Solana purchases, we have been deliberate and data-driven. Our average cost basis is approximately $220 per SOL, to about $240 at launch, representing roughly a 10% improvement versus a passive approach. On the validator side, we've also been disciplined in how we stake. In October, as mentioned above, we outperformed our peers, and that comes from careful validator selection, MED capture, and continuous rebalancing. We believe that is a meaningful amount of outperformance versus what any individual investor may be able to achieve, and even many other publicly traded Solana DATs. Looking ahead, DeFi yield opportunities are on our roadmap, but only where we can identify risk-adjusted returns that make sense. We are carefully evaluating counterparty, smart contract, and regulatory risks before deployment. The goal is not to chase yield, it is to grow tokens per share in a sustainable, risk-controlled way. We believe through this approach of disciplined accumulation, active validator management, and selective yield enhancement, we are building a treasury that compounds value per share, not just one that holds tokens passively. I would now like to turn the call over to Dane Andreeff for updates on the company's legacy business, its orally applied technology platform. Dane Andreeff: Thank you, Cosmo. At its core, the company was founded as a neurotechnology company dedicated to addressing neurologic deficits through its innovative orally applied technology platform. This proprietary platform enhances the brain's ability to activate physiologic compensatory mechanisms, promoting neuroplasticity and improving the lives of individuals with neurological conditions. The company's first commercial product, the portable neuromodulation stimulator, or PoNS, exemplifies its mission to advance neurorehab through science and technology. The company has made some exciting progress over the past quarter, both clinically and strategically. The PoNS stroke registration program study was successfully executed, resulting in positive clinical outcomes. The successful results of the stroke registrational program supported our PoNS device submission for FDA 510(k) designation filed under its current FDA breakthrough device designation. Statistical analysis for the functional gait assessment primary endpoints demonstrated PoNS' superior effectiveness in improving gait deficit by achieving a clinically meaningful mean improvement compared to the control group, reflecting the clinical significance of this therapeutic intervention. In the third quarter, we have seen increased US activity, including increased VA and cash sales. This has been supplemented by additional out-of-network third-party reimbursement. We are happy with the progress made at Healius this quarter and would like to reiterate our excitement that this strategic evolution represents Healius' next chapter as Solana Company. By aligning its corporate strategy with the Solana Foundation and the broader Solana community, Solana Company positions itself at the intersection of breakthrough neuroscience and digital asset innovation, uniting two powerful platforms for sustainable growth and technological progress. I'm excited for the future of Solana. Now I would like to turn the call over to Jeff to cover the financial results. Jeff Mathiesen: Thank you, Dane. Our financial results include the $500 plus million PIPE transaction that closed on September 18, 2025, and related DAT activities from that date through the end of the quarter. Our third-quarter revenue of $697,000 included first-time staking rewards income of $342,000, comprising the majority of the increase from the prior year period. For the third quarter, the cost of revenue was $103,000 compared to $187,000 for the prior year period, mainly due to decreased inventory reserve and production scrap expenses. Selling, general, and administrative expenses for 2025 were $4,600,000 compared to the $2,900,000 reported in 2024, with the increase comprised of a $101,500,000 discretionary bonus in the current year. Research and development expenses for 2025 were $900,000 compared to $1,100,000 in 2024, driven primarily by reduced clinical trial activities. Unrealized loss on digital assets of $30,500,000 resulted from the net change in fair value of digital assets held by the company as of quarter-end. Total operating expenses for 2025 were $36,000,000 compared to $3,900,000 in 2024. The resulting loss from operations for the third quarter of 2025 was $35,400,000 compared to a loss of $4,100,000 for the prior year period. The current year non-operating loss in the third quarter of $317,300,000 included a $545,700,000 loss on derivative liability attributable to the valuation of the staples warrants from the September PIPE transaction and $194,700,000 of financing costs from the September PIPE transaction, including a $171,300,000 non-cash charge from the advisory warrants issued and an $8,600,000 non-cash charge for shares issued to Clear Street, offset by a $423,300,000 gain from the change in fair value of the derivative-related derivative liability from those stapled warrants as of September 30, 2025. We reported a net loss for 2025 of $352,800,000 or a loss of $32.89 per share. We had a net loss of $3,700,000 in the prior year period or a loss of 744.35¢ per basic and diluted common share. At September 30, 2025, we had $124,000,000 in cash and $350,200,000 of digital assets at fair value for a combined total of $474,200,000. Also at that date, we had a combined total of 75,900,000 common shares and prefunded warrants outstanding. Finally, as of November 17, 2025, certain provisions of the 2025 stapled warrants related to adjustments of the Black-Scholes inputs in determining the warrant value in the event of a fundamental transaction were amended. I'll now hand it over to the operator for questions. Operator: Thank you. Ladies and gentlemen, as a reminder to ask a question, please press 11 on your telephone, then wait for your name to be announced. To withdraw your question, please press 11 again. I'm showing no questions in the queue. I would now like to turn the call back over to Joseph for closing remarks. Joseph Chi: Well, thank you all for joining the Solana Company third-quarter operating results update. We are pleased by the strategic change and progress we have made this quarter and look forward to sharing further updates next quarter. Thank you. Operator: Ladies and gentlemen, that concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Hello, and thank you for standing by for Baidu's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Today's conference is being recorded. If you have any objections, you may disconnect at this time. I would now like to turn the meeting over to your host for today's conference, Juan Lin, Baidu's Director of Investor Relations. Juan Lin: Hello, everyone, and welcome to Baidu's Third Quarter 2025 Earnings Conference Call. Baidu's earning release was distributed earlier today, and you can find a copy on our website as well as on Newswire Services. On the call today, we have Robin Li, our Co-Founder and CEO; Julius Rong Luo, our EVP in charge of Baidu Mobile Ecosystem Group, MEG; Dou Shen, our EVP in charge of Baidu AI Cloud Group ACG; and Henry Haijian He, our CFO. After our prepared remarks, we will hold a Q&A session. Please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Credit Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussions of these risks and uncertainties, please refer to our latest annual report and our filings with SEC and Hong Kong Stock Exchange. Baidu does not undertake any obligation to update any forward-looking statements, except as required under applicable law. Our earnings press release and this call include discussions of certain unaudited non-GAAP financial measures. Our press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited most directly comparable GAAP measures and is available on our IR website at ir.baidu.com. As a reminder, this conference is being recorded. In addition, a webcast of this conference call will be available on Baidu's IR website. I will now turn the call over to our CEO, Robin. Yanhong Li: Hello, everyone. In Q3, Baidu Core reported total revenue of RMB 24.7 billion, AI Cloud revenue reached RMB 6.2 billion, increasing 21% year-over-year sustaining value growth momentum. Apollo Go's growth accelerated sharply. We delivered over 3 million fully driverless operational rides in Q3, representing 212% year-over-year growth, up from 148% last quarter. This quarter demonstrated how AI is driving transformative value across our business. From enterprise services to consumer-facing products to smart mobility, our AI capabilities are delivering proven tangible impact at scale. Starting with the enterprise side, where our AI Cloud business continues to scale with healthy momentum and deliver measurable business impact. In Q3, AI Cloud continued its strong growth trajectory. Within AI Cloud, the areas most central to AI achieved the fastest growth. In particular, subscription-based revenue from AI accelerator infrastructure surged to 128% year-over-year, becoming the primary driver of AI Cloud's expansion. This reflects both a healthy shift towards a more recurring, structurally healthier revenue model and the strong demand for our AI products and solutions. Our ability to serve this growing demand stems from our early and strategic deployment across Baidu's full stack in AI architecture, spanning infrastructure, framework, models and applications, which allows us to support enterprises at every stage of their AI journey. At the infrastructure layer, our AI infrastructure is among the most advanced in China powered by a diverse mix of domestic and international high-performance computing resources, including our own self-developed AI computing architecture. Through continuous technical innovation, we drive performance and efficiency improvements while consistently reducing inference costs. Additionally, our industry-leading resource management capabilities significantly boost utilization and scalability. These advantages make our AI infrastructure reliable, scalable and highly cost effective for enterprise clients. And the model layer, we feature our self-developed early foundation model, which continues to iterate rapidly. At the recent Baidu World 2025, we unveiled ERNIE 5.0, our first native omni-model, foundation model with exceptional performance in omni-model understanding, creative writing and instruction following. ERNIE not only represents the cutting edge of our AI technology, but also serves as a backbone behind much of the AI-driven innovations across our businesses. At the application layer, we have a range of AI applications tailored to enterprise business needs. Let me share some examples. The first is [ Famou ] or FM agent, a self-evolving agent, we recently launched that significantly improved enterprise efficiency; built on ERNIE, it autonomously explores countless possibilities and continuously evolve its strategies to identify best solutions for highly complex, constantly changing real-world problems. FM agent is now deployed across industries including transportation, energy, logistics and ports, optimizing complex operations that traditional approaches struggle to handle. Its capability is particularly valuable in China, where we have diverse industrial sectors with numerous scenarios demanding efficiency improvements, when you can meaningfully boost efficiency across such varied use cases, the social impact is profound. Another example is the Daniel Wu English coach, an ERNIE powered digital employee we created for Yashi Education, featuring the lightness of the well-known actor. It enables users to engage in one-on-one real-time English conversation practice anytime, anywhere. This directly addresses a key challenge. Yashi's users require frequent on-demand speaking practice, which is difficult to scale with human instructors. The digital employee provides unlimited availability and an immersive engaging learning experience. Besides enterprises, our AI applications are creating value for individuals by enhancing productivity. Baidu Wenku and Baidu Drive, our largest AI applications for individuals, have been revitalized with AI. Their combined MAU has approached 300 million. In August, Wenku and Drive jointly launched a general-purpose AI agent platform that orchestrates hundreds of specialized agents to complete complex end-to-end tasks through simple natural language interactions. The platform has gained strong traction since launch, demonstrating how AI can meaningfully enhance personal productivity at scale. In the physical world, autonomous driving exemplifies the transformative value of AI, unlocking new possibilities for mobility, safety and efficiency. In Q3, Apollo Go's growth significantly accelerated to new heights. During the quarter, we provided over 3 million fully driverless operational rides to the public, representing a remarkable 212% year-over-year surge compared to 148% growth last quarter. In October, weekly average fully driverless