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Operator: Ladies and gentlemen, welcome to Richemont Financial Year 2026 Interim Results Presentation. I am Sandra, your call operator. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Richemont. Please go ahead. Alessandra Girolami: Thank you, Sandra, and good morning, everyone. Thank you for joining us for Richemont's half year results presentation for the period ended 30th September 2025. Here with us today are Johann Rupert, Chairman; Nicolas Bos, CEO; Burkhart Grund, CFO; and James Fraser, Investor Relations Executive. We would like to remind you that the company announcement and results presentation can be downloaded from richemont.com, and that the replay of this audio webcast will be available on our website today at 3:00 p.m. Geneva time. Before we begin, please take note of our disclaimer regarding forward-looking statements in our ad hoc announcement and on Slide 2 of our presentation. Turning now to the presentation. Burkhart will begin by discussing key highlights and group sales. I will then provide further detail on the performance of our Maisons. And finally, Burkhart will take you through the financials and offer some concluding remarks. This presentation will then be followed by a Q&A session. Burkhart, over to you. Burkhart Grund: Thank you, Alessandra. Good morning to everyone, and thank you for joining us today. Richemont delivered solid results in the first half in a complex macroeconomic and geopolitical environment. Sales for the period reached EUR 10.6 billion, up by 10% at constant exchange rates and by 5% at actual exchange rates. Operating profit stood at EUR 2.4 billion, up by 7% compared to the prior year period or up by 24%, excluding the significantly adverse foreign exchange movements. Operating margin reached 22.2%, improving by 30 basis points. Profit from continuing operations at EUR 1.8 billion was 4% higher than the prior year period. Cash flow from operating activities amounted to EUR 1.9 billion. Finally, our net cash position remained very robust at EUR 6.5 billion after the EUR 1.9 billion dividend paid in September. Turning to our highlights, starting with the top line. The group posted double-digit growth at constant rates, led by continued success at Jewellery Maisons and sustained local demand across most regions. In the second quarter, in particular, the group and its Maisons experienced strong momentum with sales up by 14% at constant rates. In Q2, we saw higher sales across all business areas, including a remarkable 17% increase at the Jewellery Maisons. Sales at the Specialist Watchmakers were up 3%, posting their first quarter of growth in almost 2 years, while sales at other business area rose by 6%. In addition, all regions posted double-digit increases in Q2, including Asia Pacific, supported by a return to growth in China. In the period, the group showed its ability to maintain a robust financial position. Operating profit in the first half increased to EUR 2.4 billion, reflecting the positive contribution from the strong top line growth, combined with effective cost discipline. This was achieved despite external headwinds, including unfavorable FX movements, increasing raw material costs and to a lesser extent, the initial impact of additional U.S. duties. Consequently, the group maintained a solid net cash position at EUR 6.5 billion, an increase of EUR 0.4 billion over the prior year period. In this context, our Maisons continued to demonstrate agility while investing for the long term. Showing their persistent drive for creativity and product innovation, they introduced strong novelties with craftsmanship at their core. They further nurtured their brand equity through impactful yet disciplined communication spending. They continue to cultivate future growth prospects through strategic investments. This drove a higher share of our CapEx envelope towards internal boutiques and manufacturing capacities, primarily for the Jewellery Maisons. Let me now discuss the group sales performance in more detail, first by region and then by distribution channel. Unless otherwise stated, all comments refer to year-over-year changes at constant exchange rates. Most regions posted solid performances in the first half, benefiting from double-digit growth across all regions in Q2, led by strong local demand. Sales in the Americas maintained their momentum throughout the first half and posted 18% growth with strength across all business areas, all channels and all markets in the region. Of note, Jewellery Maisons and Specialist Watchmakers posted double-digit performances while several Fashion & Accessories Maisons showed encouraging signs. In Q2, the Americas region posted its seventh consecutive quarter of double-digit growth with sales up by 20%. The Americas made up 25% of group sales, up from 23% in the prior year period. Asia Pacific returned to growth in the first half, up by 5% compared to the prior year period, fueled by a 10% rise in the second quarter. Of note, sales in China, Hong Kong and Macau combined stabilized in the first half, a notable improvement to 7% growth in Q2, led by the Jewellery Maisons. The performance was solid elsewhere in Asia Pacific with notable double-digit growth in the South Korean and Australian markets. Sales in Asia Pacific made up 32% of group sales, down from 34% in the prior year period. Sales in Europe increased by 11%, driven by double-digit growth at the Jewellery Maisons and single-digit increases at the Specialist Watchmakers and other. All major markets in the region posted higher sales, notably in Italy. Growth was led by strong local demand in addition to a positive contribution from tourist spending, particularly from the American clientele. Overall, the performance in Q2 was consistent with that of Q1 at plus 11%. Sales in Europe represented 24% of group sales, a tad higher than the 23% in H1 '25. Japan ended the first half with sales down by 4% after returning to double-digit growth in the second quarter, led by an acceleration in local demand, particularly at Jewellery Maisons, where spending, while improving in Q2 declined in the first half, reflecting demanding comparatives and a stronger Japanese yen. Japan's contribution to group sales decreased slightly to 10% compared to 11% in the prior year period. Middle East and Africa posted the strongest regional growth for the period with sales up by 19%, slightly ahead of the Americas. The performance was led by the Jewellery Maisons with positive Specialist Watchmakers sales at constant rates. All markets were up with the United Arab Emirates being the key contributor. Sales in the region made up 9% of group sales, in line with the prior year period. The largest contributors to sales growth in value terms were the Americas and Europe, each adding over EUR 200 million in incremental sales, followed by the Middle East and Africa region with a contribution of over EUR 100 million. Combined with broadly stable sales in Asia Pacific and a limited decline in Japan, the group was able to generate over EUR 500 million of additional sales in the first half despite a significant negative impact from currency movements. Let us now turn to sales by distribution channel with growth expressed at constant exchange rates. Overall, the 3 channels experienced broadly similar performances in the first half, leading to a stable contribution from direct-to-client sales at 76%. Let's start with retail, which accounted for 70% of group sales, unchanged from the prior year period. Sales rose by 10%, driven by double-digit growth at the Jewellery Maisons and mid-single-digit growth at the other business area, while sales at the Specialist Watchmakers declined slightly. All regions, except Japan, posted solid performances, led by double-digit growth in the Americas and Middle East and Africa. Online retail at 6% of group sales grew by 7%. Strong performance at the Jewellery Maisons more than compensated for softness in the other business area. Sales at the Specialist Watchmakers were broadly stable in the period. All regions posted growth, led by Europe. And now moving to wholesale, which includes sales to external mono-brand franchise partners and third-party multi-brand retail partners, sales to agents and royalty income. Wholesale sales represented 24% of the group sales and were up by 9%, supported by growth at both the Jewellery Maisons and the other business area. By region, the strongest contribution came from the Americas, Europe and Middle East and Africa. Now back to you, Alessandra. Alessandra Girolami: Thank you, Burkhart. I will now review the business areas with all comparisons at actual rates unless otherwise specified. Let me start with the Jewellery Maisons, which include Buccellati, Cartier, Van Cleef & Arpels and Vhernier. Sales reached EUR 7.7 billion, an increase of 9% in the first half. At constant exchange rates, sales were up by 14%, with all regions posting double-digit growth, except for Japan, which was nearly flat. Q2 was particularly strong with sales up 17% at constant rates after a solid plus 11% in Q1. In the first half, sales grew across all distribution channels. The Jewellery Maisons generated an operating result of EUR 2.5 billion, up 9% versus the prior year period or up by 21% at constant exchange rates. Facing significant adverse currency movements, higher raw material costs and to a lesser extent, the initial impact of additional U.S. duties, the Jewellery Maisons implemented balanced price increases while aiming to maintain long-term value for clients. In parallel, they continue to invest in their network while managing their cost effectively as demonstrated by the level of communication expenses only slightly above the prior year levels. Coupled with strong top line momentum, this allowed the Jewellery Maisons to mitigate the unfavorable impact of external headwinds, resulting in a stable operating margin at 32.8%. Let's now look at the main developments over the past 6 months. Both jewelry and watch collections posted strong growth, fueled by the success of timeless lines, such as Opera Tulle and Macri at Buccellati, Clash, Panthère and Santos at Cartier and Alhambra, Perlée and Flora at Van Cleef & Arpels. Blending heritage with creative spirit, the Maisons pursued persistent innovation to foster desirability. Cartier launched its new branding campaign featuring the Panthère. And later in September, the Love Unlimited line, bringing a bold new look to the Love collection that was imagined over 50 years ago. Also in September, Van Cleef & Arpels displayed their artistic and craftsmanship savoir faire with the launch of their new Flowerlace jewelry collection. In the first half, high jewelry sales were supported by impactful and curated events in Europe and Asia for the En Equilibre collection at Cartier and l’Ile au Trésor collection at Van Cleef & Arpels, while Buccellati also hosted exclusive events in Italy. Vhernier has now celebrated an intense first full year within the group. The performance is very encouraging, and the integration is progressing as planned. Vhernier has now internalized several boutiques and refurbished one of its [ astodiers ] among other initiatives, thereby continuing to build a strong foundation for future growth. The Jewellery Maisons continue to upgrade and expand their network in strategic locations. Notable renovations, including Cartier's boutique on Collins Street in Melbourne, while key openings featured Buccellati at the Mall of the Emirates in Dubai and Van Cleef & Arpels in Goethestrasse in Frankfurt. Let's now turn to Specialist Watchmakers, where sales were down by 6% in the first half. At constant exchange rates, sales were down by 2% with a notable return to growth in Q2 at plus 3%. Regional performances continued to show contrasting trends. Double-digit growth in the Americas partly offset lower sales in Asia Pacific and Japan, 2 regions that combined account for over 50% of sales in the prior year period. Of note, all regions improved sequentially in the second quarter. By channel, retail and wholesale experienced slightly lower sales, while online retail was stable at constant rates. The operating results amounted to EUR 50 million, corresponding to an operating margin of 3.2%. Gross margin was impacted by the combination of unfavorable foreign exchange movements, of which the weaker U.S. dollar and the stronger Swiss franc, rising gold prices and an initial effect from higher U.S. duties. Ongoing cost discipline visible through a slight decrease in operating expenses partly mitigated the deleveraging impact of lower sales on the fixed operating cost structure. Reflecting their varied regional footprints, the Maisons experienced mixed trends. However, they maintained a 100% sell-in, sell-out ratio over 12 months, demonstrating disciplined inventory management. Novelties drawing on the Maisons' strong heritage and showcasing their craftsmanship contributed positively. The Lange & Söhne Odysseus Honeygold limited edition, for example, was fully allocated within 1 week of its launch. IWC introduced new references of the Ingenieur and Pilot's watches. Jaeger-LeCoultre released the Reverso Duoface Small Seconds and Piaget, its new jewelry watch collection, the Sixtie. Of note, Piaget has seen 5 of its creations nominated for the '25 Grand Prix d'Horlogerie de Geneve, which recognizes watchmaking excellence. 2025 also marks the 270th anniversary of Vacheron Constantin celebrated through worldwide events and new launches. Worth noting is the creation of La Quête du Temps, a mechanical marvel 7 years in the making and currently displayed at the Louvre, showcasing the Maisons' ability to combine history, craftsmanship and engineering. In parallel, while the overall number of stores was largely stable in the first half, the Maisons continue to enhance their network. Notable examples, including IWC's new booking in Taichung, Taiwan, Vacheron Constantin strategic relocation in Seoul, and Jaeger-LeCoultre's major renovation at the Kuala Lumpur Pavilion. Let's move to the other business area, comprising the Fashion & Accessories Maisons, Watchfinder & Co., and the group's watch component manufacturing and real estate activities. Overall sales were down by 1% at actual exchange rates, but rose by 2% at constant exchange rates. Regionally, Europe was the main contributor to growth and trends in the Americas were encouraging. By channel, sales in both retail and wholesale increased slightly. Growth at constant rates was driven by a double-digit rise at Watchfinder and modest growth at the Fashion & Accessories Maisons. Trends improved sequentially across all regions in Q2, leading to a 6% increase in sales at constant rates. Overall, the other business area reported an operating loss of EUR 42 million. Fashion & Accessories Maisons posted a EUR 33 million loss, improving at constant rates, thanks to controlled operating expenses while continuing to invest in the desirability of the Maisons. Turning now to Maisons' highlights. Alaïa saw its sales grow by double digits, fueled by sustained success and brand heat of its icons such as La Ballerine and Le Teckel. It is also worth highlighting the continued solid performance at Peter Millar, thanks to its lifestyle positioning and success in its crown crafted collection. Chloé saw improved momentum led by ready-to-wear, confirming that its strategy to reconnect with its roots is resonating well with clients. Overall, ready-to-wear across the Maisons achieved double-digit growth in the first half, fueled by a sustained focus on creativity. Montblanc made progress on its transformation program, comprising a greater focus on writing instruments and leather goods categories in direct-to-client channels while streamlining its wholesale network. Gianvito Rossi has been increasingly recognized as a leading global luxury female footwear brand, underscored by the enthusiastic reception of its latest golden edge fashion collection. The Maisons continue to enhance their distribution networks over the period. Openings, including Chloé in Saint Tropez, Peter Millar expanding to San Diego and Columbus, and Watchfinder, launching its first U.S. internal boutique in Soho, New York City. This concludes the review of the first half performance of each business area. Burkhart, over to you. Burkhart Grund: Thank you, Alessandra, and well done on the pronunciation of Goethestrasse. Alessandra Girolami: Thank you, Burkhart. Burkhart Grund: Let me walk you through the rest of the P&L, starting with gross profit. Gross profit increased by 2% to EUR 6.9 billion and represented 65.3% of sales, a decrease of 190 basis points compared to the prior year period. This is the result of several moving parts, which have evolved considerably in the past 6 months. Starting with our production costs that were affected by rising raw material prices, particularly that of gold and to a lesser extent this period, higher U.S. duties. With a time lag between production and effective sale, our inventory levels acted as a partial natural hedge in a period of rising material costs. Compensating for the higher production costs, we benefited from positive impacts related to pricing and favorable sales mix. This was not sufficient, however, to compensate for the material adverse currency movements of a negative 180 basis points we faced in the first half, notably driven by a weaker U.S. dollar and Chinese renminbi, next to a strong Swiss franc, one of our main manufacturing currencies. Before we move on to the rest of the P&L, let me add a few words on U.S. duties. In the first half, the impact of increased U.S. tariff rates was limited to some EUR 50 million, thanks to our proactive inventory management since April and due to the phasing of the implementation of different tariff rates, starting with 10%, then 15% for Europe-made products, followed by 39% in August for Swiss-made products. With this phasing in mind, we anticipate a greater unfavorable impact in the second half, particularly if the 39% tariffs on Swiss origin products are maintained. Based on the current levels of our U.S. inventories and planned shipments, we estimate the full adverse impact of the increased U.S. tariff rates to be around EUR 0.3 billion for the full current fiscal year. Let us now look at net operating expenses, which were stable compared to the prior year period in value and increased by just 3% at constant exchange rates. Operating expenses stood at 43.1% of sales, down 220 basis points, driving positive flow-through from higher sales. Selling and distribution expenses were up by 3% or by 6% at constant exchange rates. The rise in cost was primarily related to continued retail store network expansion as well as salary increases. As a percentage of sales, selling and distribution expenses were down 70 basis points. Communication expenses decreased by 4% or 2% at constant rates, reflecting the Maisons' efficiency in allocating the resources and to a lesser degree, some impact from the phasing of specific events from 1 year to the next. As a percentage of sales, communication spend was 8.2% down -- sorry, 8.2%, down 80 basis points and below our typical range of 9% to 10%. Administrative and other expenses decreased by 2% at both actual and constant rates amounted to 9.2% of sales, down 70 basis points, reflecting lower valuation adjustments and fewer nonrecurring costs than observed in the prior year period. This resulted in an operating profit of EUR 2.4 billion, up by 7% at actual exchange rates and by 24% at constant exchange rates. Overall, the strong sales growth contribution and the effective cost control mitigated the impact of external headwinds in the first half, namely of unfavorable foreign exchange movements, the sharp increase in the price of gold and to a lesser degree, additional U.S. duties. As a consequence, operating margin remained robust at 22.2%, a 30 basis point improvement versus the prior year period. Let us now review the rest of the P&L items below the operating profit line, starting with finance costs. Net finance costs reduced slightly to EUR 158 million for the first half, down from EUR 173 million in the prior year period. This EUR 15 million improvement is mainly comprised of the following items. On the one hand, higher net FX losses on monetary items for EUR 162 million, primarily due to a weak U.S. dollar in addition to the impact of lower fair value adjustments for EUR 129 million. The latter relates to the group's investments in externally managed bond funds and money market funds. On the other hand, more than compensating those 2 items were the EUR 326 million increase in net gains on FX hedging activities. Turning to discontinued operations, which consists of YNAP until the completion of its sale on -- at the end of April of this year. Profit for the period stood at EUR 17 million. As a reminder, last year's results included a EUR 1.2 billion noncash write-down related to the transaction. Figures presented here are the estimated final closing adjustments related to the disposal, our 33% stake in LuxExperience being now recorded as an equity accounted investment. Let's now review the profit for the period. Profit from continuing operations stood at EUR 1.8 billion, 4% higher than prior year period. This included the rise in operating profit and the improvement of net finance costs that I've just described. The evolution of the share of equity accounted results was down EUR 34 million, primarily reflecting lower gains than in the prior year period on equity-accounted businesses and to a lesser degree, the result of our stake in LuxExperience, which was included for the first time. The group's effective tax rate for the first half stood at 19.5%, in line with our expectations for the full year, absent any special unforeseen items occurring in the second half. Finally, profit for the period was EUR 1.8 billion, up from EUR 0.5 billion in the prior year period that included a EUR 1.2 billion noncash write-down from discontinued operations. Cash flow generated from operating activities came in at EUR 1.9 billion, an increase of EUR 600 million compared to the prior year period, driven by higher operating profit and lower working capital requirements. Indeed, inventories rose, but less than in the prior year period, notably as the Jewellery Maisons experienced strong sales growth. Specialist Watchmakers also demonstrated effective production management, contributing to controlled inventory levels. To a lesser extent, higher cash inflows from foreign exchange derivatives also contributed to the reduction of working capital needs. Let us now turn to our gross capital expenditure, which amounted to EUR 0.4 billion and represented 3.6% of group sales. Our CapEx was broadly in line with the prior year period. A higher share was allocated to distribution and manufacturing. Investments in our distribution network dedicated to renovations, relocations and openings of directly operated stores represented 55% of gross capital expenditure, a share 8 percentage points higher than the prior year period. The share of manufacturing spend increased to 30% of overall CapEx compared to 24% in the prior year period. The investment mostly related to the Jewellery Maisons. Other investments represented 15% of CapEx, down compared to the prior year period, the decrease mainly reflecting the completion of several noncommercial Maisons projects. Let us now turn to free cash flow. At EUR 1 billion, free cash flow was about EUR 0.8 billion higher than in the prior year period. The increase primarily reflected the EUR 0.6 billion benefit from cash flow from operating activities that I described earlier, in addition to the nonrecurrence of last year's real estate acquisitions in London. Our balance sheet remained solid. Shareholders' equity accounted for 54% of total assets. Net cash amounted to EUR 6.5 billion at the end of September, down EUR 1.7 billion compared to the end of March 2025. This decrease is more than explained by the EUR 1.9 billion dividend cash outflow in September that reflected an ordinary dividend of CHF 3 per A share, which was approved by shareholders at the latest AGM. Before turning over to the Q&A, I would like to offer some concluding remarks. Richemont delivered solid results in the first half in a complex macroeconomic and geopolitical context. Our sales growth, largely fueled by sustained local demand in most regions speaks to the strength of our Maisons' positioning built with consistency over time. And we will continue to nurture their brand equity and cultivate their potential through investing in quality locations and manufacturing capacities. While we continue to navigate uncertain times and face demanding comparatives, we maintain the course and remain focused on leading the group with the same discipline as in the past. We have full confidence in our talented team's dedication to continue to enchant our clients with craftsmanship and creativity at the core to deliver sustainable value creation for our stakeholders. Now this concludes our presentation. Thank you for your attention, and I will now hand back over to Alessandra. Anne-Laure Jamain: Thank you, Burkhart. We now start the Q&A session. [Operator Instructions] Operator: [Operator Instructions] The first question comes from Ed Aubin from Morgan Stanley. Edouard Aubin: So Ed Aubin from Morgan Stanley. So first of all, congratulations, obviously, for the strong set of results. And Mr. Rupert, congratulations for the opening of the [ former ] Cartier building in Paris. I think it's really stunning. And I guess, for your support of the art world. So just going back to the question. So Burkhart, on the exit rate and kind of the start of Q3, which I know you don't really like to comment about. But yes, if you could comment in terms of how things have been trending over the past few weeks. You're going to be facing a much higher, much more difficult comparison basis for the quarter ending December, particularly in the U.S. So are you already seeing some slowdown on the back of that and so on. So that would be question number one. And then question number two, on the gross margin, which was down 190 basis points. Burkhart, if you could just -- I know you've helpfully provided a profit bridge, but on the input cost inflation and particularly related to gold, if you could provide a little bit of color because ahead of the results, people were struggling a bit with the modeling. And related to that, you helpfully given some tariff -- quantified the tariff headwind for H2, which I guess is EUR 250 million. The consensus is currently assuming a lower rate of decline for the gross margin, only 150 basis points in H2. Does that seem realistic given that the tariff impact should be substantially higher in H2 versus H1? Burkhart Grund: Yes. Good morning. Let me -- okay, let me try to help you within the limits of what we usually do, right? I mean, forward-looking and looking at Q3 sales, you know that we will not give you that color because there is too much uncertainty going forward. What I can point out is and remember that we had a very strong third quarter last year, a growth of 10%. And I think we're confident again in the long-term prospect of the Maisons, but we cannot, at this stage, give you any indication of how we're trading. The performance across the second quarter was pretty uniform with a bit of slightly higher growth in the month of September, but that has something to do also with past year's comparison. So really nothing much to add to that. Now the gross margin, I think we have been giving some indications. Let me try to be helpful. So overall, we have a 190 basis point drop in the gross margin in the first half, out of which 170 basis points really are linked to the FX impact, so the translation effect. And it's a mixed bag between obviously weaker dollar and dollar-linked currencies, but also for example, the renminbi, to a much lower extent, the Japanese yen this year and some other currencies such as the Korean won, for example, combined with the relative strengthening of the Swiss franc, which you know is one of our major manufacturing currencies. The other drivers in the first half are about 20 basis points negative, all combined, right? The biggest downward pressure on the gross margin came from gold, which is about north of 2 percentage points. And as we pointed out, for the time being, a very minor impact from U.S. tariffs around EUR 50 million plus, which, as you know, is linked to, let's say, the inventory cycle. It sits in inventory today and will then when we sell the inventory, be recycled into the cost of goods line later. The stock revaluation and price increases for the time being roughly compensate for these negative impacts. That's why the overall decline of the gross margin not linked to FX is about 20 basis points in the first half. Now on tariffs, we will not speculate about that. We know the current rates. And answering your question, actually, your question is answered through what you put on the table saying, is that realistic to estimate that gross margin will be weaker -- with a weaker drop in the second half if we have a disproportionate impact of tariffs. So I think the answer lies in the question there. Operator: The next question comes from Antoine Belge from BNP Paribas. Antoine Belge: Yes. It's Antoine Belge at BNP Paribas. So 2 questions. First of all, can you talk a bit about China, Chinese, Greater China. I know it's a bit complicated. So in Q2, I think Greater China was up 7%. My understanding is actually Hong Kong and Macau were quite strong. So -- but so was Mainland China locally a bit positive. And what about the Mainland Chinese cluster, if you take into account maybe the impact of tourism? And more generally, what's your view on China, there is improvement, just easy comps? Are you seeing some macro impacts, better consumer confidence? And my second question is a bit of a follow-up on the topic of gross margin. So I understand that there will be some headwinds that are going to be greater in H2, but you passed quite a hefty price increases, I think, in September. So could you quantify those? I mean, according to our estimates in September globally for Jewellery Maisons, it was around a high single digit coming on top of around 3%. So I'm slightly surprised by the comment that the gross margin would be declining more than they did in H1 because there should be at least, in my opinion, more impact from pricing. So am I getting something wrong here? Nicolas Bos: Nicolas Bos here. I will answer your -- try to answer your first question although everybody would love to have a final view on China and its evolution. We've definitely seen an improvement, particularly in the last quarter, definitely on the region, what we refer to as Greater China. As you mentioned very well, it was driven by an improvement of business in Hong Kong and Macau, both touristic, so Mainland Chinese traveling to Hong Kong and Macau and also domestic clientele, particularly in Hong Kong. All in all, we see -- I don't know if it's a stabilization, but we are back to a positive performance for the region, including slightly positive in Mainland China on the very end of the period and clearly driven by the Jewellery Maisons. In general, we've seen some repatriation of purchasing, notably from Japan to Hong Kong for our Mainland Chinese clients. But it seems -- and it will be difficult to predict the future, but it seems that we are now at a more stable level of purchasing from our Japanese -- or Chinese clients, sorry. What we see at large, but maybe it's a wider discussion is that there is an evolution of consumption in China connected probably to the economic situation, but also to an evolution in taste where we see Chinese clients becoming much more demanding, discerning and differentiating when it comes to their choice of brands and collection. That affects positively the Jewellery Maisons. We still see on some of the watch Maisons a more challenging situation. And what we foresee, if we're able to foresee anything is that it's really a market that is reaching another new level of sophistication and of quality of demand, very much at par with what we see in the rest of the world. And that has an impact really brand by brand, category by category, collection by collection. But all in all, it seems to be quite stabilizing. Burkhart Grund: And Antoine, just picking up on your second question. Listen, we're not going to guide on any gross margin in the second half because we have uncertainty and volatility on currencies, on gold, et cetera. What we have pulled out or pointed out is that at current rates, we will have a disproportionate impact of tariffs in the second half. As for the first half, we have been shielded by inventory holdings and, let's say, proactive inventory management. So that's really all I can say on this topic. Antoine Belge: But maybe on the price increases, I mean, could you maybe confirm that what was taken in September at high single-digit overall global number for Jewellery Maisons, is that what happened? Nicolas Bos: Well, we had some -- as you noticed, we had some price increases because we discussed it before that we want to maintain price increases as limited as possible because for us, keeping the affordability of certain collections and the attractiveness of the Maisons is really what comes first. But regardless, we had to implement some price increases. There were some in May, low single digit. There were some in September, particularly for Cartier, quite limited on a worldwide basis to try to reflect some of the increase in the price of gold, notably. But then including also some specific local adaptation, we need to keep in mind that the dollar has depreciated 8% in 1 year. So we need also to maintain kind of fair international pricing and reflect the evolution of exchange rates. So that came on top of the slight international price increase. So we haven't seen a true impact, let's say, in desirability of traffic in the stores, meaning by that, that we didn't necessarily notice a specific spike of purchasing before the price increase nor decrease afterwards. We believe it's because it was quite reasonable and the desirability of the collection comes really first. So we'll see in the second half how that unfolds. Operator: The next question comes from Thomas Chauvet from Citi. Thomas Chauvet: A couple of questions, please. The first one, a follow-up on pricing and maybe your pricing philosophy. Nicolas, you said you're trying to maintain affordability and to try to limit price increase because obviously, you can't cut prices once you've increased them. So you're very careful. Nevertheless, do you think the consumer, not just in China but globally is also starting to buy jewelry a bit differently than in the past for other reasons than the beauty of the Cartier, Van Cleef design or the emotional value that you talked about before or simply gifting purposes or the big events of life, but also as a commodity investment? So very strategically to invest has more than as more than a store value, but maybe even an investment in an unprecedented rising gold and precious metal market. So -- and how would you react to that? Because we've seen some of your Chinese luxury competitors, if I can call them competitors. We know the way they operate, [ La Portugieser ], they increase prices by 20% today, tomorrow, mechanically, they'll reduce prices because gold prices have decreased. I know that's not how Richemont operates, but we're in a very different gold market now. So curious to hear your thoughts. And secondly, perhaps also for you, Nicolas or for Mr. Rupert. It's been over a year that Nicolas, you've been appointed as group CEO. Are there any areas where that you've identified where the group or perhaps the individual business areas, divisions could do differently, could evolve, could be a bit more efficient? Obviously, there's been huge cost efficiency in the first half, as we know. Could you share some high-level thoughts on your also perhaps portfolio review, particularly within Specialist Watchmakers and Fashion & Accessories? Are there any obvious brands that may need financial or strategic support or brands that you think maybe might prove challenging to turn around? I'm thinking perhaps Dunhill, Montblanc or Roger Dubuis. Nicolas Bos: Thank you very much for your questions. I think that would require probably a few hours to answer. But starting with the first one, I mean, the pricing philosophy has not changed. We really believe in what we call fair pricing, which is that the price of any of the creation should reflect its interest [ rate ] value. And of course, we need also to take into account variations in the price of raw materials and exchange rates. I have to correct what you said, it does happen that we decrease prices, and it has happened in the past because that fair pricing policy includes that as well. So it has happened. It's true, it's not something easy to implement, but it does happened. And on the very high end, high jewelry, exceptional watches, we do actually adjust prices up or down on a monthly basis from a European pricing that we translate into local currencies. So we have fluctuations that can go up and down. Of course, the primary focus is to limit the increases to make sure that the fair pricing is still there and the attractiveness of the collections is maintained. So we will continue to look at that. We really truly believe that our clients have a really precise understanding and assessment of value. And unlike what we sometimes hear is not because a piece is expensive and a client or collector has significant resources that elasticity is endless and that the price doesn't matter on the opposite. So we are very attentive to that, and we will continue to do so. I don't know if that answers your question. On the second part, maybe Johann will want to say something. But what I can say is that -- and we talked about it before, Richemont is very much about long term and continuity. And then I came after more than 30 years already in the group. So not here to make any form of revolution. I think that's not expected at all. We've seen a period where we had very, very unexpected and strong phenomena during COVID -- after COVID that actually led to a very, very strong ups and downs in performance across the board. And we were seeing also global purchasing trends in Asia, in America and Europe. What we see in the last period, clearly in the last year, 1.5 years is that we come back to a much more differentiated performance by brand, by category, by collection, by geography, in a way, back to what we used to see before that whole period and the pre-COVID and COVID period. So what I'm very, very attentive to with all of my colleagues is to make sure that we maintain or sometimes bring back all of our Maisons to really their core identity, their core expertise that they all have a very, very distinctive offer and complementary offer. We don't see today a global phenomena where everybody does well or everybody is challenged anymore. And my belief and our belief at Richemont is that each and every brand is much stronger when they are occupying their respective territories. And of course, the territory of expression of Panerai is different from Lange and the one of Jaeger-LeCoultre already different from Vacheron Constantin. Same for the Jewellery Maisons or the Fashion & Accessories Maisons. So this is the primary focus to make sure that they are all really playing in their specific respective field. And then taking with Burkhart and the team and all my colleagues, a very differentiated approach. Some of them are very successful, mature international brands. Some of them require still some more support because they are in development phase. Some of them are in redevelopment in some areas. You were mentioning Dunhill with this new, and I must say, fantastic designer, Simon Holloway. We also talk about Montblanc, where we do a lot of work with Giorgio Sarne, the new CEO and the team to see how Montblanc can revolve around the auto writing and the expertise in laser. And you've seen with renewed communications and identity where we try to bring back Montblanc in a way to its core expertise. So this is very much the kind of long-term work, but nothing at the end of the day, different from the previous decades, I believe. Operator: The next question comes from Erwan Rambourg from HSBC. Erwan Rambourg: Congratulations on such a standout performance. If I could just make a comment, you're sounding very low volume-wise. So -- and I don't think I'm the only one suffering from this. So if you don't mind speaking slightly louder. I'll keep it to 2 questions as asked. So one on Van Cleef. We've had pushback from people who are bearish talking about the Alhambra dependence, ubiquity, potential fatigue. Obviously, you're probably fed up with this, Nicolas, since you've probably heard these comments when you were running that brand. But I'm wondering if you could talk about maybe relative performance within Jewellery Maisons. I suspect, Buccellati is booming from a low base, but can you sort of compare and contrast what you're seeing from Van Cleef relative to what you're seeing at Cartier, please? And then second question on Cartier. Obviously, a management change there as well with now Louis being in the seat replacing Cyrille. I'm wondering, if you could talk maybe about -- I know there's no revolution going on, but maybe what the areas of focus can be and what has changed? I think people looking at the group from outside will possibly think that there's greater SG&A discipline at Cartier, that would maybe be a bit simplistic. But what would you call out in terms of maybe the 2, 3 focus points for Louis in running Cartier? And if I can cheekily add another very small question related to Cartier, Love Unlimited seems to be a pretty resounding success. Should we consider this as permanent or more in animation on the range? Nicolas Bos: Thank you very much. It's a lot of questions. And of course, we don't discuss so much performance and results by Maisons. Of course, on the Van Cleef & Arpels side, I need to answer. I don't feel any fatigue about Alhambra. So we have been seeing quite a few of them for 25 years. And I believe that most of our clients and stakeholders share the same view. So to have an icon is a blessing. So it's very often referred to as kind of liabilities. Is there a risk attached to it. At the end of the day, it's a blessing. I mean, the brands that do have iconic clients, in jewelry, in watches, in ready-to-wear or accessories are usually the ones that are very successful in the long-term if they manage to maintain the desirability and the creativity around these iconic lines. So Alhambra is, I can talk about Alhambra for some time, but I'm not going to. But it's -- to me, an extraordinary collection that's been here for more than 50 years and has offered over this more than 5 decades, almost endless opportunities for creativity with sizes, colors, styles. And that will continue, and we see that there is renewal within that collection, and that's widely appreciated. Needless to say, Van Cleef & Arpels like other Maisons is working on other collections. We've seen collections like Perlee. We were talking a bit earlier in the presentation about Flowerlace and Floral collection, some of the watch collections also at Van Cleef & Arpels that established themselves around Poetic Complications. So Alhambra is not the only collection far from that, but it's true that it's probably the most recognizable and iconic one, and it's something that we will continue to develop and protect. At Cartier, the same. Cartier is blessed with having several very iconic collection. Love is definitely one of them, created pretty much in the same period, Alhambra '68 and Love in '69. And Love Unlimited is actually a very important development within that universe of the Love collection. It's not the way I see it with the team and animation. It's really a new expression within Love. Love is a bangle bracelet. And for the first time, it has become so-called and articulated. And I believe personally, and I like jewelry, as you know, it's a fantastic piece and fantastic collection even with my Van Cleef shares, I've been quite -- I have to say and to acknowledge it's really a fantastic collection. And we've seen the response among existing clients of the Love collection or new clients actually entering the world of Cartier. And it's so far, a very, very positive response. So we'll see how it goes. But we believe it's here to stay for the long-term, and the team is already working on the further development around Love Unlimited. As for Louis and Cartier, I think Louis is doing a very good job. The transition with Cyrille is going on extremely smoothly and I pay tribute to both of them. Cyrille is still very involved with some activities at Cartier, if you think of the women's pavilion and all the philanthropic and artistic activities of Cartier. And they work really hand-in-hand with the current team. Once again, Cartier has the other Maisons is evolving and adapting to this new environment. I mean, there is always a new environment and typically the slowdown in China, which was a very, very strong market and still a very strong market for Cartier, something that the team is really addressing now and to see how we can make sure that Cartier will be ready for the next phase of the luxury industry in China. We've seen the strength of Cartier in America and the United States, which is quite impressive over the period. And they're also working there, renovating and improving the retail network and operations. So yes, he has a lot on his plate, but it's very much once again question of continuity with the previous management and the whole history of Cartier, and I'm quite confident it will continue to be very successful. Erwan Rambourg: Very useful. Best of luck. Nicolas Bos: Thank you very much. Operator: The next question comes from Jon Cox from Kepler. Jon Cox: It's Jon Cox with Kepler here. A couple of questions for you. The first one, just on the -- you had a very tight grip on costs, including on the CapEx side of things in the first half of the year. It's clearly an unprecedented environment, potentially maybe looking a bit better with China and Hong Kong coming back. Just wondering how we should think about the costs going forward in terms of you guys have a fantastic track record when things get a bit more difficult. You tend to look very closely at costs and cash flow and that sort of stuff. Is it more about maybe relaxing a little bit more? Or has the... Johann Rupert: Sorry, Jon -- it's Johann here, Jon. What makes you think that it's during tight times that we look at cash flow and cash. Jon Cox: I know you tell all the time, Johann. Johann Rupert: I just want to [indiscernible] your leg. Jon Cox: Because Nicolas is adding a bit more on the cost side maybe than you have historically done. That's the sort of gist of the question. Johann Rupert: No, no. No, then ask it directly. I think you've got to look at Burkhart as the gentleman that's managed to keep the costs under control through COVID up till now. Burkhart Grund: Yes, Jon, and we're not going to give you any guidance going forward, but we intend to confirm the reputation that you just cited and mentioned by keeping focused on that. But remember, this is not a cost-saving initiative that is disconnected from what our Maisons need to grow. And we will always continue to invest where we need to invest to make our -- prepare our Maisons for the future with the right level of resources that they need. So we would never suppress activities that will impact the future readiness, so to say, of the Maisons. We have done during COVID, have deployed an approach that have been executed by all the Maisons with a high level of responsibility and auto responsibility of how to make through a very challenging time. And the same approach is what the Maisons are driving today that they are aware of the external factors, and they know best what resources they need to deploy for the future of the Maisons. And I think this is built into the philosophy of our management teams in the Maisons and in the businesses. Jon Cox: Okay. And then maybe just as a bit of an add. You mentioned a potential EUR 300 million charge if the existing 39% tariff is maintained. If that tariff sort of goes back to 15% next week or in the next couple of days, should we just think it will be 6 weeks' worth of EUR 300 million costs? And just as an add, Johann, you're on the call. I saw your comments earlier to the media saying this misunderstanding between the Swiss and the U.S. could be resolved in the next day or 2. Any further comment on that at all? Johann Rupert: Yes. [indiscernible] those of us, Jon, that were on the call, I -- it was selective. You know what subeditors do. It could be today, but I say the comprehensive agreement would probably take up to February. But I have absolutely no idea. It's in the hands of third parties. So I'm not predicting anything. It was selective editing. Burkhart Grund: Yes. And Jon, based on what we know, which is the current rates, we expect for the full year roughly EUR 300 million impact. Again, after a good