operational rides exceeded 250,000, marking one of the highest levels achieved in real-world Robotaxi operations globally. To date, our fleets have accumulated over 240 million autonomous kilometers with more than 140 million of those being fully driverless, maintaining an outstanding safety record throughout. Achieving this rapid expansion while delivering exceptional safety performance is a powerful validation of our technology's maturity and operational capabilities. We are proud to see our decade-long commitment to autonomous driving now bearing fruit in large-scale operations. Reaching this scale requires maturity across multiple fronts, advanced technology, a rigorous and widely recognized safety record, demonstrated business viability, deep operational expertise and the ability to expand rapidly. These years of unwavering investment have not only given us a first-mover advantage, but more importantly, have built comprehensive capabilities that position Apollo Go as the undisputed global leader in this field. With this strength, Apollo Go has now entered a phase of rapid global expansion. As of October, Apollo Go's global footprint expanded to 22 cities, an increase from 16 last quarter. In October, Apollo Go entered Switzerland through a strategic partnership with PostBus, the country's leading public transport operator. Together, we plan to launch autonomous ride-hailing services in Eastern Switzerland, representing a key step in our European market expansion and another milestone in our global journey. In the Middle East, we secured one of the first fully driverless commercial operation permits in Abu Dhabi recently and deepened our collaboration with local partners. In Dubai, Apollo Go was granted exclusive authorization to conduct self-driving trials on open roads at the fourth Dubai World Congress for self-driving transport in September. RT6 provided trial rides to global attendees, including government officials, business leaders, media and investors, showcasing our technology's maturity on an international stage and demonstrating our global leadership. In Hong Kong, where Apollo Go has established by far the strongest presence in right-hand drive Robotaxi markets, we expanded our open road testing zones to include Kolon and Kung Tong District recently, further strengthening our position in the strategically important market. These milestones spanning Europe, the Middle East and Asia validate both our technology's adaptability and our ability to partner effectively with leading local operators in different regulatory environments. Looking ahead, we will expand to more markets with strong commercial potential and partnership opportunities, maintaining our unwavering focus on safety and operational excellence as we work toward making smart mobility widely accessible. In our mobile ecosystem, agents and digital humans represent AI-native monetization innovations that are transforming our online marketing business, creating substantial value for advertisers through higher engagement, better lead conversion and stronger ROI. Our agents help advertisers effectively clarify user intent through intelligent multi-round conversations and quickly find out the most relevant high-quality sales leads. This ensures advertisers receive more precise and qualified leads compared with traditional approaches. Building on this capability, agents have evolved into multiple forms; tech-based, voice-enabled and visually-embodied digital humans, each designed to address different scenarios and interaction needs. Such versatility enables advertisers to choose the most effective format for their specific use cases, achieving broader scenario coverage and higher conversion efficiency. As a result, agents have gained strong traction across diverse industries, including healthcare, business services and lifestyle services. In September, around 33,000 advertisers generated ad spending through our agents on a daily basis. Digital humans also saw strong momentum. Powered by ERNIE, our digital humans provide 24x7 AI-powered live streaming for advertisers at low cost, making professional live streaming accessible across more scenarios and industries. The technology continues evolving, delivering greater realism, more natural interaction and real-time engagement with viewers. This enables performance that surpasses human hosts in many cases, making our digital humans increasingly attractive to advertisers. Adoption has broadened beyond merchants to sectors such as healthcare, automotive and legal services. We are seeing both existing clients increase their budgets and new clients rapidly coming on board. In September, the number of digital humans live streaming on our platform almost tripled year-over-year, underscoring quick adoption across industries and growing monetization potential. These innovations are already generating significant revenue with fast growth rates. In Q3, combined revenue from agents and digital humans reached RMB 2.8 billion, up 262% year-over-year, validating the strong market appetite for our AI native monetization approaches. Looking ahead, we see substantial opportunities to scale these innovations further, broadening adoption across more verticals and deepening penetration with existing advertisers. Now let me review the key highlights for each business. In our AI Cloud business, our client portfolio continued to improve in Q3, demonstrating deeper collaboration across the board. Leading enterprise clients increased spending and expanded usage beyond AI infrastructure. Mid-tier enterprise clients delivered healthy growth with both subscription-based revenue and client count rising. Several key verticals saw strong momentum. In embodied AI, our client base expanded to 35 from 20 last quarter, covering nearly all major industry players in China. The automotive vertical also delivered strong growth with revenue nearly doubling year-over-year. In addition, this quarter, we entered into new collaborations with leading players, including Neolix, a major provider of autonomous delivery vehicles in China. Collectively, these results affirm the broadening adoption and strong recognition of Baidu AI Cloud. To address fast-growing demand, we strategically upgraded our MaaS platform Qianfan to be agent-centric. Qianfan is now positioned to provide not only leading model services with a constantly enriched model library, but also cutting-edge agent development capabilities and best-in-class agent infrastructure. By integrating high-quality proprietary and third-party capabilities and tools, Qianfan enables seamless agent creation and empowers enterprises to accelerate AI native application development. At the application level, we are driving productivity gains, both internally and externally. Internally, our developers widely leverage Comate, our AI coding assistant for developers. In September, AI contributed to over 50% of new code generation under developer oversight substantially improving our overall engineering and R&D productivity. Comate exemplifies our belief that AI should liberate humans from repetitive tasks and deliver immediate efficiency gains. Externally, we are democratizing AI through Miaoda, our no-code platform. After continuous capability enhancements, we launched the Miaoda's International version named MeDo in November, bringing powerful no-code capabilities to global users. By removing barriers like specialized training, we aim to empower more people worldwide to innovate and create with AI. On intelligent driving, Apollo Go provided 3.1 million fully driverless operational rides in Q3, up 212% year-over-year. As of November 2025, cumulative rides provided to the public have surpassed 17 million. In terms of geographic expansion, Apollo Go added 6 new cities, bringing its global footprint to 22 cities as of October 2025. In Chinese Mainland, Apollo Go has already achieved 100% fully driverless operations in multiple cities including Beijing, Shanghai, Shenzhen, Chengdu, Chongqing, Wuhan, Haikou, Sanya and more. These are not pilot zones, but represent real services already open to the public, which speaks to the maturity of our technology and operation. On our asset-light model and domestic partnerships, we also made good progress this quarter. The asset-light approach allows us to expand our autonomous driving services through partnerships and facilitate faster and more capital-efficient expansion. Following the launch of fully autonomous vehicle rental services with CAR Inc, Apollo Go now enables cross-city travel in Hainan province with fully driverless rental vehicles, offering users a differentiated experience, not typically available through traditional car rental services, particularly for tourism and leisure travel. In addition to our partnership with Hello Ride, we achieved scaled fully driverless operations in 2 cities in China, further validating the feasibility of the asset-light model. Looking ahead, we will continue to expand rapidly while prioritizing safety, accelerating the adoption of autonomous ride-hailing services across broader markets. In our mobile ecosystem, the AI transformation of Baidu Search continued to progress in Q3. At the end of October, roughly 70% of mobile search result pages contain AI-generated content. We believe this represents an optimal and sustainable level. This quarter, we prioritized enhancing the quality of multimodal content within AI search results while expanding our overall content ecosystem. AI generated multimodal content saw rapid growth in both volume and quality. In particular, with daily AIGC video generation consistently at the scale of millions, our total AIGC video content continues to expand quickly while daily distribution within Baidu App is also seeing strong growth. As content supply improves, users experience richer, more relevant and engaging search results, user metrics continue to improve. In September, Baidu App MAU reached 708 million, up 1% year-over-year. The daily average time spent per user in Q3 increased 2.3% year-over-year. We are also extending our AI search capabilities to external partners through the Baidu AI search API, which enables integration of our industry-leading search technology that delivers superior accuracy, authority and comprehensiveness. Leading companies such as Samsung, Xiaomi and Honor have already adopted the API. This strategic initiative expands our technology's reach beyond our own ecosystem, unlocking new business models and creating broader value across the industry. Underpinned by our full stack AI capabilities, each business group within Baidu has seen rapid progress with AI driving both product innovation and business growth. From an AI-native perspective, our portfolio cuts across business groups with a comprehensive range of AI-powered businesses from AI Cloud Infra to AI Applications, such as Baidu Wenku and Baidu Drive and to AI native marketing services, including agents and digital humans, all of which are showing strong growth momentum. In the physical world, Apollo Go, our largest AI application continues to scale rapidly, and these are just a few examples, underscoring the broad-based growth of our AI-powered businesses and the meaningful business impact our AI capabilities are already delivering at scale. Looking ahead, we will continue to expand our AI-powered revenue streams and strengthen our position to capture the long-term opportunities ahead. We are confident that our AI capabilities will bring even greater transformative value across our portfolio in the years to come. With that, let me turn the call over to Henry to go through the financial results. Haijian He: Thank you, Robin, and hello, everyone. Robin just mentioned our AI-powered businesses, and I'd like to elaborate. Based on ongoing feedback from investors and to better reflect valuation drivers based on our current portfolio, we are introducing a new AI native view this quarter cut across business groups to track AI-empowered assets company-wide. This new view organized our business according to the nature of our products and services, helping investors better understand the fundamental valuation drivers across our diverse product and service offerings. Going forward, we will provide business updates through this AI native view on an ongoing basis, while continuing to disclose results under the existing reporting methods, giving investors complementary lenses to assess the value of our portfolio. From this AI native view, we have a rich array of AI in power assets. We are highlighting 3 categories this quarter. AI Cloud Infra, AI applications and AI native marketing services. First, AI Cloud Infra, which refers to the AI infrastructure and platform services we provide to enterprises and public sector. In Q3, revenue from AI Cloud Infra reached RMB 4.2 billion, up 33% year-over-year. We operate one of China's most advanced AI accelerator infrastructure, enabling highly efficient and cost-effective training and inference across diverse enterprise workloads. Within AI Cloud Infra, subscription-based AI accelerator infrastructure revenue grew 