EUR 50 million in the first half, where, again, I pointed out that we're pretty much shielded in time from -- through our inventory. But that obviously, once we sell the inventory, we recycle it into the income statement, and that's where we expect overall at current rates, again, current rates, a total cost of about EUR 300 million for the full year. Jon Cox: Okay. I'm just going to throw in a cheeky one. Trade receivables have gone up a lot in that half compared to a year ago, certainly a couple of hundred million. Is this any sort of indication you guys are looking forward to a good Christmas period? Burkhart Grund: I'll answer that question right away, Jon. I just want to add one more thing on tariffs. Let's not forget that the biggest impact of tariffs comes from the tariffs -- the European tariffs, which is, as you know, 15% because we produce a significant amount of jewelry, fashion and accessory items and one watch brand as well in the European Union or inside the European Union. So that impact will stay. Here, the same logic applies. What has been in inventory will be recycled into the income statement, and that is where the biggest part of our sourcing actually comes from, right? So let's not equate just tariff impact with Swiss tariff impact. Second question, we have wholesale debt of around EUR 600 million, wholesale debt, meaning receivables, which are highly current. So this has -- is really on the back of the wholesale channel performance. We have pointed out that retail and wholesale are roughly growing at the same rate, which means that we also have a healthy recovery of sell-in, again, strictly controlled, which is watches, but which is also linked to the very strong performance of our ready-to-wear lines. And I would say this is pretty current. Our inventory -- our receivable days are quite low, talking about 40 days on average. So this is more, I would say, the expression of a healthy business in wholesale today, and I would not interpret that as pointing to the future. Jon Cox: Great. Well done on the figures. Well deserved. Burkhart Grund: Thank you. Operator: The next question comes from Luca Solca from Bernstein. Luca Solca: Luca Solca from Bernstein. Looking at the U.S., I wonder how you're thinking about American demand and whether there could be a reason to think that because of the stock market, because the crypto American consumers are very strong? Or is there also an element of consumers wanting potentially to avoid price increases and buying ahead of those price increases on the back of the tariffs that have been introduced? And how you separate which is which. I wonder if just myself thinking about the possible contribution from demand being brought forward or if that is not really a point that you would see from your retail activity in America. And congratulations, Johann, for apparently sounding the right tone with President Trump seeing the picture of you and Ponte and Dufour and a few others in the overall office with President Trump was clearly refreshing. If that goes through, I think you should be seen as a Swiss hero, but well done. On another point, and that would be my second question. There's a lot of talk about the K-shaped society coming forward. Artificial intelligence applications could possibly make wealth and income polarization and inequality even greater. You have a very broad range of prices to take care of the very rich and the middle class, and you stated that you're very careful to maintain accessibility for all consumers. Are you seeing in the way you're selling, and I'm referring to the different price points at which you sell that this K-shaped reality is indeed appearing and that you have the highest demand growth at the 2 extremes of your offer? Johann Rupert: Luca, as usual, Johann here, a very perceptive question. Plural, but please don't think that I had much to do with whatever the eventual outcome between Darren and Washington is. The -- like you, I'm really concerned, if I could put it like this, about the possible unintended consequences of the AI economy. We know that there will be winners. And -- but perhaps it's easier to spot the losers than the winners 5 years ends. Now -- and the hollowing out and polarization, I would say, especially in the United States, the biggest visible effect that I've seen is a hollowing out of the middle class. If you look at the malls and if you look at -- and I hesitate to mention names of companies. But if you speak to mall owners, they will tell you that Costco and Cartier are still doing very well. It's in the middle that the hollowing out has occurred. And this was clearly reflected in the anger displayed by the voters in the last presidential election. There is a hollowing out of the middle class. That's more evident if you look at where they're spending their money. Clearly, and I won't and worried about this in 2015. Societies cannot live with that massive differential between rich and poor. The problem is that in the new economy, and it's before AI, it's a winner takes all economy. In the past, the bricklayer who made 80 bricks an hour earned x, but if you did 120 or 100, you were paid more, but the person who laid 20% less still had an income. Today, if you write software that's 20% less effective, you get 0. And especially when you have an economy and an intellectual property-based economy where you can increase production at 0 marginal cost. It's a winner takes all economy. And if you look at, let's say, the top 10 companies in the United States and you look at their percentage of capital allocated and how it's circular amongst them, one does get a problem that how concentrated is this capital allocation and the wealth generation. I think I read somewhere that NVIDIA has created in the last year, 1.5 years, 100 billionaires amongst the staff. Now good luck to that. It does indicate that in 5 years' time and if you start looking at the differential between winners and losers because of AI, I think we're going to have more polarization. I suspect that we're going to have abundance. The real question is how is that abundance shared. That will be the real question, any case. Nicolas Bos: Luca, Nicolas here to continue on your first question. We haven't seen so much movement and variations of trends and sales linked to the timing of price increases. So there might be, to your point, some kind of global feeling that you might as well, particularly in the U.S. these days, buy before additional price increase or tariff impact materialize. It's clearly something that's in the air. But we didn't feel a massive impact of that. And over the last 6 to 9 months. We've had different price increases in the respective brands at different timings, but we haven't seen spikes or downs that we could see sometimes before that we used to see, as you know, for instance, in Japan, where a few years ago, if you are planning a price increase, you knew that the month before would be phenomenal and the month after will be really down. We didn't see any of that -- at that level in the U.S. So there is definitely that feeling, but I think it's not so important. And we feel that in a way, if I may, we have clients that -- and collectors that if they can afford and they have a good reason to buy and they want to enjoy it's the right moment. They don't know what the future is made of. So they say we might as well enjoy now and make that purchase because who knows how it's going to go. So this is pretty much what we hear. And so far, it's very much down to the desirability of the brands and the collections and the perceived wealth or actual wealth of the buyers and the clients. And we are discussing a bit earlier today with Burkhart. It's true that we see in a few countries, clients, collectors that are buying much more from their wealth's and their assets or their perceived wealth's and the stock exchange does play a role, of course, into that more than by -- according to their income and the variations of their income. And that's pretty much the case in the U.S. these days. Burkhart Grund: And Luca, if I just want to add one thing. If it were a quarterly spike, we would probably come to a different conclusion, but this is 7 quarters in a row with double-digit growth. So this is probably reshooting a bit that argument. Luca Solca: Absolute Absolutely. I understand the point on American demand. That is very reassuring. Thank you, Burkhart and Nicolas. I also think -- and thank you, Johann, for your explanations that artificial intelligence is proposing monumental questions to politics and society. So we'll see how that is taken care of. Operator: The next question comes from Patrik Schwendimann from Zürcher Kantonalbank. Patrik Schwendimann: Congrats for these outstanding numbers. And thank you, Johann, especially for your support for Switzerland. If the gold price stays where it is currently, how much more pressure on the gross margin do you expect for H2 and also for next year? And how much more price increase would you need? That's my first question. And second question, again, on China, the Chinese luxury consumption has improved recently. How sustainable do you think is this? I mean we've just seen this morning real estate market is still down. Burkhart Grund: Patrik, I really don't want to speculate. So can't really and won't really answer that question. I mean, gold pressure or gold price increase, we've seen it. Maisons have, I think, adjusted to it quite well in the first half, trying to find the right balance between limited price increases, efficiency gains, strong inventory management and strong cost management. And I think the way the mix has come out is quite favorable. And we will continue to apply that approach by our Maisons. And going into the numbers gain, how much would you need it would reduce the quality of the mix in a way. I mean it's not price increases to offset as a singular item, but we're working on many more items of the mix. And I can only confirm that this will be the policy and the approach going forward. But I would refrain with the high volatility that we have and the many moving pieces to -- and I know you have to feed your models, and I don't blame you for that at all. But it's a bit more complicated to actually run these businesses than just applying a simple model. Patrik Schwendimann: But just the recent price development, I would assume that the pressure is increasing, right, because you have a time lag. Burkhart Grund: Well, we have a time lag. Yes, that's the mechanics of it. And price increases also have a time lag because, as you know, most of them were applied pre-summer, during summer and after summer, so a bit later in the first half than from April 1. So that also has a time lag, or a stronger impact later in the year. Patrik Schwendimann: Okay. Nicolas Bos: And Patrik, if I may add, Nicolas here, to that, impossible to predict the volatility of the gold price. As you know, in others -- one of the specificities of jewelry is that gold, which is for many people, an investment vehicle, for us is a working material. So it has always been the case, will always be the case. So we have to see the fluctuations of the gold price and that they impact our cost of goods and our margins. On the other hand, as we discussed before, the desirability of gold and its investment value also, we believe, impact positively the attractiveness of jewelry. Of course, we prefer, and we will welcome your support in advising clients to buy gold under the form of jewelry instead of under purely a financial form because then they get the best of both worlds. But apart from that, we can only react afterwards. As for China, we believe that -- first of all, we've seen a stabilization of our sales. Is it going to last that we've seen the bottom of it? We never know and we cannot predict, but it seems to be stabilizing, both in Mainland China and in general, sales to Mainland Chinese, whether domestic sales or touristic, although we've seen some movements and, for instance, repatriation of sales from Japan to Hong Kong in the last quarter quite significantly. What we see is the strength of certain brands remains extremely, extremely important and that the desirability of certain lines, certain collection and probably the most iconic, the most historic the lines, the more attractive they are these days. We've seen that continue to strengthen. So we are very -- I wouldn't say optimistic, but -- yes, to some extent about China. It's a very, very sophisticated culture. Obviously, there is high purchasing power. It's impossible to predict how it's going to evolve quarter-by-quarter. But we continue to invest in our presence in China in the quality of our presence in the development of the visibility and desirability of our brands, retail network, exhibitions, activities. And we believe it's going to remain a very, very important market, although we're probably not going to see the type of growth that obviously we've seen during a few years before. Operator: The next question comes from Atiyyah Vawda from Avior. Atiyyah Vawda: I have 2 questions. The first one is on the Specialist Watchmakers store network. I noticed that the number of stores have been reduced by 14 during the period. Can you give us a bit more color on what that related to? And then the second comment is on the jewelry business. From a strategic perspective, how easy is it to launch maybe platinum versions of the products, for example, in the Love range or in the others from a manufacturing perspective, but also from the ability of the brand to actually have platinum versions of the current products? Nicolas Bos: Thank you very much. Maybe I would start with the second part, which is a bit more technical, and thank you for that. It's true that platinum that somehow decreased or almost disappeared in the jewelry [indiscernible] category a decade ago is becoming, again, a very interesting material to work with. But availability is still limited, and the workability is very different from the gold. So for instance, you are talking about the gold bracelet or if I'm talking about certain other collections, there are a lot of motives that you can create in gold that are very, very difficult to create in platinum is much harder material to work, and it's also a much heavier material. So it's less adapted to certain lines. So -- but you're right, there is a thinking behind that. And there are lines that are -- that always existing in platinum, but were a bit less visible and that become quite interesting and attractive again. But it's not going to replace gold anytime in the future for sure. It's going to complement at most. And we see that also in the watchmaking, some beautiful opportunities for platinum versions of some iron watches. Burkhart Grund: Yes. Let me just circle back on the Specialist Watchmaker network. Now just a bit of context between internal, meaning directly operated stores and external stores or franchise stores at the Specialist Watchmakers. We're talking about a good 920 stores. So 14 is a slight downward adjustment, which is primarily or a bit more than half is driven by some closures or adjustments on the franchise store network and some very few internal stores that we have closed. It's not in one market. There is a bit in China, but there's a bit in outside of China as well. I'd say, overall, it's pretty much what we do every year. We review the -- or the Maisons review their store network and adjust when they see the need. And this is not something very major that has happened here. Operator: Next question comes from James Grzinic from Jefferies. James Grzinic: I just had 2 quick questions. The first one, Burkhart, you talked to reduced building inventory at the end of half 1, if you compare it to last year, given that strong growth in jewelry sales in Q2. Can I just check that if demand were to grow as strongly in the peak quarter as it did in half 1, your machine really could feed that demand? That's the first question. And secondly, can you perhaps more generally talk to what the customer response has been to those meaningful Cartier price rises through mid-September. Any markets where there's been more resistance than others or vice versa? Nicolas Bos: James, Nicolas here. On the second question, we mentioned before that we haven't seen real significant trends around the price increases. So maybe a very, very case-by-case basis, some slight acceleration before the price increase and slight deceleration after. But even on a monthly basis, it pretty much averages. So we didn't see any noticeable movement there. Burkhart Grund: On the inventory, let me kick off and then Nicolas will complement. Just look at -- let's look at the numbers. First of all, there's about a EUR 600 million increase in inventory. A good half of that, so a bit more than EUR 300 million is linked to either FX, meaning valuation or revaluation of inventories due to the higher input costs, notably gold. So that automatically revalues or increases the value of our inventory. The other half is increased inventory per se. And the split there is between the biggest part of that in really underlying inventory increase is work in progress, meaning in the production or manufacturing process today and a smaller part is finished goods. So this is really just the number side. And when you see the inventory coverage, it's gone from close to 20 months to about 18. So that's really the financial frame of it, so to say. You know that we have been investing over the last years in -- primarily in additional capacity for jewelry making. And you've seen as well in the first half of the year that a bigger part, a bigger share of the CapEx went not just into distribution, but also into manufacturing, and that manufacturing was concentrated in the Jewellery Maisons. So we have been focusing over the last years already also because we've had shortage in lines to rebuild the inventory holdings to the right level and have had good success in it, but this is an ongoing process that we continue to complete. Does that cover, Nicolas, or do you have? Nicolas Bos: No, very much so then we could go more in detail, but it's very much the investment in production workshops that you will find for the Jewellery Maisons at Cartier and Van Cleef & Arpels and Buccellati and also at Vhernier and Valenza recently. So we are definitely -- we are very -- we are being cautious. We don't want to build overcapacity, obviously, but we want to make sure that we are ready for the future. And if trends continue to be positive, we can answer to them. With limitations that will remain, availability of craftsmanship for handmade jewelry remains an issue. And then it's a very lengthy process that we tackle of identifying young talent, training them, being involved with the schools and so on. But this is more a 3-, 5-, 8-year journey to train craftsmen. But it's been an ongoing process for years and years. So we're quite confident that we will probably continue to see some scarcity and some shortage on some collections, but that's the nature of the activity. But all in all, our capacity to supply will follow the demand, the way we look at it. James Grzinic: That's great. Thank you, Nicolas. So to paraphrase you, if top line turns out to be demand would support double digit in peak trade, you'll be able to feed that basically given your production capability now and notwithstanding the inventory balance at the end of September. And I presume you are satisfied with price elasticity since those price rises at Cartier in September that will allow you to continue to, I think, that -- use that fine balance of value, affordability, et cetera, et cetera? Burkhart Grund: James, are you trying to find out if you should buy now Christmas present or later? James Grzinic: I already had. So I'm kind of assess that. Burkhart Grund: Okay. So rest assured, that's fine. Operator: The next question comes from Chris Huang from UBS. Chris Huang: Chris Huang from UBS. Congratulations on the results, and I will stick to 2 questions. My first one, sorry, Burkhart, just to come back on the commentary you made on September faster than the quarter. I assume that's a group level comment. So could you perhaps please talk specifically about the Jewellery Maisons as you had newness from Love Unlimited at the end of the quarter, and that should be quite mix accretive. So just wondering if you can touch on the cadence of Jewellery Maisons to help us think about the momentum ahead. The other question I have is a clarification on pricing. Nicolas, you mentioned the pricing you did in September. So thank you for that. But just to clarify, what's the incremental contribution from pricing in Q2, specifically versus Q1 for the division? I'm just trying to understand within that 6 percentage point sequential acceleration, how much of that actually came from pricing? Was it more of a low single digit or mid-single-digit contribution, please? Burkhart Grund: Chris, I'm not sure if we can be really helpful on these questions. They're very, very short-term oriented. I understand where you're coming from, but commenting on a single month and then by -- with a high level of granularity by Maisons is not something that we recommend to do because it can lead to conclusions that are do not reflect the reality of our business. Our business is always be it by year, be it by quarter, cyclical and has as much to do with the current trends as well as the comp base of the prior year. And this is the way I would leave it today. I would not endeavor to go further. Sorry for not being more helpful than that. Chris Huang: No worries, understood. Operator: We will now take the last question from Carole Madjo from Barclays. Carole Madjo: Carole Madjo from Barclays. Two questions, please. The first one, can you share a bit more color on the state of the watch market? Do you feel like the market has finally stabilized, I guess, mostly in China and that the positive growth you are able to deliver in Q2 can be sustained? That's the first question. And then number two, just to come back on communication costs, which was lower in H1. Are you still happy with the ratio of around 10% of sales for the full year, which is what you have been doing over the past few years? I know you talked about some phasing effect. So are there any particular events worth flagging that you will do in H2 to push top line as again, you will be facing tougher comps? Nicolas Bos: Nicolas here, on the watch market, I mean, we would love to be able to predict how that market is going to evolve. What we've seen definitely in the recent period is a stabilization for most of our Maisons. They come from very, very different situations, the respective weight of the geographies. For instance, some of the Maisons were extremely successful in Asia and in China in the past. And of course, the slowdown in China did hurt them more than the ones that had more of an American or European footprint. So we see all the Maisons pretty much coming back to a more healthy and better balanced situation. As I mentioned before, also very much refocusing and focusing on their core collection, core identities and delivering a strong and clear message to the -- their collectors and their stakeholders. So we are seeing some positive impact of all this. How it's going to evolve in the future is difficult to predict. We see, for sure, a more and more differentiated watch market, where it's much more difficult to see a global trend even at the scale or the level of one country or one price category. And if you see, for instance, the success of Cartier watches in the past period, be it in sale or even in attractiveness and buzz around the Cartier collection, it's extremely high and shows also an evolution or kind of coming back in terms of taste towards smaller shaped watches that had a bit disappeared for a period. So we very much have individual and singular trend Maison by Maison, and we try to very much follow them on a very granular level. Difficult to say how it's going to evolve. For sure, what we see, and we see that also through the activities of Watchfinder, which is the secondhand watch business that we own. Burkhart Grund: Pre-loved. Nicolas Bos: Pre-loved, sorry, Mr. Chair. Pre-loved watches. We see for sure that the speculative bubble on watches that followed the COVID period has burst and is gone now, and we are back to a much more, let's say, rational and a bit more predictable consumer behavior when it comes to whether pre-loved or first love watches. Johann Rupert: If I may just make a final observation. These successes at, for instance, Cartier, it's not turn on, turn off. It takes years to develop. And I really would like to pay homage to not only obviously Louis, but Cyrille and what they have prepared. And what you are witnessing is really the power of Cartier. There are only so many Maisons in the world that have the power and the reach and the influence and the trust of consumers across all continents that if they have good products, these products sell and sell at scale. So I mean, this comes from Alain Perrin says, Cartier is a machine, and you are seeing the results of decades of work, really decades. And I'd like to pay homage to all of those people. That's why when you have something very, very good like the new Love's range, it can sell, and it can sell at scale. Alessandra Girolami: Thank you very much. This will now conclude the call. Please do not hesitate, of course, if you have any further questions, and talk to you soon. Thank you. Burkhart Grund: Thank you very much. Nicolas Bos: Thank you. Burkhart Grund: Thank you.
Operator: Good morning, everyone, and thank you for waiting. Welcome to Cosan's Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] The conference call is being recorded and will be available on the company's IR website at cosan.com.br. [Operator Instructions] Please note that the information contained in this presentation and in statements that may be made during the conference call regarding Cosan's business prospects, projections and operating and financial goals are based on beliefs and assumptions of the company's Executive Board as well as information currently available. Forward-looking considerations are not a guarantee of performance as they involve risks, uncertainties and assumptions and refer to future events that depend on circumstances that may or may not materialize. Investors should bear in mind that overall economic circumstances market conditions as well as other operating factors may affect Cosan's future performance and lead to results that differ materially from those expressed in such forward-looking statements. I will now turn it over to Mr. Rodrigo Araujo. Rodrigo Alves: Hi, everyone. Welcome to our earnings call of the third quarter of 2925. Here, we have the disclaimers about future projections and future assumptions with respect to the company's results. Next slide, please. So looking at the financial highlights of the third quarter of 25, you can see that we had an EBITDA under management of BRL 7.4 billion that's about BRL 1 billion less than 2024 and mostly impacted by the results of Moove, Radar and Raizen that we're going to detail later on. We also had given the lower EBITDA and the higher financial expenses, we had a lower net income in the period, negative BRL 1.2 billion. Our net debt was relatively stable in the quarter, slightly higher than Q2 '25. We had a quarter with lower dividends received. Of course, we have a concentration of dividends in the beginning and end of the year. So that's reflected in dividends for Q3. And in that sense, we also have our debt service coverage ratio of 1x. And this is, of course, one of the main reasons why the company needed to improve and enhance its capital structure and did the transactions that we announced recently. And in terms of safety, we continue to have positive metrics, low metrics in terms of incidents. Of course, there's an increase compared to Q2 '25, but still highly efficient ratios. And we continue, of course, to have safety as a priority for the company and continue our journey of improving safety over time. Next slide, please. In terms of operational performance for Q3 '25, we had in the case of Rumo, we had largest -- an increase in the transported volumes but also a reduction in the average tariffs that resulted in an increase in EBITDA of 4%. The company has been repositioning itself over the course of the year to improve its competitiveness in the Brazilian logistics market. In the case of Compass, we had higher distributed volumes in the quarter, also an increase in the participation of the residential segment that has healthier margins and it's quite accretive for the company as well. We continue to see the increase in the volumes sold by Edge in the unregulated market in Brazil. So we saw a growth of 6% of Compass EBITDA in the quarter. In Moove, something that we've been talking about. We already see the company having stable volumes compared to '24. When we compare to the second quarter of 25, there was a 13% increase in the volumes sold. So the company is gaining back its track in terms of volume, even though the EBITDA was 7% lower, and we are working on eliminating the logistics and tax inefficiencies of the new production settlements settings for the company after the fire in the Rio de Janeiro plant. We continue with the CapEx of the reconstruction of the plant. And in terms of insurance, the company has already received until October roughly BRL 500 million of proceeds in insurance. In the case of Radar, we had the sale of properties that impacted positively the results in 2024 that didn't occur in '25. So that's the main reason for the difference year versus year, and we will have the land appreciation review in the fourth quarter. We expect increase in the value of the portfolio given the current market environment. Finally, in Raizen, we have an increase in the pace of harvesting that was favored by weather conditions. So the sugarcane crushing increased in the quarter, even though we had lower sugar prices that affected EBITDA. And we also have an overall lower volume given the drought and fires that affected the company's production for this year. In the fuel distribution segment, we see a very healthy environment. We see operations of the federal police in Brazil and the crackdown of irregular players that's translating into higher margins and healthier margins. So we have quite relevant margins in the fuel distribution segment in Raizen. Next slide, please. In terms of liability management, you can see that, as I mentioned, gross debt relatively stable, net debt slightly higher, interest coverage about 1x. And in terms of the amortization schedule, we continue to have a duration of roughly 6 years with an average cost of CDI plus 90 bps. So no relevant change in terms of the debt structure of the company. And finally, when we look at the cash position through the quarter, we have no relevant events in terms of liability management. We only have the dividends received and interest payments in the quarter. So those were the only events that happened this quarter compared to the second quarter. So that's the main reason for the changes in the cash balance. So next slide, please. So thank you for participating in our earnings call of the third quarter of 2025, and we continue with the remaining of our earnings call. Thank you. Thank you for joining. Operator: [Operator Instructions] Before we begin the Q&A session, Mr. Marcelo Martins would like to say a few words. Please go ahead, Mr. Martins. Marcelo Martins: Good morning, everyone. Thank you for joining us at our earnings release conference call. And before we move on to the Q&A session, I'd just like to make a few comments because this is a key time for the company. I'd like to talk about what Cosan is going through right now. Since there's been a change in management at Cosan, more specifically when Nelson stepped down as a CEO and went to Raizen and I joined as a CEO, roughly 12 months have gone by. So a year after that change, and that's when we first started discussing our objective to improve Cosan's capital structure very objectively, and we discussed different alternatives. We've always made it clear that we wanted to as efficiently and constructly as possible, preserve the portfolio and look for an encompassing solution that would be definitive and to provide a positive perspective for the business and for Cosan. All of you who have taken part in conversations with us, with me here at Cosan or at other events will know that we've always made it clear that our first option was to potentially divest from some assets, but we also wanted to preserve the quality and integrity of our portfolio to continue to be a compelling company for future investments. And that's precisely what we did. We looked at what Brazil was going through, what the market was going through and came to the conclusion that the best option was to find relevant shareholders that could make significant contributions to the future of the company at an investment size that would also make sense. So in our pursuit, we identified a few potential investors, and I am completely confident that we ended up with the best investors possible for the future of this company. We were able to not only increase capitalization significantly, so reducing the company's issues substantially. So even if we still have a residual divestment balance so that we can reduce Cosan's debt to 0 or close to 0 in the near future, which is another commitment I've made to investors. We looked for a relevant transaction with the contribution of these new shareholders as the main factor and also some subscriptions to this new public offering that ended last week. I'm very happy to say, and I can speak for myself, for Cosan and Rubens as a controlling shareholder of Cosan that we are extremely happy to have highly valuable shareholders who have huge credibility in the market. They're very successful. They're fantastic risk managers, portfolio managers. They are very familiar with the infrastructure sector and considering our portfolio right now, they will make amazing contributions to the future of this company. So before anything else, I wanted to thank Boston and their commitment the level of involvement they've shown to the process and the fact that we were able to conclude this transaction. So looking forward, very excited and fully confident in the future of this company. That said, we know that as of now and over the next few months, probably the next year, we will be focusing entirely on integrating the new shareholders with a shareholder getting to know the companies in depth. You know the level of contribution they'll be making and what we expect as well at the Board at Cosan and the invested companies. The objective is to fully engage this group of shareholders, looking at future investments, that should bring the company's debt to 0 or close to 0. We also want to make it very clear that we do have divestment priorities, but this plan will be executed at the right pace so that we can really create value without any pressure to sell assets at any price. That is not going to happen, has not happened and will not happen, especially now that we are in a much more comfortable position when it comes to capital structure. So we will be focusing on our portfolio on identifying the priorities at Cosan looking forward and divesting so that we can execute our plan as efficiently as possible. And we're going to look at growth options down the line once we know the way forward, then we'll be able to look at assets that will become part of this portfolio in the future because, obviously, we want to unlock value and to use the levers we've always used in the past, but which hasn't been possible for the time being, given that we'll be focusing on rebalancing our capital structure. That's the main change now. We have a completely open horizon whilst a while back, there was quite a high level of uncertainty. So that was basically what I had to say. These are just my opening remarks, and we can now begin the Q&A session so that Rodrigo and I can answer any questions you might have about our results. Operator: We will now begin the Q&A session with Mr. Marcelo Martins, Mr. Rodrigo Araujo, and Ms. Camila Amorim. [Operator Instructions] Our first question is from Gabriel Barra from Citi. Gabriel Coelho Barra: My first point based on what Marcelo said is about supply. What was the allocation rationale in terms of supply and the outcome? I know Marcelo touched on it, but if you could provide us with a bit more detail, it would be really interesting to hear about that. And second question, also touching on what Marcelo said is after this capitalization, the company is a bit more comfortable and can now think about restructuring the portfolio, selling assets. If we could talk specifically about Raizen, even if the company is in a more comfortable position now with a better capital structure, Raizen has been burning cash and you've changed the perspective of the second offering to strengthen the subsidiary company's capital structure. So could you tell us about Cosan's strategy considering the subsidiary companies? Will there be a third entrant? What are the options on the table? Could you tell us about that? So those are my 2 questions. Rodrigo Alves: Thanks Barra. I'll start with your first question, and Marcelo can answer your second question. About the offering, this transaction was big enough to be relevant for the company's capital structure and for new partners to come in with expertise in infrastructure in Brazil with a long-term strategy and an amazing plan with the new partners. And that can be seen in the stats of the offering. The first offering was 10x the demand. The second offering was also significant. So we had 2 very successful offerings. And an interesting challenge in terms of allocation. For the first offering, we kept what we said to the market when we announced the offering, so we prioritized existing shareholders. The first offering had one non-shareholder that was long term strategic and was allocated. The rest were all part of the company's existing base. The second offering was a priority offering but we went beyond that and gave allocation priority to the existing shareholder base. 2/3 of the offering was allocated to the existing base. So we've really prioritized the company's long-term shareholders who've been with the company a long time, believing in our recovery journey. So in summary, we had 2 successful offerings where we kept what we had said that we were going to prioritize our existing shareholders. I'll turn it over to Marcelo so he can talk about our capital structure. Marcelo Martins: Well, Gabriel, adding to what Rodrigo said, we were very happy with the level of interest and demand for our first and second offering, which is a clear testament to the fact that the market is betting on the future of the company as well as knowing that this was the best solution possible considering the different alternatives and that we were committed to the market to resolve our capital structure this year. That's why it was so important to deliver on all these elements within 2025. As for Raizen, yes, we do understand solutions for the company's capital structure are required urgently. And I just want to say that I'm very happy with what the company's management has been delivering. And considering all of our expectations concerning what was to be delivered, I'd say management has complied with what we had expected for this year, 100%. Despite the challenging scenario, deliveries have been very positive. And a lot of points were addressed during the call on Friday. We know that this is the best way possible and it will be very positive for the portfolio and for the companies in the future. But obviously, capital structure challenges remain our conversations with Shell have progressed considerably. On a number of aspects that can be potential solutions or solution, we have made progress, although we haven't yet come to a conclusion about the way forward. I'd say that in our conversations with them, the clearest direction compared -- is much clearer than we had a few years -- weeks ago, but we haven't come to a final conclusion yet to announce to the market. We have been working hard on it. This is a massive priority for me and Cosan's team. After Cosan's capitalization we know that we need to focus on that, and we'll continue to work on it with a sense of urgency and closely with Shell so that we can come to a conclusion. I can't share with anything with you for the time being because we're still working on it. We haven't come to consensus on their side or on our side. So no conclusions yet. What we did do recently during the second offering was to announce that we might be using proceeds from that offering to capitalized companies, broadly speaking, and Raizen is included in that. So that remains, obviously. We have already disclosed that because we think that's a key consideration when it comes to Cosan. And depending on the solution, if it's a broad solution with a positive effect, we will definitely consider that capitalization. As I said, we haven't decided on the terms yet. And in fact, the structure to be pursued so that we can continue to deleverage the company hasn't been decided on yet. But our commitment to get to the right solution and to potentially making a capital contribution remains as we had said previously. Operator: The next question is from Isabella Simonato from Bank of America. Isabella Simonato: You touched on many different points, including the new shareholders and Raizen's process. And on Friday, during the call, you also announced several Board changes to the directors. I would imagine that comes from a shareholders' agreement that was signed. But if we could also talk about the context of the changes in directors, which at the end of the day also had an impact on Raizen at a crucial time, as we all know, when they're working on the balance sheet. So if you could provide us with more color about that, that would be very helpful. Marcelo Martins: Well, yes, those changes to the Board are a consequence of the new partners coming in. We had agreed that those changes would take place. And obviously, totally in line with the new partner's contributions to the company. Not only were we expecting those changes, but we also believe that they are extremely positive to the future of the company. Another point, which I didn't mention during my opening remarks, but I will now, before I address the financial changes is that we have been making significant changes at Cosan to streamline the team and to streamline the company itself. We believe that in line with Cosan's future and the contributions the company will have to make to its portfolio, it is important to streamline the holding company and to generate more efficiencies, which is something we've been thinking about for a while and now is the time to do it. I think that streamlining process will be very accretive in terms of value to Cosan. Streamlining the holding company and reducing expenses will also be a huge contribution in addition, obviously, to the capital increase. So that's how we're going to proceed. As for the changes in CFOs. Now that Rodrigo is leaving and with the objective of bringing in people from inside the company who have the knowledge and who can run this area with in-depth knowledge of the portfolio and the process, it had to be somebody from the company. Bergman has been with us a long time, 14 years, I think. He's been through many companies in the group. He has a lot of experience within the group. So he's highly qualified to take on the job. And since the holding company is focusing on the portfolio, the partnership with the new partners and focusing on the portfolio more constructively, it was key to bring in someone, if I may use a word in English that could hit the ground running. So he is somebody who is going to come in and hit the ground running and continue to manage things as we expect them to be managed now that Rodrigo is leaving. And somebody who is going to come into Rafa's place to make the right contributions, who had experienced enough to run such a complex company as Raizen. Hence, Lorival is now taking Rafa's place. What I wanted to say is that during the 2 years, Rodrigo spent with us, he made massive contributions even though it wasn't a long time, he was extremely active. He had a huge role to play and made exceptional contributions to the company. When we said we were going to sell our stake at Vale and with the current capitalization, that means we move BRL 20 billion in the Brazilian capital market in 12 months. That's a historical milestone for any company in Brazil, especially considering current times. So I really want to thank Rodrigo for his contribution, and I wish him the greatest of successes in his next professional stage. Isabella Simonato: Excellent. Marcelo, if I can have a follow-up question, please. Looking at the shareholders' agreement, it's clear that the new shareholders can join the Board, and it's slightly different at Raizen. Rubens -- and will be more in charge of the JV and the JV decisions. Did you make that decision? Did Shell have an opinion? And also, congratulations, Rodrigo, on the last 2 years. And I wish you success on your next stage. Marcelo Martins: These are actually, our new shareholders' agreement will keep the same terms as the pre-existing shareholders agreement. And these were the terms for Raizen already. So what we agreed with the new partners is that we wouldn't change anything. We would keep the same terms. There was no reason to change it, and that is our agreement with Shell. That's why Raizen was the exception. We have kept the appointment of the Board members in line with the shareholders agreement that is in force. As Rodrigo leaves, we're going to replace him at Raizen. We have an idea of who's going to do that, and we should be doing that soon. I just wanted to make that clear. And obviously, it won't be anyone appointed by the new partners for the reason I have just given you. Operator: The next question is from Thiago Duarte, BTG. Thiago Duarte: Good morning, everyone. Marcelo, Rodrigo pleasure to talk to you. If we can go back to Marcelo's opening remarks about the role the holding company has to play in this new context. Historically, Cosan has been going through different formats as a holding company, diversification, then simplification, eliminating holding companies along the way. In the last few years, there's been a significant investment cycle at the holding company and the subsidiary companies. And now with the offering, things are much more tangible. You're talking about a significant simplification with new partners coming in the controlling shareholders group, not only in terms of reducing expenses, but also bringing down the company's debt to 0. So given that context, once this process is concluded or is on the right track, a significant part of it has already been done. What will be the role that Cosan as the holdco will have to play in the future? And I also have a second question. Considering the funds that you raised and considering that a major part of it, if not all, will be used to reduce the holdco's debt, as you said. My question is what part of that debt would you be tackling? Do you think it will be the cost of debt or the maturity, the duration? What kind of an impact will that have on your liability and liquidity? Rodrigo Alves: I'll start with your second question, Thiago, and then I'll turn it over to Marcelo to talk about the holding company. Yes, you're right in terms of how the funds will be used. Substantially, they will be used to pay for the debt, we had already announced that during the offerings. In terms of priorities, there is a cost packing order to be tackled because the duration is compatible. And there's a lot that can go into call in the short term. And the trade-off will end up being positive between a high cost, but also a duration contribution. In terms of the duration itself, I think there is a first stage where there will be a reduction but once the company's credit improves, we'll have more opportunity for tactical operations in the long term. We don't have anything maturing by 2028. So in terms of that kind of pressure there isn't any. And a really good duration for the holding company's horizon. So we'll be focusing on costs, but naturally, there will be an opportunity for a part of the debt, which is callable in the short term to have a positive impact on the duration as well. I'll turn it over to Marcelo so he can answer your first question about the holding company. Marcelo Martins: Well, Thiago the last time Cosan had a capital increase before this one, obviously, was in 2007. So that was roughly 18 years ago. And that capital increase took place before we started diversifying our portfolio because the first acquisition of sugar and ethanol took place in 2008 when we acquired Esso Brasileira de Petróleo. So in practice, all the financing of these acquisitions of the companies in the portfolio took place in the last 17 years, which means that if we had leveraged the company in time because, obviously, that capital increase was crucial for that acquisition, but not enough to build up a portfolio that leveraging took place gradually over time. And it wasn't efficient because it's -- this is a pure holding company. Up to the point where the macro scenario changed, interest rates, skyrocketed and that coincided with the recurring leveraging of our stake at Vale. So we started going in a direction to where to resolve the company's capital structure, either would have to make a significant sale in the portfolio or have a capital increase somehow, which is what we did. So the holding company played a role in the last 17, 18 years that has changed. It doesn't make any sense continuing to use Cosan as a leveraging tool for future growth. First, because it's been clear to us for a while, especially our experience with Vale that we shouldn't develop any other verticals using Cosan's resources. So future investments will be made through the controlled companies when that makes sense again when the time is right. So there's no sense in continuing to leverage Cosan over time. It doesn't make financial sense. It's fiscally inefficient. So the holding company, regardless of our active participation in portfolio management, the holding company will no longer be a vehicle for future investments. We need to consider creating efficiencies and streamlining it over time, and that is our objective for now. Now what will happen once we get to a size that makes sense and the leverage that makes sense, then we'll discuss it again. But right now, we want to create efficiencies and streamline it. Operator: The next question is from Matheus Enfeldt from UBS. Matheus Enfeldt: My first question is based on what Marcelo said about timing. I know it's hard to say, but there's a lot of news about Cosan being in a hurry to resolve investments, to reduce the company's balance sheet in the very short term, which diverges from what you said, Marcelo which is that you now have the time to do it gradually. So I'd like to hear about that timing difference. When do you think we'll be able to see new decisions about the company's portfolio? And also in terms of timing, the message about Raizen sounded very different to my ears in the sense that Raizen doesn't need capital immediately, that it's in no rush, that it can perhaps wait for 2 or 3 years. Whereas what you said, Marcelo, is that they want to resolve it in the short term. So could a potential solution for Raizen happen in the next 6 months? Or do you think it will be over the next 2 or 3 years? So that's my first question. Second question is about Moove. We haven't talked about Moove yet. I'd like to hear more about the company's results. You had quite a solid result. How much of that came from operations? How much of that is a result of insurance proceeds or tax credits? I'd just like to hear about what's recurring and how the operational business is running? Rodrigo Alves: Thanks for the questions. I'll start with your question about Moove and Marcelo can talk about the company's balance sheet and timing. Let me just recap what we showed during the presentation. In terms of volume, the company is well covered. If you compare it to the same period last year, you can see that there's been significant volumes recovery, the reconstruction CapEx. Obviously, the dismantling and reconstruction of the Rio de Janeiro plant is ongoing. And given the volume solution, the company is focusing on eliminating tax and logistics complications in the setup, which transfer interstate products, a return of ICMS credits. The logistics is much more complex than if it was centralized in a single asset. So the company is working on that so that it can land on a new production setup. It's not just about the real plan, part of what was going to be done that will be done to the facilities that we've been acquiring over time, especially in Sao Paulo. So the company is on track to position itself competitively. And given everything that happened, that's quite remarkable. In terms of the insurance proceeds, yes, there was a considerable recognition in the second quarter, another BRL 200 million in the third quarter. But the main thing than the accounting recognition was what we expected that would happen, which is significant cash coming in, BRL 300 million in the second quarter, in October another BRL 200 million, which we have announced and that reiterates our confidence in the process. And we are confident that the company will recover. And again, the Rio de Janeiro plant reconstruction CapEx, as I said, part of the insurance was associated to property. So we expect that Rio's plant CapEx will also be covered and realized over time. I think that's it. And I'll turn it over to Marcelo. Marcelo Martins: Matheus, let me make it very clear so that there is no doubt. Our sense of urgency at Raizen is obviously much more along the lines of 6 months than 2 years. There's no question about that. As we continue to talk and define a strategy with Shell, not only will we announce that, we will also start executing on it as soon as possible. And there is definitely a sense of urgency. No, we do not think that we can wait for 2 years before we find a solution for Raizen's capital structure. The point is that it has been delivering significantly but that's part of the equation. The sense of urgency is there. As for the portfolio, what I said was there is no need for any fire sale of assets. In other words, we will do what's best to solve the company's indebtedness and the portfolio's prospects without burning assets. That doesn't mean there is no sense of urgency, but it's changed with the capitalization. So we have resolved a major part of the capital structure. And the rest will be done, delivered and announced will be executed in a time frame that makes sense, in a schedule that makes sense, for the price that makes sense and the right mood in a coordinated and organized fashion. We don't want to give anybody the impression that we're rushing around trying to sell assets. We didn't do it in the past when we needed to raise funds. So obviously, we're not going to do it now, considering that a major part of that solution has been found. Operator: The next question is from Monique Greco from Itaú. Monique Greco: I have a couple of questions. If you could provide us with more detail about some of the things you've already touched on. First question is if you can comment on the streamlining measures at the holdco level. Have you mapped them? Have you started implementing them? Do you have a time frame in mind to get to the streamlined level you would like? I heard that you are hoping to cut annual expenses by half at the holdco level. My second question is about the divestment agenda. Could you comment on the order and the pipeline? What would make a sense focusing on first? Rodrigo Alves: Thank you, Monique, and thank you for the questions. Well, with regard to implementing measures, as Marcelo said, we have mapped a process to streamline the structure at the holdco level, partly decentralizing some the rules, which is something we had already been doing. Now looking forward, we want to bring the holdco to a level that is strictly necessary. So we'll be focusing on what will remain in the portfolio. For next year, considering this personnel streamline, we should be saving about BRL 30 million for next year. That 50% reduction entails a few other initiatives. As you know, our prospectus announced that we are looking into the company's ADR because of its relevant annual cost. It's over BRL 10 million when we consider all the associated costs. So that's something we're considering, and other things as the physical space as well as other expenses based on what the company has been doing and will take place over time. So without giving you a time frame, we believe that it is very doable to bring -- to cut down on costs by half. As Marcelo said that is key in terms of capturing the value of the deal we announced. So it is in our interest to implement those measures as quickly as possible so that we can capture them also as soon as possible. And Marcelo will tell you about our divestment agenda. Marcelo Martins: As we've been saying to the market, Monique, divestments should take place following the order of capital allocation priority within the portfolio. And obviously, considering that we should start with Radar. So if you look at our portfolio and the level of priority of the business is looking forward, I think Radar is possibly the company where we might consider thinking selling a more considerable share. The rest will come as a consequence of that first step, obviously, depending on the size of the divestment, then we can allocate it to the other businesses as we consider a combination of value, size of the business and the future strategy for investment in those businesses. That's why it's the asset that makes the most sense to start with at the moment. Operator: The next question is from Regis Cardoso from XP. Regis Cardoso: Good morning, Marcelo, Rodrigo. Congratulations on the offering. Your exit will surprise, Rodrigo, but it will leave an important legacy. Marcelo you just talked about Radar, would it make sense to sell more assets or a stake in the company itself? And if you could talk about Rumo, would it make sense to sell a stake? Is there a minimum stakehold and needs to have to remain as a controlling shareholder? And the same applies to Moove, I would imagine that in time, a decision to raise funds at Moove would depend on resuming production. And I don't know if there's anything else on your radar in terms of when it would be possible to normalize things. Marcelo Martins: Well, first of all, with regards to Radar, it's a combination of factors. We can continue to sell properties that are part of the portfolio or sell a part of Cosan's stake. Obviously, there is a trade-off between speed and what makes the most sense in terms of adding value. So we'll look into that to make a decision on the best way forward. We know that, that is compelling to many investors. We have an exceptional portfolio, one of the best portfolios in Brazil. Its size is considerable and a performance track record that is also exceptional. So those are all very positive factors when we consider a significant divestment in that business. As for the other businesses, and I can speak for all other businesses, they are considered very relevant to the portfolio with the potential to create huge value, all of them without exception. If we are effectively going to consider selling a stake in some of them, more diluted stake in more than one of them or if we're going to concentrate it more in one rather than the others, will depend on, first, understanding our strategy looking forward as well as potential buyers and opportunities that may arise. Always, always bearing in mind that value is key. We have built this portfolio over time. We've made considerable progress in terms of growth investments. And obviously, we will make divestments that make sense for the right price depending on the demand, but also obviously considering what is key to the portfolio as a priority. Regis Cardoso: May I ask a follow-up question, please? What about capitalization at Raizen? Is there a maximum amount that you'd be willing to contribute? Marcelo Martins: Well, that is under discussion, but in the context of the offering, I think we've made it clear where that amount would be, right? Where that value would be. We're currently discussing that. I mean it will depend on how our conversations with Shell goes. It depends on what they will be willing to do. It depends on many other factors. But on our side, let's remember all of our statements, the first offering, the second offering and the context. So it will be within those thresholds that we announced to the market. Operator: This concludes the Q&A session. I will now turn it over to Mr. Marcelo Martins for his closing remarks. Marcelo Martins: Well, thank you again for joining us. And this has been a very exciting journey. Our objective is to resolve Cosan's capital structure and more broadly speaking, all the group's companies. We are extremely happy with where we've got to and very excited with the prospects for the group, its portfolio and a clear notion that we will be able to create significant value, again, as we have done in the past. So we want to stop just resolving the company's capital structure and start building again. But until we do so, that's what we'll be focusing on. Construction will come after that. Once again, I want to thank Rodrigo and the whole team for their huge effort, the professionalism, everyone at Cosan, even through tough times when we're talking about cutting down on our personnel, as we know, their level of commitment and professionalism is unique. We are undoubtedly one of the best companies in terms of its people. I want to thank my own team. I want to work -- to thank everyone who works for the companies in the portfolio, and thank you for joining us. Thank you. Operator: Cosan's Third Quarter 2025 Earnings Release Video Conference Call is now concluded. For further questions, please contact the Investor Relations department. Thank you so much for joining us, and have a great afternoon. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Hendrik du Toit: Good morning, ladies and gentlemen. Welcome to the Ninety One interim results presentation for the half year to 30 September 2025. I will highlight the key numbers before moving to the business review. Kim McFarland, our Finance Director, will then present the financial review. I will then update you on recent developments and conclude before we take questions. Those of you participating through the webcast can submit questions during the presentations via the chat function at the bottom of your screen. Assets under management rose more than 19% over the past year. Flows turned around strongly. We recorded net inflows of GBP 4.3 billion for this half year, resulting in adjusted earnings per share growing by 15%. This net inflow number consists of GBP 2.4 billion of organic inflows and GBP 1.9 billion that came from the Sanlam U.K. transaction. The dividend per share increased to 6p per share and operating margins expanded to 32.1%. Staff shareholding grew to 32.7%. The people of Ninety One are fully aligned with all our other shareholders. I'm delighted to report that our business is growing again, in terms of revenues, earnings and assets under management. This is supported by investment returns and a significant turnaround in net inflows. We are sticking to our core strategy and investing in our existing growth drivers, while selectively backing new growth initiatives across our ecosystem. Investment performance remains competitive. The Sanlam relationship is delivering, and Ninety One is poised for further growth. We always show the long-term track record of Ninety One to remind everyone that we are about growth over time and not growth all the time. The business has been built over many years in a patient and predominantly organic way. Markets have been supportive of late, but we are clear that sustaining growth over time takes focus, rigorous execution, discipline and belief. We remain committed to our people-centric, capital-light and technology and AI-enabled business model. Market conditions have improved over the reporting period. The panic that followed Liberation Day is now history, and animal spirits are back supporting overall equity market levels. More interestingly, we are observing a new openness to diversification of institutional portfolios, which includes interest in emerging markets. This interest seems to be driven by the desire to diversify geographically as well as a recovery in relative returns. Given the high concentration levels in indices, we are also witnessing a renewed interest in active strategies. A little over 1 year ago, I reported to you in a world in which active long-only and emerging markets across the capital structure would deeply out of favor. Therefore, Ninety One was experiencing a third consecutive year of hostile business conditions. I'm delighted to report that these conditions have improved substantially over the past year. Despite the strong performance from emerging markets and the rise in financial asset prices generally, we are some way off historic levels of demand at this stage. As mentioned at the end of the previous reporting period, our industry continues to be extremely competitive. Clients are setting high standards and continue to be price sensitive. Fee pressure remains a challenge. It goes without saying that Ninety One is exposed to market levels and how financial assets are priced. A sharp decline in markets will affect revenue generation and new business volumes. More generally, the Internet era is being replaced by the AI era. This touches every industry, including our own. At Ninety One, we are embracing this and look forward to reporting progress in more detail in due course. In summary, conditions have improved, while competition remains relentless in this industry. Equity markets have done well over the past 3 years with headline indices close to doubling. Over the past 6 months, our clients continued to benefit from strong performance. Emerging markets in general have outperformed developed markets and the strength in South Africa further contributed to our assets under management and driving these through the threshold of GBP 150 billion and $200 million, respectively. In fixed income, we have also seen positive returns, even though developed market bonds have had a tough time. Ironically, this is where most of the inflows in our industry have been over the past few years. Emerging market bonds are doing much better, and we expect demand to grow in this space. This is an area in which Ninety One is one of the market leaders. Since our listing, investors showed little interest in emerging markets. We're now seeing a decline in the active outflows in equities and an improvement in the environment for specifically active equities. For the second half year in a row, we're seeing positive active fixed income inflows. But as you can see, we are still well below the long-term demand levels for emerging markets. Judged by recent client engagements, we expect demand to pick up in due course. This assumes a world in which risk assets remain attractive. The outflows that have been with us from 2022 have started to reverse in the second half of the 2025 financial year, and inflows have now accelerated into the first half of the 2026 financial year. In addition, we have added GBP 1.9 billion of Sanlam U.K. assets with the completion of the acquisition of Sanlam U.K. We also benefited from the strongest year since 2020 in terms of market and portfolio growth. We are mindful of the fact that markets do not usually go up in a straight line, and we remain vigilant on the cost front. These slides show organic net flows, excluding the Sanlam take on. We had substantial equity inflows largely in our competitive global equity offerings, and positive flow in all asset classes, except multi-asset. This related to our own performance and general client demand. We have addressed the situation by bringing in new leadership and renewed focus on the multi-asset part of our business. The majority of our client groups were positive for the half year given the pipeline. And given the pipeline, I'm hopeful that U.K. will show positive results for the full year and that South Africa will return to positive net flows for the second half as well. Investment performance has been solid over the period, and we can compete in the areas where we need to compete for net inflows. As always, a few strategies have done outstandingly well while there are also laggards. Overall, we have a competitive offering, which has the potential to generate ongoing net inflows and meet the high standards of our clients. I now hand over to Kim McFarland, our Finance Director, to take you through the financial results. Thanks, Kim. Kim McFarland: Thank you, Hendrik. I'm here to present a set of strong financial results for the period ended 30 September 2025. I would like to highlight that our core operating business has again produced a solid outcome. Management fees and adjusted operating expenses both increased by 3%, resulting in the core business recurring results increasing by 2% on the prior period to GBP 82 million. Management fees were at GBP 290.7 million. This is as a result of the increase in average AUM from GBP 126.7 billion to GBP 139.7 billion, alongside a decline in the average management fee rate to 41.5 bps. More on this later, but worth noting that the increased closing AUM positions Ninety One's revenues well for the next 6 months. Adjusted operating expenses of GBP 208.7 million includes the interest expense on the lease liabilities for our office premises and the full bonus accruals. It does exclude nonoperating costs. The business produced an adjusted operating profit of GBP 98.8 million, up 12% from the prior period. This increase is predominantly as a result of higher performance fees of GBP 4 million. Other income is negligible and there's mainly a number of fair value adjustments on seed investments. There were FX losses as a result of the stronger GBP to USD in the period. So the adjusted operating profit margin increased from 30.5% to 32.1%. And at the finals for 2025, we reported an adjusted operating profit margin of 31.2%. So let me explain further the decline in the average management fee rate. This is calculated as a monthly average and over the 6-month period has shown a slow decline. However, there was a market fall at the end of H1 2026, which we have analyzed. During the period, daily average AUM upon which the management fees are generated, consistently lagged monthly average AUM upon which the average management fee rate is calculated due to the manner in which markets moved markedly during the period. And this effectively overstated the average management fee rate decline by an estimate 0.8 bps. Calculated on a daily averaging basis, the actual daily average rate is closer to 42.3 bps. So closer to a fall in 1 bp over the 6-month period, which is higher than our historic guidance. There were further factors that are impacted on the fee rate in the period, which were a significant AUM increase in lower-than-average fee rate clients. The Sanlam U.K. take on being an example, although this impact was small. However, the take on of large mandates at lower-than-average fee rates has and will have a material impact on our management fee rate, an AUM decrease for higher than average fee rate clients. The U.K. OEIC being an example, and this would have had an estimate 0.5 bp negative impact. And at the same time, there were some downward fee adjustments for existing clients who generally compensated with additional assets. Ninety One's profit before tax after considering the list of nonoperating adjustments, adjusting net -- adjusted net interest income, the small share scheme, net expense, corporate-related professional fees and now the amortization of the intangible asset as a result of the U.K. Sanlam transaction increased by 10% to GBP 102.2 million. At the interim, the share scheme is generally a net expense. And this is largely reflecting the amortization impact from prior year credits where staff bonuses were allocated to Ninety One shares. At the year-end, we have a better understanding of the share scheme and the allocation of annual staff bonuses to Ninety One shares. Remember, we fully expensed the bonus payments within adjusted operating expenses, irrespective of how settled. IFRS requires the amortization of bonus-related share awards over 4 years, which is then included in the share scheme expense. The effective tax rate for the year was 25%, down from 26.3% in the prior period, and this was driven by higher earnings in lower tax jurisdictions. And in the prior period, there were a larger number of nondeductible expenses. So the above factors resulted in a profit after tax of GBP 76.7 million, up 11% from the prior period. And our adjusted EPS shows a 15% increase to 8.4p, more than the increase of adjusted operating profit of 12% due to the lower effective tax rate on the adjusted operating profit and a lower number of ordinary shares for the calculation of adjusted EPS. So this analysis summarizes the absolute movement in adjusted operating profit from H1 2025 to H1 2026. It clearly shows that management fees, performance fees and other income increased. These increases were partially offset by the increase in employee remuneration, but noting business expenses were actually lower by GBP 2.7 million than the prior period. This is the analysis of the movement in adjusted operating expenses. Adjusted operating expenses increased by 3% to GBP 208.7 million. Employee remuneration represented 64% of the total expense base. In the prior period, it was 62%, and increased by GBP 9.5 million to GBP 134.1 million. This was driven by an increase in fixed remuneration consistent with the increase in head count and annual inflation increases as well as an increase in variable remuneration in line with increased adjusted operating profit. Over 50% of employee remuneration remains variable and the resulting compensation ratio was 43.6%, up from 42.9% in the prior period. Business expenses decreased by 3% to GBP 74.6 million. We began to analyze the cost changes, at a high level, we've broken this down -- the movement down as follows: inflation-linked increases of GBP 1.4 million for those costs that are impacted by inflation. FX-linked impact was negative GBP 2 million. And there's been a pickup in technology spend of GBP 1.7 million, with other costs then decreasing by GBP 2.8 million. Technology now is the largest business expense. Previously, it was third-party administration. Looking ahead, we're expecting business expenses to be impacted by inflation, ongoing technology spend and the move into the new offices in Cape Town planned for January 2026. Post the Sanlam integration in South Africa, there will be a cost impact, which will be predominantly headcount driven. So increases to employee remuneration as well as the resulting general operating costs. This is showing the business expenses and total expenses as a percentage of average AUM in basis points over a 5.5-year period. The adjusted operating profit margin over the period is also reflected here. Irrespective of the movement in AUM, business expenses have marginally decreased over the period, even noting the continual investments in our core technology system. Total expenses as a percentage of average AUM hav,e, in fact, declined aided by the growth in the denominator. The adjusted operating profit margin has remained in the range of 31% to 35%, reflecting ongoing cost management with the underlying AUM growth. Ninety One's qualifying capital was GBP 316.3 million at the end of September 2025. In line with our dividend policy, the Board has proposed an interim dividend of 6p, this is an increase of 11%. After this dividend payment, there will be an estimated capital surplus of GBP 155.3 million. This will result in a capital coverage of 245%. During the period, we continued with our buybacks, and this resulted in another return of capital of GBP 20.4 million and a reduction of 14.1 million shares. We did, however, issued GBP 13.7 million of plc shares for the U.K. Sanlam transaction in the period. In line with our capital-light model, since listing over 5.5 years ago, we have returned close to 60% of our initial market capitalization to shareholders. So a few updates regarding the Sanlam transaction. All regulatory approvals have now been secured. The U.K. transaction completed on the 16th of June 2025, with the result of GBP 1.9 billion of AUM on boarded and Ninety One plc issuing 13.7 million shares. It's planned for the SA transaction to be completed by the end of the financial year, which results in expected total onboarded AUM of circa GBP 17 billion and revenue in line with what we previously reported. An additional 112 million shares will be issued when the SA transaction closes. Now reviewing the position for H1 2026. The adjusted EPS and operating margin were accretive. There was a slight dilution on the average fee rate, which I mentioned earlier. And also, as previously mentioned, we will be waiting the shares issued to Sanlam for the determination of the adjusted EPS for the interim and then for the final 2026 results. For the interest, this looks as follows. So shares in issue, excluding Sanlam U.K. is GBP 882.7 million, weighting of shares issued for the Sanlam U.K. is 13.7 million times by 107, the days since the transaction in the period, divided by 183, so the days in the total period, which gives you 8 million shares. So shares in issue for adjusted EPS calculation is 890.7 million. The actual number of shares and issue at end of September 2025 was 896.4 million. The intangible assets arising on the balance sheet for the Sanlam transaction will be amortized over 15 years. To note, this is tax deductible in the U.K. but not in South Africa. And so on that final technical point, I will now hand you back to Hendrik. Hendrik du Toit: Thank you, Kim. At Ninety One, we think long term and our commitment to our strategic pillars do not preclude us from constant improvement and development of our firm. Over the period, we've continued to invest in talent. We've broadened the top leadership team and evolved accountability throughout our firm. We ensured that our 3 core opportunities international public markets, Southern Africa and private markets are adequately resourced to compete effectively as market-facing units, supported by our 3 pillars of investments, client group and operations. And so as we go into the second half of the year, we have formed a dedicated international public markets team, which can focus on the commercial opportunity for a recovery in demand for active investment management especially in international and emerging market strategies. We have a focused and strong Southern African team to take a market-leading business to an entirely new level. Finally, we've reinforced our private markets team with fresh talent and additional senior leadership and asked them to accelerate progress in this growth market. We are backing new growth opportunities out of the recently established Ninety One Foundry. These include in-region presence and partnerships in key emerging markets, allowing us to become domestic competitors in certain regions and deepen our investment insight in these fast-evolving markets. For example, we opened 2 offices in the Middle East in the previous reporting period. We have now put additional resources in, and we are building an on-the-ground domestic business in the Kingdom of Saudi Arabia, which includes a strong investment presence. In Asia, we're developing an exciting joint venture with a Singapore-based alternative investment firm with deep experience and relationships in the region and in particularly China. This will strengthen our investment capabilities in the region as well as positioning us to compete more effectively for capital flowing out of the region. We have established a digital finance unit with dedicated leadership to provide clients in certain markets with a far better experience than they traditionally have received from asset management firms. We've committed substantial resources to AI-related innovation which we will update you on further at the end of the year. I must stress that these developments are fully expensed through the cost line and are not consuming significant additional capital. Over the reporting period, we've made meaningful progress on the technology front, which includes a major systems migration. Now that this has been fully completed, significant resources have been freed up for further enhancements and innovation. These are the additional 3 areas of growth we're pursuing, which we believe will impact the way we run our business in years to come. What we're really trying to do is from strong foundations, build the active investment manager of the future. To become the active manager of the future, AI is key. At Ninety One, we approach AI on 3 levels: advocate, equip and use. So this is how we rate ourselves. We see quite high levels of adoption, we see reasonable levels of experimentation given the widely available AI tools to all our staff members, sort of 6 out of 10. Then our people have embraced it, and we are working hard to get our proprietary data organized for the effective deployment of AI across the firm. The proof of the pudding is in the transformational impact of AI. We have much to do on this front. The business is stronger than it was in the previous reporting period, supported by better business conditions and recovering demand. We plan to improve and modernize our business through disciplined investments in and adjacent to our core activities and markets. Emerging markets and the search for diversification are coming back into favor, which supports us. Active investing has a role to play in this world particularly within emerging markets and in the global equity opportunity set. The strategic clarity and simplicity of our business model enables us to seize the opportunity with pace and strength. In short, we see renewed opportunity for growth. Thank you very much. We can now move on to Q&A. We will take questions in the room first, and then will watch -- then we'll take questions from webcast viewers. [Operator Instructions] I think Angeliki, you had the hand up right in the beginning, so. Angeliki Bairaktari: This is Angeliki Bairaktari from JPMorgan. So your flows were much stronger than the previous semester, GBP 2.4 billion. And we -- you say in your presentation that you feel that active is back. Can you perhaps give us a little bit more color with regards to where you see that strength coming from I think you had APAC, Middle East and also equities. But if you can just give us a little bit more color on the pipeline that you're seeing for the next 6 to 12 months where you see the strength coming from? And that's my first question. And then maybe on the management fee margin outlook. There's a lot of moving parts there, relative to my expectations, the management fee margin followed more. I think we still have some dilutive impact to come from Sanlam once the further AUM gets onboarded on the platform. So how should we think about the run rate, management fee rate for next year perhaps? Hendrik du Toit: I think you've asked the real questions that we all need answers for. So I can give you color on what we see rather than a prediction, Angeliki. So firstly, the -- if I can go to the flow or the pipeline that we see. Firstly, the result is again emphasizing the strength of our diversity. We source capital from the same kind of client but in different regions around the world. They have slightly different perceptions on risk and on willingness to take risk at a point in time. And that's why we've seen equity up weightings from large clients in Asia. And that's really where we've seen it. In the rest of the world, particularly North America, where we've delivered some positive, we are seeing a significant search activity or investigating activity's about how to diversify's their portfolios. That flood's gate has not yet opened. We expect that given the sense that markets normalize over time, and we've come out of a long period of underperformance for the rest of the world relative to the U.S. And we know these things go into 10, 15-year cycles. There's a very good paper on our website about dollar cycles and dollar cycles and international investments seem to be highly correlated. You can go and read that. So -- but what we have seen in the last 6 months picking up from the previous 6 months, not the year ago, but the preceding half year is an intensity or intensification of client and search a client engagement and, call it, presearch engagement. What, of course, can change the flow picture is whether we, in this very competitive world win in the very final stage. I mean an example in the last 6 months, and it really hurts me to say it. But after eliminating all competitors, we came second for a sort of close to $5 billion mandate, one client that would have made this figure look a lot better. And so we are driven, and I think you should understand it Ninety One deals in the upper end of the institutional market. Small numbers of clients make a big difference. The fee on that depends on where they're already engaging with that client at scale, and therefore, the client gets a better deal and we price persistency as well. So clients that are persistent, and this is not price cutting, but clients that are persistent have proven themselves to be persistent over time, get a better deal than those who rent your capacity. And so sometimes, we would not do a deal, which we could do and create great inflows to make all of you happy because we know this client is a capacity renter. And they'll come for 3 years and then cause a problem for us when they go out again, whereas others deserve the respect of a value-for-money deal plus scale benefit. So it's very, very difficult to predict where we are. I think we still, with our underlying guidance of market fee pressure is around -- and I still think it's around the 1 where we are is 50% of our growth typically when we're in growth cycles is upweighting from existing clients, 50% is new. If those existing clients are the big ones, your fee goes lower, if they come from general market, mutual fund market, et cetera, your fees are a bit better. But I think over time, Ninety One is moving towards and increasingly institutional. So the breakdown in the addendum to the slide pack, the appendix where we show institutional versus adviser actually, we are trending towards a much more institutional business. And even in South Africa, where we have a strong advisory business, those advisory firms are getting bigger and bigger and behaving more like institutional multi-manager. So I think -- we're going through that lowering a fee process but hiring of what increasing of volume and therefore, increase operating margin but not necessarily on a fee basis. So I think the 1% we guide to is still the underlying fee compression in our industry. We might as of late, be hit by something a little more or less, but it depends. And it also depends on the growth of the alternatives business because that is a still and where I see the real fee pressure in our industry is actually on the alternatives business. I don't think the 2 and 20 models are going to hold because if clients look at their fee budgets, this is where. So what they're currently doing, just an interesting thing in private equity, private credit, et cetera. They pay the full fee, but then they do a deal on the side to co-invest for nothing. So what is the real effective fee of providing those services and your capabilities to a client for free. So I think about -- it would be a really interesting work -- a piece of work for you to do when you look at that side. So I think that's where the fee pressure is more than in ours, but we are preparing for a world where we have to be at least 1 basis point more efficient every year. And I can't tell you whether we're going to be at 40. Right now, I'll -- Kim, I think you've got the answer. We're running at a slightly higher fee level, maybe you can add here for me, then actually the number shown there. Kim McFarland: Yes. Well, I kind of explained that in my sort of daily -- I think I did that on the call this morning actually as well on the sort of daily, monthly factor. But I think you're sort of -- you're asking the question about looking ahead. And Hendrik is right, we are seeing pressure on the fees, both. You've got the standard 1 bp a year that we advise on. But when you're looking at both new mandates, but actually more so existing client mandates that are coming on board at lower rates and then giving us the asset to compensate. So hence, we're seeing the pickup in the AUM, but they are often negotiating at lower fee rates. So this is why we're definitely seeing more fee pressure. Hendrik du Toit: But for us, it is -- the value lies in embedding those relationships for the long term. And if you can do that, you have a higher-quality business. But what we're not doing is price-cutting to win volume. We don't going out there saying, "Hey, we're cheap". But this -- and I still believe, this market will settle down when nominal interest rates are on the rise again because actually, it's hard for a treasurer or someone to sign a check, when he earns it out of interest, it's easier. So I think there's a -- there is a link, which one day will prove statistically, but we can't give you an exact number now. The next step on the pipeline, we're seeing substantial opportunities against scale ones, so there won't be fee level enhancing ones, they'll probably be roughly where we are for the rest of the year that we should convert. What we don't know is where the unexpected redemptions or changes in strategy can happen with the client. And that's the problem when you deal with these large clients. They get a new CIO, they get staff changes and a new strategy comes in, you're being seen as okay, but not necessarily central to the strategy. So -- but I'm fairly comfortable that the visibility of the pipeline is better than it's been in recent reporting periods. Jonas Dohlen: Jonas Dohlen here from Deutsche Bank. Just one follow-up. Yes, just one follow-up on the fee margin. I was just wondering if that guidance now includes the Sanlam or if that's still on kind of the legacy assets on that 1 basis point... Hendrik du Toit: Sanlam is lower because it's a $20 billion deal. So it's lower, and it's largely fixed income assets. Jonas Dohlen: Yes. But on a group level, you expect 1 basis point... Hendrik du Toit: Yes, on an organic basis. So there's an organic basis and then there's the Sanlam transaction. And what I'm saying, the 1 basis point is the market pressure. If we were to ex Sanlam or if we were to get a big up weighting from a sovereign wealth fund where we already have a premium deal because they've got billions and billions with us, it's probably going to be below that fee level. If we win 500 million mandate chunks, it will be at or around or above that fee level. You see. So that's why I'm saying the market -- the institutional market pressure is roughly 100 basis -- or 100 basis points per year. The -- sorry, 1 basis point per year excuse me. 1 basis point per year. But the -- for us, Sanlam is a separate transaction and then obviously hugely accretive from a profitability point of view, and it depends then what kind of flow we get. Jonas Dohlen: Great. And then just on the tax rate as well. I think you mentioned... Hendrik du Toit: I don't understand... Jonas Dohlen: 25%. Kim McFarland: 25%. Correct. Jonas Dohlen: Being a reasonable number to go forward. I'm just wondering how to kind of square that circle. I mean you have a higher tax rate in South Africa, and that amortization part not being tax deductible as well? Kim McFarland: But we have tax in many other jurisdictions as well. So it's linking up the 2 of it. And -- you're right. When I'm looking at it, I'm looking for the next 6 months and the South African impact is only -- it's going to be in the results for a couple of months next year. I think looking ahead with the nondeductibility of the amortization piece, it will tick up a bit. Hendrik du Toit: Piers, you'll come back in new uniform. Piers Brown: Yes. Indeed, yes, it's Piers Brown from Investec. Hendrik du Toit: Very good. Piers Brown: So very happy about that. I might be greedy and actually, go for 3 questions. So the first one, yes, just back on to the fee rate conversations. So I guess, if you look at this from the perspective of the operating margin, you're -- I mean you printed 32%, which looks very good for the first half. If I take out the performance fees, you -- which I know is a slightly dubious calculation, but it looks like you're maybe sub-30%. But the question would be just on the fee rate outlook, do you think 30% is still the level you can protect? Hendrik du Toit: I think you have to compensate higher average assets under management, that compensates a bit because remember, the markets had a run close to the end, there was Liberation Day down than up. So your average AUM doesn't reflect your actual AUM. And you've got to look at where the sterling is strong or weak, which then deflates a big cost base. So I'm more comfortable than you. But you are right, there's -- the core revenues have not grown as much as they should have. So we don't run to a target actually. And therefore, it's not something we monitor daily. But I'm not at this stage, I'm comfortable that we're going to come back to you with a 25% operating margin, put it that way. Kim McFarland: I think that's too right. I think you've also got to recognize the fact that we're taking on the Sanlam assets, as I said, next year at a low cost. Hendrik du Toit: And I would remind everybody, we've bought I know we call the GBP 1.9 billion acquired growth, but we bought back those shares already. So if you think about it, it's just a mandate win, the big one is going to take a bit longer, but if we can do that, if we have the cash flows, then you know what, it's actually akin to an organic transaction. Piers Brown: Okay. Second one is just on the composition of flows. And sort of relating this into Sanlam, but I mean you've had GBP 1.3 billion of Africa outflows, offset by very strong inflows in Asia Pac. Is there anything in the Africa performance, which is maybe impacted by clients reallocating in advance of Sanlam or... Hendrik du Toit: No, no, it's not Sanlam. It's the -- South Africa is actually a very competitive market, and it's very transparent. When you know exactly what each competitor is doing and your cousin or your kid works at the competitor, you literally know what goes on. And so we had some performance pressure in 1 or 2 strategies, which didn't get -- the market goes quickly, moves quickly against you. We've had the back end of the so-called 2-pot system, which means money was released out of the pension system, where if you're a large provider, you have to suffer that. That is now gone. So that structural bit has left. And then, of course, there was the back end of the internationalization of the SA equity or SA investment market because the exchange controls were relaxed for international opportunities opened up for retirement funds. The Minister gave a big -- a few years -- 2 years ago, a big -- there was a big change in the -- what they call Regulation 28. And that means they could invest more. So there was a structural flow abroad. Typically, to new competitors rather than to someone already has a high wallet share with a client because it just makes sense for those clients. And actually, international passive was a big winner there where we don't compete. So I think those 2 forces are over, think on our investment side, we have all intends -- we intend to be very competitive, and we have recovered quite a lot in terms of competitiveness. So I think on all 3 factors, we're stronger in the second half than the first, but it is one of those markets where if you have a big share and you're not absolutely on top of it, the competitors come after you and we've got some very good competitors in that market. Piers Brown: Okay. Perfect. And just maybe a last one on capital. So 245% capital coverage ratio. I think you've sort of indicated 200% in the past is where you'd like to be. It doesn't feel like there's an awful lot of need for seed capital for some of the new initiatives. So the obvious question is, would you look to move closer to the [ 200% ]? Kim McFarland: We will -- I mean, as you noted, we've continued with buybacks in the actual period. We will continue to look for opportunities to use additional seed capital for buybacks when we're comfortable with the price, and obviously in agreement with the Board. Hendrik du Toit: If pricing is reasonable, we think reducing the denominator is always better than just paying out the cash. But we must look at where the market goes. And who knows, there may be opportunities. Any other questions? Investing definitely add value for money, you'll get your dividend. Varuni, are there any of online questions. Varuni Dharma: Yes. There are a few. First one is from Brian Thomas at Laurium Capital. Are you able to comment on the buyback program that was suspended during the half? Are there any metrics that you take into account in determining when you buy back stock that we should be mindful of? Hendrik du Toit: Before we answer that, there's -- Kim just reminds me, there is one thing in the Africa side. There was a 1 single client sort of -- and many clients pay out and eventually but reallocated away from us as well. So you should sort of have the impact of that number. And that's why I'm quite confident that it can turn around. Sorry, on the buyback, yes, we carefully -- we carefully look at value and value in the context of the industry and the context of what we see ahead because the one downside with buying back is if you overpay for your own stock. And therefore, it's always a consideration and a discussion