128% year-over-year. Second, AI Applications. These are AI-native or AI-powered product offerings addressing specific use cases for individuals and enterprises, including our flagship software products such as Baidu Wenku, Baidu Drive and digital employee. AI is transforming how applications create value, enabling far more powerful capabilities that address real-world scenarios more effectively. We built a leading and comprehensive portfolio across both individuals and enterprises. Most of our AI applications are based on sticky subscription models, delivering high-quality revenue. In Q3, AI Applications generated revenue of RMB 2.6 billion. Third, our AI native marketing services, such as agents and digital humans continue to scale rapidly. This represents our second growth curve beyond our legacy business. These innovative products are gaining strong traction with customers seeking performance-driven AI-native solutions. Customers are increasingly willing to pay a premium for cutting-edge AI technology that delivers measurable improvements in productivity, marketing efficiency and ROI. In Q3, revenue from AI-native marketing services reached RMB 2.8 billion, representing a robust 262% year-over-year increase, accounting for 18% of Baidu Core's online marketing revenue. Now let me walk through the details of our third quarter financial results. Total revenues were RMB 31.2 billion, decreasing 7% year-over-year. Revenue from Baidu Core was RMB 24.7 billion, decreasing 7% year-over-year. Baidu Core's online marketing revenue was RMB 15.3 billion, decreasing 18% year-over-year. Baidu Core's non-online marketing revenue was RMB 9.3 billion, up 21% year-over-year. Driven by the boost of AI Cloud business within Baidu Core's non-online marketing revenue, AI Cloud revenue was RMB 6.2 billion, increased by 21% year-over-year. Revenue from iQIYI was RMB 6.7 billion, decreasing 8% year-over-year. Cost of revenues was RMB 18.3 billion, increasing 12% year-over-year, primarily due to an increase in costs related to AI Cloud business and content costs. Excluding impairment of long-lived assets, operating expenses were RMB 11.8 billion, increasing 5% year-over-year. And Baidu Core's operating expenses were RMB 10.4 billion, increasing 5% year-over-year. Baidu Core SG&A expenses were RMB 5.7 billion, increasing 14% year-over-year, primarily due to an increase in expected credit losses and channel spending expenses. SG&A accounted for 23% of Baidu Core's revenue in the quarter compared to 19% in the same period last year. Baidu Core R&D expenses were RMB 4.8 billion, decreasing 3% year-over-year. R&D accounted for 19% of Baidu Core's revenue in the quarter, which was basically flat from last year. Impairment of long-lived assets was RMB 16.2 billion, attributable to an impairment loss of Core asset group with our rapid progress in high-performance computing capabilities. We proactively conducted a comprehensive review of our asset base and impaired including, but not limited to, existing infrastructure that no longer aligns with current computing efficiency requirements. This results in a healthier and more optimized asset portfolio that better supports the future growth of our AI native business. Operating loss was RMB 15.1 billion. Baidu Core's operating loss was RMB 15.0 billion and Baidu Core's operating loss margin was 61%. Excluding impairment of long-lived assets, operating income was RMB 1.1 billion and Baidu Core operating income was RMB 1.2 billion. Non-GAAP operating income was RMB 2.2 billion. Non-GAAP of Baidu Core operating income was RMB 2.2 billion, and non-GAAP Baidu Core operating margin was 9%. Total other income, net was RMB 1.9 billion compared to RMB 2.7 billion in the same period last year. Income tax benefit was RMB 1.8 billion, compared to income tax expense of RMB 814 million in the same period last year. Net loss attributable to Baidu was RMB 11.2 billion and diluted loss per ADS was RMB 33.88. Net loss attributable to Baidu Core was RMB 11.1 billion, and net loss margin for Baidu Core was 45%. Excluding the impact of impairment of long-lived assets, net income attributable to Baidu was RMB 2.6 billion, and net income attributable to Baidu Core was RMB 2.7 billion. Non-GAAP net income attributable to Baidu was RMB 3.8 billion. Non-GAAP diluted earnings per ADS was RMB 11.12. Non-GAAP net income attributable to Baidu Core was RMB 3.8 billion, and non-GAAP net margin for Baidu Core was 16%. We define total cash and investments as cash, cash equivalents, restricted cash, short-term investments, net long-term time deposits and held-to-maturity investments and adjusted long-term investments. As of September 30, 2025, total cash investments were RMB 296.4 billion, and total cash and investments, excluding iQIYI were RMB 290.4 billion. Operating cash flow was RMB 1.3 billion, and operating cash flow, excluding iQIYI was RMB 1.5 billion. Baidu Core had approximately 31,000 employees as of September 30, 2025. With that, operator, let's now open the call to questions. Operator: [Operator Instructions] Our first question today comes from Alicia Yap with Citigroup. Alicis a Yap: My question is on ERNIE 5.0 that was unveiled at Baidu World recently? And then so how will the new model drive the next stage of application such as the digital humans? And what are the key focus area for earnings, future iterations and also the differentiation? Yanhong Li: Alicia, this is Robin. Over the past couple of years, I've been repeatedly saying that we're taking an application-driven approach when it comes to earnings iteration. At the Baidu World just a few days ago, we unveiled ERNIE 5.0, our first native omni-model foundation model. It has reached world-class levels in omni-model understanding, creative writing and instruction following, which are very important capabilities to our current and future product portfolio. From ERNIE 4.5 and ERNIE X1 in March to ERNIE 5.0 in November, ERNIE keeps getting better. Digital humans are a good example. Powered by ERNIE, they deliver fluent, contextually accurate and highly expressive dialogue. These are capabilities rooted in ERNIE's language strength. Beyond language, our model also drives visual realism, appearance, movement and even subtle micro expressions, all synchronized with the conversation. When these elements come together, the performance of our digital humans is truly exceptional and genuinely persuasive, capable of driving user engagement and purchasing decisions. ERNIE also powers FM agent, our self-evolving agent that significantly improves enterprise efficiency. It has proven to be very effective in industries like manufacturing, energy, finance, transportation and logistics. Similarly, our AI search and cloud business benefit from ERNIE's capabilities, too. Although ERNIE has delivered remarkable results for these applications, we see a lot of room for improvement. We like to see digital humans sell better than real humans in all kinds of live streaming e-commerce across many product categories. We like to see FM agents find better and better solutions in more complicated scenarios in all industries. We like to see AI-generated content to match users' interest better than KOL-generated content. We like to see ERNIE-based agents to be able to tell which piece of content has better quality regarding certain topics and so on and so forth. These are the areas where none of the existing models do a good job, not even close. So we aim to solve this problem. The application-driven approach actually reflects our deep conviction in where AI value will ultimately reside. While economic value today sits largely at the infrastructure layer, in a healthier AI ecosystem, the greatest value should come from applications where products deliver real impact to users, advertisers and enterprises. Going forward, I think no foundation model can be better than anyone at any aspect. We will continue to focus on making ERNIE strongest where it matters most for our portfolio. Baidu has always been a company with strong belief in technology, and we will continue investing decisively in areas where technology can create real measurable value. So staying close to applications ensures a sustainable path forward for AI development. Operator: And our second question today comes from Lincoln Kong at GS. Lincoln Kong: So my question is about the Cloud business. So in the third quarter, we have seen Cloud growth has slightly moderated. So are we seeing any changes in terms of the Cloud demand? And should we expect a re-acceleration in the coming quarters? So what's your outlook for the next year? And what are the key drivers that should support the sustainable growth of our cloud business? Dou Shen: This is Dou. Thank you, Lincoln. If you look at our year-to-date performance, our Cloud business is growing well above the industry average. Well, for quarter-to-quarter, there can be some variability, but the overall trend is strong, and we remain very confident about this growth trajectory going forward. On the demand side, enterprises are applying AI across every aspect of the operations, driving strong broad-based demand for AI-centric Cloud services. Within AI cloud, the area most closely tied to AI workloads is scaling the [indiscernible]. Our clients are using our cloud not only for model training, but increasingly for inference tasks. In Q3, AI Cloud Infra revenue reached RMB 4.2 billion, up 33% year-over-year, outpacing overall cloud growth. And the subscription-based AI accelerator infrastructure revenue grew 128% year-over-year, accelerating from around 50% last quarter. This results both strong -- reflects both strong underlying AI-driven demand and a healthier revenue mix. This momentum is supported by our full-stack AI capabilities. At the infrastructure layer, our high-performance AI infrastructure, especially self-developed AI computing architecture continues to see strong adoption driven by superior performance, efficiency and cost effectiveness. Many can start with AI Infrastructure and then expand to additional offerings over time. Also, our Qianfan MaaS platform has been upgraded to be agent-centric. With expanded model libraries, integrated tools and strengthened support for complex agent workflows, Qianfan provides best-in-class agent infrastructure, enabling enterprises to easily build and deploy AI agents at scale. At the application layer, we provide applications that can be readily applied to real business scenarios. Our cloud growth is not just about investment in AI infrastructure, we attach huge importance to applications. We have a comprehensive portfolio of AI products and solutions that is growing very fast, including digital employee, Yijian, Miaoda, FM agent and so on. So we firmly believe AI applications will create substantial value in our cloud businesses in the long term. So to sum up, if we look at our cloud business on an annualized basis, we believe that our full-stack AI capabilities and the strong demand for AI-centric cloud services will enable healthy, scalable and sustainable growth in the future. Thank you. Operator: And our next question comes from Alex Yao with JPMorgan. Alex Yao: The Baidu application evolves into an AI application and web search becomes a building feature for AI chatbots. The line between search and chatbot is getting blurry. How are -- based on your observation, how are user behaviors changing? And what is your competitive strategy going forward? Yanhong Li: Alex, let me answer your questions. And AI chatbot actually [Technical Difficulty] and evolve very quickly. So it's necessary to stay flexible to offer different products for different scenarios. And within Baidu, we leverage the chatbot capabilities through 2 complementary offerings. The first one is the ERNIE assistant, which is the built-in chatbot inside the Baidu App. This supports multi-round conversations function, calling and thanks for its deep integration with search. Since many users assess the ERNIE assistant directly from search, so you can draw on query contacts and interaction history to deliver a more relevant and personalized answers. It also connects to a set of tools through MPT, allowing the users to move seamlessly from information discovery to task compaction. And the ERNIE assistant is growing quite fast in our app. You can see that the conversation logs have increased around fivefold year-over-year and the DAU has surpassed 12 million with a very strong month-over-month momentum. And we expect this trend to be further continued in the coming few quarters. In parallel, we also offer the ERNIE bot as a stand-alone chatbot application. While it shares Core capabilities behind ERNIE assistants, the ERNIE bot takes an experimental and innovative approach with a near-term focus on improving retention and long-term ambition to compete at the forefront of the chatbot category. And for example, it provides some cutting-edge multimodel features such as the AI images or [ comic-style ] generations which have been especially popular among the younger users. And looking ahead, we believe the chatbots are not only