with the Board. It's not an automatic buyback process. And -- but our industry has been so extremely -- I actually had benefit of last week in Paris when I went to watch the Rugby and I have to remind, I know the French listeners, it was a wonderful moment for South Africa and Paris. But in spite of referee against us, we're still -- but I actually went to watch the Rugby with someone who used to be one of the top financial analysts in the market about 25 years ago -- 20 years ago. And he's gone to private equity. He hadn't looked at valuations of asset managers. He was -- it's a bit like talking to someone who fell asleep 25 years ago because he was completely mind boggled by the relative valuation of asset managers against other financial firms particularly wealth today because in his time, it was exactly the opposite. We were the 20 multiple shops and the others were single digit. So I think broad -- and that reminded me again, that these cash flows, quality cash flows are still, in my opinion, or at least in our opinion, fairly cheap, which is why we have also been acquiring stock slowly and as a management team because we think the market is not appreciating the quality of the cash flows we generate. And so even though they don't -- may not grow as much organically there could be -- and there has been a re-rating of late. Now if the re-rating is too much, we will obviously step away. But our industry is still structurally very cheap compared to other cash flows of similar quality. I mean just close your eyes, 30%-plus operating margins is that's tech. Okay, what do you pay for tech? Palantir last when I looked at 185 PE multiple. So it's very different. And it's in that context that we think rather than in short 1 month, 1 week, 1 quarter valuation cycles. But there is a proper process, which Kim can talk to you about when she reports it again. Do you want to add something, Kim? Kim McFarland: Yes, that's fine. Hendrik du Toit: Any other questions? Varuni Dharma: Yes. Next question, Murray Winckler from Laurium again. Congratulations on returning to net inflows for the business. Headcount increased by 8%, which seems high. What should we expect going forward? Hendrik du Toit: Murray, well to done to you, by the way. You're one of those guys stealing business. We will have to come take it back. Just I mean that is one of the big questions. Can we get to a bigger -- a real efficiency for our business? That's about the digitization and the technology investment. But we should also remember that there was some preparation for -- although we're not taking on many people from Sanlam, there's a significant preparation for taking on a book of that size that -- and then there's also the improvement of our communication with end clients, which we had to invest in to make sure it's there. And again, technology over time will make that a lot easier but it was really important, and we've had challenges on -- with South Africa being on the gray list. We've had real challenges on dealing with our international funds into South Africa and our service capability had to just be much sharper, much better equipped to deal with it. And then we've also been building the private markets business, which is much more -- actually much more human intensive than certain public markets investment businesses. And that's about the reasons. I don't know Kim, are there any other ones that you pick up and you want to... Kim McFarland: I think that's right. I think the pickup in a lot of op staff on the IP platform in South Africa. Likewise, on the Sanlam. A lot of them are actually long-term contractors at this stage because I see it as a temporary thing. So I think the sort of more permanent headcount growth has been in private markets and within the actual business. So I think the question is what are we thinking about it looking forward? I'm not seeing an 8%. I wouldn't be looking at an 8% increase in headcount going forward, I think, would be my answer. Hendrik du Toit: And I think with a better use of technology, we could run the same quality service, leaner, that includes client acquisition, client service, investment processes, but it's very important to do these things very slowly over time. I'm not as bold as the big banks that say that they will run -- I mean, 2 of the big bank CEOs in Global Bank CEOs confirmed to me that they'll double their business over the next 5 years with the same staff levels. That has to be seen whether that's going to realize, but those are ambitious goals. I think we should have similar goals, but it's early stage saying it because the promise and the layer of technology is always there and then the delivery is slightly behind. And we've -- those of us who have worked in the markets a long time have realized that. But definitely don't budget for a 8% staff increase, Murray. That's not going to happen. Varuni Dharma: Next question from Jaime Gomes, Laurium Capital. Can you please explain the expected total onboarded AUM from Sanlam remaining the same as what it was this time last year, circa GBP 17 billion. Has the book experienced some outflows given the strong market performance over the last 12 months? Hendrik du Toit: The book is roughly -- it's the same number. There might be a little benefit rand to sterling exchange. So it might be a little more in sterling. But remember, it's a very fixed income, heavy book. There are also -- there could be a few wins associated as well, but we first got to deliver them. So we're very comfortable that the numbers will reflect what we told the market at least. Varuni Dharma: Next question from Hubert Lam. Can you give us an update on the alternatives business and new initiatives, including private credit? And he has a second question, which is, how should we think about further investments you need to make in AI and tech and what that means for your cost base? Hendrik du Toit: Hubert, nice to get a question from you. I know you have another meeting, so you're not here in person. I would say that my simple answer is private markets are hard. And I'm so glad we didn't buy an overpriced boutique to grow, which then doesn't grow, okay? Because the top guys dominate they've got such a strangle hold. And so that's my one point. I think we found niches which we can live in and defend and grow. And what we have actually done is put some of our -- to make sure they get the full support of the firm, put some of our top leadership very close to the private markets guys and they support them to get through and we build it around and particularly around our emerging markets positioning. Now what we know is the emerging markets haven't had huge flows as such. We think there will be appetite and there will be appetite coming. We modest net inflow have been consistently in that space. But we are building through our cost line, and it's fully reflected in our cost line, we are building capability to be actually -- to be fully competitive in our various areas. And I think our focus is private credit. And private credit and transition credit, and that is very clear, and we have built a market name and position there. So we would expect accelerating flows to follow. But those businesses take -- will take a while to impact -- to truly impact on the bigger Ninety One bottom line. If you model us, model us largely as a long-only business, long-only active business because that's still very dominant in terms of revenues and flows. Kim McFarland: Cost. Hendrik du Toit: And yes, but private market is costly to build. It's high fee, but costly, whereas public markets could be done very efficiently with slightly lower fee, and that's the sort of trade-off between the businesses. But we do see the merger. And so the partnership we announced in the joint venture we announced with in -- with the Singapore based, which we are about to announce because we'll probably -- will probably sign in the next few days, and that's why we haven't been long on detail because anything still -- things have to be -- until they're fully signed, you don't want to talk too much. But there, we have -- we're talking to a business which does long short and crossover between public and private. Now I think these universes are getting closer, and one just has to make sure you understand what happens to the other side of the liquidity fence rather than just staying in the curated even if you want to be a very good long-only business staying in the highly curated screen-based long-only part of life. You've actually got to get -- understand what entrepreneurs are doing and what's happening in the ever longer pre-IPO pipeline because we do know a lot more happens on that side of the fence now from venture right through to growth. And I think that's important for us. But as these things emerge, who knows what product constructs will look like, who knows what client appetite will look like. Clients today are still very organized in boxes between the so-called alternatives units, which is now quite frankly, mainstream and active long only, which is becoming increasingly alternative and passive. So they've got their different boxes. But as they start looking at the total portfolio approach, who knows how they are going to buy and that's what we need to be prepared for. Kim McFarland: And I think the question on uptick in technology spend or AI spend, which was the other one, I think Hendrik mentioned the fact that our big technology replatforming exercise did complete early this year. So those costs are now -- and the ongoing cost of that are actually largely built into our figures. AI has largely been a part of our operating cost line. So the gain, how you should think about it is really a continuation of what our cost base is right now. Hendrik du Toit: Yes. And we absorb in what is available or what can be bought. We don't go to bleeding edge development. The big thing is getting your data organized. And I mean it's been with -- that data story has been with me ever since I've been in this firm. Everyone said we have to organize our data better. But you can get so much more value if you are properly digitized as digital middle business models are showing, it is not trivial and that easy. But as a midsized business, if we can't get it right, nobody can get it right. So -- but we're spending resource and effort on it to make sure we can extract maximum value given the enhancements of the available tools. And they are genuinely moving very fast. And I think 5 years from now, we will be in an entirely different world, and we need to be ready for it. Any other questions, Varuni? Varuni Dharma: Yes, a couple. We have a couple of questions on buybacks. The first one from James Slabbert from Standard Bank. There was a slide on the existing capital stack in the business, would it be aggressive to model for annual buybacks far in excess of earnings remaining after the payout of dividends. I think you've touched on that. But -- so by modeling for buybacks in excess of earnings. And then whilst we're on buybacks, a question from Keenon Choonoo from Investec. Is there a preference between Ninety One Limited or PLCs when considering buybacks? Kim McFarland: So we look at both the plc and the limited lines as far as buybacks are concerned. In fact, we look at even PLCs on the JSE line when we look at buybacks. So we look at all three because there sometimes is a variation in price. So we look at all 3 -- effectively 3 lines, although there's obviously 2 shares to answer that question. As far as buybacks to ceding earnings, we look at buybacks from a capital position. So we -- it comes back to the question asked earlier by peers, you aim for a 200% capital position. We're in excess of that. So I'm rather looking at my capital position, understanding, yes, is there any seed? Is there any regulatory requirements. As you mentioned, there's not an awful lot of that at the moment, but we take that into consideration and at the same time, then look at opportunities for buyback based on surplus capital that we're holding on the balance sheet. Hendrik du Toit: Yes. But we -- what we don't do is this is a highly operationally leveraged business. It will only be an extreme that we will leverage the business. You remember, this is what sticks out asset managers. They go on leverage and then they get the fall in assets under management. They get outflows and the debt stays the same and the equity gets wiped out. So we will be very, very careful to ever go beyond what we can do out of our ongoing earnings or surplus capital. Some other industries, people get very brave. I think, yes, this is probably one of the reasons why we haven't bought the firm from the market yet, okay, because you don't leverage these businesses. . Varuni Dharma: Another question from James Slabbert for clarity on the 1 basis point fee margin compression. Would you apply that to the current fee rates that H1 2026 or the FY '25, so the year-end? Hendrik du Toit: I think we've already done this year, we've already done it. I mean we doubled it. So we think we could have a -- we're not 100% sure, but we could have a far lower decline in the second half, just given what's happened in flow dynamics, excluding the Sanlam. But -- and it's really a gut feel here. But that 100 basis points feels like the underlying trend in the market, not necessarily ours. And James, I wish we can't even forecast it to our Board where we're going to be -- it's very -- you've got a very hard job at doing that. I don't know whether Kim can give you any more wisdom except to say the trend is not up. Kim McFarland: Well, I think you're right. I think you're going to look at the most recent fee rate. And if it's in the half year, so you're taking half or 0.5 based on the most recent fee rate, but then you have to take into consideration, as we mentioned, the Sanlam assets coming on board, which will have a further impact and should we take on any large new mandates in the period. If we see those flows, there's likely to be further fee erosion, hopefully not, but there's likelihood. Hendrik du Toit: You see -- especially when you do the relationship deals, with a large insurance company or something like that. And they are genuinely sensitive because it hits their profit, but they can give you assurance about commitment, timing, i.e., embedded value or present value of the deal, that's different from when you get in the normal distributed pension market OCIOs most -- many of them are in -- or multi managers are different because you're not going to compete on price there at all. So it depends where the flow comes from. What we haven't seen, and I think that's the bit you should understand. We haven't seen the sort of -- I've hinted that there are opportunities to grow. But the good times aren't back yet. When you get into the good times and clients want to deploy fast and -- they just want to get the money out there. Then price sensitivity tends to take a backseat. At the moment, they have lots of time to deploy. They're thinking multiyear. They're not chasing markets. I think if you get up severe underperformance or you get -- and I don't think we're going to see it immediately, but if you get a big correction in the dollar, then that changes life. And that's the positive for us. But I don't want you to model that. Varuni Dharma: Last question from Herman [ Van Veltsa]. Do new clients favor fixed fees? Or do they tend to opt for performance fees? Hendrik du Toit: Herman, nice to hear from you again. Another old campaign. I wish clients wanted to give more performance fees because the way you could resolve this constant fee bickering and say, come on, pay us afterwards, pay us properly. But Interestingly, clients have typically been burned by performance fees because they end up paying more. And so they're reluctant to do that. They're also reluctant to go to the -- I mean, in mutual funds, where it's quite prevalent in South Africa, it's not actually encouraged in the rest of the world. ETFs are very difficult. You can't really do -- it's difficult to do, whereas institutional owners don't want to go and pay the big check and ask their Board to pay a large check to a manager unless it's in the alternative bucket. Now again, if those buckets fade and different kind of people contract with us, we could possibly push more performance fees. We think it's a way to align well, although buy-side analysts or sell-side analysts would say it's lower quality of earnings. But I think we could make more profit. They're very happy to do that when they buy Millennium or Citadel. But for some reason, there is a reluctance in our space because that's just what it is. So we would be quite open because we know, over time, 80% of our offerings beat the benchmark. So it's in our favor. But -- it's not the reality today. So I wouldn't model for much bigger performance fee component in our business. I'd roughly keep it similar, noting that a period of good performance, we will own more performance fees. Thank you very much. Thank you very much, and I'll see you after second half, and I hope the positive -- the positive hence, have realized, but it's up to the market. Thank you. Kim McFarland: Thank you. Hendrik du Toit: Thank you very much, guys.
Operator: Ladies and gentlemen, thank you for standing by, and good evening. Thank you for joining Sohu.com Limited's Third Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After management's prepared remarks, there will be a question and answer session. Today's conference call is being recorded. If you have any objections, you may disconnect at this time. I'd now like to turn the conference over to your host for today's conference call, Huang Pu, Investor Relations Director of Sohu.com Limited. Please go ahead. Huang Pu: Thanks, Rebecca. Thank you for joining us to discuss Sohu.com Limited's third quarter 2025 results. On the call are Chairman and the Chief Executive Officer, Dr. Charles Zhang, CFO, and invest president of finance, Gemstone. Also, us, Chang will see with the Win Chen and the CFO Bin Wang. Before management begins their prepared remarks, I would like to remind you of the common safe harbor statement connection with today's conference call. Except for the information contained here, the matters discussed on this call may contain forward-looking statements. These statements are based on current plans, estimates, and projections, and therefore, should not place undue reliance on them. All risky statements involve inherent risks and uncertainties. We caution you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statements. For more information about the potential risks and uncertainties, please refer to the company's filings with the Securities and Exchange Commission, including the most recent annual report on Form 20-F. With that, I will now turn the call over to Dr. Charles Zhang. Charles, please proceed. Dr. Charles Zhang: Thanks, Huang Pu, and thank you, everyone, for joining our call. The 2025 marketing services revenues were in line with our guidance. Well, both our online game revenues and the bottom-line performance are benefiting from our continuous efforts in the gaming business and were well above our prior expectations. We recorded positive net income this quarter. For the social media platform, we continue to refine our products, integrate resources to better meet users' needs, and enhance their experiences. Meanwhile, leveraging our product metrics and distinctive events, we remain committed to generating and distributing diversified premium content and continuously energizing our platform. Our differentiated advantages and unique IP enabled us to further unlock monetization potential. For online games, both new and established titles delivered outstanding performance driven by our deep understanding of our needs and proven operational expertise. Before going through each business unit in more detail, let me first give you a quick overview of our financial performance. The 2025 total revenue is $180 million, up 19% year-over-year, and 43% quarter over quarter. Marketing services revenues are $14 million, down 27% year over year and 13% quarter over quarter. Online game revenues are $162 million, up 27% year-over-year and 53% quarter over quarter. GAAP net income attributable to Sohu.com Limited is $9 million, compared with a net loss of $60 million in 2024 and a net loss of $20 million in the second quarter of this year. Non-GAAP net income attributable to Sohu.com Limited was $9 million, compared to a net loss of $12 million in the third quarter of last year and a net loss of $20 million in the second quarter of this year. Now I'll go through our key businesses in more detail. For the Sohu platform, we continue to leverage cutting-edge technologies to optimize our products and promote deeper integration across our product metrics. This enabled us to further adapt to various narrows, improve operation efficiencies, and enhance users' experiences. At the same time, relying on the synergies between various online and offline events, we continue to stimulate the generation and dissemination of premium content and attract more users to our platform. In the quarter, we hosted a variety of events and activities to further build a vigorous social networking platform, providing users with abundant opportunities for online and offline communications. The 2025 autumn convention of social media influencers effectively promoted deeper communication among broadcasters across different verticals and significantly increased their vitality and retention on our platform. The ongoing 2025 Sohu Hip Hop Dancing Festival and other model competitions successfully ignited the passion of young people and further consolidated our influence in these areas. All these activities gained widespread recognition and popularity, continuously infusing a large amount of content and traffic into our platform. As a result, we were able to further expand the influence of Sohu and fostered a prosperous platform ecosystem. Additionally, we also held special theme activities like the Halloween American TV series party. Not only did we engage users with innovative content forms, but it also became a highlight of our social media's American TV series month, which brought audiences classic dramas such as Westworld and The Mandalorian. Meanwhile, we also launched multiple TV dramas, original drama, and short dramas during this quarter to attract and retain users. The original drama, The Rebirth, was well-received by audiences, attracting more users to our platform. Through our flagship IP, the physics class, and Charles's physics class, we continue to strengthen our differentiated competitive advantages and create monetization opportunities. With trust, we were able to reach a wider audience through discussions on popular science topics and hot events, bringing physics knowledge closer to the general public. This not only helped us generate unique and premium content, but also consistently unlocked monetization potentials. Together with the resources of Sohu's product metrics and our marketing capabilities, we actively adapted to market trends and provided advertisers with customized marketing solutions through a series of innovative campaigns and events, which are highly recognized by both audiences and advertisers. Next, turning to our gaming business, in 2025, we launched a new PC game, TLBB Return, based on a beloved early version of TLBB PC. The game features reduced grinding and pay-to-win pressure, offering players a lighter gaming experience. It helped us attract many former players, and its revenue performance has so far exceeded our expectations. For TLBB PC, we also launched game content for TLBB Vantage that recreated the classic design of the game, which evoked nostalgia among players. Players' enthusiasm was far beyond our expectations. With regular TLBB PC updates, we offered new gear and rewards for our promotional events and redesigned the cross-server clan wall gameplay, which boosted willingness to pay among higher-paying players. For mobile games, we launched an expansion pack for Legacy TLBB Mobile, which brought enhancements to the OEN clan's skills alongside a new storyline and engaging activities. Revenue for this game remained stable on a sequential basis. For the mobile TLBB Mobile, next quarter, we will continue to launch expansion packs and content updates for the TLBB series and other titles to further keep players engaged. Amid an increasingly competitive market, we remain committed to our top game strategy. We follow a user-centric philosophy and adhere to sound methodologies and a systematic R&D process to enhance efficiency and product success rates. As part of this strategy, we are taking concrete steps to unlock the potential of our TLBB IP. Meanwhile, building upon our core strengths in MMORPGs, we are working to diversify into new types of games, including card-based RPGs, sports games, and casual games, as well as expand our offerings for global markets. Now I'd like to give an update on the ongoing share repurchase program. As of November 13, 2025, Sohu.com Limited had repurchased 7.6 million ADS for an aggregate cost of approximately $97 million, accounting for two-thirds of the $150 million program. With that, I will now turn the call over to Joanna. Joanna Lv: Thank you, Charles. I will now walk you through the key financials of our major segments for 2025. All numbers are on a non-GAAP basis. You may find a reconciliation of non-GAAP to GAAP measures on our website. For the social media platform, quarterly revenues were $70 million, compared with $73 million in the same quarter last year. Quarterly operating loss was $71 million, compared with an operating loss of $72 million in the same quarter last year. For Changyou, quarterly revenue was $163 million, compared with $129 million in the same quarter last year. Quarterly operating profit was $88 million compared with operating profit of $62 million in the same quarter last year. For 2025, we expect marketing service revenues to be between $50 million and $60 million. This implies an annual decrease of 15% to 20% and a sequential increase of 10% to 18%. Online game revenue is expected to be between $130 million and $123 million. This implies an annual increase of 3% to 12% and a sequential decrease of 24% to 30%. Both non-GAAP and GAAP net loss attributable to Sohu.com Limited are expected to be between $25 million and $35 million. This reflects management's current and preliminary view, which is subject to substantial uncertainty. This concludes our prepared remarks. Operator, we would now like to open the call to questions. Operator: Thank you. We will now begin the question and answer session. To ask a question, please press 11 on your telephone and wait for your name to be announced. To withdraw your question, please press 11 again. We will now take our first question from the line of Thomas Chong at Jefferies. Please go ahead. Thomas Chong: Hi. Good evening. Thanks, management, for taking my question. My first question is about the online game business. Given our online games performed very strongly in Q3, I'm just wondering how the quarter-to-date performance is so far? In particular, when I look into the guidance, it basically implies a sequential decline. So I'm not sure if we are a bit conservative in giving out Q4 gaming guidance. And on the other hand, when I look into our portal business, when I look into the advertising side, we are actually seeing quite a sequential rebound in terms of the advertising revenue. Can Charles, may I ask about how you think about the macro sentiment coming into Q4, as well as the trend for different categories? And based on the current visibility, how should we think about the brand advertising outlook in 2026? If there's any color on that? Thank you. Huang Pu: The performance of the fourth quarter so far is in line with our expectation. The strong third quarter results are primarily driven by the successful launch of a new game, TLBB Return. Meanwhile, the new servers of TLBB Vantage also performed very well, achieving historic highs. So the actual revenue of the third quarter exceeded our expectation a lot. The performance of the fourth quarter depends mainly on the performance of new TLBB Return and the content and activities that we will launch during the first quarter for TLBB PC, Legacy TLBB Mobile, etc. Thomas Chong: Okay. So I think the Q4 rebound... Thomas, you... Is the same? Yes? Above the Q4? Yeah. Yeah. I think since the user... The whole ad base is not that big. Right? So it kind of oscillates a little bit. It depends on some, like, some, you know, a pact signed late and allocated to this quarter but went to the next quarter. Right? So it's... But we do have some... First of all, the macroeconomic situation is not that good, you know, under pressure. And different sectors like auto and IT services continue to deteriorate. But as our new innovative marketing campaigns or services are unique, we are still able to attract some advertising. So we are going against the trend and basically stabilizing the advertising revenue on a small basis. Because in Q4, we have some good events creating opportunities to advertise. Thomas Chong: I see. Thank you, Charles. May I ask a follow-up question about AI? Like, can you comment on how AI is integrated within Sohu.com right now? And are we seeing better productivity, cost savings, or enhanced advertising monetization so far? Thank you. Dr. Charles Zhang: I think AI has more impact and usefulness or improvement in productivity on the gaming business. Right? For Sohu.com, we are not developing a large language model. Instead, we are using AI to improve the user experience. Like for our social media platform, AI can summarize video content and provide subtitles. Also, in our news app, there are AI-enhanced search and question-answering features. So we are basically using AI and different models to improve our existing media and social network services, rather than investing heavily in the hardcore large language model. Yaobin Wang: The application of AI is mainly applied in art design, code generation, and game planning creation. Dr. Charles Zhang: Thank you. Operator: Thank you. We will now take our next question from Alicia Yap at Citi. Please go ahead, Alicia. Alicia Yap: Hi. Yeah. Thank you. Good evening, management. Thanks for taking my questions. I have a couple of follow-ups. First, on the gaming, can management share with us what are the biggest surprises you learned from the TLBB Return version? And which one is the bigger driver in terms of the outperformance for this quarter? Is it the TLBB Vintage new server or the new game TLBB Return? And I understand you gave out the Q4 guidance. You mentioned this reflects the current situation. I wanted to know, is the Vintage server seeing a drop-off in users, or are the new titles TLBB Returns seeing a sequential decline in users and revenue? Any color on that for Q3 and Q4 would be helpful. And then, a second question for Charles on the macro situation. I think you mentioned auto, IT services, and the ad sentiment seems to be deteriorating. Are there any industry verticals or subsectors you see either improving sentiment or it being about the same as the last few quarters? Thank you. Huang Pu: The first surprise from TLBB Return is that the user spending is beyond our expectation. Because it was positioned as a gameplay that's more relaxing and requires less time. And demand for spending is also less. So, originally, we thought the users' paying wouldn't be very good. Dr. Charles Zhang: Yeah. Huang Pu: Second, the retention is very stable, better than our expectations. As for the contribution to revenue increase of the quarter, we do not disclose the specific numbers for individual games. So far, the user base for both TLBB Return and TLBB Vintage are very steady, but their revenues are trending down. That's because TLBB Vintage performed very well in the third quarter. In the fourth quarter, we plan to roll out fewer promotional activities. For TLBB Return, as it was newly launched in the third quarter, it will experience natural decline compared to the initial launch period because users tend to have a stronger willingness to pay when the game was initially launched. Dr. Charles Zhang: Okay. So your second question is about the macro situation, the sectors? Yeah. Overall, the ad market is under pressure. For example, in the auto industry, there's fierce competition as there are too many car companies. They need to promote their brands and sales to stand out. However, the profit margins are very low for them, so the ad budgets are thinning. With this situation, we have unique campaigns like a physics class and social network distribution, allowing us to get ad budgets. The auto industry is flat but still declining. We are also looking at consumer electronics. China's manufacturing base is strong with many new products, but these need marketing for the domestic market. Our innovative offerings, such as live streaming and social media distribution, allow us to get consumer electronics advertisers. So, despite the deteriorating market situation, we can get some advertising. Huang Pu: Okay. Thank you, Charles. Operator: Thank you. I am showing no further questions. And with that, we conclude our conference call today. Thank you for your participation. You may now disconnect your lines.
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to StubHub's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference call is being recorded today, November 13, 2025. I will now turn the call over to Clinton Hooks with StubHub. Clinton Hooks: Thank you for joining us to discuss StubHub's Third quarter 2025 results. For reference, our third quarter 2025 earnings release and presentation are available under the Quarterly Results section of our Investor Relations website at investors.stubhub.com. Before we begin, please note that today's discussion will include forward-looking statements within the meaning of federal securities laws. These statements involve risks and uncertainties that could cause actual results to differ materially from our expectations. We assume no responsibility for updating these statements. Therefore, please exercise caution in relying on them. For detailed risk factors, please refer to our SEC filings. We'll also discuss certain non-GAAP measures, which we believe are useful to investors for evaluating our performance. These measures should not be considered in isolation or as substitutes for GAAP results. Full reconciliations to GAAP measures are available in our earnings release. Unless otherwise noted, our profitability and EBITDA discussions today refer to non-GAAP adjusted EBITDA. Joining me today are Eric Baker, our Founder, Chairman and Chief Executive Officer; and Connie James, our Chief Financial Officer. They will provide opening remarks, then take questions. With that, I'll turn it over to Eric. Eric Baker: Good afternoon, everyone, and thank you for joining us for our first earnings call as a public company. I want to welcome all our investors, both those who supported us throughout our private journey and those who are new to the StubHub story. We're grateful for your trust and partnership, as we embark on this next chapter together. Today, I'll focus primarily on the progress we've made in establishing StubHub as a leading live event ticketing marketplace and on our strategic initiatives. I'll then hand it over to Connie to speak to our third quarter financial performance. While we won't be providing detailed 2026 guidance on today's call, we look forward to sharing our outlook during our next earnings call in early 2026. With that said, I want to begin by stepping back and discussing the business that we have built over the last 2 decades and share the long-term vision of where we are going, one that continues to be defined by a customer-focused and relentless drive to make live entertainment accessible to everyone everywhere. The past few years have been transformative for our business. We completed the StubHub acquisition, navigated the pandemic, fully rebuilt StubHub's technology stack, restored StubHub as the clear category leader and have now entered the public market. Our thesis for the acquisition was to restore StubHub's market leadership in North America and create a unified global ticketing marketplace. Our business today is the result of the successful execution of that thesis, and we are very proud of the asset that exists as a result. Today, StubHub operates what we believe is the largest global secondary ticketing marketplace for live event tickets, selling over 40 million tickets annually across more than 200 countries and territories from over 1 million sellers all over the world. Our many years of leadership in the resale market have created brands synonymous with the category, resulting in moats around our business and durable competitive advantage through customer loyalty and trust, organic traffic and superior acquisition and conversion. We maintain what we believe is the most comprehensive operations and supply chain capabilities in our category, the largest event catalog in the world and the capability to fulfill virtually any ticket across any category, all through a single global marketplace. Our business produces a huge data asset as tens of millions of people interact with our product services on what we believe is the largest floating price marketplace for live events in the world. This data on supply, demand, pricing, user behavior, etc., provides structural advantage through differentiated product innovation, marketing optimization and pricing intelligence. Finally, this is all built on a single, modern, globally deployed technology stack, allowing us to rapidly innovate across our product surface and nimbly deploy features using new technologies, something becoming increasingly important as AI development shapes the future of digital commerce. Our business has built a rare combination of best-in-class financial attributes that create exceptional value at scale with proven durability. First, we are growing rapidly with nearly 20% GMS growth over the last 12 months. Second, our marketplace models operated with enduring economics, consistent take rates and high margins. Third, we built a profitable customer acquisition engine that allows us to grow and take market share while generating profits through our performance marketing channels. Fourth, our asset-light business model and the natural flow generated by our marketplace dynamics result in exceptional cash conversion. Fifth, we've demonstrated remarkable resilience through economic cycles, consistently growing nearly every year since inception. And finally, we operate in a large and expanding core global secondary ticketing market with durable long-term tailwinds. In addition, we have opportunities for significant TAM expansion through accessing the broader ticketing ecosystem. We believe you would be hard-pressed to find many other companies to check these boxes. That said, we are most excited about leveraging these assets to realize our vision to become the global destination for consumers to access live entertainment. We believe that buyers want one destination where they can purchase any ticket for any event in their language and currency. Sellers want to optimize revenue and attendance through broad distribution and pricing intelligence. We believe we can service these needs by building a single product that puts the world's live entertainment at fans' fingertips and services their needs throughout their entire journey. This is not something that exists in our category today. This is a product and service that can only be built by applying technology and relentless customer focus to eliminate friction around the live event experience. Technology businesses innovating on behalf of consumers have reimagined access to many products and services, information, music, video, food, but not yet for live entertainment. This is exactly what StubHub is, a business with a core competency in technology development focused on applying its expertise to revolutionize the way consumers interact with live event commerce. With this context, we can turn to some of the topics I think are top of mind regarding recent developments in our operating environment. First, we wanted to discuss some recent developments in our core resale market. Restoring StubHub's market share in North America was the key tenet of our acquisition thesis. Following our acquisition of StubHub in 2020 and the completion of the technology migration in 2022, we have consistently gained share in the North American market, transforming StubHub from a business that was roughly comparable in size to the nearest competitor in 2022 to one that is now approximately 4x larger than that same competitor based on GMS and comparable metrics. This momentum in share gains and the subsequent positive impacts of relative share we observed led us to invest in accelerating this dynamic via disciplined customer acquisition and conversion levers, specifically take rates and performance marketing, which continued in the most recent quarter. I want to highlight one specific downstream impact of this share gain, our growing share of the point-of-sale market. In our market, the point-of-sale is a software product used by power sellers to manage the listing, pricing, distribution and fulfillment of their ticket portfolios. Sellers build their operational workflows around the software infrastructure, which becomes sticky as a result, like many enterprise software products. For many years, the technology was provided by one of our competitors, whose product had the majority share of the market. We recently launched our own product called ReachPro. As our relative market share of sales volume has increased, we've seen rapid adoption of our technology. We have benefited from a powerful network effect. As our marketplace captures a larger share of sellers' sales, these sellers are increasingly willing to migrate their operations to what we believe is our far superior technology, backed by our unmatched data and insights. In the secondary market, installation of ReachPro naturally produces higher relative market share. When sellers use our tool, they tend to index their behavior around our marketplace, ensuring competitive pricing and high standards of fulfillment, leading to structural advantage and benefits for our buyers. It also provides valuable data insights, which can be used to improve the quality of our products and a strategic product development surface to launch advertising products and innovate with features that will serve large sellers even at enterprise scale. Q3 was both our largest relative market share quarter to date and the largest quarter of new seller adoption for ReachPro. We believe we have line of sight into becoming the largest provider of this product in the medium term, a durable and strategic asset created in part via our relative market share investments. This brings us to the next topic, direct issuance, which we believe will be a major innovation to original issuance ticketing distribution that will promote competition and improve the fan experience while improving economics for ticket issuers. As I mentioned earlier, we believe buyers want a single platform that offers access to all the world's live entertainment. At the same time, sellers maximize revenue and attendance by accessing the broadest possible distribution with the smartest pricing intelligence. Our strategy to unlocking this value proposition is through what we call direct issuance. Generally speaking, there are 3 seller types in the market: individuals, power sellers and enterprise sellers. StubHub and viagogo began as platforms to service individual sellers, season ticket holders, concert goers whose plans change and so on. As liquidity of the market grew, market makers developed. Power sellers selling large quantities of tickets through the marketplace on a regular basis, and we ultimately developed products such as ReachPro to allow these sellers to manage the listing, pricing and fulfillment of tickets seamlessly. For our business, direct issuance simply refers to expanding the supply side of our platform once again to allow enterprise sellers, content rights holders like teams, arts and venues to access our marketplace through a frictionless technology-enabled experience as any individual or power seller does. We believe simultaneous multichannel or open distribution using data-backed pricing intelligence is the future of ticket distribution, as it will maximize value for fans and content. To be clear, this is a very different model to legacy primary ticketing companies. Primary ticketing company's core service is to provide access control to venues. And secondarily, they provide a retail web storefront with limited or no marketing. Content today, for the most part, sells an inventory through antiquated distribution methods. They often sell tickets, expiring products that drive huge economics exclusively through these access control providers. The result is an opaque market with huge inefficiency, narrow distribution, lack of pricing intelligence and ultimately, unsold seats and tremendous value loss for content, not to mention a lack of competition leading to a terrible experience for fans. We are not competing with this model, and we are not providing access control technology. We offer something new, the ability for content to access StubHub's distribution engine through a variety of options that does not require them to switch their access control provider. We make our distribution available to content rights holders with no exclusivity requirement, broadening their distribution and empowering them with robust data insights from our scaled floating price marketplace to make informed pricing and utilization decisions. This means content rights holders can access our marketplace, distribution, data and customers, in the same way individuals and power sellers can. They can list tickets multichannel across retail outlets at whatever price points they choose to optimize their utilization and yield, and we compete to sell inventory the same we do today. We're actively making investments to grow this business and demonstrate the benefits of open distribution's content and are excited about the progress we are making. We recently signed a partnership with Major League Baseball, a great example of one of the world's premier sports properties endorsing open distribution. MLB momentum has continued, and more teams are continuing to become sellers on StubHub, several of which are doing so without any additional economic incentive or protection from us. They're selling just as any other seller on our platform does. We have also had success with the music festival category, adding Peachtree Entertainment, one of the largest independent promoters in the Southeast, and LED Presents, an independent EDM promoter on the West Coast. These promoters combined put on dozens of events attended by hundreds of thousands of fans annually. We have also continued to add talent to lead this initiative. Shaun Stewart, who spent much of his career building supply chain for travel businesses such as Expedia and Airbnb, joined as VP of Direct Issuance. Shaun will be reporting to Raj Beri, who was instrumental in building Uber Eats' APAC business and recently joined StubHub as Chief Business Officer to oversee all global supply. Direct issuance represents an addressable market opportunity well in excess of $100 billion, a transformative growth vector that we believe will drive substantial long-term growth, value creation for our business and shareholders for years to come. The other business we are in the early stages of developing is advertising, which we believe can be a large and profitable business for us, as it has been for many other marketplaces. We are pursuing 2 advertising models initially. First, sponsored listings, where sellers can bid for premier placement on event pages to dramatically increase exposure. For any given event, we may be merchandising hundreds, even thousands of tickets on our event pages. These are expiring products, meaning that sellers receive nothing if the ticket does not sell. With the sponsored listing offering, sellers can bid for higher visibility among competing inventory, improving the likelihood of a buyer seeing and ultimately purchasing their ticket. Conversations with sellers on our platform have demonstrated tremendous interest and features such as sponsored listings as an additional and powerful tool for sellers on our marketplace. As ReachPro has gained users and market share, we've also established a ready-made distribution platform for sponsored listings, as we can build access to the feature directly into ReachPro's user workflow without the heavy lift of a sales force. The second advertising model is through more traditional corporate advertising partnerships with businesses in adjacent product categories that can be additive to the customer experience. One example of this is Booking.com. Event tourism is a rapidly growing category, and we know that many of our customers are purchasing tickets for events outside of where they live. Our partnership with Booking is a great example of how we can monetize post-purchase real estate in our product to deliver a travel offering to customers. And it is also a great example of a high-quality business, recognizing the value of our customer base and paying us for access. We believe this will extend to other categories adjacent to sports, music and live event attendance. We are very excited about the potential for advertising on our platform. Of course, as with everything we do, our #1 priority is ensuring that we do not adversely impact the customer experience. Therefore, introducing advertising thoughtfully and methodically remains our focus. We recognize investors are eager for more details on direct issuance and advertising. We intend to provide a more fulsome update on the long-term opportunity on our call early next year. To close, StubHub is a business that is growing fast at scale while generating profits and cash flow. StubHub is a global category leader with the data, technology and customer focus to continue capturing share of the global ticketing market. Indeed, we are very proud of all that we have accomplished to date. However, the real goal for us is to reimagine our market to create an unprecedented experience for fans and an asset of tremendous value in the process. That is what is really exciting. With that, I'll turn the call over to Connie to discuss our financial results. Constance James: Thanks, Eric. Before I discuss our third quarter financial performance, I'd like to share our financial philosophy that guides our decision-making, and ultimately, how we look to drive long-term shareholder value. To that end, the foundation of our value creation approach rests on 3 financial principles. First, we prioritize driving sustainable market share growth by strategically investing in our marketplace ecosystem. Second, we are committed to long-term margin expansion through operational discipline and the natural leverage in our marketplace model. Third, we focus relentlessly on cash flow generation. Our business model efficiently converts adjusted EBITDA into free cash flow, providing us the financial flexibility to reinvest in the business and optimize our capital structure. With that context, let's turn to our third quarter results, beginning with our key marketplace metrics, gross merchandise sales, or GMS. GMS represents the total economic value flowing through our platform and directly drives the network effects that make StubHub increasingly valuable to both buyers and sellers. Our GMS reached $2.4 billion in the third quarter, representing 11% growth from the prior year period. This performance demonstrates the fundamental strength of our marketplace even as we navigated the anticipated impact of the federally mandated all-in pricing in the United States earlier this year. As expected, the transition has reduced conversion rates as customers adjusted to the new pricing format. Based on our internal estimates previously disclosed, we believe the implementation of all-in pricing had an estimated 10% one-time impact on the size of the North American secondary ticketing market. We expect this transition effect will continue to influence year-over-year comparisons through May 2026 as we cycle through the full 12-month period following the May 2025 implementation date. Even with this temporary growth headwind, our results demonstrate the resilience of our business model and our ability to continue to gain market share in this dynamic environment. Beyond the impact of all-in pricing, we believe our GMS growth reflects a more fundamental trend, sustained share gains across the North America secondary ticketing market, where we continue to outpace overall market, as well as continued international expansion. When excluding the outsized impact of Taylor Swift's Eras Tour from the prior year period, our GMS grew 24% year-over-year with broad-based strength across our platform and categories. Revenue for the third quarter was $468 million, up 8% compared to last year. The performance was primarily driven by our GMS growth, offset by 2 factors worth highlighting. First, as Eric discussed earlier, we made the strategic decision to further invest in market share expansion, in part through a reduction in take rates, resulting in our revenue as a percentage of GMS declining slightly to 19% this period compared to 20% in the prior year period. This measured reduction in take rates reflects our deliberate approach to balancing near-term results with long-term market leadership. Second, we experienced a reduction in inventory revenue as we strategically phased out the use of minimum guarantees for direct issuance sellers. This move is aligned with our long-term marketplace strategy of building sustainable, scalable relationships with content rights holders. Unless otherwise noted, the following discussion of our results will be on an adjusted basis to exclude stock-based compensation and other one-time costs. Full reconciliations to GAAP figures are available in our press release. Our adjusted gross margin was 84% during the quarter, up from 82% last year. The improvement primarily reflects a reduction in ticket substitution and replacement costs. Adjusted sales and marketing expenses were $255 million or 54% of revenue compared to $221 million or 51% of revenue last year. The increase as a percentage of revenue was driven by the reduction in take rates to drive relative market share gains in the North America secondary market. Adjusted operations and support expenses were $17 million or 3.5% of revenue during the quarter compared to $16 million or 3.6% of revenue last year. Adjusted G&A was $52 million or 11% of revenue during the quarter compared to $62 million or 14% of revenue last year. As we look forward, we do anticipate a modest amount of investment in technology resources. On the profitability front, we delivered adjusted EBITDA of $67 million, representing 14% of revenue, up 21% compared to $56 million or 13% of revenue in the same period last year. Finally, I want to highlight a one-time item on the income statement. Our GAAP results for the quarter include a nonrecurring noncash expense of $1.4 billion related to stock-based compensation granted prior to our IPO. The expense was triggered by the completion of our IPO. Accounting standards require recognition of these previously granted rewards in the quarter when the IPO-related performance conditions are satisfied. To be clear, all stock-based compensation, including this one-time expense is excluded from our adjusted EBITDA calculations. Additionally, this accounting recognition has no impact on our cash flow or cash position as it represents a noncash expense. Turning to cash flow. Before diving into our performance, I want to provide some context on how we view operational cash generation in our business. Our marketplace model has inherent favorable cash flow characteristics. We collect cash from buyers at the time of purchase, but remit payments to sellers at a later date, often after the event occurs. These cash balances show up on our balance sheet as payments due to sellers. With this timing difference, we earn a yield on these proceed balances. To illustrate, on a trailing 12-month basis, you will see $41 million of interest income on our income statement. Additionally, we are asset-light with only $26 million of CapEx over the trailing 12-month period. We also benefit from over $1 billion of NOLs, resulting in minimal cash taxes in the medium term. Over the same trailing 12-month period, our cash tax amount was only $17 million. This allows us to consistently convert cash at a rate roughly 100% of our adjusted EBITDA. In relation to free cash flow, we measured on a trailing 12-month basis to reduce the lumpiness created by quarterly timing differences between when we collect cash from buyers and when we remit payments to sellers, which is impacted by seasonality and event mix. For the 12-month period ending September 30, free cash flow was $6 million, which included $120 million of net cash outflows due to the change in our payments due to buyers and sellers. This amount was impacted by an atypical concentration in seller proceed outflows occurring in the fourth quarter of '24 following the final leg of Taylor Swift's North American tour. Our trailing 12-month free cash flow also included $153 million in cash interest costs during the period. Excluding those items, we generated $279 million in free cash flow conversion of approximately 100% of TTM adjusted EBITDA. Taking a step back, I want to frame our results within the broader context of our 2025 objectives. This year, our priorities have been clear: to grow market share in North America, to expand internationally and to lay the groundwork for long-term TAM expansion through disciplined and focused investment. From the outset, we anticipated that 2025 would present a more challenging growth environment for our market. There were 2 notable, but temporary factors shaping this year's comparisons. First, we are lapping the unprecedented Taylor Swift Eras Tour; and second, the industry transitioned to all-in pricing, which took effect in May. In addition, we are lapping the historic Yankees-Dodgers World Series as well as an unusually high concentration of major on sales that occurred in last year's fourth quarter. This year, we are observing some shifts in the timing of these on sales. Several large tours that would typically go on sale in the fourth quarter occurred earlier in late September. It remains to be seen how this concert on-sale timing dynamic plays out in November and December. Even with these temporary market dynamics in 2025, we are executing well against the objectives within our control, driving strong operational performance and expanding our leading market share position. And as we look ahead to 2026, the Taylor Swift comparison will be behind us, and we will lap the implementation of all-in pricing in May. Fan demand for live events remains strong, and we're excited about what is shaping up to be another robust year for live entertainment. Let me now address our thoughts on guidance, as we navigate our early stages as a public company. We are focused on operating the business for long-term value creation. Of course, we want to provide our investors with transparency so they can track our progress and execution against our long-term goals. While we are not providing specific guidance today, we plan to share annual guidance for our 2026 expectations when we report our fourth quarter and full year 2025 results early next year. Turning to the balance sheet. Our capital structure philosophy centers on maintaining flexibility and optionality to position our business for long-term success. This approach guided our capital markets activity during the quarter, which was designed to enhance our financial strength by prioritizing a reduction in our leverage, something that will continue to be a key priority. During the quarter, we successfully executed 2 transactions that collectively raised approximately $1 billion. First, we raised $224 million through our Series O preferred equity, which will convert into common equity at the expiration of the lockup. Next, we completed our $800 million IPO, raising net proceeds of approximately $758 million after deducting underwriting discounts and commissions. The influx of capital provided us with the opportunity to significantly improve our balance sheet by reducing leverage and lowering our debt service costs while maintaining strong liquidity. Specifically, we reduced our total debt by approximately 30%, retiring $750 million of our U.S. dollar-denominated term loan, bringing our total debt down to $1.7 billion. As a result, we ended the quarter with $1.4 billion of cash and cash equivalents or $623 million, net of our payments due to sellers, and $1.1 billion of net debt. The ratio of our net debt to TTM adjusted EBITDA was 3.9x at quarter end. Importantly, the interest rates on our remaining term loans are hedged via interest rate swaps through February 2027, resulting in a fixed, blended interest rate of 5.8%. Over the last 12 months, our debt service cost between cash interest and required amortization was $174 million. Today, our annual debt service requirement is $99 million, a reduction of $75 million, or 43%. Given the excess cash amounts we are holding, we intend to make additional debt repayments in the near term, which will reduce this cost even further. We also increased our revolver capacity by $440 million during the quarter from $125 million to $565 million, expanding our available liquidity and ability to respond quickly to any short-term capital need. Our strengthened balance sheet not only supports disciplined growth, but also reduces the interest burden, directly enhancing free cash flow generation. This creates a virtuous cycle that enables continued disciplined investment in organic growth and further deleveraging, both of which remain central to our capital allocation priorities in the near and intermediate term. With that, we will now open the call to Q&A. Operator? Operator: [Operator Instructions] And our first question comes from the line of Doug Anmuth with JPMorgan. Constance James: Eric, during 2025, you've made some substantial investments in core resale market share and also direct issuance. Can you just talk about the returns you're seeing on those 2 areas of spending and whether you expect those to continue in '26? And then, I know there's some noise as Eric mentioned in the 4Q on sales versus last year, but just curious on the thought process in not providing a 4Q guide in that you're halfway through the quarter. Eric Baker: Sure. Thanks for the question, Doug. Appreciate it. So I think you had a few things in there in terms of what we've been doing with market share investment, how we think about that and how we think about the outlook for the business. Again, I think as we said in our opening remarks, we take a long-term approach, so we are not providing guidance, and we'll be talking about 2026 when we're on our next call. But with that being said, let me address some of the things that you brought up. So first is, as you noted and as we talked about, we had a real focus this year in investing to take market share and to do that in a very systematic way. And we've been extremely pleased with the results. I think we can see in this quarter that has just passed that, that has continued to pace. Our relative market share, I think, as I said, is about 4x. And I think everyone can see what has happened out there in the market in a great way. I think what's exciting about that, again, is that we're really creating permanent advantages in terms of how people are situated. One of the things I mentioned at the opening was around the point-of-sale system. And we've seen that what we've deployed in the point-of-sale system has rapidly been taking share ahead of schedule, moving us into a dominant position, which obviously feeds the data that we have, feeds the -- we get increased durable share as people use the POS to operate their business, and it provides a great backbone for our advertising business and sponsored listings. So we're very excited about all of that. I think Connie addressed, as we go and we look forward from where we sit, there's an extremely strong market for live events. It's as strong as ever. I think Connie addressed their shifts in terms of when on sales may happen. But as we look at it, everything is going at pace. Operator: And our next question comes from the line of Eric Sheridan with Goldman Sachs. Eric Sheridan: As we turn the page on 2025, curious how you're thinking about aligning marketing investments over the medium to long term? And what signals you're getting in terms of the receptivity to marketing investments to continue to grow the user base across all the array of offerings and products you're bringing to the market? Eric Baker: Great. Eric, thank you for the question. And I think some of that echoes what I also would follow up. And I think as Doug asked about some of the various investments, and I talked about market share, and we're seeing great traction and durability in that as we sort of see the flywheel is working, I think the other thing which we've talked about is, obviously, we're very excited about our direct issuance business. And what that for us really means open distribution. And to sort of recap what that is, is we really view it as, look, our mission backing up is that for fans. We want to give them easy access to the events they want to go to so they can access those live events and get there in a very easy, delightful fashion. We also want to assist content in making sure tickets don't go unsold, seats don't go empty, and they can maximize their revenue. And that's a real pressing issue for people. I think even Live Nation on their most recent call mentioned that 98% of their events do not sell out. And there's tons of tickets, obviously, don't sell. Sports has a similar dynamic, where they're trying to fill arenas. And so I think this ties into the direct issuance initiative, and to your question, which is that we have seen a tremendous receptivity, which is that in order to solve this issue that rights owners have in order to try and increase their revenue, increase throughput, get people into the arenas, they see the wealth of data and distribution we have, that has sort of led to, obviously, Major League Baseball, where we're seeing great receptivity from the teams. We talked about the festival channel, where we signed up Peachtree and LED, and we've been doing a great job with that. Tying that back to your question in terms of some of the marketing spend, we also talked about as we built that out, we've made the investment to prove it. And we see rights owners and people in the queue coming on board where it does not require any financial payment for them to access our open distribution. And so similar to how teams like the Dodgers have done that, when I was speaking with Shaun and Raj just last week in New York, and we were looking at the pipeline, the majority of the pipeline, as it's transitioning, does not involve any cash payment from us. And so we think this is going in an excellent direction and tracking the way we want to see it. Operator: And our next question comes from the line of Justin Post with Bank of America. Justin Post: Wondering if you could give us any visibility on the sponsored listing ad launch, when you're thinking the timing is and how quickly that could ramp? And then second, maybe talk more about the Major League Baseball deal, are you going to get direct tickets from the league? And are you seeing more productive discussions across multiple leagues? Eric Baker: Excellent. Justin, thank you for the question. Appreciate it. I think you're asking -- let me address some of the advertising generally, including sponsored listings, then I can talk about what you asked about MLB. So let's talk about advertising. And first, let me just frame it. The way we think of our opportunity in advertising is, first of all, doing things which are value-added for our consumer base to enhance that experience and doing it for other members in the ecosystem who are selling tickets. There's 2 flavors of that advertising. One is, again, where you have things like the Booking.com deal that we did, where we work with different potential partners so that post-purchase people, if you're traveling again, we have a huge international business. People travel for these events, you can book through Booking and so forth. And so that Booking has been a great proof point and a start to that. The second, which you mentioned, is sponsored listings. And so on sponsored listings, just to explain what that is, is basically that we have sellers on our platform, and these sellers are looking to sell their tickets. And as in many marketplaces, we put the ability for these people to pay to bump their listings to the top and sort of feature them. This is not reinventing the wheel. Here's what we're excited about and get to sort of why we're excited about the progress and the promise for it. We have 2 great aspects to it that are unique. One is that these people are selling a perishable item. So it expires, and then, it's not worth anything. So it's very important to get that in front of people. And most of the supply that we have on our platform is competing to try and get in front of customers. And so if you've got similarly priced supply, taking the sponsored listings avenue is very attractive to these people, and we think, will add a lot of value and be done in a way that works for the customer. The second thing I want to highlight is I talked about our point-of-sale system in terms of relative market share and how that's helped us lock people in. That creates a very easy conduit. The point of sale, again, is what these sellers are using to operate their business. So as they operate their business, as they list tickets, as they price tickets, right in that workflow, with one click, they will be able to opt for sponsored listing. This means that basically, that product is our sales force to tie in for it. So that's why we're very excited about the opportunity. What we're trying to do is make sure that we roll it out the right way for consumers, in the right way that it works smoothly for sellers. As we've said, that will be rolling out second half of Q4. We look forward to rolling that out. Lastly, real quickly, I think, Justin, you mentioned about MLB. Let me quickly just recap what is that deal, and then, I can talk about why we're excited about it and how it looks promising. What the deal is? MLB, at the corporate level, they will be taking advantage of direct issuance with tickets that they control for certain MLB events, which is exciting. They're also helping us facilitate signing additional teams, as we already work with, as people know, the Yankees, the Dodgers and others. That has already been extremely promising. We're really liking the pipeline on that. And again, as I alluded to, many of these teams are understanding they're not concerned with or focused on a payment. They see the value of open distribution inherently driving intrinsic value for them. So that's an exciting way that it ramps in a great economic situation for us. Thank you. Operator: And our next question comes from the line of Mark Mahaney with Evercore. Mark Stephen Mahaney: Eric, I just want to ask about the direct issuance market. And if you think about it in terms of low, medium, high-hanging fruit, if there's such an expression, where do you think the best opportunities are for StubHub in the next 2 to 3 years? Is it more international? Is it more U.S.? Is it more sports? Is it more live theater? Like what are the best opportunities to ramp up into this promising market? Eric Baker: Sure. Thank you, Mark. Appreciate it. Let me again say that what we are talking about doing for content is universal to all content. So when I talk -- talking with Shaun the other day, when you go in and you say, we have a solution where we can actually get you access to more data, more distribution, more people nonexclusively to help drive your revenue and fill seats, people are like, this is great. They're very receptive to it. Because remember, what content is trying to solve every day is increasing the revenue, increasing the attendance and doing that in a way that works for fans. And we -- obviously, that's what we've been doing for years and years. So it's really just about making that as easy as possible from a product and service solution. So that's a long way of saying we're seeing a very diverse pipeline across the board. There's obviously multiple sports leagues in the United States. But globally, we've said before, we worked with European soccer franchises. Festivals we work with, I cited 2, that are domestic, but there are many internationally that we're looking at working with. We talked about the increased ramp in MLB. So I think really, this is something that is attractive across the board. Let me leave you with one other thought, Mark, on this, is that another way to think about it, and we've said this, is that this is not something which is competing with primary ticketing. We are not trying to replace primary ticketing companies. You can imagine us partnering with primary ticketing companies in order to open up our distribution to them. And that being a very powerful way to access anything across the planet because, again, this is a $150 billion-plus market. So it is a huge ocean to fish in, and we're very excited about it. Operator: And our next question comes from the line of Brian Pitz with BMO Capital Markets. Brian Pitz: Maybe a broader question on how StubHub is thinking about the future of Agentic search and ticket buying. Maybe you could provide us your views on how agents will impact either future take rates or advertising revenue going forward as we are hearing more and more industry discussions around Agentic capabilities in live event ticketing? Eric Baker: Yes. No, thank you, Brian, and thank you for the question on AI, which is obviously a very exciting topic. And so let me open by just saying, in the immediate term, everything has been business as usual with consumers using the channels that they use, and that continues. That being said, as you say, and we're always thinking long term and how this works. And I'll tell you why we're excited about the opportunities and how we think it will play out. The first thing is that any time there's top-of-the-funnel ways to reach people in competitive ways with people giving you that access top of the funnel to reach people and compete, which is traditional Google search and other methods, we believe it's extremely powerful. We believe we're extremely well positioned, and what we're seeing is that when you're looking at where you send traffic and where the agent needs to go and how they need to, they're solving for the best solution for that consumer, which naturally goes back to who has that supply chain, who has the catalog, who can be relied on for the ticket, who has the best selection, et cetera. So as we build that, we see the same way it worked even in search and everything else. That's ultimately where you need to be. Now, I think over time, what we're very excited about, Brian, is there's going to be both paid and unpaid ways to take advantage of this. We think that as we see in our dialogues with many of these companies that we talk to all the time, there may be ways where there's a paid model for them to drive traffic, but again, always with a quality score and thinking that way. And there's ways that there will be unpaid as they show. But again, the key thing is that they're going to want to drive people to the best possible outcome for consumers that's going to deliver value, and that's what we're building. So we're excited about the opportunities. That's how we see it. Operator: And our next question comes from the line of Lloyd Walmsley with Mizuho. Lloyd Walmsley: You guys talked earlier about the headwind to growth from all-in pricing. And just wondering if you guys feel like you've carved some of that back already. Is it still running at sort of the low double-digit headwind rate? And do you feel like we're just -- we're sort of -- we just have to comp through it next year? And then secondly, if you could just comment on how meaningful you think World Cup could be next year? And any early indications you're seeing on that would be great. Eric Baker: Sure. Thank you for the questions, Lloyd. Let me on all-in pricing and then World Cup. And so let me straight on, I think, as we talked about before when we've discussed this and we talked about it, the all-in pricing is a 10% headwind, we believe, for 1 year. We'll lap it in May of '26, I think, as Connie said. So that is -- we don't see any deviance from that. That's what we see. That sort of is what it is. I do want to put that in context for people to understand one thing. We talk about running our business for the long term and that we're really trying to do right by the consumers and the content. And look, I want to put this in context, we also have explained to people, we lobbied for all-in pricing for multiple years. It's something that I think you can go to the SEC website, it's public record. It's not something -- and we were the only people, I think, in our sort of sector to do that. And the reason I bring that up is we did that knowing that there would be this hit. And we knew that in the short term, it's obviously arithmetic, Lloyd, it's 10%. But in the long term, it creates a much better experience for consumers, and it's going to behoove people like us who provide the best experience. Anyway, that's all on pricing. The World Cup, again, listen, we don't -- again, we're not quantifying going forward, but what -- here's what I can tell you. The World Cup has always been a tremendous event for even going back to the days of viagogo because our heritage is international. It's phenomenal in terms of resale, and it is a global event that's going to be North America with a ton of matches, which is arguably the biggest sports spectacle on planet Earth. So we are extremely excited about it and very much looking forward to it, and we'll see. Operator: And our next question comes from the line of John Blackledge with TD Cowen. John Blackledge: One question on take rates. Could you talk about take rates between the secondary market and the emerging direct issuance business? And do you expect them to be similar as the direct issuance bid scales? And secondly, just curious if you can unpack the 3Q '25 GMS growth between North America and international? Eric Baker: Thanks, John. I appreciate the question. So let me -- I believe you had a question about how do take rates, how do you think about then direct issuance and open distribution and some stuff around our international business. Let me frame some stuff and then maybe Connie will give whatever color we can as well. So I think the first thing is when we talk about the open distribution-direct issuance model, the very straightforward answer to you is the take rates are the same. As we sit here today and everything we've seen, the take rates are the same. That's just fact. I think to help understand, so I want people to understand what we're doing here and why that is, is sometimes people again say, well, doesn't a primary ticketing company have a different take rate? And again, I just want to be very clear, we're not running a primary ticketing access control system. What we're doing is providing a marketplace, providing distribution for people just like we do for fans, just like we do for power sellers, no different. That is why we are able to tell people that when they sell through us, we're charging through the marketplace in the same way. We're not charging them. So that's the answer to that question. I think in terms of U.S. international, I'll just give you in terms of high-level flavor, and we don't break it out. So that's just not to disappoint you there. International has been a rapidly growing business for us, we're very excited about. I think sometimes we don't do a good enough job of articulating to people viagogo, which obviously went on to acquire StubHub, was built internationally. We're in 200 countries. I will tell you, Asia and Latin America are particularly strong. And I will also tell you that if you listen to different event and concert schedules for 2026 and what everyone says in the industry, which we see is tours are going increasingly global, and they're increasingly in these different geographies. So we're very excited about that. Constance James: Yes. Nothing further to add, just to emphasize that international continues to be an area where we see consistent growth. We're also excited to have Raj on board, who's going to put some direct focus on international as well, which is super exciting. So great momentum across the board. Operator: And our next question comes from the line of Shweta Khajuria with Wolfe Research. Shweta Khajuria: The first one is on direct issuance. Could you please talk to how you're thinking about the number of teams that you expect to perhaps bring on onto the platform next year? And what level of visibility do you have in terms of the timeline? Anything you can comment on when do you need to sign them all by to benefit by the end of next year? So that's the first one. And the second one, any color on just the overall demand trends that you're seeing through the quarter through October and November that could help us out as to how we think about fourth quarter going forward? Eric Baker: Yes. No, Shweta, thank you for the question. I know I think in terms of -- let me talk generally, I think about. I can talk to you generally about DI and open distribution, how we think about that. And also certainly, how do we see sort of live event demand and what's going on? Obviously, as we've said, the way that we think, and we're not providing guidance at this time, and I'm sure we look forward to the next call and talking about next year then. With that context, what I would say is in direct issuance, again, the way we think about it is, again, I think to the question that Eric may have answered -- asked earlier, is that we really have this wide ocean, and it's in so many different compartments when we talk to Shaun and Raj that you've got different leagues, different festivals, different geographies. So it's very, very broad. And what we're finding is the applicability is pretty universal and that really what we need to do is have the product and service work for people the right way. What I would also tell you is that when you get the product and service done the right way, and remember, I want to make this very clear, we are not doing this where it's not exclusive to us. It's multi-listed on multiple platforms, and it fits into their workflow. It doesn't -- that means you don't have to sign up at some predetermined date. You don't have to make a long-term decision. It becomes an option that is in your workflow at any point in time to flip the switch and sell through the retail channel. That then becomes a beautiful thing because you're not bidding on RFPs years in advance and saying, I own this for X years. So that's -- thank you for asking the question. It's an important distinction. I think, in terms of just consumer demand and live events, again, and we don't -- not giving guidance and stuff, but I will take it this way, the demand for live events is phenomenal. We don't see anything with consumer demand that's any different. I think as Connie alluded to, as she spoke, we run a marketplace business and the timing of when things go on sale on the event catalog sometimes varies. And I've been doing this for 20, 25 years, my gosh. And it can move. Sometimes things go in the fourth quarter instead of first quarter, sometimes things go in the third quarter instead of the fourth quarter. That is a timing catalog question that has nothing to do with the robust demand that we see from consumers who love going to live events and continue to do so. Operator: And our next question comes from the line of Jason Helfstein with Oppenheimer. Jason Helfstein: I guess, I want to just maybe re-ask the Shweta's question just because we're getting asked this by a number of clients. So maybe, Connie, can you help us understand, I guess, how much pull forward did you see in 3Q that may kind of be affecting fourth quarter? And I guess, how meaningful is kind of the unfavorable World Series relative to last year? And then a second question that's been coming up, Ticketmaster, Live Nation, whatever, has been under increased pressure, I think, to try to rein in speculative sellers. Can you just talk about like how you manage the business around speculative selling? And just your broad thoughts about it. Is it something that like -- kind of it's something we should all be paying attention to or just in the scope of a very big business, it's just not meaningful? Constance James: Yes. Great. Thanks for the question. And happy to provide some color. As we mentioned, we knew going in to the fourth quarter that it would be a little bit of a tough comparison. We had the unique Taylor Swift comp as well as the World Series. And as I mentioned, we did see a little bit of timing shift in relation to September. To Eric's point, what we continue to focus on is the long term. We know that there can be timing shifts from time to time. What we continue to be focused on is capturing share. And in the third quarter, we were able to do just that. In fact, if you look at our market share, we were nearing 50%. So as we look at it, we think it's merely a timing issue more than anything else. And more broadly, I'd say the outlook for '26 continues to look really strong. And so if there's a little bit of timing, the good news is that we're well positioned to capture a significant portion of those on sales when they do come in. So hopefully, that gives you a little bit of color. In relation to speculative ticketing, et cetera, I'll pass it over to Eric to provide some color. Eric Baker: Yes. No, thanks for the question, Jason. I think sometimes when people talk about, I think, within speculative ticketing, there's a lot of people in the market that -- how do we make sure that we're guaranteeing people get tickets and that it happens in an authentic way. That's our business. That's what we do. So minimizing fraud and make sure these tickets get delivered. So for us, there's not -- it's business as usual and nothing to talk about there. Operator: And our final question comes from the line of Andrew Boone with Citizens. Brianna Diaz: This is Brianna on for Andrew Boone. Just can you share how users are currently interacting with the mobile app and how that may be different than on the web? And do you see an opportunity for the mobile app to evolve into a more comprehensive platform, whether that's through loyalty program or a different lever to drive better frequency and retention? Eric Baker: Thank you for the question. Appreciate it. I think the question about mobile app, on the first thing, just we don't break out for the purposes of what we report. I think though, as you allude, and I think what we are seeing and what you're sort of alluding to is that as we are getting more and more people coming back to us all the time, as we think about what we provide to make that experience easy to know who you are to -- even with these things where we're adding in things through Booking and other things to build a more complete product, that's really what we're striving to do. So as we continue to do that, we're certainly adding the building blocks for a complete product and making it easier and easier for people to know that they just have the first port of call to go to, which is StubHub, and that's what we're excited about. Thank you. Operator: And ladies and gentlemen, that concludes our question-and-answer session. I will now turn the call back over to Mr. Eric Baker for closing remarks. Eric Baker: Thank you, everyone, for joining us for our first earnings call as a public company. We very much appreciate it. As I said at the outset, both to those who have been along with us for our many-year journey and for those who are new to the story, thank you for taking the time. We look forward to speaking to you again in the future. Operator: And ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Arbe Robotics Ltd. Third Quarter 2025 Results Conference Call. All participants will be in a listen-only mode. Following management's formal presentation, instructions will be given for the Q&A session. As a reminder, this conference is being recorded. You should have all received by now the company's press release. If you have not, please check with the company's website at www.arberobotics.com or call EK Global Investor Relations. I would now like to turn the floor over to Mr. Kenny Green from EK Global Investor Relations. Mr. Green, would you like to begin? Kenny Green: Thank you, Operator. Good day to all of you, and welcome to Arbe Robotics Ltd.'s conference call to discuss the results of the third quarter of 2025. Before we begin, I would like to remind our listeners that certain information provided on this call may contain forward-looking statements, and the Safe Harbor statements outlined in today's press release also pertain to this call. If you have not received a copy of the release, please view it in the Investor Relations section of the company's website. Today, we are joined by Kobi Marenko, Arbe Robotics Ltd.'s Co-Founder and CEO, who will begin the call with a business update. Then we will turn the call over to Karine Pinto-Flomenboim, CFO, who will review the financials. Finally, we will open the call to our listeners for the question and answer session. And with that, I'd like to turn the call over to Kobi Marenko. Please go ahead. Kobi Marenko: Thank you, Kenny. Good morning, everyone, and thank you for joining us to discuss our results and recent business developments. I'll begin with an update on the most important aspect of our current activities: our strategic progress with OEMs. We are pleased with the solid strategic progress made in the third quarter. As you know, our main goal is to secure design wins with OEMs and become the radar technology provider and core enabler of their ADAS and autonomous driving programs. While it is a long process, we are moving forward and making solid progress each and every quarter. We believe that we are well-positioned and in the lead to be selected as the key enabler for an eyes-off, hands-off automated driving program for a serial retail vehicle by one of the major European OEMs in the near future, and we hope to share further information as soon as we hear. Additionally, another premium European OEM is conducting data collection for a Level 3 program using radars based on Arbe Robotics Ltd.'s chipset. We continue to make strong progress with other OEMs as well. A top Japanese OEM ordered our radar kit for its Level 4 development activities and approved the expansion of the project it initiated last year based on our chipset, including predevelopment activities. I also want to add that in terms of our highly strategic non-OEM collaborations, a global leader in artificial intelligence computing has ordered radar development kits for its full stack of autonomous driving software development, marking a strong validation from one of the most influential players shaping the future of autonomous driving technology as well as AI in general. Global economic shifts are causing some OEMs to postpone new model launches and lengthen their decision timelines for autonomous driving solutions. Despite this, Arbe Robotics Ltd.'s market position continues to grow stronger. We remain encouraged by the steady progress we have achieved throughout 2025, and as the year comes to a close. Based on what we see now, we believe we are well-positioned to secure the key European OEM program I discussed earlier in the short term and additional three program wins within the next three quarters. Our initiatives are aligned with the path to OEM selection, and we continue to expect that Arbe Robotics Ltd.'s radar technology will serve as a key enabler for 2028 passenger vehicle platforms. We expect the initial revenues will begin in 2027 with a ramp-up in 2028 as our chipsets are used in high-volume production. Thanks to our strong balance sheet, we delivered $52 million in net cash, and we have the runway to support all programs as our revenue reaches the ramp-up stage. With regard to our focus on non-automotive projects, we are seeing increasing global demand in the defense sector. We are currently supplying radar systems for defense pilot programs and evaluation projects. Last quarter, we announced a new defense client. In addition, in the third quarter, we expanded into the maritime domain since our Tier 1 supplier for non-automotive applications announced an order from Watches for radar systems powered by our chipset. These systems will support collision prevention for boats in all weather and lighting conditions. Boating represents another promising new vertical for our radar technology. During the quarter, we won two prestigious automotive technology industry awards: the JUST Auto Excellence Award for leading technology in the perception category and the Auto Tech Breakthrough Award for sensor technology solution of the year 2025. Both awards are proof of Arbe Robotics Ltd.'s contribution to the automotive industry and leading technological advantages, which are bringing unparalleled safety for drivers and advancing ADAS and autonomous driving. Before closing, I want to welcome Chris Van den Elzen to our Board of Directors. Chris brings over thirty years of experience in the automotive industry, working with both OEMs and Tier 1s as former Vice President of Magna International and Executive Vice President of Veoneer, and brings us strong business experience and deep technological expertise, and I'm sure he will be a very valuable asset. In closing, Arbe Robotics Ltd. is well-positioned to benefit from current industry trends as the market transitions to high-resolution radar. Now I would like to turn it over to our CFO, Karine, to go over the financials. Karine Pinto-Flomenboim: Thank you, Kobi, and hello, everyone. Let me review our financial results for the third quarter of 2025 in more detail. Revenue for the third quarter of 2025 totaled $300,000 compared to $100,000 in Q3 2024. As of September 30, 2025, backlog stood at $200,000. Gross profit for Q3 2025 was negative $200,000 compared to negative $300,000 in the same period last year. The improved change in profitability related to revenue mix. Turning to operating expenses, total operating expenses for Q3 2025 were $11.3 million, down from $12.2 million in Q3 2024. The decrease in operating expenses was primarily due to lower share-based compensation expenses resulting from the full vesting of prior grants and to the reduced volume of new grants, which was the result of new grants being in the form of bonus liability. The decrease in operating expenses was partially offset by an unfavorable foreign exchange impact and higher labor costs. Operating loss for the third quarter of 2025 was $11.5 million compared to a $12.4 million loss in 2024. Adjusted EBITDA, a non-GAAP measurement, which excludes expenses for non-cash share-based compensation and for non-recurring items, was a loss of $9.2 million in 2025 compared to a loss of $8.2 million in 2024. We believe that this non-GAAP measurement is important in management's evaluation of our use of cash and in planning and evaluating our cash requirements for the coming period. Net loss in the third quarter of 2025 was $11 million compared to a net loss of $12.6 million in 2024. As of September 30, 2025, Arbe Robotics Ltd. held $52.6 million in cash and cash equivalents and short-term bank deposits. Turning to our outlook, while global economic shifts are leading some OEMs to delay new model launches and extend decision timelines for advanced driver assistance systems, Arbe Robotics Ltd.'s market position continues to strengthen. We are actively expanding engagements with leading OEMs, progressing through advanced RFQ stages, and building a solid foundation for large-scale adoption. Our goal remains to secure four design wins with OEMs in the coming three quarters. For 2025, revenues are expected to be in the range of $1 million to $2 million. The change to our revenue expectation reflects shifts of certain NRE programs. However, adjusted EBITDA expectations remain unchanged at a loss of $29 million to $35 million. I want to stress that Arbe Robotics Ltd. enters 2026 with a significantly strengthened balance sheet with over $52 million in net cash, supporting continued execution of our long-term strategic and growth plan. Now we will be happy to take your questions. Operator? Operator: Ladies and gentlemen, at this time, we'll begin the question and answer session. Our first question today comes from Suji Desilva from ROTH Capital. Please go ahead with your question. Suji Desilva: Hi, Kobi. Hi, Karine. First question on the guidance for four design wins. Curious if that's four separate OEMs. And second of all, the specific guidance of the next three quarters, I'm curious what's driving the near-term visibility there? Kobi Marenko: So yes, it's four different OEMs. And basically, we know that for sure there are decisions that should be taken in the next three quarters. We believe that we will be able to win at least four of them. Suji Desilva: Okay, Kobi. Very helpful. Thanks. You said at least four. Okay. And then the customer programs, do you have a sense whether these model wins or opportunities are for certain premium models or across the board platforms or mainstream? Any color on the penetration you would expect if you secure these wins will be helpful? Kobi Marenko: We believe that all of the programs will start with premium cars. But with the volumes as time goes by and the years go by, this will go to non-premium models as well. We see it from the numbers. So we're starting, of course, in very high-end. And it's going to still, it won't be in entry-level vehicles, but it will be in high-end and let's say the top cars. Suji Desilva: That's helpful, Kobi. And then last question maybe for Karine. The calendar 2025 full-year guide implies a wide Q4 range here. I'm wondering what the factors are to swing it from the low end to the high end? Karine Pinto-Flomenboim: Thanks. Sorry, can you repeat the question? Suji Desilva: Sure. Your full '25 revenue guidance of $1 million to $2 million implies a fairly wide Q4 range of outcomes. I'm wondering what might swing it to the high versus low end? Is that product shipments or revenue coming in? Any color there would be helpful. Karine Pinto-Flomenboim: Understood. So as we mentioned, we have some NRE shifts, and based on the decision that is made by our customers, the sooner the decision will be made, the sooner in Q4, then we will be able to push those NRE revenues rather than push them outside to 2026. So this is what's driving mainly the tweak between the low to the high end. Suji Desilva: Okay. Thanks, Kobi. Thanks, Karine. Operator: And our next question comes from George Gianarikas from Canaccord. Please go ahead with your question. George Gianarikas: Hi, everyone. Thank you for taking my questions. Maybe just to give us a little bit more insight into how these conversations are going with the OEMs and the puts and takes, things that are happening that you see as positive, and maybe some of the reasons you're seeing for the push out in decision making? Thank you. Kobi Marenko: So I think, first of all, I think that the dialogues are going well. And we see more and more OEMs buying radars and using them in order to collect data and to train their algorithms for full self-driving. What we see now, I think with all of the OEMs, there was at the beginning of the year, there was, I believe, decisions were postponed because they didn't know what the tariff will look like and what influence it will have. And this is what caused, I think, at least two quarters of delay. Right now, there is a clear path to decisions. And I think that from now on, we will see decisions are taken, will be taken. There is price pressure from the OEMs on every component in the system. And I think because of that, we have a huge advantage because our high-end radar is almost in the price of low-end radar today in the car, and we will be able, from the beginning, to design our system for a price that is affordable, and now we see the benefit of it. George Gianarikas: Thank you. And maybe just, I know it's early, but I'd like to understand how you think we should think about 2026 and 2027, maybe, and just sort of the way we should model the ramp in your revenue, OpEx, cash burn, just so we can have sort of a sense of a new model over the next couple of years? Thank you. Kobi Marenko: So I think '26, most of our revenues will come from non-automotive, which we see right now a great ramp-up from this business. As I mentioned, from almost every vertical that we are touching, we see orders and repeated orders from different sectors, from yachts, from small cities, all of that are bringing more and more orders, and we believe that next year we should expect a nice amount of revenues from non-automotive. The second part of it is the ramp-up of revenues from China from hiring. We still don't have the final visibility on the exact month that it will start, but we believe that we will see some revenues from common vessels in China as well. Karine Pinto-Flomenboim: Just to complete for your understanding of the OpEx, so as Kobi mentioned, next year will be non-automotive. Our current OpEx structure supports those revenues. And also going towards '27, so we assume a stable level of OpEx not increasing too much, and towards the ramp-up of the automotive, we will see a ramp-up, of course, in headcount, mainly customer base, to support this ramp-up. Kobi Marenko: Thank you. Operator: And ladies and gentlemen, with that, we'll be ending today's question and answer session. I'd like to turn the floor back over to Mr. Marenko for any closing remarks. Kobi Marenko: On behalf of the management of Arbe Robotics Ltd., I would like to thank our shareholders for your continued interest and long-term support of our business. Our employees and partners, your continued dedication is deeply appreciated. In the coming months, we will be meeting with investors and presenting at various investor conferences, which we have announced, and we hope to see some of you there. If you're interested in meeting or speaking with us, feel free to reach out to our Investor Relations team. You can contact us at investors@arberobotics.com to schedule a meeting. And with that, we end our call. Have a good day. Operator: And ladies and gentlemen, that concludes today's conference call and presentation. We do thank you for joining. You may now disconnect your lines.