all ultimate form of AI applications, the future of AI interactions will be multimodel real-time generative and interactive. And for example, at the most recent Baidu World, we have showcased the upgraded [indiscernible] digital human, which is capable of the instant interactions through the real-time voices and video like live conversations. As many of you may recall that we even had a very small technical hiccup during the live demo, which actually proved that it was truly real time and not prerecorded. And once resolved the digital human responding very vividly and deliver dynamic back and forth conversations that feel generally human. So we will continue to bring these advanced capabilities into search, making it more intelligent, personalized and capable of completing tasks. This continuous innovation is how we intend to capture the long-term opportunities in the AI area and strengthen our competitive advantages. Thank you, Alex. Operator: Our next question today comes from Gary Yu of Morgan Stanley. Gary Yu: And also appreciate the additional disclosure on AI-powered businesses. Could management share more on the growth outlook and also the profitability of Baidu new AI-powered businesses? And how will these categories help accelerate our overall revenue growth going forward? Haijian He: Thank you, Gary. This is Henry. Let me provide some background on this new AI-native views. Based on the investor feedback, we are seeing a need for greater transparency into our high-growth AI businesses. These views organize our portfolios by product nature, giving investors clearer visibility into the underlying value drivers. We will maintain both this AI native view and our existing reporting methods in parallel, offering complementary perspectives on our business performance. From this new perspective, I think we have a rich portfolio of AI-empowered assets. Let me give some highlights here. First of all, for the AI Cloud Infra, this part includes our industry-leading AI infrastructures containing self-developed AI computing architecture, cloud infrastructure and a best-in-class MaaS platform. As AI adoption accelerates, demand for robust infrastructure is growing and our differentiated capabilities position us well. We are capturing long-term sustainable revenue and expect margin to improve as utilization increases. Secondly, for the AI applications, this part includes flagship products, for example, of our Baidu Wenku and Baidu Drive. AI has significantly enhanced functionalities across these products. We have one of the China's broadest AI application portfolios, and most of these applications are subscription based and contributing to higher quality revenue and margins. Third, for the AI native marketing services, including agents and digital humans, this reflects how AI unlock greater efficiency and drive the second growth curve in our advertising business throughout enhanced engagement, conversation and ROI. This quarter, AI-native marketing services reached 18% of our Baidu Core's online marketing revenue, up from 4% a year ago, and we expect penetration to continue rising as adoption broadens. Customers are embracing these result-driven AI solutions and are willing to pay for tangible gains in productivities and marketing efficiency. Importantly, this AI-empowered business reinforce one another across Baidu's ecosystem. And AI embeds deeper across products. So we expect accelerating growth of these businesses. So when we're looking ahead, we remain confident in their revenue and profitability potential, which we believe will support for a stronger growth trajectory for Baidu over time. Thank you, Gary. Operator: And our next question today comes from Miranda Zhuang with BofA Securities. Xiaomeng Zhuang: The question is about the Robotaxi business. So Apollo Go has been accelerating growth this year. So looking ahead, can management update us on Apollo Go for next year and beyond, including your global expansion plans. And how do unit economics look across different markets? And how does management view the long-term profitability potential of the Robotaxi business? Yanhong Li: This is Robin. If you remember, our Robotaxi's journey started in 2013. So this is our 13th year. Today, Apollo Go is one of the world's largest robotaxi service providers. And as of November, we have provided over 17 million rides cumulatively, a level very few players globally have achieved. In China, we are the undisputed market leader. Through the first 3 quarters this year, our ride volumes were over 15x higher than our nearest domestic peers according to publicly disclosed data. All these rides are fully driverless, demonstrating unmatched operational scale and technological excellence. Scale matters a lot. The reason we are able to achieve a leading position in autonomous driving technology on a global basis is that we have the scale. We have encountered many issues, corner cases others have not seen. We were able to train our models to handle those cases and become smarter and smarter. I think robotaxi has reached a tipping point, both here in China and in the U.S. There are enough people who have chance to experience driverless rides and the word of mouth has created positive social media feedback, which I think will propel the opening or loosening of related regulations. For 2026 and beyond, we will continue to scale up our operations, both domestically and internationally. We will add more cars in our existing cities. We will expand to more cities. We will accumulate more fully driverless mileage and further improve our technology based on the operational data we gathered on the road. And yes, we need more data to train our models. Better models make the cars safer and faster. We will continue to drive down the cost per mile through technological innovation and operational efficiency. Right now, a few cities have achieved positive unit economics. As we scale, we hope to see more cities turn positive in 2026. Also, we're scaling through flexible business models, including asset-light models, we are very -- we are ready to enter any city quickly once regulatory and market conditions allow. As of October, Apollo Go's global footprint reaches 22 cities with significant progress in Europe, Middle East and Hong Kong. We're confident that UE will continue to improve as we scale. So in summary, for 2026 and beyond, we expect strong growth across 3 areas: rapid growth in ride volumes and [ fee ] size, geographic expansion in new markets -- into new markets and accelerated adoption of new business models. We believe Apollo Go is well positioned for continued global expansion and long-term profitability. Thank you. Operator: And our next question today comes from Thomas Chong of Jefferies. Thomas Chong: My question is about how is AI search monetization progressing? And what feedback are you seeing from advertisers and users? Can AI native marketing services offset traditional ad business? And how should we think about core advertising profitability going forward? Rong Luo: Thomas, this is Julius. In October, nearly 70%, 7-0 of the mobile search result pages have content AI generated and multi-model first content. This format is quite unique to us, and we are the first or maybe only one doing this. We expect this level to remain relatively stable as we have largely covered the query types where the AI meaningfully improved the user experiences. Our focus now has shifted to improving the quality, particularly the rich media content like images, videos, and we are seeing very clear improvement in content quality this quarter, which translate directly into the better user experiences. And we can see that the users retention is higher and the users exposed to the AI search results are initiating 6% more queries and spending more time with us. This tells us that users are finding real value in AI search and engaging more deeply. On monetization, we are actively testing and seeing some encouraging early results. First, we are testing MCP in the commercial modules in the AI search. For example, our e-commerce MCP module peaked nearly RMB 6 million in daily GMV during the recent Double 11 shopping festival. This is a very early stage, but the results are quite encouraging. Second, agents for advertisers are generating over RMB 25 million in daily revenue, and we expect this to grow as we bring more agents into the earning assistance as well. And third, we have started testing the digital human live streaming with the real-time interaction capabilities, try to explore the new ways to create engaging commercial experiences. And looking ahead, we see the significant monetization potential for AI search, and we will continue testing actively. However, our near-term priority still remains the user experiences over immediate monetization. This AI transformation is necessary for long-term competitiveness and will inevitably create a near-term pressure on both revenue and margins. So we believe this is the right trade-off to capture the large opportunities ahead. Thank you. Operator: And our final question today comes from Wei Xiong with UBS. Wei Xiong: Actually, I have a few questions here. First, just a quick one. Could you please explain this quarter's asset impairment and its rational? And second, what are your CapEx plans for next year? And how should we think about the margin trajectory as AI revenues grow? And lastly, could we please have an update on shareholder returns once the current buyback program expires? Haijian He: Thanks, Xiong. First of all, on your first question on asset impairment, the background is we are accelerating investments in the latest AI computing technologies without any hesitation. So as part of this effort, we have conducted a comprehensive review of our infrastructure portfolio. Some of the existing assets no longer meet today's computing efficiency requirements. So we actually proactively did some impairments. After this onetime of impairment, our asset base and portfolio profile is in a much healthy position and better aligned with advanced AI computing demand and higher value application scenarios going forward. Second, on the capital expenditures, we are maintaining a high level of investment. Just to give you one example. Since Baidu launched ERNIE in March of 2023, we have invested well above RMB 100 billion in the AI investment. Going forward, we will continue increasing our investment intensity in the AI area. We do expect to see greater operational leverage as our AI business scales. We're executing on 3 fronts. First of all, the asset review and impairments have left us with a leaner and more efficient asset base. Second, we are investing with a discipline to ensure capital efficiency. And of course, thirdly, we are enhancing utilization of our AI infrastructure, for example, through dynamic allocation of capacity across internal products and external cloud services. So as a result of these initiatives, we believe Q3 represents a low point for margins. Looking to next year, we will strive to improve our non-GAAP operational income and margins as these benefits start to flow through. So on your last point regarding shareholder returns, under the plan and program authorized in 2023, we have already bought back a worth of USD 2.3 billion in shares. We are currently reviewing the future buyback mechanism. We understand we also think it is important to provide a greater certainty and clarity to reduce volatility of buyback programs going forward. We're also actively exploring diversified return mechanisms, for example, setting a dividend policy potentially. Together, these efforts aim to deliver more consistent values to our shareholders. Thank you. Operator: Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Thank you for standing by, and welcome to the James Hardie Fiscal Second Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to hand the call over to Joe Ahlersmeyer, Vice President of Investor Relations. Please go ahead. Joe Ahlersmeyer: Thank you, operator, and thank you to everyone for joining today's call. I am joined today by Aaron Erter, Chief Executive Officer of James Hardie; and Jon Skelly, President of AZEK Residential. Before we begin the call, please note that during prepared remarks and Q&A, we may refer to non-GAAP financial measures and make forward-looking statements. You can refer to several related cautionary and other notes on Slide 2 for more information. Forward-looking statements made during today's conference call and in the earnings materials speak only as of the date of this presentation. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Accordingly, investors are cautioned not to place undue reliance on forward-looking statements. Also, unless otherwise indicated, our materials and comments refer to figures in U.S. dollars and any comparisons made are to the corresponding period in the prior fiscal year. And with that, I'm pleased to hand the call over to Aaron. Aaron Erter: Good morning, and thanks for joining us today. With me on today's call are Jon Skelly, President of our AZEK business; and Joe Ahlersmeyer, our Vice President of Investor Relations. Before we get into the second quarter results, I wanted to provide an update on some important developments for the company. Today, we announced the appointment of Nigel Stein as Chair of the James Hardie Board of Directors. Nigel's extensive Board experience, understanding of James Hardie and his leadership come at a transformative time as we focus on execution and long-term value creation for our shareholders. Our Board also announced the creation of an Integration and Performance Committee to support the successful integration of AZEK and the performance of the combined businesses. The committee will be chaired by Jesse Singh and will include Board members, Howard Heckes, Persio Lisboa and myself. I look forward to working with Nigel and the entire Board to advance our strategy and continue strengthening the company for the future. As you may have seen in our press release, Rachel Wilson will be leaving James Hardie to pursue other opportunities. Rachel has been a valued partner and an important part of our team during her tenure at James Hardie. I want to thank Rachel for her many contributions over the last 2 years. Finally, I'm very pleased to announce that Ryan Lada will join us as our new Chief Financial Officer. Ryan comes to us from Watts Water, where he recently served as CFO. Many of you know him from his prior role as CFO at AZEK. Ryan is a proven leader who brings strong operational and financial experience and a deep knowledge of the building products industry. He's the right person to partner with me in leading James Hardie in this next phase of growth. We have every confidence in a smooth CFO transition. We released our second quarter results yesterday, which were consistent with what we shared in our prerelease in early October. While we continue to navigate a dynamic market environment, we are actively focused on driving improved performance in our results. We have identified several opportunities to enhance how we operate today while positioning James Hardie to take full advantage of the favorable long-term fundamentals of the U.S. housing market. Our strategy remains grounded in profitable growth, disciplined execution and ongoing material conversion across our businesses from wood and inferior materials to composite alternatives and fiber cement. Before getting into the details of these initiatives, I wanted to address the changes we made to our outlook since we lowered our full year guidance in August. At the time, what we were hearing from our customers and what was evident in their ordering rates was more cautious positioning and the possibility of additional inventory tightening in the channel. The magnitude of the August guidance reduction was deliberate and based on the information we had at the time. Since then, we've seen conditions stabilize with recent customer conversations and data shared by customers showing a more stable market and normalized inventory levels. And based on that, we're modestly raising our full year guidance. We still expect the broader market to be challenging in the near term, and that view is embedded in our guidance range. The variability in our guidance this year has highlighted the need for greater consistency and discipline in our financial forecasting process. We know we can do better, and we've taken decisive action to strengthen execution, improve predictability and drive consistency in our results. We have been working with our customers and are now receiving more frequent granular data from them, giving us a clear view of inventory and market demand. These improvements, among others, will help us deliver more predictable results going forward. Our 2 largest segments: Siding & Trim and Deck, Rail & Accessories, position the company with 80% of our net sales from North America with a strong record of structural growth and substantial material conversion runway across both segments of the business. The balance of our net sales are generated in Australia and New Zealand, where we run a highly profitable fiber cement business and in Europe with an improving financial profile and an attractive fiber gypsum business. In North America, our partnership with large one-step dealers and our success converting homebuilders from vinyl to fiber cement have driven new construction to approximately 40% of our North America revenue, inclusive of AZEK with repair and remodel at approximately 60% of sales. Over time, we expect repair and remodel to grow faster given favorable structural fundamentals and deliberate focus to accelerate fiber cement penetration in that end market. In Siding & Trim, current conditions remain mixed, reflecting the category's higher exposure to new construction in the Southern states. From a channel inventory perspective, customers are appropriately positioned for this time of year relative to forward demand expectations. And while the new home market is still uncertain, demand trends have improved relative to our expectations in August. We now expect mid-single-digit organic net sales declines for the full year. We are focused on returning our Siding & Trim segment to growth in the future. A few examples of our growth plan in the segment include on-the-wall cost reduction pilots in Detroit, Pittsburgh, Indianapolis and the Ohio area are delivering early wins. In some cases, we've cut the relative cost gap versus vinyl by about 50%, thanks to improved material availability and new installation methods. Statement Essentials with Boise Cascade simplifies our ColorPlus lineup, about a 90% SKU reduction versus the full statement collection with products reliably stocked at dealers in pilot regions. This improves availability and reduces project delays, which directly helps contractors win more jobs. Intuitive Edge training and productivity programs are expanding. We're teaching contractors the Trim-Over method, which can improve productivity by about 35%. That means less time measuring, cutting and caulking. These steps make it simpler and more affordable for contractors to install our products and help attract new users to fiber cement. We plan to scale these efforts across major Midwest, Northeast and Mid-Atlantic markets in early calendar year 2026 and close partnership with Boise Cascade. Based on the early results, we see meaningful expansion potential in those regions. Beyond installation, we believe ColorPlus is a differentiated product with large opportunities in repair and remodel, especially in the Northeast and Midwest, where aging housing stock supports conversion from vinyl. We continue to invest in contractor conversion, and we're seeing strong performance in ColorPlus versus prime products with growing momentum among our sales team and dealer partners. Organic net sales in the legacy James Hardie North America fiber cement business declined 3% in the second quarter, driven mainly by lower volumes, partly offset by higher average sales price. Single-family exteriors volumes were down mid-single digits with interiors down low double digits and multifamily up mid-single digits. On a pro forma organic basis, AZEK Exteriors grew revenue, up 5% in the quarter and up 7% in the first half. In Siding & Trim, which reflects both our core James Hardie fiber cement business and AZEK Exteriors, adjusted EBITDA was $224 million in the second quarter, with adjusted EBITDA margin of 29.2%, down year-over-year, primarily due to approximately 400 basis points of margin decline in our North American fiber cement business, largely reflecting underutilization in our plants. We're not satisfied with our performance in the quarter, and we are taking action to improve future performance, including accelerating identified cost synergies from the AZEK combination, reducing variable costs in our plants and optimizing our manufacturing network to improve utilization. These steps are already underway and will drive meaningful margin improvement. Going forward, we expect utilization to improve and margin expansion as we move into fiscal 2027. For the full year, we now expect total raw material inflation in the organic business to run mid-single digits, better than the high single digits we expected earlier. Pricing is expected to offset cost inflation, while HOS or the Hardie Operating System will help dampen the impacts of underutilization. Now let's turn to Deck, Rail & Accessories. In Deck, Rail & Accessories, performance remains strong with mid-single-digit sell-through growth in a market that is down in the low single digits. TimberTech continues to outperform through our proven playbook focused on wood conversion, new product development, channel expansion and strong downstream execution. This business continues to demonstrate that we can deliver above-market growth and profitability through customer-focused execution. Demand in this segment remains solid, supported by a higher mix of repair and remodel work and a large presence in the North and Midwest regions. We delivered mid-single-digit sell-through growth in the quarter, again, outperforming the broader market by several hundred basis points. TimberTech continues to drive conversion by doing what it's always done well, consistent downstream execution, focusing on material conversion, deeper engagement with TimberTech Pros, expanding our channel presence with dealers and distributors and new product development. Over the last 12 months, TimberTech's brand awareness has increased by 7 points to its highest level since we began tracking this measure 5 years ago. New products are also adding momentum. The recently announced TimberTech Advantage Rail is a great example of how we continue to innovate and strengthen our position in outdoor living by launching products that provide the highest levels of quality, style and design while improving contractor productivity. Our quarterly survey of TimberTech Pros shows a stable market. Our contractors continue to report approximately 7 weeks of project backlog, consistent with both prior quarters and the same period last year. They also expect future market conditions to remain relatively stable, in line with recent quarters and the prior year's outlook. Based on this and other data points, we expect both sell-through and net sales to grow low to mid-single digits on a full year basis in FY '26 for the post-close period, July 1 through March 31 compared to the same pre-acquisition period. We expect sequential growth from the December to March quarter, boosted by new product launches and expanded distribution ahead of the spring season. And we are anticipating our partners to carry a seasonally normal level of inventory through the balance of our fiscal year. The integration with AZEK remains on track. We've already aligned key functions like marketing and operations under single leadership. Most recently, we appointed Sam Toole as Chief Marketing Officer of James Hardie. Sam has done an outstanding job leading AZEK's marketing organization for the past 4 years. Under her leadership, we'll strengthen our marketing capabilities, deepen customer engagement and expand our reach across North America. On cost synergies, we've moved quickly on G&A opportunities while being deliberate in how we integrate manufacturing and commercial operations. With 6 months left in FY '26, we've already surpassed our first year cost synergy goal, and we're pushing hard toward our $125 million total cost synergy target. Dealer feedback has been very positive. Several key partners have already chosen to make AZEK their exclusive PVC trim brand, drawn by the combination with James Hardie and the strong loyalty contractors have to our combined portfolio. Our sales teams are leaning in, turning these opportunities into revenue and setting us up for faster growth ahead. Distributor feedback has also been positive. Last month, we announced a multiyear expansion with Boise Cascade in select markets. This agreement expands our strategic statement essentials offering and adds the TimberTech and AZEK exterior brands into our long-standing relationship with Boise. The strong feedback we are hearing across every level of the channel reinforces our confidence in delivering over $500 million of revenue synergies over the next 5 years from the AZEK combination. And it's important to note that this isn't coming from one group or one region. It's broad-based across our dealer network and the contractors and builders who use our leading brands every day. Through countless meetings over the past few months, we are seeing firsthand how the combined portfolio is resonating, how our teams are executing together in the field and how we can bring to bear the relative strengths of the 2 companies. Those early signals give us conviction in the value creation opportunity ahead. I will now turn it over to Joe to run through the financials. Joe? Joe Ahlersmeyer: Thanks, Aaron. Starting with consolidated results for the second quarter. Total net sales grew 34% to $1.3 billion, including $345 million of acquired AZEK sales. Organic sales declined 1%. Adjusted EBITDA was $330 million with a 25.5% adjusted EBITDA