Mona Qiao: Our business practices received recognition from mainstream media. In October, People's Daily online a special commentary noting that So-Young International Inc. is setting an example for the rational development of the industry through the supply operations, transparent pricing, and compliance management. We believe the industry landscape is shifting from marketing-driven to trust-driven. We will continue to uphold transparency, standardization, and inclusive access to build a service system that truly puts customers at ease. We continued to strengthen our medical aesthetic supply chain. In Q3, shipments of elasticity exceeded 59,800 units, up above 53% quarter over quarter. Due to the combined impact of seasonal factors and industry prosperity, in Q3, revenue of pulp declined by million quarter over quarter. GMV for verified medical aesthetic services was around RMB260 million, with per capita incentive GTV up 6% year over year. We continue to optimize the content recommendation and traffic distribution mechanisms to improve conversion efficiency. Looking ahead, we will continue pursuing our long-term goal of centers, expand build-out in core cities and commercial hubs while further elevating standardized and digital management to raise the bar for service delivery and user experience. We believe our durable competitive advantage comes from long-term commitment and accumulated trust. We will drive daylight medical aesthetic industry towards maturity with more measured case and more professional capabilities, creating long-term value for shareholders. Now I will hand over to our CFO, Nick Zhao, who will walk through the financial results followed by the Q&A session. Nick Zhao: Hello, this is Nick Zhao. Please note that all amounts are quoted in RMB. Please also refer to our earnings release for detailed information on our comparative financial performances. On a year-over-year basis, total revenues during the quarter were RMB386 million, up 4% year over year, primarily due to our business expansion of the branded aesthetic center. Aesthetic treatment services revenues reached RMB183.6 million, showing 304.6% year over year, once again exceeding the high end of our guidance. This was primarily driven by the robust business expansion of our branded aesthetic centers. Information on the reservation services revenues was RMB117.2 million, down 34.5% year over year, primarily due to a decrease in the number of medical service providers subscribing to information services on our platform. Revenues from sales of medical products and maintenance services were RMB67 million, down 25% year over year, primarily due to a decrease in order volume of Bangkok equipment. Revenues from other services were RMB18.9 million, down 67.6% year over year, primarily due to a decrease in revenues from So-Young Prime. Cost of revenues were RMB203.8 million, up 43.4% year over year, primarily due to the business expansion of our branded aesthetic centers. Within the cost of revenues, the cost of aesthetic treatment services was RMB100 million, up 333.2% year over year, primarily due to the business expansion of our branded aesthetic centers. The cost of information and reservation services was RMB12.9 million, down 44.7% year over year, in line with the decrease in revenue generated from information reservation services. The cost of medical products sold and maintenance services was RMB million, down 18.3% year over year, primarily due to a decrease in costs associated with the sales of medical equipment. The cost of other services was RMB15.2 million, down 64.6% year over year, primarily due to a decrease in costs associated with So-Young Prime. Total operating expenses were RMB255.6 million, up 13.6% year over year. Sales and marketing expenses were RMB130.7 million, up 13.8% year over year, primarily due to the increase in expenses associated with the branding and user acquisition activities for our aesthetic centers. G&A expenses were RMB88.6 million, up 26.7% year over year and 12.4% quarter over quarter, primarily due to the one-time accrual of approximately RMB5.8 million year-end bonuses, and the business expansion of our branded aesthetic centers. R&D expenses were RMB36.3 million, down 9.6% year over year and up 16.5% quarter over quarter. The year-over-year decrease was primarily due to improved staff efficiency, while the sequential increase was due to the one-time accrual of approximately RMB3.6 million year-end bonuses, and continued investment in Miracle Laser products, particularly in clinical trials. Income tax expenses were RMB1.1 million compared with RMB2.1 million in the same period of 2024. Net loss attributable to So-Young International Inc. was RMB64.3 million compared with a net income attributable to So-Young International Inc. of RMB20.5 million during the same period last year. Non-GAAP net loss attributable to So-Young International Inc. was RMB61.6 million compared with non-GAAP net income attributable to So-Young International Inc. of RMB22.2 million during the same period of 2024. Basic and diluted losses per ADS attributable to ordinary shareholders were RMB0.64 and RMB0.64, respectively, compared with basic and diluted earnings per ADS attributable to ordinary shareholders of RMB0.2 and RMB0.2, respectively, during the same period of 2024. As of September 30, 2025, our cash and cash equivalents, restricted cash, term deposits, and short-term investments were RMB942.8 million, primarily due to an increase in investment in branded aesthetic centers. Looking ahead to 2025, we expect Treatment Services revenues to be between RMB216 million and RMB226 million, representing a 165.8% to 178.1% increase from the same period in 2024. This outlook reflects our confidence in the strong growth momentum of our branded aesthetic center business. As we near the 50-center milestone, we have also seen continued improvement in center-level profitability and operating cash flow, demonstrating our model's scalability and operational efficiency. Going forward, we will pursue disciplined expansion while maintaining our focus on operational excellence and cost optimization to drive sustainable and quality growth. These efforts will reinforce the financial resilience of our aesthetic center business and create enduring value for our shareholders. This concludes our key remarks. I will now turn over the call to the operator and open the call for Q&A. Thank you. Operator: We will now begin the question and answer session. The first question comes from Hai Jingpang with Citec Securities. Please go ahead. Hai Jingpang: So, okay, let me briefly translate myself. Thank you for taking my question. This is He Jin Kai from Citi Securities. So first of all, congratulations on the company's continued rapid expansion of the chain clinics. So could you share more about the open plans for next year, including your regional strategy and expected pace for the new clinic openings by quarter? Thank you. Mona Qiao: By 2025, we will reach 50 centers. Our goal is to lay a solid foundation focusing on customer acquisition efficiency and growing the user base. As the business scales, we will enter a new stage of development, relying more on digitalization and AI capabilities to replicate service processes. This will drive breakthroughs in the bottlenecks the industry often faces, providing support for a broader build-out in the following stage. The number of new centers to be opened next year will remain consistent with previous plans and will not be less than thirty-five. We will keep the overall pace of center opening balanced, progressing on a quarterly basis to ensure every new center quickly enters the operational phase following its establishment. Our focus will remain on fourth-tier cities since they have strong demand and high repurchase rate potential, which will help us quickly build up regional density and amplify brand equity. At the same time, we will also systematically establish a presence in second-tier cities with a mature consumer base to validate our model and gain experience for long-term expansion. Thank you. The next question comes from Stacey Chen with Haitong International. Please go ahead. Stacey Chen: I will check with myself. First of all, congratulations to the management for achieving such rapid growth even during the off-season quarter. I noted that you have renewed the core member data this quarter. So could you explain more about the membership system for the aesthetic center business and how we conduct the membership operations? Thank you. Mona Qiao: The membership system is core to our aesthetic center's operations. Each time a user completes a visit, a record is created, which helps us build a clear, tiered membership from level one to eight and identify high-value users with more committed and ongoing engagement. Level three and above are defined as core members. They have higher center visit frequency and greater flexibility to select additional services, with annual spending 2.5 times higher than the average, making them the growth driver for the aesthetic center. During Q3, they contributed a high double-digit percentage of our aesthetic center business revenue with a repurchase rate of nearly 30%. We provide tiered benefits and service touchpoints based on individual user consumption patterns, which ensures they continuously perceive brand value and receive positive reinforcement for their boosting repeat purchase rates. In Q3, our membership operations made solid progress. Users with verified visits increased by nearly 40,000, 36% quarter over quarter, including over 10,000 new core members, up 40% quarter over quarter. Additionally, we have also enhanced repeat customer value operations. Specifically, repeat customer revenue reached RMB120 million in Q3, up 32% quarter over quarter, accounting for 65% of aesthetic treatment service revenues. Verified treatment leases from repeat customers surged over four times year over year to 50,000, while ARPU also increased. These metrics exceeded our targets. Going forward, we will continue to focus on the conversion of highly active users and extending the life cycle of high-value users. Thank you. The next question comes from Nelson Cheung with Citi. Please go ahead. Nelson, is your line muted? Nelson, do you want to check if your line is muted? We will move on to James Wong with GS Securities. Please go ahead, James. James Wong: And my question for the company is how is the Miracle PLA version 3.0 starting since its September launch? And what is new compared to the previous version? And what is the plan for promoting it? Mona Qiao: PLA version 3 was an important upgrade on the supply chain. In China's medical specialty market, PLA is still mostly used as an injectable for shaping. Before launching, we conducted research in South Korea and found that practitioners adopt a more standardized and safer bolster technique. After multiple rounds of testing, we launched Sutiem. In terms of products, its ultra MicroSphere comes with five key features, including ultra smooth, ultra solid, ultra fine, ultra pure, and ultra active across safety, results, and longevity. These features make each product the best fit for single use. Moreover, with its overall performance upgraded, Miracle PLA version 3 is also more competitively priced, offering consumers a high-quality, yet value-for-money experience. Regarding the promotion, we made upgrades based on the market's landscape and user pain points. To capture user mindshare, we adopted Sutiem, a miracle more suitable for skin boosters, and introduced the concept of ultra micro CS to take the lead in the segment. We also released two versions, Miracle PLLA version 3 and version 3 Pro, to address different users' needs and budgets, thereby lowering the decision threshold for users. The first batch of 5,000 units was fully sold out within a short time. The massive restock is expected in late November. We will continue to drive market penetration rates for Miracle PLLA version 3, converting users more efficiently and increasing ARPU and user loyalty. Market feedback shows that Miracle PLA version 3 is receiving high attention. We implemented an online purchase limit of one per purchase per user. From this purchase, we can see that about 56% of users paid the promotion price at RMB4,999, reflecting the trust we placed in our blockbuster product. In the next year or two, the PLA that we have been working on upstream is expected to receive approval for launch, which should reduce procurement costs by several times. Overall, Miracle PLA version 3 is not just a product upgrade. It is an important part of supply chain construction and blockbuster strategy. We will adopt the same approach for future categories. We will continue to deepen the vertical integration of our supply chain, further enhance safety, and continuously convert manufacturers into long-term supply partners. Simultaneously, we will leverage our growth stage in marketing products, doctors, and channels to build differentiated areas and solidify our brand moat. Thank you. The next question comes from Nelson Cheung with Citi. Please go ahead. Nelson Cheung: Congratulations on the solid quarter. With the expanding aesthetic center count, how do we ensure the safety and compliance of the entire chain system? And how does the internal quality control mechanism work? Thank you. Mona Qiao: This is our top priority. We have built a six-pillar compliance framework covering compliance, risk control, supervision, internal audit, medical service delivery, and information security departments, and we will continue to make this framework more refined and systematic. We adhere to high standards and resources. On the treatment side, we only offer three mature medical aesthetic treatments with clear mechanisms and solid user feedback to avoid potential risks. On the personnel side, we implement rigorous doctor's qualification assessments with an acceptance rate of around ten percent. All doctors are also required to complete pre-employment training and regular emergency drills to ensure the highest professional service and emergency response capabilities. In medical service delivery, we implement tiered diagnosis that matches treatments with doctors based on their qualification levels. We conduct regular online and offline sessions as part of our control, ensuring reliable medical service across all centers. If there is any user feedback or dispute, we handle it at headquarters with a crisis response team composed of key departments, including user experience, PR, GR, and legal. Currently, our average response time is under two hours, with issue resolution completed within two days. The compliance rate is below 1%. Going forward, we will continue to uphold the highest standards of safety and compliance. With digital and AI tools, we aim to maintain high-quality control efficiency and ensure consistent medical service quality and user safety across all centers as the business continues to grow rapidly. Thank you. The next question comes from Jenny Xu with CICC. Please go ahead. Let me repeat it in English. So how does the management view the potential for improving the profitability of the aesthetic center business in the future? Thank you. We believe it is paramount to demonstrate our user base spending, the improvements of operating profit as it scales. As the operating model gradually matures, we are confident profitability will improve. On the cost side, we continue to optimize the structure of our customer acquisition channels, including referrals from existing customers and both public and private domain traffic, continuously consolidating our advantage in customer acquisition costs. In addition, there is significant room to lower the consumable cost. For instance, we recently upgraded Miracle PLLA from version two to version three. As the new product gains volume, it will strengthen our bargaining power with upstream partners and further optimize our cost framework. In the future, with the gradual realization of digitalization, AI, and economies of scale, the fixed cost in data operations will be fully diluted. On the revenue side, as users increasingly prioritize resource and professionalism, they are willing to spend on premium treatments. Coupled with high-quality medical aesthetic products, leveraging our robust strategy, business volume has gradually concentrated on a number of SKUs with the value share of blockbuster products increasing. The top nine products contributed over 30% of revenue in Q3. This lays a solid foundation to further improve our margins through proprietary customized products. Once the number of aesthetic centers and verified treatment visits reach the center level, we will focus on enhancing LTV of core members, further driving profit margin. Therefore, we believe there is great potential for the profitability of the aesthetic center business to increase from its current base. Thank you, operator. The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.
Operator: Hello, ladies and gentlemen, and thank you for standing by for JinkoSolar Holding Co., Ltd. Second and Third Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After management's prepared remarks, there will be a question and answer session. As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Stella Wang. JinkoSolar's Investor Relations. Please proceed, Stella. Stella Wang: Thank you, operator. Thank you, everyone, for joining us today for JinkoSolar's second and third quarter 2025 earnings conference call. The company's results were released earlier today and are available on the company's IR website at www.jinkosolar.com as well as on newswire services. We have also provided a supplemental presentation for today's earnings call, which can also be found on the IR website. On the call today from JinkoSolar are Mr. Li Xiande, Chairman and CEO of JinkoSolar Holding Co., Ltd., Mr. Gener Miao, Chief Marketing Officer of JinkoSolar Holding Co., Ltd., and Mr. Charlie Cao, CFO of JinkoSolar Holding Co., Ltd. Mr. Li will discuss JinkoSolar's business operations and company highlights, followed by Mr. Miao, who will talk about the sales and marketing, and Mr. Cao will go through the financials. They will all be available to answer your questions during the Q&A session that follows. Please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our future results may be materially different from the views expressed today. Further information regarding this and other risks is included in JinkoSolar's public filings with the Securities and Exchange Commission. JinkoSolar does not assume any obligation to update any forward-looking statements except as required under applicable law. Now it's my pleasure to introduce Mr. Li Xiande, Chairman and CEO of JinkoSolar Holdings. Mr. Li Xiande will speak in Mandarin, and I will translate his comments in English. Please go ahead, Mr. Li. Li Xiande: In the first three quarters of 2025, our global module shipments totaled 61.9 gigawatts, once again ranking number one worldwide. Driven by our outstanding product performance and a strong presence in high-value overseas markets, gross margin improved sequentially for two consecutive quarters to 2.9% in the second quarter and 7.3% in the third quarter. Net loss continued to narrow sequentially. We are pleased to see that our intensive efforts devoted to storage R&D in the past two years started to bear fruit gradually. In the first three quarters, our cumulative energy storage system (ESS) shipments exceeded 3.3 gigawatt-hours, increasing significantly for two consecutive quarters. This, combined with the rising share of overseas markets, has helped the profitability of our energy storage business improve noticeably. Considering that energy storage products have the process of installation, commissioning, and acceptance, there will be a lag in revenue recognition in our financial statements. We are confident that as economies of scale accelerate and competitiveness continues to improve, our energy storage business will more than double next year. Its revenue contribution is expected to rise significantly and it serves as a key driver of our overall gross margin expansion. In the second and third quarters, we continued to keep moderate utilization rates at a reasonable level. Since the third quarter, prices of polysilicon wafers and cells have all risen, and module prices showed some upward trends. Given that bidding rules in all provinces are still in the implementation phase, central and state-owned enterprises need some time to recalculate their IRR returns and adjust their business model for any project. It is expected that demand will take some time to release. However, we have seen some positive signals in the raw material segment. Supported by rising raw material prices, module prices in overseas markets have also increased. The upgrade of the world's high-power production capacity has become important for accelerating the industry's high-quality development. This technical upgrade also meets end-task demand for high-power products to achieve more reliable investment returns. As an industry pioneer to upgrade existing telecom capacity through technology enhancements, we made steady progress in high-power products upgrade in the third quarter. We have already delivered some high-power products carrying a premium of 1 to 2 US cents per watt compared to their conventional products. As the upgrade of the third-generation products with a maximum power of 670 watts is completed, we expect the shipment proportion of high-power products to increase quarter over quarter next year, accounting for 60% or above in 2026. Since market-based electricity reform has removed the mandatory energy storage requirements, China's energy storage industry is accelerating its market-oriented development. There is an increasing gap between peak and off-peak electricity prices, and the implementation of policies such as capacity pricing and capacity compensation means independent energy storage projects in multiple provinces can achieve sound economic returns. Driven by both improving economics and global energy transition, demand is increasing in Europe, Asia Pacific, the Middle East, and Latin America. In the US, the rapid expansion of AI data centers has led to an unprecedented surge in electricity demand, straining domestic electricity supply. Solar plus storage has therefore emerged as a safer and more easily deployed solution. We expect the global demand for energy storage to experience explosive growth driven by increasing renewable energy penetration and its declining storage cost. This once again validates our strategic decision to invest in the energy storage business in line with industry trends, and it has helped us build a long-term competitive advantage. As a leading enterprise in the PV sector, we possess long-established advantages in channels, brand reputation, and customer resources, enabling us to provide a localized one-stop solar plus storage solution. On the manufacturing side, we currently have 12 gigawatt-hours of pack capacity and 5 gigawatt-hours of battery cell capacity, and continuously improve product performance through self-developed technological breakthroughs. On the market side, we focus on high-margin overseas markets, particularly utility-scale and industrial and commercial projects. Although the lead time for reserve cycles is relatively long, demand remains strong, providing stable growth momentum for the company's energy storage business. In summary, the global supply chain is recovering, so the balance between supply and demand is gradually improving. As technological upgrades accelerate the industry's high-quality development, the market share of high-power and high-value products will continue to expand and become a dominant force in market pricing. As market competition, particularly in project bidding, increasingly favors leading enterprises that demonstrate strong technological capabilities and long-term reliability, resources such as bank financing are also concentrating towards leading enterprises, further strengthening their market share. With strong technological capabilities, long-term reliability, and global diversification of our energy storage business, we are well-positioned to further strengthen our competitiveness and benefit from the industry's next upward cycle. The 15th Five-Year Plan proposed accelerating the decarbonization of both the energy supply and the consumption sectors. The National Development and Reform Commission (NDRC) and the National Energy Administration (NEA) have also recently issued guidance on promoting renewable energy integration and power system regulation, further emphasizing the critical role of energy storage in the construction of a new energy system. We expect that these measures will further strengthen the competitiveness of China's renewable energy sector and steer the industry back onto a healthy and rational development path. Looking forward to the fourth quarter and the full year, we will continue to actively respond to the industry's call for rational development by maintaining sustainable production levels and focusing on upgrading and transforming high-efficiency capacity. At the same time, we will proactively adapt to changes in overseas policies to ensure sustainable supply for our customers. We will keep strengthening our competitive advantages in technology and global operations, achieving a balance between scale and profitability while consolidating our industry-leading position. We expect total shipments, including solar modules, cells, and wafers, to be between 85 gigawatts to 100 gigawatts for the full year of 2025, and ESS shipments to be 6 gigawatt-hours for the full year of 2025. Gener Miao: Total shipments were 21.5 gigawatts in the third quarter, with module shipments up 9.93%. By the end of the third quarter, we became the first module manufacturer in the industry to achieve cumulative global module shipments of 370 gigawatts, with total cumulative shipments of the Titanium Series surpassing 200 gigawatts, the best-selling module series in history. In terms of geographic mix, in the third quarter, we focused on higher-value overseas markets, with shipments accounting for over 65%, achieving strong growth in Asia Pacific, emerging markets, and Europe. Shipments to the US were nearly 1.3 gigawatts, doubling against the backdrop of electricity market reform. Customer demand for high-power products continues to rise. Our high-power Titanium 3.0 series, with its high bifaciality rate of 85% and excellent low-light performance, can generate stable electricity during long, dark, and cloudy weather, effectively extending power generation hours. At the same time, in a market environment with increasing volatility in electricity prices, the outstanding power generation performance of Titanium 3.0 enables more power generation during peak price periods in the morning and evening, creating higher yield and more reliable returns for clients. According to our outdoor field test data, in Chengdu, China, under low-light conditions such as dawn and dusk, Titanium achieves a 7.2% gain compared to PERC products. And in Kagoshima, Japan, Titanium shows a 10.79% gain over PERC products in low-light conditions. In the third quarter, we delivered some high-power products that carried a 1 to 2 US cents premium compared to conventional products. We expect that our highest power, the Titanium 3.0 product with max 670 watts, will be produced on a large scale next year, further strengthening our competitiveness on the product side. We once again topped the PV Tech 2025 module test and reliability report with a triple-A rating, thanks to our solid operational capability, outstanding technological innovation, and strong recognition from global customers. As one of the few enterprises to continuously maintain top-tier creditworthiness and technological strength in the global PV industry, in the latest release of the BNEF energy storage tier-one list for Q4 2025, we were recognized as a tier-one energy storage provider for the seventh consecutive quarter. Our continuous efforts in sustainable development have also earned international recognition repeatedly. In the recent MSCI ESG, we were upgraded to an A rating, maintaining our position in the top tier of ESG performers in the global PV industry. Additionally, our S&P CSA score continued to improve from 2024, rising significantly to 78, far ahead of the industry. On the demand side, we expect the global PV demand to slightly contract in 2026. In China, due to the improvement, implementation of policy reform 136, the pace of carrying out the 15th Five-Year Plan, as well as industry self-discipline and anti-evolution measures, demand is expected to slightly decrease year over year in 2026. Markets outside China are generally expected to remain healthy. In the mid to long term, the urgent power demand from AI data centers, combined with most countries' commitment to reduce carbon emissions, will drive growth in the global deployment of clean energy and new grid infrastructure over the next three to five years. The Information Office of the State Council recently released the white paper on China's action on carbon peaking and carbon neutrality, which emphasizes that energy storage is a key support for building a new type of power system and an adequate base for actively developing the renewable energy plus energy storage solution. In the United States, we are already seeing some tech giants deploying co-located or nearby solar plus storage at their data centers to meet rapidly growing electricity needs. We believe renewable energy plus energy storage has become an inevitable and accelerating trend. We remain optimistic about our long-term prospects in the US market. Although trade policies impose certain constraints on the manufacturing side, we have taken proactive measures and made early strategic deployments, adjusting our manufacturing and supply chain in response to policy changes to provide US customers with long-term stable and reliable solutions. We are confident that leveraging our advantage in technology innovation, high-power products, and global network, we can continue to satisfy our global clients' demand for clean, safe, high-efficiency, and reliable integrated solar and storage solutions. We will also continue to improve our competitiveness in global markets. Charlie Cao: Thank you, Gener. We are pleased that our focus on high-performance products and high-value markets, as well as our efforts in cost and expenses control, have delivered steadily improved financial results. Gross profit margin turned positive in the second quarter and continued to improve by 4.4 percentage points in the third quarter. Net loss and adjusted net loss narrowed sequentially for two consecutive quarters. Operating cash flow was $340 million in the third quarter, improving significantly quarter over quarter. Operating cash flow is expected to be positive for the full year 2025. Moving to the details in the third quarter, total revenue was $2.27 billion, down 10% sequentially and 34% year over year. The sequential decrease was mainly due to a decrease in solar module shipments, and the year-over-year decrease was primarily due to a decrease in the average selling price of solar modules. Gross margin was 7.3%. The sequential improvement was mainly due to a lower unit cost of products sold, and the year-over-year decrease was mainly due to a decrease in ASP of solar modules. Total operating expenses were $363 million, up 36% sequentially and down 32% year over year. The sequential increase was due to an increase in the impairment of long-lived assets, while the year-over-year decrease was mainly due to a decrease in shipping costs as our solar module shipments decreased and the average freight rate declined during the third quarter this year. Total operating expenses accounted for 16% of total revenues, compared to 10.6% in the second quarter and 15.4% in the third quarter last year. Operating loss margin was 8.7%, compared with an operating loss margin of 10.7% in the second quarter this year and an operating profit margin of 0.3% in the second quarter last year. Moving to the balance sheet, at the end of the third quarter, our cash and cash equivalents were $3.3 billion, compared with $3.4 billion at the end of the second quarter and $3.2 billion at the end of 2024. Days sales outstanding were 105 days, compared with 97 days in the second quarter. Inventory turnover days were 90 days, compared with 66 days in the second quarter this year. At the end of the third quarter, total debt was $6.4 billion, compared to $6.7 billion at the end of the second quarter. Net debt was $3.1 billion, compared with $3.3 billion at the end of the second quarter this year. Debt conditions improved sequentially. Let me go into more details of the second quarter. Total revenue was $2.51 billion, up 30% sequentially and down 25% year over year. The sequential increase was primarily due to an increase in solar module shipments, while the year-over-year decrease was mainly due to a decrease in ASP of solar modules. Gross margin was 2.9%. The sequential improvement was mainly due to a lower unit cost of products sold, while the year-over-year decrease was mainly due to a decrease in ASP of modules. Total operating expenses were $266 million, down 24% sequentially and 15% year over year. The sequential decrease was mainly due to the reduced expected credit loss expense in the second quarter, while the year-over-year decrease was mainly due to a decrease in the impairment of long-lived assets, reduced expected credit loss expenses, and decreased shipping costs as the average freight rate declined during the second quarter this year. Total operating expenses accounted for 10.6% of total revenues, compared to 18.1% in the first quarter of 2025 and 16.9% in the second quarter of 2024. Operating loss margin was 7.7%, compared to 20.7% in the first quarter this year and 4.7% in the second quarter last year. Moving to the balance sheet, at the end of the second quarter, our cash and cash equivalents were $3.4 billion, compared with $3.77 billion at the end of the first quarter this year and $1.9 billion at the end of the second quarter last year. Days sales outstanding were 97 days, compared with 111 days in the first quarter this year. Inventory turnover days were 66 days, compared to 84 days in the first quarter. Our operating efficiency is improving. At the end of the second quarter, total debt was $6.7 billion, compared to $6.4 billion at the end of the first quarter. Net debt was $3.3 billion, compared to $2.6 billion at the end of the first quarter this year. Stella Wang: This concludes our prepared remarks. Charlie Cao: We are now happy to take your questions. Operator, please proceed. Operator: Thank you. If you wish to ask a question, please press 1 on your telephone, and wait for your name to be announced. If you wish to cancel your request, please press 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Philip Shen with ROTH Capital Partners. Philip Shen: Hi, everyone. Thank you for taking my questions. First one is on your gross margins. Can you share some color on what you see as the difference between yours and Canadian Solar? They reported recently 15%. You guys have Q3 gross margins at about 7%. And what was the main driver you think for that underperformance? And then can you provide some color on the storage and solar gross margin difference? And then finally, what do you think margins look like for Q4? Charlie Cao: Thanks, Philip. And I think compared to our peer, particularly Canadian Solar, the gross margin difference is, you know, the different revenue contribution from the energy storage business. But if you look at Jinko, you know, quarter by quarter, we did improve gross margin dramatically. It's coming from the majority, you know, the module business. But for the energy storage sectors, we did want to have a, you know, very, very positive update. I think in the prepared remarks of Chairman Li, we think, you know, our energy storage business is really for the, you know, dramatic growth in next year, 2026. And we are expecting significant revenue contributions and gross margin expansions. You know, the storage is really, you know, in supply shortage. And this year, we shipped around 6 gigawatt-hours, you know, shipments. And next year, we expect to double, at least double. And in terms of the revenue recognition, it's a little bit different because, you know, the revenue is recognized, you know, for the shipments. With the final acceptance, it's a little bit delayed one quarter to two quarters. And for the energy storage business, the gross margin is at a decent level. We expect at least 15% to 20% gross margin. And, you know, looking forward, particularly for the ESS business out of China, we target 70% to 80%, you know, ESS business next year. And in terms of revenue contribution from the energy storage business, we expect 10% to 15%. I mean, you know, the rough revenue from ESS business compared to the total revenues of Jinko next year. So it's a very, you know, we are actually, we think our business is shifting from purely module business to module plus ESS next year. Philip Shen: Great, Charlie. Thank you very much for the color. And can you share also a little bit more color on your view? You've given us some color on the storage market. You shared that next year could be six gigawatt-hours. What might the geographic shipment mix be for 2026? And how much to the US, how much to China, and then maybe Europe and others? Thanks. Charlie Cao: Yes, yes. This year is six gigawatt-hours, and next year is double, okay? That is the total volume. In terms of geographical distributions, non-China, roughly think 70% to 80%, including the United States. And in the United States, we are in discussions with a lot of potential customers and developing, and we believe, you know, step by step, we are getting more and more orders from the US. We have a strong pipeline, particularly, I think, from Europe, Latin America, and Asia Pacific. Philip Shen: Got it. Okay. Great. Thank you. Shifting over to one more question here. On the foreign entity of concern for the US, FIEC. Can you help us understand you plan to have a big business shipping US, sorry, shipping solar modules to the US. Now you plan to ship batteries also to the US. Can you help us understand how you plan to comply with foreign entity of concern requirements for the US market? Thanks. Charlie Cao: Yes. Looking for the next year, we don't believe there's a lot of negative impact from the FIEC, let's say, OVBB, you know, compliance. We do see a lot of, you know, safe harbor projects, particularly for the solar plus some storage, you know, projects. And we committed, you know, to long term, and, you know, we, I think we really shape our supply chain, you know, globally, and including, and we are exploring options for our, you know, solar module facilities in Florida. And we think, you know, from the long term, there is going to be, you know, demand for both FIEC and non-FIEC. And we are in the, you know, if there is some kind of development, particularly for, you know, transforming our solar module facilities in the United States to the long FIEC entities, and we will let the investor know. But we have been in the process of discussion with potential investors. Philip Shen: Got it. Okay. Thank you, Charlie. I'll pass it on. Operator: Your next question comes from Alan Lau with Jefferies. Alan Lau: Hello? This is Alan from Jefferies. Thanks for taking my question. So my first question is about the ESS business. I would like to know if there's any discussion with any of the AI data centers or, yeah, our hyperscaler clients. And what type of demand are they requiring? Like, are they more like two to four hours of proof capability compatible demand, or it's more like even longer hours of storage with five? Thank you. Charlie Cao: Yeah. We're seeing the AI-driven data center, you know, is going to put a lot of demands for the global electricity from long term. And our ESS team is in discussion with potential and pipelines, you know, for the AI data center, including the US, Europe, and including China. But it's still, you know, it's in progress, and we believe we are able to reach a significant milestone early next year. Alan Lau: I see. Clear. Thanks. So in relation to the geographical breakdown, we'd like to know if the gross margin of ESS is similar across the regions, or it should be higher in Europe or the US. Like, how do you see the margins in different regions that you operate? Charlie Cao: Oh, you mean, yes, it's margin, you know, different regions, right? Yeah. Yeah. Yeah. We, you know, it's depending on different markets. And China is still a little bit low, but I think it's recovering a little bit. You know? Yes. This is very competitive in China. Europe and the US is, you know, it's still, we think that it is still a decent gross margin. So, you know? And the Middle East is a little bit low, and I think China and the Middle East is, yes, yes. The pricing, you know, the competitiveness, and the margin is relatively low to under ratings. But we think, you know, it's still very healthy. And, you know, business and in the next two years. Alan Lau: Yep. Would like to know on the cost side of ESS because I've noticed that the upstream raw materials are all the cost of raw materials like freezing, or searching, any plans to lock in any raw materials, or how are your view on different raw materials like batteries or, like, even more upstream battery materials like lithium carbonate, etcetera. Charlie Cao: Yeah. Yeah. Yeah. We, you know, because the strong demand is a material, it's unlikely in the upper work, and firstly, we have five gigawatts, you know, and battery cell capacities. And which put us at a relative advantage. And the second one, we partner with the key materials and, you know, suppliers. And the second one, we, you know, when negotiating contracts, we did anticipate, you know, some kind of material cost, you know, upwards. So it's a combination. I think it's a little bit challenging, but we think we can manage and how to minimize the impact of the material, you know, the pricing. Alan Lau: I see. I think my next question is about the speed length. On the solar module market. So how do you see the demand growth next year for maybe both solar and ESS? What is the growth rate you see? Charlie Cao: Yes. For the demand side, we should look separately for both PV and ESS. Right? So for the PV side, I think we are in a conservative way. We are expecting more or less flat year in 2026 versus 2025. So the main reason is because China demand, you know, we believe it will have a drop compared with 2025. Which, because the weight of China demand is so high in the global demand. So even with the other markets booming or other markets' growth, we still expect the total demand of the globe in the PV industry for next year will be more or less flat year. However, when we look into the ESS, it is in a different scenario. Right? So with more and more renewable installed, the grid needs more security for the ESS contribution. Certainly, we are seeing a sharp increase for the ESS side. That's why from the ESS, we are still keeping an optimistic opinion or expectation for next year's installation. If we need to quantify that, we think it will be at least a 25% increase for the ESS year over year. Alan Lau: I see. Thanks, Gener. Like to know what type of installation in China you are looking at? Like, because there are even numbers flowing around, like, are you looking at low 200 or even below 200 gigawatts in China. Charlie Cao: I am not that conservative for China because when recently, I visited a lot of our distributors and even installers in China, in all the different provinces, I think most of them still keep an optimistic view for next year. So that having said all those, I believe that it will be around, let's say, module-wise, it will be around mid-200. Let's say, around 250. About. And if we look into the grid connection number, it should be somewhere around 23%. Right? It's yours. And I think the October and in the process to get money out of China. And after regulatory approval. And we have paid the, you know, withholding tax, and we expect to get the money by the end of this month. And very soon. And for the shareholder, you know, the shareholder returns and we commit at least $100 million a year, and we had to pay a dividend early this year. And we start we bought some shares, certain shares. And I think last quarter, you