margin. Adjusted general corporate and unallocated R&D costs totaled $39 million in the quarter, benefiting from favorable stock-based compensation expense. During the second half, we anticipate around $50 million per quarter of general corporate and unallocated R&D costs. Corporate expense is where the majority of our $24 million P&L benefit from cost synergies resides for FY '26. Adjusted effective tax rate was 16.9%, reflecting our updated expectation for FY '26 of approximately 20%. Adjusted net interest was $68 million and weighted average diluted share count used for adjusted diluted EPS was 582 million. We anticipate these items will remain consistent throughout the third and fourth quarter. Adjusted net income was $154 million and adjusted diluted earnings per share was $0.26. Year-to-date free cash flow was $58 million, reflecting transaction and integration costs, partially offsetting strong cash generation and reduced capital spending. Turning to our Siding & Trim segment, which combines our North America Fiber Cement business with AZEK Exteriors. Net sales were up 10%, including $89 million from a full quarter of AZEK. AZEK Exteriors grew net sales 5% for the quarter and 7% for the first half on a pro forma basis. Siding & Trim organic net sales declined 3% in the quarter as lower volumes were partially offset by a 2% rise in ASP with solid single-family realization. Adjusted EBITDA was $224 million, with adjusted EBITDA margin of 29.2%, down 530 basis points year-over-year, including over 100 basis points of impact from $8 million of R&D costs previously expensed within corporate and now allocated to the segment. Excluding the impact of this allocation, adjusted EBITDA margin would have been approximately 30.2%, a decrease of around 430 basis points. The key drivers of the comparable change in margins were lower volumes, unfavorable absorption and raw material inflation. In the quarter, we experienced a $25 million underutilization impact, partially offset by $10 million in efficiency gains from the Hardie Operating System. We're addressing the margin decline aggressively through network optimization, cost synergies and structural efficiency improvements. These actions will position the business for margin recovery and stronger performance going forward. For Deck, Rail & Accessories, which includes AZEK's residential decking, railing and pergola lines led by TimberTech, net sales increased 6% on a pro forma basis and sell-through was up mid-single digits, consistent with performance in the first quarter. Adjusted EBITDA was $79 million, resulting in a 30.7% adjusted EBITDA margin. The Deck, Rail & Accessories margin outlook remains strong with upside from recycling initiatives, improved absorption at our Boise manufacturing location and the application of the Hardie Operating System across the manufacturing base. Our fiscal third quarter has historically been the smallest seasonal period for our Deck, Rail & Accessories business, and we anticipate a sequential step down in margins consistent with these historical patterns. Turning to Australia and New Zealand, formerly Asia Pacific Fiber Cement. Including the impact of winding down operations in the Philippines, net sales declined 10% or 8% in Australian dollars due to a 20% decline in volumes, partly offset by a 14% rise in ASP. Adjusted EBITDA was down 19% to $44 million, with adjusted EBITDA margin down 380 basis points to 32.7%. Excluding the impact of the Philippines, Australia and New Zealand net sales declined low single digits in Australian dollars with a low single-digit volume decline partially offset by modest ASP growth. Lower margins reflect softer volumes, R&D allocations and higher SG&A expense, including lease exit costs and added growth investments. And in Europe, net sales were up 18% or 11% in euros, driven by strong fiber gypsum volume and average net sales price consistent with the prior year. Adjusted EBITDA margin was up 80 basis points to 15.3%, helped by volume leverage, lower freight and paper costs and solid manufacturing efficiency. We're continuing to invest in sales and marketing in Europe to support higher-value product growth and drive long-term margin expansion. And with that, I'll turn it back to Aaron. Aaron Erter: Thanks, Joe. Turning to our full year outlook. For Siding & Trim, we expect continued challenges in our end markets to result in mid-single-digit organic sales declines in the second half, with Q3 net sales dollars below Q4 due to normal seasonality and the timing of our annual price increase. Based on updated planning assumptions, we are raising our Siding & Trim net sales guidance to $2.925 to $2.995 billion. And today, we are issuing Siding & Trim adjusted EBITDA guidance of $920 million to $955 million. At the midpoint, this implies a full year organic net sales decline of approximately 6% and an adjusted EBITDA margin of just over 31.5%. For Deck, Rail & Accessories, we are modestly increasing the low end of our net sales guidance to $780 million, with the high end remaining at $800 million for the post-close period of FY '26. This assumes sell-through up low to mid-single digits, consistent with recent quarters and above prior expectations, reflecting outdoor living tailwinds and continued material conversion. Based on these demand expectations, we expect Deck, Rail & Accessories adjusted EBITDA of $215 million to $225 million. For the total company, we now expect FY '26 adjusted EBITDA of $1.20 billion to $1.25. We're confident in our long-term cash generation. We expect it to accelerate as integration costs wind down and interest expense declines with debt paydown. Our capital expenditures outlook remains unchanged at approximately $400 million for FY '26, including $75 million for AZEK investments. Over the long term, we expect CapEx across our North American businesses to run around 6% to 7% of combined North America sales. We still expect to generate at least $200 million in free cash flow for the year. Net debt ended the quarter at $4.5 billion. Pro forma for the AZEK acquisition and the midpoint of our updated guidance, FY '26 net leverage stands at approximately 3.2x. We remain committed to getting our leverage under 2 turns within 2 years post close as we grow EBITDA, generate cash and pay down the debt. So to wrap things up, looking ahead, our priorities are clear: continue driving material conversion from wood and inferior materials to composite alternatives and fiber cement, sharpening execution across the business and delivering on synergy and deleveraging commitments. Only 4.5 months post-closing, we are more optimistic than ever on the opportunity in front of us and remain confident that our strategy, our team and our leading brands put us in a strong position to deliver consistent long-term value for our shareholders. With that, operator, please open the line for questions. Operator: [Operator Instructions] The first question today comes from Trevor Allinson with Wolfe Research. Trevor Allinson: First question is on some of the trends you're seeing in Siding & Trim, particularly with your builder customers in the South. I think last quarter, you mentioned about 1/3 of your reduced guidance was due to slower market conditions. Now it seems like perhaps your expectation is for market conditions to not be quite as bad as you were previously anticipating despite the builders continuing to reduce starts here. So can you just talk about from an end market perspective, what's different than what you previously expected? Perhaps any differences by geography worth noting that is supporting your outlook? Aaron Erter: Yes. Sure, Trevor. Thanks for the question. I think very simply, just to begin, the magnitude of that deterioration has been less severe than what we embedded in our guidance. I mean, for instance, the South, single-family new construction, for instance, the declines were less severe than the 20-plus percent declines that we previously embedded. But let me take this opportunity since you threw the question out there, just to give you a little bit of a lay of the landscape here as we think about new construction. Look, starts activity really remains challenging for most of the country. We've cited this before, and it continues, particularly Texas and the Southeast are really having the greatest impact, particularly given their relative size and how indexed we are to new construction in these areas. So Texas, for instance, we see builders continue to manage their inventory levels. Builder activity continues to slow with builders starting homes at a slower pace than they are selling homes. In the second quarter, we again saw double-digit volume declines in this market. The second quarter declines reflect an even softer market than 1Q, even as 1Q was more impacted by the channel inventory impacts. And we've seen continued weakness and deterioration in October with even stronger double-digit volume declines. If we shift over to Florida and Georgia, which is a big market for us as well, demand similarly remains challenging with the volumes down year-over-year in 2Q. Housing inventory, we do see some mix there. Housing inventory across key markets like Orlando and Jacksonville remains elevated and builders continue to manage their inventories. And then in areas, housing inventories have begun to approach normal such as Southwest Florida, we've seen some relief. So we're continuing to see more stable activity in areas like the Carolinas, a market where we're outperforming as we convert builders from vinyl to color. In the West, we expect starts to be down high single digits to low double digits for the year as builders across the Southwest and the Mountain States also slow their starts. And then if we look at areas like the Midwest, we continue to see more resilience in activity, particularly at what we would call the barbell ends of the market. So more affordably priced homes and then top of the market. So look, just to sum it up, generally speaking, new construction has softened -- continued to soften across our key regions. But as I started out and begin with, not as significantly as we factored in our previous guidance. But look, even with that said, we continually strive to figure out ways to continually bring value to our builder customers, to our dealer partners and try to outperform the market. Trevor Allinson: That's super helpful. And then switching to decking and railing. A peer of yours recently talked about seeing a more competitive environment. They're talking about an expectation for SG&A spend to ramp meaningfully here versus where it's trended in recent years. Are you also seeing market conditions become more competitive? And are you expecting marketing spend or rebates to be materially higher moving forward versus what you would have expected 6 or 8 months ago? Any color on the competitive dynamics within decking and railing would be helpful. Aaron Erter: Yes, Trevor. I think to start out, when we introduced this deal, one of the things that was interesting and similar with James Hardie and AZEK is how we went to market. And we focus on the entire customer value chain. We always say homeowner-focused, customer and contractor-driven. And I think you see that with what we've been doing with AZEK and we've been doing it for years. Look, our strategy with AZEK has been consistent and it's been working. And I don't see a need to change that. So as I said, we've been focused on downstream marketing. But look, I have Jon, who runs the business for us and has for years. He can give a little more color there. Jonathan Skelly: Yes. So Trevor, again, I think it's just pretty consistent execution of the playbook. And we haven't seen any reason why we need to alter that, right? So we've consistently communicated externally that we believe we can beat the market by 500-plus basis points of growth. And that's been our experience, and the recent quarter is another example of that outperformance. New product development, downstream sales and marketing, execution, channel expansion and just getting really sticky with our customer base. That's proven to be a successful formula for us. So we're just going to continue to execute that playbook, continue to take care of our customers and continue to take care of our people. If we keep doing that, we'll continue to outperform. Operator: The next question comes from Keith Hughes with Truist. Keith Hughes: Let me go back to the question. Building on the last question, you saw a couple of points of price, I believe, in the decking business. If you could talk more about price as we end the year and potentially to next year, as you said, the previous questioner said, the largest competitor has said a dynamic like there's going to be discounting in this market. What is your expectation for price for the next year or so? Aaron Erter: Yes. Keith, are you talking specifically of DR&A or fiber cement? Keith Hughes: Specifically decking. Aaron Erter: Yes. Yes. Look, I'll take that. And Jon, chime in here if you feel the need. Look, we've taken price. We've seen other competitors take price as well. And we'll continually remain consistent in our actions and our approach to price. We don't see that changing at all. Jonathan Skelly: Yes. I mean, Keith, nothing's changed versus what we've communicated to you over the last multiple years, right? I mean we believe we can continue to take inflationary pricing in the marketplace. That hasn't changed, and we continue to execute and realize the price. Keith Hughes: Okay. And let me switch to railing. What are your plans in the future for Railing? Are we seeing any new launches of different substrate materials? The question is around new introductions. Aaron Erter: Jon, do you want to talk to some of our new product introductions? We've had some exciting ones that just came out. Jonathan Skelly: Yes. So the most recent one we just talked about in the prepared remarks is Advantage Rail. And what that is, Keith, is consistent with our decking portfolio where we have good, better, best, premium, consider this a better/best offer in the composite category. And one of the things we've been doing over the last multiple years with rail is filling out the portfolio. So again, as we look for those continued shelf space gain opportunities, when we can walk into one of our dealer partners with a full portfolio, historically, our portfolio was much more driven around composite and aluminum. But now we have a complete portfolio. You've got entry-level, so your good category with a differentiated vinyl product. You've got a step up into the steel category, sort of that's better. And then the best of the premium is rounded out with our aluminum offer and with a few different versions of composite and then our most premium and PVC. So that really provides us with a great opportunity to help our dealer partners consolidate the number of rail types they have on offer with the full portfolio. And then they get the strength of the TimberTech brand and all the demand generation -- downstream demand generation we provide them behind that brand. So we think that's a really powerful opportunity for our customers. Aaron Erter: Keith, what's been interesting as we've learned -- as I've learned this business more and more and been out with our customers with Jon and the team. As Jon mentioned, it is a very fragmented category. You go into a dealer partner, you go to dealers and you see many different types of railing out there. So to Jon's point, we're trying to be able to bring the complete offering and be able to make it simpler for our dealer partners, make it simpler for the customer as well. And look, just like we did in fiber cement, if you sell a fiber cement job, you're going to sell the trim with it. It's the same thing. We sell a TimberTech decking job, we're going to sell the rail with it as well. That's a focus of ours. Operator: The next question comes from Lee Power with JPMorgan. Lee Power: Aaron, the organic strategy piece that you've kind of outlined again, there's obviously a few moving pieces there just around ColorPlus. Some of it goes to productivity, some of it goes to the price gap versus vinyl, some of it goes to the dealer and the contractor network. What do you think is the core reason that you have struggled probably in the Northeast with ColorPlus in the past. Is it one of those more than the others? Aaron Erter: Yes, Lee, good question. Look, I think if we look at our opportunity to grow the organic fiber cement business, it's a couple of things. If we look at the Northeast and we look at the Midwest, those are the areas from a repair and remodel standpoint that have the most opportunity because you have an aging housing stock out there. The big challenge for us or I should say, opportunity is how do we decrease the price differential versus inferior substrates. So vinyl, for instance. What we know is if our contractors are sitting at a kitchen table and trying to sell a James Hardie job, if we can get that price differential versus, say, vinyl, for instance, about 50% to a premium, we're going to win the majority of those jobs. So as we walk through the presentation and we talked about reducing on-the-wall cost, we firmly believe and are confident we have an answer to that. This has been one of the biggest combined R&D efforts, supply chain efforts and also working with our customer partners to bring this all together. And over the last year, we've had this pilot out there. And what we're seeing in this area where we're having the pilot, call it, the Central Northeast is we're seeing our ColorPlus volume up 17%. So that's giving us tremendous amount of confidence to wheel this out to more locations like the Midwest, to the Carolinas, to the Mid-Atlantic. And what's been critical, you saw the announcement with Boise. A lot of that has been focused on TimberTech and AZEK in some regions. But what's critical in that announcement is Boise partnering with us to get this extended statement collection out there to more areas of the country. So that allows us to really be able to accelerate our repair and remodel conversion out there. And look, we believe from a ColorPlus standpoint, the methods that we have, this Intuitive Edge program that we're going to be able to double our ColorPlus volume just with this program. So we're really excited about it. I know we've talked about it, but we're seeing it working, and we're going to have it be launched to a couple of different areas and continue to launch appropriate areas across the country as we get into the back half of our year. Lee Power: And then just a follow-up. You talked to trim attachment rates before. Can you just tell us where you are tracking now trim attachment rates in new housing and R&R and maybe how AZEK has helped that? Aaron Erter: Yes. Good question, Lee. Look, we continue to see progress in our trim attachment. And a lot of our agreements with our large homebuilders, which has been new over the last couple of years have included adding trim attachment as well. We see a tremendous amount of opportunity, just synergies in total, obviously, with AZEK, but areas of the country that are not utilizing fiber cement. So take, for instance, the Northeast, that's where we think we have opportunity to be able to bring AZEK in and VERSATEX as well. And look, I think what's been really encouraging as well as we brought this complete proposition to some of our large one-step dealers out there, they're excited about it, and they're adopting it. So we're seeing progress. Operator: The next question comes from Ryan Merkel with William Blair. Ryan Merkel: Nice job this quarter. My first question is on margins. It looks like guidance implies the second quarter EBITDA margins at the bottom for the year. Can you talk about what's driving the improvement in the second half and, particularly, because it looks like Siding volumes might be a little worse in the second half year-over-year? Aaron Erter: Yes. Ryan, good question. Look, we're continue to -- we're going to have soft volumes, we think, in the back half. I mentioned that in the beginning when we think about fiber cement. Even still, our guidance shows more modest margin compression on a year-over-year basis. I think it's important to contextualize that our second half expected margin performance would be more consistent with what you would expect with our cost structure and decremental profile. We've seen a lot of inflation headwinds continue from FY '25 that we flagged and have carried over. So there were impacts related to short-term under-absorption and variable costs that really weighed on the first half. But as we get into the second half, we expect to see more pronounced benefits from some of our cost initiatives, healthy price/mix benefits, some incremental benefits of cost synergies and really some potentially early improvements from the actions we're taking to really optimize our manufacturing network. So as I think about margins moving forward, we're not giving guidance, but I would expect if we continue to see the same type of volumes that the second half is going to be more representative of what we would see, if not a little better. Ryan Merkel: Got it. All right. That's helpful. And then just stepping back, Aaron, if I go back to the guidance cut in August, there were a lot of fears that fiber cement was losing share. It now seems like your exposure in the South and a cautious guide were really the key issues. So my question is, can you comment on how fiber cement is performing versus other materials in a market where affordability is a big issue? Are you taking share? Are you holding share? Aaron Erter: Yes. Good question. Look, as we look at share, I mean, certainly, we are not happy or satisfied with our performance. We need to be growing. Now with that said, and not using an excuse, but we do face some challenges with our exposure to new construction and certainly areas like the South. But I talked about some opportunities that we have moving forward. Lee had just asked me the question about the improvement on the wall cost. We think that's a game changer for us, and we expect to really accelerate that. I think the other thing is the momentum behind resilient materials is structural. So if we think about risks such as wildfires, sustainability goals, insurance reform, fiber cement really aligns perfectly with the trend to meet evolving building codes. There's the curb appeal. And then look, lastly, I would say, builders remain focused on what helps them sell more houses quicker. And we're finding that James Hardie homes do that. So as we think about over the longer term, we think we're well positioned. Operator: The next question comes from Tim Wojs with Baird. Timothy Wojs: I guess first, my question just on cost synergies. You raised kind of the exit rate on the run rate for fiscal '26. If you could just speak to kind of what you were able to attack on the cost synergy front earlier than you expected. And then as you think about kind of the $125 million cost synergy target, any kind of timing change there as you kind of attack the rest of the bucket? Aaron Erter: Yes. Tim, good question. Look, I think the key here is, we focus on G&A right away. So really, I think 85% of the target that we had for G&A, we've achieved. So the natural question is, are you going to think -- are you going to get these done earlier? Or are you going to raise the cost synergy target? What I'd like to do first is let's see these show up in the P&L for us and then be able to look at potentially doing that. But I'm very pleased with the focus and how the team is working on approaching these cost synergies. The other key is you don't want any disruption to your base business or disruption to your customers, and we have not seen that. So there's been a tremendous amount of focus from the team. Timothy Wojs: Okay. Okay. That's helpful. And then just kind of piggybacking on Ryan's question about margins, specifically in the Siding & Trim business. Is there anything internally that you're specifically doing to kind of limit some of the decrementals on volume? Because I mean it still is kind of a high single-digit volume decline, I think, implied in the back half of the year, but you're going to see much better incrementals. So is it the timing of raws? Is it some things you're doing on variable costs and things like that kind of manage it? Just some more color there, I think, would be a lot helpful. Aaron Erter: Yes. Certainly, we've had our cost inflation. But look, we always say we focus on what we can control. So we are taking actions. If you look at some of the things that we're doing in our manufacturing plants, we're managing shifts. We're working as best as we can to manage our variable costs. Also, we're looking at our footprint as well. And what are the right type of capacity levels we need at this time, that speaks to us working through the right amount of shifts to have. So there's a whole host of things. I still go back to areas like the Hardie operating system. That is key for us to manage our costs, whether that be from a procurement standpoint, whether that be from a formulation standpoint. So we're looking at that from a legacy Hardie standpoint, but also implementing that in the legacy AZEK business. So those are some of the things that we're doing, and we've already taken action on some of these already that we should see the benefits as we complete our Q3. Operator: The next question comes from Peter Steyn with Macquarie. Peter Steyn: Just you've mentioned one step, your one-step dealer network and relationships a number of times. Could you give us a little bit more of a sense of what you're experiencing in that space? Obviously, it's easy to see the Boise's and the like, but less so in the one step context, what reception you're getting, what impact it's having on the business and how you're thinking about the strategic positioning of your channel mix across the portfolio? Aaron Erter: Yes. Peter, maybe to start out, Boise, we have not listed as a synergy, meaning a commercial synergy. Synergy happens downstream. And so if we think about our distribution partners, it's really important and our