know, in the middle of this year. And after the window, you know, after earning lease and we plan to repurchase this year throughout the end of the year. Alan Lau: Is that, like how much shares have been purchased or, like, how like, will the company look to basically buy all the remaining amount in the buyback program in the remaining one month? Charlie Cao: Yes. And I think we, you know, we plan to use the right, the monetization issues and the key, you know, funding and which is available, and it's around $78 million. So we, I think, depending on how the market moves, we definitely will repurchase the shares by the end of this year. And roughly, I think, this year, you know, $100 million, and we had to go dividend, I think, $70 million. So that's our, you know, the base plan. Alan Lau: That's clear. We will send you. Yes. It's a year-over-year plan, and next year, it's roughly the same plan. Charlie Cao: I see that plan. Thank you. Thanks, Charlie. Operator: Once again, if you wish to ask a question, please press 1 on your telephone and wait for your name to be announced. Next question comes from Rajiv Chaudhri with Sensorra Capital. Rajiv Chaudhri: My first question is regarding your guidance for module shipments for the fourth quarter. It's a very big range, 18 to 33 gigawatts. And you're essentially kept to the same range that you gave for the full year back in the early part of the year. But now we are halfway through the fourth quarter. Could you help us narrow down what the range would be for Q4 for module shipments? Charlie Cao: Yeah. I think we will close to the lower end of the range. I think because of the regulatory requirement, we have to keep that range as before. But from the operational level, we believe the lower end of the range is more, let's say, realistic. Rajiv Chaudhri: I see. So related to that, what do you think the global shipments of modules would be for the industry as a whole in 2025? Charlie Cao: Well, we technically believe from the product-wise, we are looking at roughly 700 gigawatts. That's the high-level numbers we are estimating for the whole industry. Rajiv Chaudhri: And do you believe that 700 gigawatts would have been shipped out by the industry as well, or that was just the production? Charlie Cao: Well, I think it's more realized to a production closer to the production side, but because every company has slightly different ways to calculate or announce their shipment numbers. So that's why it's difficult to figure out what's the real shipment number. But production-wise, I think the number is more realistic. Rajiv Chaudhri: I see. Okay. So moving on to another relating to CapEx. Could you give us the CapEx target for 2025 and also for 2026? Charlie Cao: It's roughly 5 billion RMB this year and next year. And by next year, we didn't have any, you know, plan to, you know, expand, you know, capacity, and it's kind of upgraded to a next-generation top kind of technology. And it's going to have significant, you know, high-end, high-power output. Solar modules, as we are able to provide to our customers, you know, next year, roughly 60%. Right. We hope we go some, you know, with price premium and relatively good margin contributions. Next year, quarter over quarter, as a capacity for the high-end, you know, upgrade high-end module capacity will be released quarter by quarter. Rajiv Chaudhri: So Charlie, just to be clear, this year, the CapEx is RMB 5 billion. And next year, it will be flat at RMB 5 billion? Charlie Cao: Yeah. Roughly. Roughly. But next year is I'll talk about this year is roughly payment of outstanding, you know, amount, you know, 5 billion. And next year, we are doing the upgrade. We are doing the upgrade existing capacities and to the next high level, you know, top-down capacity. And we foresee a lot of strong demands and with higher module price and higher gross margin contributions. Rajiv Chaudhri: So you made a very interesting point that operating cash flow will be positive in 2025. It looks like you will be generating operating cash flow positive in 2026 as well. And maybe substantially higher than 2025 because the gross margin will be higher. Is that a correct assessment? Charlie Cao: Yes. That's right. That's right. And, you know, we talked about firstly, I think the catalyst is the first one is ESS storage business next year. We are looking to, you know, 10% to 15% revenue contributions from ESS with decent gross margin and positive net profit release. The second one is the module business. We have, I think, the most advanced top con, you know, upgrade capacities in the industries. And developed by ourselves for the technology, and which will roughly have 60% shipment of the modules coming from the next generation Jinko developed. Top con capacities with higher, you know, gross margins. And the second one, we think from the high-level standards in the industry, anti-evolutions, you know, taking effect step by step. And the capacity will accelerate, you know, phase out and leading by the, you know, a top of on top of that industry-leading self-discipline, you know, control production volume, and reasonable, you know, pricing based on the cost will take, you know, further, I think, enforcement. So combined together, I think the industry is reaching the low point that is recovering step by step. And we think we are getting ready for the, you know, from the market and product perspective. And the plus, are shifting solar plus ESS story and the business. So the basic funding year, we are, you know, we are confident that we are able to, you know, navigate the cycles and in turn to positive earnings. That's kind of the, you know, the best plan next year. Rajiv Chaudhri: So should we no. You talked about the premium products and the fact that they've got premium pricing. But on the cost side, will your cost for these premium products still be lower than the cost for the standard products this year? In other words, do the costs keep going down even as the price goes up? Charlie Cao: Yes. Yeah. Initially, by design, the cost is a little bit higher, but they are very, very small. You know, incremental cost. And by the way, our R&D team continues to, you know, dive into the details and to try to, you know, further improve the cost. But back to your question, I think the, you know, the high-end product cost is very, very small incremental, you know, cost increase. At the beginning. But we believe over, you know, over time, you know, our R&D team with our operational teams will continue to improve the cost. Rajiv Chaudhri: Final question, Charlie. On market share, in the past, in 2023 and '24, your global market share had gone up to somewhere between 15% to 16% of the global market. This year, it is down a little bit. I guess, because you have restrained production because of the pricing. Should we expect that your market share next year will go up again and maybe go up a lot more than 16% because the industry itself is consolidating? So and what do you think the range for next year module shipments could be? Charlie Cao: The consolidated market share after consolidation of, you know, the industry consolidation and the phase-out of capacity, the industry, you know, turns into the kind of normal situation. It's for sure, it's very good for tier-one companies. If you look at it long term, we are confident and we will continue to penetrate the market share. And next year is still, I think, you know, from the top-down approach, you know, and I think China will continue to, you know, launch, you know, implement the anti-involution policies. We don't expect significant, you know, shipments increase, you know, for the module bands. But, yes, it's a different story. Rajiv Chaudhri: I see. Okay. Thank you very much. Charlie Cao: Welcome. Operator: Your next question comes from Philip Shen with ROTH Capital Partners. Philip Shen: Hey, guys. Thanks for taking my follow-up question. One of the check-in with check back in with you on in terms of Q4 margin outlook. What kind of solar module ASP could we see in Q4? And then what kind of margin for the overall quarter that we see? Charlie Cao: We expect relatively stable Q4 versus Q3. But ESS business is contributing more revenues, and we estimate our ESS business in the fourth quarter is going to reach positive profitability levels. But the contribution is not significant, but next year is a different story. Right? We have talked about it. And for the module business, we expect, you know, relatively stable. Philip Shen: Okay. Got it. Thanks. And then can you talk about module ASPs for Q1 and Q2 of next year? And then also the trajectory for margins, you know, as you blend in more battery. Thanks. Charlie Cao: Yes. Phil, I think it's difficult to share those numbers or estimations right now because you know what is happening. It's like some of the key markets are still, you know, there are, you know, some key or some important policy is upcoming. For example, you know, the US, the guidance of the FIEC or material assistance or even upcoming 232. Which will significantly impact the market prices. Like in China, you know, there's anti-involution policies, and there's even more rumors coming out regarding the polysilicon. Even to the other part of the manufacturing value chain as well. So those changes could significantly change the market price overnight. That's why we believe it's still too early to share our estimation on the prices for next year. Philip Shen: Okay, Gener. That makes sense. You talked about the rumors on Poly. Can you give us a little bit more color on that? Thanks. Gener Miao: I don't have too much more to share based on there's a lot of rumors on the market or on the Internet. So I don't know what you're referring to. Philip Shen: Yeah. I was just you mentioned it, so I thought I would try to see if there's more color. Gener Miao: No. We are not part of the game, so I don't have too much to share with everyone. But thank you for your question. Philip Shen: Yep. No problem. Okay. Thank you, guys. I'll pass it on. Operator: Your next question comes from Brian Lee with Goldman Sachs. Tyler Bisset: Hey, guys, this is Tyler Bisset on for Brian. Thanks for taking our question. Just quick housekeeping questions. Can you share what was D&A and CapEx in Q2 and Q3? Charlie Cao: You mean the absolute number or percentage. Right? Hello? Hello? Tyler Bisset: Yeah. I'm sorry. Like, the actual number. Charlie Cao: I think it's a financial statement. You gotta check out, you know, the financial statements, the R&D, and the, you know, operating expenses and that we have disclosed quarter by quarter. So what would be your, you know, key question you want to explore? It D&A. And CapEx in February and March, like the absolute numbers. Charlie Cao: You mean the depreciation or CapEx? Tyler Bisset: Sorry. Depreciation. Alright. And then separately CapEx. Charlie Cao: Okay. Depreciation by quarter, I think, roughly, you know? And I think $300 million a quarter. And the CapEx, I think, is the first half year. We, you know, spend roughly 2 billion RMB. Operator: That is our last and 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 Elders Limited FY '25 Results Investor Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Mark Allison CEO and Managing Director. Please go ahead. Mark Allison: Thank you very much, and welcome to all for the Elders' full year results presentation for the FY '25 financial year. And thank you for joining Paul and myself for the session today. As an overview, the full year results today are solid on a year-to-year basis with EBIT up 12%, transformational projects on track, positive progress on leverage and strong cash generation. Throughout the year, Elders has demonstrated solid operational and financial resilience in the face of mixed seasonal conditions. Our diversified portfolio through its national geographic footprint and multiproduct and service offering played a key role in mitigating the dry conditions across key agricultural regions and the increased competitive activity in our retail business. Stronger activity in livestock and real estate and high financial discipline also supported the solid result. On the transformational project front, we've also made good progress on Wave 2 of our SysMod project with all states rolled out and bedded down by the end of this calendar year. We are also well progressed in the final components of this project with Wave 3, and the completion phase, Wave 4, advancing in full on time. Focusing now on the areas out of our control. The FY '25 season has been a problematic year from a seasonal viewpoint, with a drier than average and late start to the winter crop across Southern Australia, with credit to our highly diversified business model, this is offset by our agency business, our real estate services business, our financial services and our feed and processing services businesses. Rural products has seen some limitation with very dry conditions in Southern Australia and Western Australia. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline, hard-working and committed team and enduring customer anchor as the most trusted brand in Australian agriculture on an unprompted basis has remained resilient. This result is strong in safety, sustainability and cash flow with the full year outcome approaching the midpoint of the EBIT guidance range provided earlier this year. Moving now to the Delta Agribusiness acquisition, which completed on November 3. This acquisition is fully aligned with the Elders acquisition rationale that delivered Titan Ag, AIRR and many other bolt-on acquisitions to Elders, with pre-synergies EPS accretion, enhancement of our technical and AgTech expertise and offerings, strengthening of our geographical diversification, particularly in New South Wales and Northwest Victoria, South Australia and Western Australia, building on our crop protection and animal health regulatory package portfolio to drive our backward integration strategy, providing an additional platform for retail segmentation, allowing greater customer centricity and providing further coverage for our real estate and financial service offerings. Moving on to the FY '26 outlook. We are very optimistic on the broad outlook for Australian agriculture at a seasonal and commodity level with the return to average conditions. In addition, we welcome Delta Agribusiness to our portfolio as a platform for significant growth. The outlook and fundamentals for livestock remains sound, with prices for sheep and cattle forecast to be supported by strong international demand against the backdrop of tightening supply. The combination of a positive seasonal and commodity outlook also provides a great backdrop for continued growth of our -- in our real estate and financial services businesses. It's worth noting at this point that our first 6 weeks of trading for FY '26 is tracking some 30% up on last year for the same time on an apples-to-apples basis. So this is without the inclusion of Delta that's come in on November 3. Our approach for today is that I'll provide an overview of the results. Paul will go to the detail of our financial performance, and I'll then provide an update of our outlook and growth and transformational initiatives as we deliver the final year of our Fourth Eight Point Plan. With this overview, I will now commence with the FY '25 full results presentation. So if we can move along to the next slide. The approach, as you see with the -- it's worth noting in the appendix that there's further detail and transparency on sensitivities, business model, et cetera. So why it's worth looking at. So kicking off on the executive overview on the slide committed to improving our safety performance. So from a safety viewpoint, at the core backward-looking metric of lost time injuries, there have been 6 lost time injuries this year, which is an increase from last year. Quite a disappointing result, predominantly in the livestock area. And so we have been able to significant reduce -- significantly reduce injuries across our manual handling and our rural products area. But a disappointing result. We continue to aim for zero injuries to anyone. I think it is worth noting that at the start of the Eight Point Plan process, there were 34 lost time injuries. So we've made significant progress over the Fourth Eight Point Plans, and the lost time injury frequency and the total recordable injury frequency, and you can see the trend on the second slide, are significantly below equivalent industry benchmark. Moving to the next slide, just a quick snapshot of the financial performance. You can see the underlying EBIT, some 12% up on last year. Our return on capital of 11.3%, holding stable and maintained strong cash conversion and the dividend per share payout. And moving to the next slide. So Paul will clearly go into the detail on the financials. Moving to the next slide, and this is over the Eight Point Plan years. And you can see significant return as committed in Eight Point Plan 1, 2 and 3. At the beginning of -- prior to Eight Point Plan -- the Fourth Eight Point Plan, we took the decision to invest heavily in our transformational projects. And there's some $100 million of cost and capital being spent through this period in order to drive our systems modernization project, our automated wool project and also our Crop Protection formulation project. So we knew that, that would drag on our cost of capital and resources and focus through that period, but critical transformational projects that we're at the process of completing, with the formulation process complete, the automated wool project complete and with SysMod running into Wave 3 and 4, which are the final 2 waves through next year. Moving to the next slide. And some of the work we're doing across -- with our people and communities. It's worth noting, again, 186 years of Elders in Australian -- regional rural Australia and agriculture. Unprompted remain the most trusted brands throughout all of these areas and with significant activity across -- with multiple activities across the business. From a safety viewpoint, very clear focus on safety from an engagement enablement viewpoint, as you can see, quite high engagement enablement, as have been for many years, and also a very high focus on safety throughout our people. Moving to the next slide. And just a quick look at the work we do from a sustainable responsible future viewpoint. Many of you are aware of our alignment across many environment, people and community projects and the work we've done with our sustainability report. And you'll note the very strong and aligned partnership with the Royal Flying Doctors. So from our viewpoint, this is who we are. This is core to our DNA, and we'll continue to invest and be highly engaged with our communities around Australia. Moving to sustainability. And our progress against the emissions targets with the next slide. And you can see the trend towards the emission targets we've set. We'll continue to work through these. As many of you will also be aware, there's been a reviewed methodology on emissions calculations from livestock. So we're working through that. But I think the point to note is that we're well on track. And if you take the time to read the sustainability report, I think you'll be very impressed with the progress we're making right across the board in this area. Moving to the next slide. And this is really to emphasize one of the changes that we've made this year. Historically, we've been diversified by product and service, and we've talked about that in our business model, and it's in the business model that appears in the appendix of this pack. But you'll see right through the supply chain from crop protection, through the wholesale with the Elders Rural Service, Delta Agribusiness and then real estate and feed and processing, there's a very solid diversification component that comes out of the business. And if you look through all the key investment drivers, and I think Paul will comment on many of these, very strong EPS growth, diversification. The industry fundamentals are looking very good. And I think it's one of the points that you'll hear us make a few times that we're at the stage now where we've moved through our transformational projects and the big cost of capital resource investment, and we've got an outlook of positive commodity conditions and also seasonal conditions. So we feel very, very optimistic about the next 3 to 5 years as we run through all of these. And finally, just as a quick recap before we jump into the deep dive into the financials. The next slide, just to recap on Delta Agribusiness that joined the group on the 3rd of November, a great business, well run, very complementary from a geographical viewpoint, and it fills many gaps that we did have, very strong in its technical expertise, which also complements Elders significantly. We're looking at $12 million of synergies at EBIT level over a 3-year period in the original business case. Now given that the ACCC have put on a 12-month delay, we're discussing around the Delta Board on how we can fast track this with regard to backward integration given the strong foundation of Four Seasons' brands or products at the moment. So that's a very positive opportunity to fast track those synergies, targeting greater than 15% post synergies from an ROC viewpoint and very much aligned to Elders -- across our approach to the business. And as we've said a number of times, as divisions, all the divisions are stand-alone. So with that, I'll pass over to Paul to go through the financials, and then I'll come back towards the end on strategy and outlook. Paul Rossiter: Yes. Thanks, Mark, and welcome, everybody. I'll commence on Slide 14 of the pack, which summarizes progress against key financial objectives. Highlights include: double-digit growth in our agency real estate and feed and processing businesses; below inflation cost growth when adjusted for acquisition and transformation; strong momentum in SysMod, as Mark referenced, with all states now live on Wave 2 retail, and Wave 3 livestock to commence rollout in early 2026; product and geographic diversification, mitigating the impact of dry conditions in Southern states; Delta Ag acquisition to further enhance our geographic diversification from FY '26 and strengthen our technical capability in ag tech and precision agriculture; leverage to return to target in FY '26 through a renewed focus on capital allocation and client profitability. I'll now turn to Slide 15, which displays Elders' 5-year financial performance. I note the following progress from FY '24. Sales revenue increased $70.4 million, or 2.2% despite mixed seasonal conditions supported both by acquisition and organic growth. Gross margin increased 7.4%, up $47 million compared to the prior corresponding period or PCP. Comparatively, costs increased 6.2%, noting this includes the impact from acquisition and is therefore not comparable to inflation. Costs will be further discussed later in the presentation. Underlying EBIT increased $15.5 million compared to PCP, but has declined over the 5-year period, with FY '25 impacted by dry conditions. Moving to Slide 16 now, which contrasts FY '25 against PCP. In addition, this slide details the impact on key financial metrics from capital held on September 30 in preparation for the completion of the Delta Ag acquisition, which occurred on November 3. Elders has delivered a resilient result with the following highlights evident. Sales revenue, up $70.4 million despite dry conditions in some key cropping regions, which thankfully ended in June. Gross margin increased $47 million, to $684.6 million, up 7% year-on-year, with growth achieved across most products. Underlying EBIT increased $15.5 million, to $143.5 million, supported by a strong turnaround in agency services and continued growth in real estate. Return on capital was steady at 11.3%, notwithstanding the mixed seasonal conditions and systems modernization CapEx weighing on this metric as the capital outlay proceeds benefits. Improving this metric in FY '26 is a key priority. Cash conversion was broadly in line with expectations with a favorable outlook for FY '26. Net debt increased $20.5 million, to $457.3 million, excluding capital held for the Delta completion, broadly in line with sales growth and the impact of higher cattle prices. I'll discuss these key metrics further as we move through the pack. Moving to Slide 17, which displays Elders' gross margin diversification, a key defense against seasonal variability. As noted, gross margin increased $47 million, to $684.6 million, with growth across most products more than offsetting the impact on crop protection from dry conditions. The key drivers of this result include agency gross margin up $27.1 million, or 22%, following a strong recovery in livestock prices and increased cattle volumes. The outlook for agency services remains positive, driven by strong international demand for protein as well as some destocking in drier regions, limiting supply and supporting prices. Real estate services gross margin increased $22.5 million, or 27.2% with property management, residential, broadacre and commercial all improved on PCP, supported by both acquisition and organic growth. Feed and processing was another highlight with gross margin up $4.1 million or 23.8% due to productivity and efficiency benefits from the new feed mill commissioned in August 2024. Financial services gross margin increased $2.3 million, or 4.2%, supported by continued growth in our new broker model alongside improvement in the livestock warranty product. An increase in on-balance sheet lending was also achieved, partially because of the increased cattle prices. Collectively, the increase in gross margin across these products more than offset the reduced earnings from the exit of the Rural Bank exclusivity agreement in FY '24. Wholesale products delivered a steady result, notwithstanding lower crop protection sales from those dry regions. Growth in the above products significantly outweighed the negative impact from crop protection, which will be discussed further on the following slide. Moving to Slide 18, which analyzes product performance. This slide demonstrates the importance of our product and geographic diversification. The waterfall forward efficiency chart shows the extent of dry conditions, especially in South Australia and Western Victoria, which negatively impacted Elders' retail business with sales, gross margin percent and client confidence, all impacted. Fortunately, seasonal conditions improved from late June which caused for optimism for a recovery in these regions in FY '26. Turning now to Slide 19 to discuss costs, which increased $11.4 million, or 2.2% when adjusted for acquisitions and the impact of transformation. Part of this increase resulted from the inclusion of Elders Wool in base costs from transformation in FY '24, which added an additional $3 million, or 0.6% to base costs. Given this change in categorization, holding base costs below inflation was a pleasing outcome. Turning now to Slide 20 to discuss return on capital, which was steady in FY '24 despite mixed seasonal conditions. When adjusted for the impact of acquisitions and transformational projects, return on capital is 12.7%. Lifting return on capital is a priority for FY '26 through a renewed focus on capital allocation, client profitability and delivery of SysMod benefits. In terms of capital allocation, Mark will speak to the potential divestment of the Killara Feedlot in the strategy and outlook section. Moving now to Slide 21. And working capital, where we see an increase of $68 million from FY '24, mostly driven by higher cattle prices, which increased working capital in feed and processing and financial services. Resale inventory increased $12 million from FY '24, a pleasing result given the late start to winter crop in key cropping regions, which caused an uplift in carryover inventory. This carryover inventory is forecast to clear in the first half of FY '26. On to Slide 22. And cash flow, where we see an operating cash inflow of $117.9 million, a pleasing result considering the late start to winter crop, which pushed some receivables to the fourth quarter. The outlook for operating cash flow and cash conversion in FY '26 is positive with a focus on client profitability to result in some receivables being transitioned to third-party lenders away from Elders' balance sheet. I note that the physical payment of company tax for Elders Limited will recommence in 2026. We'll now move to Slide 23 to provide a detailed update on net debt and leverage. The waterfall charts display a normalized net debt and leverage position, adjusting for the benefit of capital held at balance date in preparation for the completion of Delta Ag. Breaking down the movement in net debt, we see an increase from $436.8 million at the end of FY '24, to $457.3 million at balance date, acknowledging this includes the benefit of $50 million of equity retained for flexibility in acquisitions, approximately 40% of which was deployed in FY '25. I note that the majority of net debt pertains to client receivables, which is self-liquidating in nature. Excluding receivables funded through debtor securitization, Elders' core debt is $161.9 million. Turning to leverage. We see a reduction from 3.1x at the end of FY '24, to 2.9x, normalized for Delta funds held. A return to our target range of 1.5 to 2x is forecast in FY '26 from a renewed focus on capital allocation and client profitability and increased referral of client loans to third-party lenders given trade receivables comprise almost 2/3 of net debt. I note that the return to target leverage is underpinned by but not dependent on the potential sale of Killara Feedlot. I'll now move to Slide 24, where we see significant headroom across banking covenants, noting that these calculations do not require adjustment for the capital held for the completion of Delta Ag. I also note that our bank leverage covenant excludes receivables funded through debtor securitization given their self-liquidating nature. I'll now move to Slide 25, which provides a macro overview of key growth pillars over the coming years. This slide has been included to demonstrate significant growth opportunities and focus areas over the coming years and is not meant to be exhaustive. Regarding systems modernization, Elders has now commenced the final wave of its SysMod program, which once completed, will provide Elders Rural Services with a modern technology platform in Microsoft Dynamics, which itself is evolving at pace. Delivering a return of at least 15% on the program spend is both a high priority and significant growth pillar in the coming years. The acquisition of Delta Ag represents a significant milestone for Elders, increasing points of presence and geographic diversification while enhancing Elders' technical expertise in ag tech and precision agriculture. Accelerating synergies from backward integration in crop protection and animal health are key priorities for FY '26, as Mark noted. The divisional structure is aimed at improving focus and accountability within significant business units. By way of example, real estate services gross margin has grown $45.6 million, or 77% since FY '23, but market share remains less than 5% nationally. We believe the divisional model will help accelerate growth in this and other business units. Acquisition will remain a growth pillar alongside organic growth, provided acquisition prospects meet our financial and values criteria. Finally, the new Elders' brokerage business is noted as a growth pillar, given success to date with our brokered loan book exceeding $1.3 billion from a near standing start in FY '24. Gross margin from loan brokerage has increased from $0.9 million in FY '23, to $6.1 million in FY '25 at a CAGR of 160% with our network of brokers expanded further in recent months. This concludes the financial section of the presentation. I'll pass back to Mark now, who will provide an update on strategy and outlook. Mark Allison: Thanks, Paul. And really leading off from Paul's comments on the divisional structure, just going to Slide 27 as we look at the Fourth Eight Point Plan. And historically, we've expressed the Eight Point Plan in terms of the diversification of our products and services. And we're now looking at the Eight Point Plan in terms of the 6 divisions of Elders and how that diversification across the matrix of products and services adds further to our ability to work through difficult seasonal conditions. So when you look at the -- this is the final year of the Fourth Eight Point Plan, we've had the ambition of 5% to 10% growth in EBIT and EPS through the cycles over an Eight Point Plan. Clearly, as we -- at above 15% return on capital. Clearly, as we come into a taxpaying state in the next financial year, the EPS growth ambition will need to be adjusted accordingly. But -- and we've emphasized the impact that the transformational part of our agenda over these 3 years has had from a cost of capital and resource on the business. But we're setting us up now for a very solid platform with all the transformational projects coming to a close as we go forward for the next 3 to 5 years. Going on to the next slide. And we -- our view and our move to go to a divisional structure, effective the beginning of FY '26, was really around the fact that each of these areas of the businesses had largely been run as either stand-alone or with a particular focus and emphasis through the governing Board or management team. So as we've laid them out, we've laid them out in order of supply chain, starting with Elders Crop Protection. very experienced managers right across all of the divisions. So Elders Crop Protection with Nick Fazekas. This includes our Titan Crop Protection business and our formulation businesses in Eastern Australia and Western Australia with AgriToll and Eureka. And it's a specialist crop protection business as per Nufarm, Adama, et cetera, et cetera. Then we move the next step along the supply chain to our wholesale business, with Peter Lourey. And this has -- I think you're all aware of AIRR, with multiple touch points and membership base throughout Australia for the AIRR business, and its highly efficient and effective warehouse network throughout Australia. Next, as we go to retail, we have Elders Rural Services, which has a complete offering of retail products, agency products, real estate, financial, et cetera, right across the board. And that business at the moment, since the split of divisions, I've been acting as the divisional CEO for ERS. And very shortly, we'll have an upgrade to that appointment, and we'll announce that in the next few weeks. The next business, again, Gerard Hines running Delta Agri business, very experienced and competent manager and co-founder of the business and with an excellent executive team. So the Delta Agri business doesn't have -- sorry, has a much greater focus on cropping technical service with some additional services -- products and services, but very well run, and looking forward to a period of strong growth and profitability across the board. Elders Real Estate. So Tom Russo had previously run the product of real estate before he ran the Elders network. And so we thought it was appropriate for him to take control of the separate dedicated division. The idea here is that Elders Real Estate has grown significantly, and we'll talk about the growth profile, some slides coming up. Tom is a highly experienced professional in this area, across a number of areas as well, has been the guardian of the expansion of the property management component of Elders Real Estate and also our entry into commercial real estate, which we kicked off a big time in Tasmania. So lots of growth opportunity there, highly dedicated manager and executive team and pretty exciting. And then feed and processing, that, we talked about with Andrew Talbot, another highly experienced manager with a great team. He's grown the profitability of feed and processing fivefold since the First Eight Point Plan, have done an excellent job. The record profitability of this division this year is based on a number of the investments we've made historically with feed mill, center-pivot irrigation, shading, a bunch of investments that have enhanced well [indiscernible] productivity. And it's a very, very well-run business in the portfolio. The consideration we've had with feed and processing is actually if you look across that supply chain, feed and processing is a different business to the others. And our thinking is that it's been highly successful. It's grown significantly. We've invested significant capital and got good returns as we saw with record profitability this year. But we've reflected on whether feed and processing would do much better and go to the next level with under natural ownership. And so that's the reason we're considering a divestment of the feed and processing division. And if the moons align and there's an appropriate shareholder value-creating proposition put in front of us, we'll consider it strongly. And I'll just reiterate Paul's earlier comment that our pathway to back on leverage and to a lesser extent -- well, actually, on leverage is the key metric we're thinking about, is not dependent on the divestment of feed and processing. So if the exercise comes up with options that are not to enhance the shareholder value, then obviously, we're very happy, and it's a great business and a great team to be in the Elders Group. So moving to the next slide. And if we look at the modernizing of the platform, we've talked about SysMod. We gave a commitment from a transparency viewpoint to disclose each of the cost of capital components of each of the waves as the Board approved business cases, so when it was formally approved. And we've done that. But you can see -- and if we include Wave 1, there's some $100 million to $110 million investment over this period. And this is the period in that slide that we talked about upfront, where from '22 -- FY '22, where we have had considerable transformational investment. Now with all of these investments, as we've seen with Killara on the capital investment there, there is a lag. And so the benefits of these investments are coming through now, in FY '26. And as we close off SysMod at the end of FY -- calendar FY '26, we look forward to those investments coming through into the future. And I think it's worth noting that this does really set Elders up with a contemporary platform where we can take advantage of multiple AI opportunities that historically we haven't been able to. So just looking to the next slide and running through each of the waves and the different components of the waves. That's really for information. But as I mentioned, the plan is that we'll complete these. We're still running in full on time, which I know sounds amazing for an IT project, but we're still running in full on time, and it's -- we're looking for the finish line as we run out next year. Okay. Now moving to the next couple of slides. In the next 2 slides, we've wanted to showcase a couple of products and services just to put more of a spotlight on them. And for this presentation, we picked financial services and real estate, which we had covered in the half year. But really to emphasize, in terms of the balance of our portfolio, products and services, we've now -- clearly, we've strengthened our position across the whole supply chain and real products, from Elders Crop Protection, to wholesale, to retail, all the way through and technical service. And in our portfolio, we're looking at really strengthening and rebalancing our financial services, all capital and real estate. So the characteristics of both of these services, as we look at them, and it fits nicely in our portfolio management, a high return on capital. We have a relatively low market share in both, financial services and in real estate. The brand is important. So unprompted most trusted brand in Australian -- regional, rural Australian agriculture. So the Elders brand is critical. There's excellent market outlook in both areas. And obviously, there are links to livestock outlook and general commodity outlook, but a strong outlook, and it really does help us balance the portfolio. So just a quick a quick look at financial services. And you can see, in line with Paul's comments, solid growth, replacing the Rural Bank exclusivity agreement and growing in a capital-light manner. So -- and we can go to questions on that in detail. The next slide on real estate. Very, very similar profile. And I think the gems that are probably not as obvious for everyone. One is the product -- sorry, the property management business. We have some 20,000 properties that we're managing now across Australia, which is a very solid and reliable flow for us and also our entry into the commercial real estate only in regional, rural Australia. So very, very positive platforms. And in terms of portfolio balance, a bit -- quite nuanced, and this is how we run Elders as you -- many of you are very aware. So then going to the forecast and outlook across all of the areas on the next slide with -- without going through each one of them, and [indiscernible] each one of them on the next slide. You can see our thinking is that we've had a period of difficult market conditions and significant transformational investment. We've come through that period. We've lagged benefits from the transformational investment. Right now, we're confronted with the next 3 to 5 years, we're looking at completion of the transformational projects, the commodity outlook and the seasonal outlook being average to positive and our ability to really hone in division by division to grow, to drive the capital out, as Paul mentioned, from a leverage viewpoint and to enhance the business for strong growth against the backdrop of average to good seasons. So it feels very positive. For the first 6 weeks, as I mentioned, of this trading year, FY '26, apples-with-apples. So with that, Delta included, we're up some 30% on the previous year. So very early days. But I think it does fall into the -- our thinking and how we've been talking about our outlook for FY '26 going forward. So with that, I think I'll open up for questions. So we'll just leave that slide on the screen, and we'll open up for questions. Operator: [Operator Instructions] Your first question comes from James Ferrier from Canaccord Genuity. James Ferrier: First question I wanted to ask you about was just on your view on livestock volumes in the year ahead, just in the context of the volumes that were achieved in FY '25 as a baseline, herd sizes as they stand right now. I mean everyone can see the livestock prices, but what's your view on volumes in the year ahead? Paul Rossiter: Yes. Thanks for the question, James. And it is one where there is a little bit of uncertainty going forward, I think particularly in sheep volumes. And just for those who don't know, we saw certainly higher cattle volumes in FY '25, up about 13%. Sheep volumes were down about 8.1%. So we do see that rebuild coming through SA and Western Vic, and that's likely to drag on sheep volumes into FY '26. Cattle is a little bit different just because of the geographical footprint. But it is one to watch. But what we do expect is that if volumes do taper off in sheep, we expect prices to offset because the international thematic for Australian protein remains very strong. And so we just see that price being flowing through the supply chain. James Ferrier: Yes. That makes sense. Second question, on Slide 17. We can see there that crop protection gross profit declined 9% on PCP. What was the volume of product associated with that $129 million of gross profit? Paul Rossiter: Yes, I don't have a volume number to hand, James. So I'll see if I can cover that post. But I will speak to the impact of dry conditions. So we did note a roughly $12 million impact from SA and Vic, [ Riv ] at the half. We saw that continue into the second half, mostly in Q3. We think the impact was roughly $19 million volumes. Yes, we're certainly up in Northern New South Wales, obviously down in SA and Vic, but I don't have the net numbers here. Mark Allison: I think, James, the story is on margin compression as you've seen with other businesses and the sales that we experienced particularly in the dryer areas. James Ferrier: Yes. Okay. Understood. And last one from me and probably one for Paul again. Just some thoughts on D&A, CapEx, interest and tax for the year ahead. Paul Rossiter: Yes. Look, depreciation, well, will increase given the completion of Wave 2 and the commencement of the continued amortization of SysMod CapEx. In terms of CapEx outlook, once again, in FY '26, it is dominated by SysMod. Some of Wave 4 will fall into FY '27, as you can see on the SysMod slide. So it's a bit uncertain, but we think -- I'd say, sort of $20 million to $25 million will fall from SysMod into FY '26 and perhaps another $5 million to $10 million outside of that. In terms of tax, so we will pay a small amount of tax, about $1 million following the submission of the FY '25 tax return. So it will be in February 2026, and then we'll pay effectively pay-as-you-go company tax thereafter. I think your question may be referring to the statutory tax rate, which fell in FY '25. That was pertaining to a tax credit related to prior period for R&D. So that's likely to be nonrecurring. Operator: Your next question comes from Richard Barwick from CLSA. Richard Barwick: Can I just double check, when you're talking SysMod -- and obviously, it looks like some benefits from an EBIT perspective are expected in FY '26. Are you able to put some numbers around that? And then equally, what you would see as the non-underlying OpEx impact from SysMod in '26? Paul Rossiter: Okay. So yes, thanks for the question, Richard. So in terms of benefits, the major tranche of benefits is through an uplift in retail margins. And we see that coming from better control of discounting and better categorization of clients. And just for context, a 1% uplift in retail gross margin percent is about $22 million. So 0.5% uplift there gets us fairly close to the benefits required. The other benefits we see coming from uplift in sales, and that comes from better client data over time, but probably longer dated than the retail margin benefits. In terms of non-underlying OpEx for FY '26, so if we work on roughly 60% CapEx, 40% non-underlying OpEx, over that sort of $20 million to $25 million in FY '25. Richard Barwick: Okay. And my other question is to do with the -- there's quite a sizable impairment of goodwill obviously captured within this FY '25 result. Can you just give us a little bit more background exactly what that related to, please? Paul Rossiter: Yes. So there's a couple of businesses that we impaired, both which were reported on during FY '25. So one was Currin Co, where we lost a number of agents in Victoria. The other was Esperance Rural. Yes, we had, I suppose, an unsuccessful transition post earnout. Mark Allison: I think, Richard, it's -- one of the learnings is that, as you know, we've been highly successful with our acquisition -- bolt-on acquisition template in keeping the vendors in the business. And when we do our post-implementation reviews post earnout, it's been 95% plus positive. And we've identified in the last 12 months, whether it's through tougher conditions or whatever the driver is, that the 2 years post earnout is now an area that we need to really focus on in terms of potential loss of staff as we saw with -- actually, it was longer than 2 years with Currin Co, where the vendor leaves the business, the earnout is completed. Historically, we've seen that in business as usual within ERS. And we've now established a project a couple of months ago to identify how we ensure that we don't get a repetition of that situation because it had been a very high success rate of post earnout of keeping the people. Richard Barwick: And well, I guess it's -- the obvious question is, what are the risks? I mean, obviously, you've got something in place here to try and to mitigate it, which would suggest you are a bit concerned that this could repeat with some -- because I mean you made a lot of acquisitions in the last few years. Yes, how do we think about that risk? Mark Allison: Yes. Well, I think the -- a couple of points, is that if there is -- like something in the order of 100 bolt-on acquisitions, and we've had 2 or 3 like this. Clearly, the Currin Co was a larger one. If you like a sense of Shakespearean irony, the Esperance rural supply defection was to Delta. I'm sure you enjoy that. But the -- I think the materiality of it has dropped off because we aren't pursuing the same sort of strategy on bolt-on acquisitions that we had, as you're aware, given that the rural product supply chain is pretty complete and also given that the ACCC regime is hard to unscramble to do business. The -- our sense is that, that won't be where we'll be getting our growth from. It will be more organic. But I think the issue is that post earnout, the -- and we have time. We have 2 or 3 years each time. We have to have the business as usual hooks and retentions in place for these people. Because as you know, in regional, rural