strategy has always been at James Hardie, and it's been the same at AZEK is to make sure that we're teamed up with the best distribution partners that are going to service our customers. If we go to our one-step dealers, certainly, we have tremendous relationships with them. And call it day 2, we've talked to them and we spent a lot of time with them and bringing them what is the complete value proposition of the 2 companies combined. So again, I want to be able to demonstrate in the P&L and because of confidentiality reasons, we won't go into some of the early wins that we've had, but we have had early wins with some of our large one-step dealers, particularly in the areas of PVC trim. So they see the value in the complete offering. I think any time you ask, okay, why would they want to change? Why would they want to bring in a complete offering of what is the new James Hardie. It goes back to that demand creation. And Jon talked a little bit about the downstream marketing, the downstream focus. That really is us focused on our contractors and our ability to drive them through our dealers' branches. And we do that because outstanding product. We do that because of outstanding service, and we do that because of outstanding brands. The TimberTech brand is the #1 brand for the Pros and Decking. The James Hardie brand is the #1 brand in Siding. We have the #1 brand from a Trim standpoint. So that really is the value that we bring and why they would be interested in bringing in the complete offering. Peter Steyn: Yes. As a quick follow-on and a direct one at that, you mentioned continued strong performance in premium decking. How much has a varied channel mix relative to some of your peers got to do with some of the experience you're having in your business relative to peer commentaries? Aaron Erter: Yes. You know what, I'll let the expert here, Jon Skelly, take that one, Jon? Jonathan Skelly: Yes. So again, I think if you look back at the strategy and the execution that we talked about, continuing to deliver against shelf space gains and that channel expansion has been critical to our success. And so we're just continuing to execute against that playbook. I think historically, as we've talked about, we tend to be a more Pro leading business. And so a lot of our channel expansion and shelf gains have been coming at the Pro level. So the independent Pro channel is critical for us. And as Aaron articulated well, the one-step channel has also been good historically for TimberTech and AZEK, but obviously, roofing and siding focused one-step dealers. James Hardie has a stronger base of relationships there. And so we're able to have really powerful joint conversations with that channel. So that's been our strategy. We've been executing it. Again, our portfolio has been in decking experienced balanced growth. Again, our mix tends to lean more premium, but we are seeing growth across the portfolio, and we are seeing continued strength in the Pro channel. Operator: The next question comes from Phil Ng with Jefferies. Philip Ng: Congrats on the strong quarter. I mean, pretty encouraging in terms of the quarter and the outlook. Jon, it's a treat that we have you on this call. So I guess a question for you. When we look at marrying Hardie and AZEK, these 2 companies and businesses, how is perhaps the go-to-market strategy similar and different from your previous life at AZEK and the opportunities that could be different? I'm curious, what are some of the new levers in your toolkit now with a much larger entity, a larger portfolio? Are there things that you can offer that wasn't as obvious before, whether it's rebates, the ease of doing business, pricing? Just kind of help us think through some of those opportunities? And any noticeable shelf space wins you want to call out for '26, whether it's retail or the 2 steppers? Jonathan Skelly: Sure. Great to talk to you again, Phil. So first and foremost, what I've been most encouraged about is the shared culture across both businesses. So when you look at whether you're a TimberTech or AZEK seller or a James Hardie seller, just the focus downstream on driving contractor conversions and pull-through of the channel, it's just been terrific. So our teams have been working incredibly well together, and they've been doing a terrific job of sharing opportunities and trying to generate some quick wins out of the gate. So first and foremost, that's been really powerful. So on a combined basis, we believe we now have the largest sales team among any building products manufacturer, and that's critical to our growth and our synergy capture here in the future. If you think about what's the opportunity, the opportunity is we can completely service the entire exterior of the home now. So that is just a great strategic advantage, and we can go in and have conversations with customers about having leading brands in every exterior product category. So that's great for us and great for our team is that we are -- now have the opportunity to be more important to more customers. So whether that's the independent channel, the one-step channel or distribution partners, we have the broadest portfolio of market-leading brands, and that allows you to have really great conversations with customers about how we grow our businesses together on a combined basis. Philip Ng: Okay. Super. That's great color. And Aaron, I thought the comments around how you're looking to reduce the on-the-wall cost with some of these pilot programs and training was pretty encouraging. How should we think about that opportunity as you scale that up? Is it going to be a meaningful needle mover in fiscal '27? Or it's going to take a multiyear process? Is there any aspirational goal like in 3 years, we want this half of the branches that we sell to being rolled out or whatnot? Just give us some color in terms of aspirational targets in the next few years as you roll this... Aaron Erter: Yes. Phil, very simply, we are going to start scaling this up in the back half, which is now. So I mentioned the partnership that we have with Boise. So we believe the Mid-Atlantic, the Northeast, the Carolinas and the Midwest are all areas that are huge opportunities for us, particularly in repair and remodel. So we're going to be working with them to start reeling this out in this back half of the year. And look, I think as far as longer-term KPIs on this, the opportunity is tremendous. I'll save that for when we have Investor Day. But as I mentioned before, we think our ColorPlus volume, which is roughly, call it, 25% of what our fiber cement exterior volume is now, we believe we can double that through this initiative. So we're very encouraged by this. Like I said, this has been something that has been an on-purpose plan, and we put a lot of resources behind this over the last 1.5 years. It is something that has had many different parts of the organization combine and work to for this common goal. So hats off for the team -- to the team. Now we got to go execute it and scale it up in a much bigger way. Operator: The next question comes from Keith Chau with MST Marquee. Keith Chau: Aaron, I want to ask you a question, and I know it's been asked before, so this is a bit of a follow-up. But your quarterly assumptions for Siding & Trim from the third and the fourth quarter. So rather than looking at it versus last year, just looking at it sequentially. So I think the context you provided for the guidance is that end markets are soft, but more stable than expected. So against this backdrop, we would expect demand to improve on a seasonal basis in the fourth quarter, not only for the Hardie's legacy Siding business and AZEK Interiors -- sorry, Exteriors. And you also mentioned the 1 January price increase as well. So in combination with that and also raw materials moving favorably sequentially, I'm surprised you've guided to margins being down in the fourth quarter. I would have thought naturally that they should be higher. So is there anything going on between those 2 quarters that we should be aware of because it helps us inform us of the FY '27 entry run rate for margins? Aaron Erter: Yes. Keith, so here's what I'd say simply. We expect high single-digit declines in volume when we think of our Siding & Trim business as we get to the back half of the year. And then we expect roughly, call it, 3% price realization, so then you get to the mid-single digits. That's very simply the outlook. Joe, anything else you'd add? Joe Ahlersmeyer: Yes. And we know there's a lot of moving pieces between the acquisition and the allocation of the R&D. So just thinking about the organic NAFC business and stripping out the R&D impact, I think it's important to look at first half versus second half. The first half decrementals were over 80%. The second half decrementals in NAFC ex R&D are under 50%. So that's why when we think about the back half as a good baseline, we're really looking at the decrementals relative to the high single-digit decline in volume that Aaron mentioned. And Keith, to your point about what is the right run rate going forward. So adding back in the R&D because that is now how we allocate to the segment, we're implying 32% to 33% adjusted EBITDA margins in the back half for NAFC, and that's relatively consistent with AZEK Exteriors. So that's the way you think about it. Keith Chau: Okay. And then a follow-up just on these trials in the pilot plants and reducing on the wall cost. I know I'm kind of mixing our work streams here. But can you help us understand, Aaron, what the current revenue generation is from those pilot programs? Aaron Erter: Yes. So the way that we're looking at this right now is we have the Central Northeast. So we have a defined area, Keith. And we looked really over a 6-month period of time, what our increase from a ColorPlus volume standpoint. And we've seen that being close to 20% increase. So what we're really doing, a couple of things. We're shrinking the differential when we think about quoting versus, call it, a vinyl job. But also because of the price that we're seeing in the on-the-wall cost reductions we're seeing is contractors are able to go after price points of homes that they usually haven't been able to do so with. So meaning our total addressable market increases quite a bit as well. So not only are we excited about the differential and being able to shrink that premium versus, call it, vinyl, but it opens up an addressable market that's much larger for us. So that's very exciting. Operator: The last question today comes from Adam Baumgarten with Vertical Research. Adam Baumgarten: I guess just I assume you guys are still in AZEK doing the quarterly surveys that the company has talked about in the past. I know you talked about backlogs around 7 weeks, but any additional color on how your customers are thinking about calendar '26 at this point? Aaron Erter: Jon, go ahead. Jonathan Skelly: Yes. So again, what we highlighted in the prepared remarks around the surveys and what we're hearing is that it's consistent, right? So backlogs are consistent. Outlook is consistent. And then obviously, we get other data points as well. And what we've seen is, by and large, while repair and remodel is down, outdoor living is one of the more positive categories within repair and remodel. And then Temper-Tech has been performing the best within the category. Again, it's a really attractive market. It's driven by material conversion and it's driven by the consumers' desire to spend more time outdoors, right? So you have 2 kind of structural tailwinds here in terms of the desire for outdoor living. And then obviously, we continue to convert wood and other inferior materials into our products. And that is what's driving that stable outlook and that stable backlog for our contractors and our dealers. Aaron Erter: Yes. One thing I would just add to that is we talk so much about the best of both with AZEK and James Hardie. And what we've adopted as a total company are these dealer and contractor surveys, and we have that on the fiber cement side as well. So it helps us to get closer to our customer partners and get a viewpoint of the future as well. So very helpful. Okay. I think, we're -- sorry, Adam, you have a follow-up? Adam Baumgarten: Nope. All set. Aaron Erter: Okay. Very good. Hey, everyone. Thanks for the time. Look, I want to thank all the James Hardie team members for all their hard work and working to service our customers. Really, what I want to leave you with is, look, we have a handle on the business. And our fiber cement business, although we're not satisfied with our growth trajectory, we think we have a good plan and our business is healthy. We have a handle on the fiber cement margins. The actions are underway and coming, and you'll see that as we look at our margin profile. And our decking business has continued to remain highly attractive, and our AZEK business is performing very well. So with that, I'll leave you all. Thank you very much for the time. Operator: That does conclude our conference for today. 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