Australia, the personal relationship goes a long way. Operator: Your next question comes from Ben Wedd from Macquarie. Ben Wedd: Maybe just turning to your question -- your comments around capital allocation there and particularly with the potentially moving some of the receivables into third-party lenders there. I'd just be interested in sort of, I guess, any timeframes you can give around that and how that sort of looks from an operational standpoint. Paul Rossiter: Yes. Thanks, Ben. Look, it is something -- and I think the way that I'd explain it firstly is that we are taking a return on capital approach. So where we're not seeing, I suppose, a deep relationship with clients that warrants the use of Elders' balance sheet, then we'll look to obviously do that business with the client that use third-party financiers. So we do see this as certainly something that has commenced already. It's a process that's commenced. And that will roll through FY '26 and beyond. But it won't be something that we seek to do hurriedly either. So it will be an incremental thing over a number of years with a significant start in FY '26, particularly in the fin services and seasonal finance areas. Ben Wedd: Yes. Got it. And then maybe just any comments you can sort of give us around Delta's sort of performance over the last 12 months as it might compare to Elders as well in some of those key categories like ag chem and other cropping areas. Paul Rossiter: Yes. Thanks, Ben. So I mean, just a couple of comments. I think the first thing to note is that Delta's financial year is June 30, and their footprint was very exposed to dry conditions that occurred in FY '25. So I think there are a couple of key distinctions between Delta and Elders. The other being, Elders obviously had an offset in livestock agency that doesn't exist to the same extent in Delta. Yes, so the Delta result was impacted certainly more than Elders by the dry conditions. Trading, since it started raining in July in Delta has been above -- certainly above PCP. So yes, that business is operating very well. Operator: Your next question comes from Evan Karatzas from UBS. Evan Karatzas: Maybe just to follow up on that one then, so sort of the ASIC accounts for Delta. So the EBITDA went from sort of the $53 million to $40 million. Can you sort of just give a bit more information around if you expect that original FY '24 earnings to be realized assuming, I guess, normal conditions? And then anything you can say around the synergy benefit we should expect in '26 for Delta as well? Mark Allison: Yes. I think the key point for us is that what we experienced as the turnaround from these dry conditions was outside the Delta financial year. And so that's what we've experienced ourselves. Just as a note, prior to going to the next phase on the acquisition a few months ago, we -- so Paul, myself and the Chair of the time, Ian Wilton, sat down with the Delta management team to go through their FY '25 results, just to give ourselves comfort that our proposition and thesis on the acquisition remained on track. And after the presentations, discussions, I think, Paul, it's fair to say that we felt very, very comfortable. In terms of your question on the synergies, I think it's a key point for us. We've already had meetings with the team, with [ Jarred ] and Matt and Chris and the team around the synergies. We had planned for 12-month -- sorry, a 3-year development of the -- or extraction of the $12 million synergies. Our belief is that given the timing, given the November 3 timing and the proximity to the FY '26 winter crop that we do have time to do a lot of the work that we wouldn't have been able to do if it had been in the same period the previous year. So our sense is that we can fast track those synergies and bring them through. And as you know, they're largely crop protection. They're largely providing different crop protection supply chains out of Titan into the Four Seasons brand. And with Steve Hines, the person who runs that business within Delta, there's great alignment with Nick Fazekas, who runs the overall crop protection business. So we've established the governance structure, the Board structure, et cetera, around Delta and all the divisions. And again, I feel pretty comfortable and optimistic that we will get -- we will optimize the synergies in FY '26. Evan Karatzas: Okay. And just final question. Just with the debt position, can you provide a number of -- to sort of normalize it if you remove the reduction in carryover inventory in SA, Vic and removing or transitioning some of the select client loans from Elders' balance sheet to third parties, just so we can sort of look for an adjusted or a like-for-like debt position, please? Paul Rossiter: Yes. Look, just very high level and back of envelope, I would say the carryover inventory, I've put a number of around $30 million on that, which we expect to be resolved in the first half. In terms of -- I'll put another bucket in there, Evan, in terms of overdue debtors, we think there's a $20 million to $25 million opportunity there. You may have noted that we have had a $10 million increase in 90-day plus receivables. That is 2 clients -- 2 large clients, that we expect to be resolved in FY '26. So we feel that we're at a peak in terms of overdue receivables as well. And then you've got -- in terms of client receivables or client loans, seasonal finance and loans, I've put a number of sort of around -- a target of around $50 million across financial services and seasonal finance. Evan Karatzas: Okay. That's super helpful. Maybe just a quick one, I'll just sneak it in. The 1Q comments you made, do we assume you're up 30%? Do we assume we're sort of back close to that? I think you previously mentioned, like, a through cycle 1Q average EBIT was around $37 million. Is that sort of where we're, I don't know, trending towards or run rating towards? Paul Rossiter: Yes. And I think the -- in terms of tailwinds in the business, Evan -- so I think the -- certainly, livestock prices are up relative to year-on-year. I'd say that tailwind will moderate the further we get through the financial year. Obviously, livestock prices increased throughout FY '25. But I think in terms of the Q1, it goes back a couple of years, when we gave that number, obviously noting that's not audited. But yes, it's a fair comment. Operator: Your next question comes from Paul Jensz from PAC Partners. Paul Jensz: Just one at the top, Mark, if I can. You talk about the 5% market share you have in the wider farm input space. Can you see some additions to your business or the Elders business? Or is it a case of organic growth from where you are to get a larger part of that pie? Mark Allison: Yes. Thanks, Paul. So when you say the larger rural products, are you referring to finance? Paul Jensz: Right across the board. You had a chart there with the Delta acquisition where you're a small part of a very big pie in farm inputs. and you've got the new structure that you have. I'm just wondering where to from here if you're just such a small part of the pie? Mark Allison: Okay. Yes. So that broader pie includes fuel, like all the finance, et cetera, et cetera. So a whole heap of services that we're not in. So I think our focus with -- well, I think it's -- the focus that Delta has had for a long time, will continue on, where it's a service-based customer-centric approach across the board. Delta is very small in Queensland and -- but ERS is also not that strong in Queensland. So there are geographical gaps, but it will largely be sticking to the knitting of what each of the divisions does best. And in that -- in the case of Delta, although it's got some broader offers, the focus is around that very technical rural products-based customer centricity. Paul Jensz: And that's across the broader Elders business as well, if I look at the new structure that you have? It's really just sticking to the core business? You don't see another bolt-on there? Mark Allison: No, I don't think so. I think our view is that the -- any deviations, slight deviations from where we are now, we've talked about in the Elders Real Estate business, it's around strengthening our commercial real estate in regional rural Australia area, continuing to build on our property management business, which is a really solid good business. I think in ERS, there's a lot of -- in the traditional pink-shirted DRS front end, there's a lot of efficiency. Because we've just put SysMod through ERS, they've got the front-end point of sale across all the branches across Australia. So it's really around all the efficiencies that we promised and controls. And again, customer understanding that Paul talked to in terms of data, that ERS hasn't been doing in the past. In terms of Elders Crop Protection, I think the focus will be some -- a little more on integration because the formulation businesses run stand-alone to the traditional Titan business. So we'll slowly move around integration there on systems. And then feed and processing, really, we're looking at ways of expanding efficiency with acquiring extra land with some increased backgrounding, many of the efficiency programs that we've had previously. So across each division -- and I guess it goes to the point of why having focused divisions makes so much sense. Because each of them have their own nuance, their own focus, and it allows the management teams to really drive the efficiency and profitability. Paul Jensz: Okay. And then if I -- just a second question, if I can, if I build the building blocks towards, let's say, 2027, '28 numbers that consensus have, it doesn't seem to be a lot of, I suppose, underlying organic growth if you do the SysMod 250 staff that came across with the bolt-ons, Delta and the small free kit you get from '25, some of the earnings come into '26. So I'm interested in that organic growth number because I don't think consensus has got a big number in there for it and neither do I at the moment. Mark Allison: Yes. Well, I'm not sure how the -- what the assumptions are on the models. But I do know from a -- I mean, if backward integration is organic growth, and we certainly see it that way, the backward integration opportunity for ERS still has 10-or-so percent to go of the available generic portfolio and the -- just in crop protection and in Delta, there's probably 40% to go. So I think from us doing things that we control, not relying on market conditions, there's a lot of -- and then you've got also the benefits, the lag benefits of the transformational projects. But yes, your observation is probably right, Paul. Paul Jensz: And the final one, I thought others would ask this question, Mark, but I'll do it. The press -- I love talking about management transition, Mark, and your term comes up at the end of next year. I'm interested in whether you could return fire with what the press, like, talking with management change. Mark Allison: Yes. No, I thought the comment in the Australian was relatively accurate. I said when we refreshed the Board and I stayed -- I decided to stay, I said the earliest that I'd leave would be at the end of this Eight Point Plan, so that's September next year. And that's still the case. And it's not a term in the contract. It's an ongoing contract. So basically, my position has been that as a minimum, I'll stay to the end of the Eight Point Plan. Operator: Your next question comes from John Campbell from Jefferies. John Campbell: Firstly, just for clarity, what's the dollar value of adjustments that you've made to arrive at adjusted EBIT? Paul Rossiter: So you're -- in the investor presentation, John? John Campbell: Yes. Yes, it just said $143 million, just for clarity. So I know what we're adjusting. Paul Rossiter: Okay. I might just come back offline on that. So we do have -- we've got a list in the annual report, but yes, I'll come back on that offline. John Campbell: Yes. I can see where you've got that in the accounts. I just wasn't 100% sure which is included in your adjustment calculations. But I think we've got a call on this afternoon, Paul, so we can maybe touch base then. And just Mark, around -- and you sort of touched on it, but I presume with the improving seasonal conditions in the Southern regions that impacted in FY '25, in terms of that competitive intensity in crop protection that you've been talking about, I presume you see FY '26, so that sort of level of intensity and price competition and the like abating over the course of '26? Mark Allison: Yes. I think there are probably 2 components that leads us to think that way. One of them is around the seasonal conditions, as you just mentioned. And the second one is the stabilization of COGS out of Chinese factories. So the idea of lower priced cost of goods coming into Australia and then driving market price down, that doesn't seem to be where it was. Earlier, I think 6 months ago, we were concerned that tariffs on Chinese crop protection into North America may drive dumping of product in Australia and therefore, further drive prices down. If you're caught with high-cost inventory, you're obviously going to be screwed from a margin viewpoint. But our sense is that it's stabilized. And regardless, even a stabilized normal season environment, Australia has the lowest crop protection prices for all around the world. And it's not uncommon for multinational companies to divert product from Australia to Europe because they can make so much more money out of the same active ingredient. John Campbell: Okay. So that all augurs pretty well for crop protection for '26? Mark Allison: It looks like -- yes, as I said, I think we're pretty optimistic, both commodity season and the back of the transformational projects. Operator: Your next question comes from Mark Topy from Select Equities. Mark Topy: I just wanted to ask a question around the property side, the retail, the growth and both in the gross margin and the sort of volumes and some expectation around that and maybe some breakdown between what's organic and what's been achieved by acquisition because you clearly got a very strong growth rate. Can you give us some sense of how that looks going forward now? Paul Rossiter: Yes. Thanks, Mark. So just for clarity, so that was for real estate services. Mark Topy: Yes. Paul Rossiter: Yes, yes. So look, we -- in terms of growth, we see roughly the split between acquisition and organic, about 60% acquisition in F '25, 40% organic. I do note that one of the significant benefits from the acquisition of Knight Frank was to substantially grow our commercial real estate business. It also introduced a valuations business to the group as well. So when we think about real estate growth, it is across residential properties under management, broadacre, commercial and now valuations. So there's a few strings to the bow there. I'd also just make a comment in regards to broadacre. It did grow, but very fractionally in F '25, that part of the book was held back by the dry conditions in South Australia and Victoria. We do expect sort of pent-up vendor demand as those regions improve. Mark Topy: Right. Just thinking about the Tasmania market, kind of, say, how much growth opportunity do you see in that market going forward? Mark Allison: Yes. I think with Tasmania per se, I think it's -- it would be incremental growth. But I think the big benefit of that acquisition, which is the old Knight Frank business, is the commercial real estate knowledge, networks, et cetera, in the Mainland. And we're already seeing that is very, very important. So there are many contacts and insights that we didn't have on commercial real estate that we've gained from that business that is really helpful in our approach to Mainland expansion in commercial real estate. Mark Topy: Great. And just on the Delta side then, can you just talk to the systems and system harmonization in terms of what's being done in the Elders and whether any CapEx might be required if you like to harmonize Delta in line with Elders? Mark Allison: Yes. So the SysMod project is predominantly Elders'. And our approach at the end of Wave 4 when we switched off the AS400, and we're completely on Microsoft Dynamics 360 -- 365, sorry, we might have got a discount. Definitely not. So from that point forward, each of the acquisitions or each of the other divisions, whether that be AIRR, Elders Crop Protection or Delta, will be business case-based. So if there's a business case from the Delta Board around aligning, enhancing systems, then it will be treated on a return on capital business case basis. And we want to take it to business as usual because it's not just an ideological, everything has to be on the same system. This is all around return to shareholders. And all the systems that they're all operating on are fine. Mark Topy: They're all fine. Okay. I was going to say. And then in terms of -- I know you want to accelerate the Delta, but in terms of any risk areas, in terms of that integration, I noticed, for instance, they've got -- they're using different property managers. Do you perceive any sort of issues in migrating Delta across to Elders in that regard? Mark Allison: No. Well, I mean, it's all going to stay the same. So there's -- in terms of backup and stuff, which I think you're talking about. So we've got a mandatory integration. We've got a [ might ], and then there's a light touch component of it. Each of those are being developed with project teams between the businesses. So the -- our view is that it's a well-run business. It's got good management. It's got a strong Board governance to set the direction, and we'll be making the right decisions for the right reasons rather than any kind of ideological control-based decision. Of course, the mandatories around safety, financial transparency, regulatory compliance and so they're mandatories, as you'd expect. Operator: Unfortunately, that does conclude our time for questions. I'll now hand back to Mr. Allison for closing remarks. Mark Allison: Okay. Well, thank you very much to everyone. I did note that we have a couple more in the queue. So apologies to those. Paul and I have a back-to-back with all Elders staff. So 2,000 or 3,000 people will be waiting on the line for 5 minutes. So we've had to call it there. So for those that we haven't been able to talk to, we look forward to talking to you in our one-to-one sessions. But I appreciate everyone coming in, and thank you very much. Operator: 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 Elders Limited FY '25 Results Investor Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Mark Allison CEO and Managing Director. Please go ahead. Mark Allison: Thank you very much, and welcome to all for the Elders' full year results presentation for the FY '25 financial year. And thank you for joining Paul and myself for the session today. As an overview, the full year results today are solid on a year-to-year basis with EBIT up 12%, transformational projects on track, positive progress on leverage and strong cash generation. Throughout the year, Elders has demonstrated solid operational and financial resilience in the face of mixed seasonal conditions. Our diversified portfolio through its national geographic footprint and multiproduct and service offering played a key role in mitigating the dry conditions across key agricultural regions and the increased competitive activity in our retail business. Stronger activity in livestock and real estate and high financial discipline also supported the solid result. On the transformational project front, we've also made good progress on Wave 2 of our SysMod project with all states rolled out and bedded down by the end of this calendar year. We are also well progressed in the final components of this project with Wave 3, and the completion phase, Wave 4, advancing in full on time. Focusing now on the areas out of our control. The FY '25 season has been a problematic year from a seasonal viewpoint, with a drier than average and late start to the winter crop across Southern Australia, with credit to our highly diversified business model, this is offset by our agency business, our real estate services business, our financial services and our feed and processing services businesses. Rural products has seen some limitation with very dry conditions in Southern Australia and Western Australia. In this context, the performance of Elders with its clear and consistent strategy, multiple diversifications, high financial discipline, hard-working and committed team and enduring customer anchor as the most trusted brand in Australian agriculture on an unprompted basis has remained resilient. This result is strong in safety, sustainability and cash flow with the full year outcome approaching the midpoint of the EBIT guidance range provided earlier this year. Moving now to the Delta Agribusiness acquisition, which completed on November 3. This acquisition is fully aligned with the Elders acquisition rationale that delivered Titan Ag, AIRR and many other bolt-on acquisitions to Elders, with pre-synergies EPS accretion, enhancement of our technical and AgTech expertise and offerings, strengthening of our geographical diversification, particularly in New South Wales and Northwest Victoria, South Australia and Western Australia, building on our crop protection and animal health regulatory package portfolio to drive our backward integration strategy, providing an additional platform for retail segmentation, allowing greater customer centricity and providing further coverage for our real estate and financial service offerings. Moving on to the FY '26 outlook. We are very optimistic on the broad outlook for Australian agriculture at a seasonal and commodity level with the return to average conditions. In addition, we welcome Delta Agribusiness to our portfolio as a platform for significant growth. The outlook and fundamentals for livestock remains sound, with prices for sheep and cattle forecast to be supported by strong international demand against the backdrop of tightening supply. The combination of a positive seasonal and commodity outlook also provides a great backdrop for continued growth of our -- in our real estate and financial services businesses. It's worth noting at this point that our first 6 weeks of trading for FY '26 is tracking some 30% up on last year for the same time on an apples-to-apples basis. So this is without the inclusion of Delta that's come in on November 3. Our approach for today is that I'll provide an overview of the results. Paul will go to the detail of our financial performance, and I'll then provide an update of our outlook and growth and transformational initiatives as we deliver the final year of our Fourth Eight Point Plan. With this overview, I will now commence with the FY '25 full results presentation. So if we can move along to the next slide. The approach, as you see with the -- it's worth noting in the appendix that there's further detail and transparency on sensitivities, business model, et cetera. So why it's worth looking at. So kicking off on the executive overview on the slide committed to improving our safety performance. So from a safety viewpoint, at the core backward-looking metric of lost time injuries, there have been 6 lost time injuries this year, which is an increase from last year. Quite a disappointing result, predominantly in the livestock area. And so we have been able to significant reduce -- significantly reduce injuries across our manual handling and our rural products area. But a disappointing result. We continue to aim for zero injuries to anyone. I think it is worth noting that at the start of the Eight Point Plan process, there were 34 lost time injuries. So we've made significant progress over the Fourth Eight Point Plans, and the lost time injury frequency and the total recordable injury frequency, and you can see the trend on the second slide, are significantly below equivalent industry benchmark. Moving to the next slide, just a quick snapshot of the financial performance. You can see the underlying EBIT, some 12% up on last year. Our return on capital of 11.3%, holding stable and maintained strong cash conversion and the dividend per share payout. And moving to the next slide. So Paul will clearly go into the detail on the financials. Moving to the next slide, and this is over the Eight Point Plan years. And you can see significant return as committed in Eight Point Plan 1, 2 and 3. At the beginning of -- prior to Eight Point Plan -- the Fourth Eight Point Plan, we took the decision to invest heavily in our transformational projects. And there's some $100 million of cost and capital being spent through this period in order to drive our systems modernization project, our automated wool project and also our Crop Protection formulation project. So we knew that, that would drag on our cost of capital and resources and focus through that period, but critical transformational projects that we're at the process of completing, with the formulation process complete, the automated wool project complete and with SysMod running into Wave 3 and 4, which are the final 2 waves through next year. Moving to the next slide. And some of the work we're doing across -- with our people and communities. It's worth noting, again, 186 years of Elders in Australian -- regional rural Australia and agriculture. Unprompted remain the most trusted brands throughout all of these areas and with significant activity across -- with multiple activities across the business. From a safety viewpoint, very clear focus on safety from an engagement enablement viewpoint, as you can see, quite high engagement enablement, as have been for many years, and also a very high focus on safety throughout our people. Moving to the next slide. And just a quick look at the work we do from a sustainable responsible future viewpoint. Many of you are aware of our alignment across many environment, people and community projects and the work we've done with our sustainability report. And you'll note the very strong and aligned partnership with the Royal Flying Doctors. So from our viewpoint, this is who we are. This is core to our DNA, and we'll continue to invest and be highly engaged with our communities around Australia. Moving to sustainability. And our progress against the emissions targets with the next slide. And you can see the trend towards the emission targets we've set. We'll continue to work through these. As many of you will also be aware, there's been a reviewed methodology on emissions calculations from livestock. So we're working through that. But I think the point to note is that we're well on track. And if you take the time to read the sustainability report, I think you'll be very impressed with the progress we're making right across the board in this area. Moving to the next slide. And this is really to emphasize one of the changes that we've made this year. Historically, we've been diversified by product and service, and we've talked about that in our business model, and it's in the business model that appears in the appendix of this pack. But you'll see right through the supply chain from crop protection, through the wholesale with the Elders Rural Service, Delta Agribusiness and then real estate and feed and processing, there's a very solid diversification component that comes out of the business. And if you look through all the key investment drivers, and I think Paul will comment on many of these, very strong EPS growth, diversification. The industry fundamentals are looking very good. And I think it's one of the points that you'll hear us make a few times that we're at the stage now where we've moved through our transformational projects and the big cost of capital resource investment, and we've got an outlook of positive commodity conditions and also seasonal conditions. So we feel very, very optimistic about the next 3 to 5 years as we run through all of these. And finally, just as a quick recap before we jump into the deep dive into the financials. The next slide, just to recap on Delta Agribusiness that joined the group on the 3rd of November, a great business, well run, very complementary from a geographical viewpoint, and it fills many gaps that we did have, very strong in its technical expertise, which also complements Elders significantly. We're looking at $12 million of synergies at EBIT level over a 3-year period in the original business case. Now given that the ACCC have put on a 12-month delay, we're discussing around the Delta Board on how we can fast track this with regard to backward integration given the strong foundation of Four Seasons' brands or products at the moment. So that's a very positive opportunity to fast track those synergies, targeting greater than 15% post synergies from an ROC viewpoint and very much aligned to Elders -- across our approach to the business. And as we've said a number of times, as divisions, all the divisions are stand-alone. So with that, I'll pass over to Paul to go through the financials, and then I'll come back towards the end on strategy and outlook. Paul Rossiter: Yes. Thanks, Mark, and welcome, everybody. I'll commence on Slide 14 of the pack, which summarizes progress against key financial objectives. Highlights include: double-digit growth in our agency real estate and feed and processing businesses; below inflation cost growth when adjusted for acquisition and transformation; strong momentum in SysMod, as Mark referenced, with all states now live on Wave 2 retail, and Wave 3 livestock to commence rollout in early 2026; product and geographic diversification, mitigating the impact of dry conditions in Southern states; Delta Ag acquisition to further enhance our geographic diversification from FY '26 and strengthen our technical capability in ag tech and precision agriculture; leverage to return to target in FY '26 through a renewed focus on capital allocation and client profitability. I'll now turn to Slide 15, which displays Elders' 5-year financial performance. I note the following progress from FY '24. Sales revenue increased $70.4 million, or 2.2% despite mixed seasonal conditions supported both by acquisition and organic growth. Gross margin increased 7.4%, up $47 million compared to the prior corresponding period or PCP. Comparatively, costs increased 6.2%, noting this includes the impact from acquisition and is therefore not comparable to inflation. Costs will be further discussed later in the presentation. Underlying EBIT increased $15.5 million compared to PCP, but has declined over the 5-year period, with FY '25 impacted by dry conditions. Moving to Slide 16 now, which contrasts FY '25 against PCP. In addition, this slide details the impact on key financial metrics from capital held on September 30 in preparation for the completion of the Delta Ag acquisition, which occurred on November 3. Elders has delivered a resilient result with the following highlights evident. Sales revenue, up $70.4 million despite dry conditions in some key cropping regions, which thankfully ended in June. Gross margin increased $47 million, to $684.6 million, up 7% year-on-year, with growth achieved across most products. Underlying EBIT increased $15.5 million, to $143.5 million, supported by a strong turnaround in agency services and continued growth in real estate. Return on capital was steady at 11.3%, notwithstanding the mixed seasonal conditions and systems modernization CapEx weighing on this metric as the capital outlay proceeds benefits. Improving this metric in FY '26 is a key priority. Cash conversion was broadly in line with expectations with a favorable outlook for FY '26. Net debt increased $20.5 million, to $457.3 million, excluding capital held for the Delta completion, broadly in line with sales growth and the impact of higher cattle prices. I'll discuss these key metrics further as we move through the pack. Moving to Slide 17, which displays Elders' gross margin diversification, a key defense against seasonal variability. As noted, gross margin increased $47 million, to $684.6 million, with growth across most products more than offsetting the impact on crop protection from dry conditions. The key drivers of this result include agency gross margin up $27.1 million, or 22%, following a strong recovery in livestock prices and increased cattle volumes. The outlook for agency services remains positive, driven by strong international demand for protein as well as some destocking in drier regions, limiting supply and supporting prices. Real estate services gross margin increased $22.5 million, or 27.2% with property management, residential, broadacre and commercial all improved on PCP, supported by both acquisition and organic growth. Feed and processing was another highlight with gross margin up $4.1 million or 23.8% due to productivity and efficiency benefits from the new feed mill commissioned in August 2024. Financial services gross margin increased $2.3 million, or 4.2%, supported by continued growth in our new broker model alongside improvement in the livestock warranty product. An increase in on-balance sheet lending was also achieved, partially because of the increased cattle prices. Collectively, the increase in gross margin across these products more than offset the reduced earnings from the exit of the Rural Bank exclusivity agreement in FY '24. Wholesale products delivered a steady result, notwithstanding lower crop protection sales from those dry regions. Growth in the above products significantly outweighed the negative impact from crop protection, which will be discussed further on the following slide. Moving to Slide 18, which analyzes product performance. This slide demonstrates the importance of our product and geographic diversification. The waterfall forward efficiency chart shows the extent of dry conditions, especially in South Australia and Western Victoria, which negatively impacted Elders' retail business with sales, gross margin percent and client confidence, all impacted. Fortunately, seasonal conditions improved from late June which caused for optimism for a recovery in these regions in FY '26. Turning now to Slide 19 to discuss costs, which increased $11.4 million, or 2.2% when adjusted for acquisitions and the impact of transformation. Part of this increase resulted from the inclusion of Elders Wool in base costs from transformation in FY '24, which added an additional $3 million, or 0.6% to base costs. Given this change in categorization, holding base costs below inflation was a pleasing outcome. Turning now to Slide 20 to discuss return on capital, which was steady in FY '24 despite mixed seasonal conditions. When adjusted for the impact of acquisitions and transformational projects, return on capital is 12.7%. Lifting return on capital is a priority for FY '26 through a renewed focus on capital allocation, client profitability and delivery of SysMod benefits. In terms of capital allocation, Mark will speak to the potential divestment of the Killara Feedlot in the strategy and outlook section. Moving now to Slide 21. And working capital, where we see an increase of $68 million from FY '24, mostly driven by higher cattle prices, which increased working capital in feed and processing and financial services. Resale inventory increased $12 million from FY '24, a pleasing result given the late start to winter crop in key cropping regions, which caused an uplift in carryover inventory. This carryover inventory is forecast to clear in the first half of FY '26. On to Slide 22. And cash flow, where we see an operating cash inflow of $117.9 million, a pleasing result considering the late start to winter crop, which pushed some receivables to the fourth quarter. The outlook for operating cash flow and cash conversion in FY '26 is positive with a focus on client profitability to result in some receivables being transitioned to third-party lenders away from Elders' balance sheet. I note that the physical payment of company tax for Elders Limited will recommence in 2026. We'll now move to Slide 23 to provide a detailed update on net debt and leverage. The waterfall charts display a normalized net debt and leverage position, adjusting for the benefit of capital held at balance date in preparation for the completion of Delta Ag. Breaking down the movement in net debt, we see an increase from $436.8 million at the end of FY '24, to $457.3 million at balance date, acknowledging this includes the benefit of $50 million of equity retained for flexibility in acquisitions, approximately 40% of which was deployed in FY '25. I note that the majority of net debt pertains to client receivables, which is self-liquidating in nature. Excluding receivables funded through debtor securitization, Elders' core debt is $161.9 million. Turning to leverage. We see a reduction from 3.1x at the end of FY '24, to 2.9x, normalized for Delta funds held. A return to our target range of 1.5 to 2x is forecast in FY '26 from a renewed focus on capital allocation and client profitability and increased referral of client loans to third-party lenders given trade receivables comprise almost 2/3 of net debt. I note that the return to target leverage is underpinned by but not dependent on the potential sale of Killara Feedlot. I'll now move to Slide 24, where we see significant headroom across banking covenants, noting that these calculations do not require adjustment for the capital held for the completion of Delta Ag. I also note that our bank leverage covenant excludes receivables funded through debtor securitization given their self-liquidating nature. I'll now move to Slide 25, which provides a macro overview of key growth pillars over the coming years. This slide has been included to demonstrate significant growth opportunities and focus areas over the coming years and is not meant to be exhaustive. Regarding systems modernization, Elders has now commenced the final wave of its SysMod program, which once completed, will provide Elders Rural Services with a modern technology platform in Microsoft Dynamics, which itself is evolving at pace. Delivering a return of at least 15% on the program spend is both a high priority and significant growth pillar in the coming years. The acquisition of Delta Ag represents a significant milestone for Elders, increasing points of presence and geographic diversification while enhancing Elders' technical expertise in ag tech and precision agriculture. Accelerating synergies from backward integration in crop protection and animal health are key priorities for FY '26, as Mark noted. The divisional structure is aimed at improving focus and accountability within significant business units. By way of example, real estate services gross margin has grown $45.6 million, or 77% since FY '23, but market share remains less than 5% nationally. We believe the divisional model will help accelerate growth in this and other business units. Acquisition will remain a growth pillar alongside organic growth, provided acquisition prospects meet our financial and values criteria. Finally, the new Elders' brokerage business is noted as a growth pillar, given success to date with our brokered loan book exceeding $1.3 billion from a near standing start in FY '24. Gross margin from loan brokerage has increased from $0.9 million in FY '23, to $6.1 million in FY '25 at a CAGR of 160% with our network of brokers expanded further in recent months. This concludes the financial section of the presentation. I'll pass back to Mark now, who will provide an update on strategy and outlook. Mark Allison: Thanks, Paul. And really leading off from Paul's comments on the divisional structure, just going to Slide 27 as we look at the Fourth Eight Point Plan. And historically, we've expressed the Eight Point Plan in terms of the diversification of our products and services. And we're now looking at the Eight Point Plan in terms of the 6 divisions of Elders and how that diversification across the matrix of products and services adds further to our ability to work through difficult seasonal conditions. So when you look at the -- this is the final year of the Fourth Eight Point Plan, we've had the ambition of 5% to 10% growth in EBIT and EPS through the cycles over an Eight Point Plan. Clearly, as we -- at above 15% return on capital. Clearly, as we come into a taxpaying state in the next financial year, the EPS growth ambition will need to be adjusted accordingly. But -- and we've emphasized the impact that the transformational part of our agenda over these 3 years has had from a cost of capital and resource on the business. But we're setting us up now for a very solid platform with all the transformational projects coming to a close as we go forward for the next 3 to 5 years. Going on to the next slide. And we -- our view and our move to go to a divisional structure, effective the beginning of FY '26, was really around the fact that each of these areas of the businesses had largely been run as either stand-alone or with a particular focus and emphasis through the governing Board or management team. So as we've laid them out, we've laid them out in order of supply chain, starting with Elders Crop Protection. very experienced managers right across all of the divisions. So Elders Crop Protection with Nick Fazekas. This includes our Titan Crop Protection business and our formulation businesses in Eastern Australia and Western Australia with AgriToll and Eureka. And it's a specialist crop protection business as per Nufarm, Adama, et cetera, et cetera. Then we move the next step along the supply chain to our wholesale business, with Peter Lourey. And this has -- I think you're all aware of AIRR, with multiple touch points and membership base throughout Australia for the AIRR business, and its highly efficient and effective warehouse network throughout Australia. Next, as we go to retail, we have Elders Rural Services, which has a complete offering of retail products, agency products, real estate, financial, et cetera, right across the board. And that business at the moment, since the split of divisions, I've been acting as the divisional CEO for ERS. And very shortly, we'll have an upgrade to that appointment, and we'll announce that in the next few weeks. The next business, again, Gerard Hines running Delta Agri business, very experienced and competent manager and co-founder of the business and with an excellent executive team. So the Delta Agri business doesn't have -- sorry, has a much greater focus on cropping technical service with some additional services -- products and services, but very well run, and looking forward to a period of strong growth and profitability across the board. Elders Real Estate. So Tom Russo had previously run the product of real estate before he ran the Elders network. And so we thought it was appropriate for him to take control of the separate dedicated division. The idea here is that Elders Real Estate has grown significantly, and we'll talk about the growth profile, some slides coming up. Tom is a highly experienced professional in this area, across a number of areas as well, has been the guardian of the expansion of the property management component of Elders Real Estate and also our entry into commercial real estate, which we kicked off a big time in Tasmania. So lots of growth opportunity there, highly dedicated manager and executive team and pretty exciting. And then feed and processing, that, we talked about with Andrew Talbot, another highly experienced manager with a great team. He's grown the profitability of feed and processing fivefold since the First Eight Point Plan, have done an excellent job. The record profitability of this division this year is based on a number of the investments we've made historically with feed mill, center-pivot irrigation, shading, a bunch of investments that have enhanced well [indiscernible] productivity. And it's a very, very well-run business in the portfolio. The consideration we've had with feed and processing is actually if you look across that supply chain, feed and processing is a different business to the others. And our thinking is that it's been highly successful. It's grown significantly. We've invested significant capital and got good returns as we saw with record profitability this year. But we've reflected on whether feed and processing would do much better and go to the next level with under natural ownership. And so that's the reason we're considering a divestment of the feed and processing division. And if the moons align and there's an appropriate shareholder value-creating proposition put in front of us, we'll consider it strongly. And I'll just reiterate Paul's earlier comment that our pathway to back on leverage and to a lesser extent -- well, actually, on leverage is the key metric we're thinking about, is not dependent on the divestment of feed and processing. So if the exercise comes up with options that are not to enhance the shareholder value, then obviously, we're very happy, and it's a great business and a great team to be in the Elders Group. So moving to the next slide. And if we look at the modernizing of the platform, we've talked about SysMod. We gave a commitment from a transparency viewpoint to disclose each of the cost of capital components of each of the waves as the Board approved business cases, so when it was formally approved. And we've done that. But you can see -- and if we include Wave 1, there's some $100 million to $110 million investment over this period. And this is the period in that slide that we talked about upfront, where from '22 -- FY '22, where we have had considerable transformational investment. Now with all of these investments, as we've seen with Killara on the capital investment there, there is a lag. And so the benefits of these investments are coming through now, in FY '26. And as we close off SysMod at the end of FY -- calendar FY '26, we look forward to those investments coming through into the future. And I think it's worth noting that this does really set Elders up with a contemporary platform where we can take advantage of multiple AI opportunities that historically we haven't been able to. So just looking to the next slide and running through each of the waves and the different components of the waves. That's really for information. But as I mentioned, the plan is that we'll complete these. We're still running in full on time, which I know sounds amazing for an IT project, but we're still running in full on time, and it's -- we're looking for the finish line as we run out next year. Okay. Now moving to the next couple of slides. In the next 2 slides, we've wanted to showcase a couple of products and services just to put more of a spotlight on them. And for this presentation, we picked financial services and real estate, which we had covered in the half year. But really to emphasize, in terms of the balance of our portfolio, products and services, we've now -- clearly, we've strengthened our position across the whole supply chain and real products, from Elders Crop Protection, to wholesale, to retail, all the way through and technical service. And in our portfolio, we're looking at really strengthening and rebalancing our financial services, all capital and real estate. So the characteristics of both of these services, as we look at them, and it fits nicely in our portfolio management, a high return on capital. We have a relatively low market share in both, financial services and in real estate. The brand is important. So unprompted most trusted brand in Australian -- regional, rural Australian agriculture. So the Elders brand is critical. There's excellent market outlook in both areas. And obviously, there are links to livestock outlook and general commodity outlook, but a strong outlook, and it really does help us balance the portfolio. So just a quick a quick look at financial services. And you can see, in line with Paul's comments, solid growth, replacing the Rural Bank exclusivity agreement and growing in a capital-light manner. So -- and we can go to questions on that in detail. The next slide on real estate. Very, very similar profile. And I think the gems that are probably not as obvious for everyone. One is the product -- sorry, the property management business. We have some 20,000 properties that we're managing now across Australia, which is a very solid and reliable flow for us and also our entry into the commercial real estate only in regional, rural Australia. So very, very positive platforms. And in terms of portfolio balance, a bit -- quite nuanced, and this is how we run Elders as you -- many of you are very aware. So then going to the forecast and outlook across all of the areas on the next slide with -- without going through each one of them, and [indiscernible] each one of them on the next slide. You can see our thinking is that we've had a period of difficult market conditions and significant transformational investment. We've come through that period. We've lagged benefits from the transformational investment. Right now, we're confronted with the next 3 to 5 years, we're looking at completion of the transformational projects, the commodity outlook and the seasonal outlook being average to positive and our ability to really hone in division by division to grow, to drive the capital out, as Paul mentioned, from a leverage viewpoint and to enhance the business for strong growth against the backdrop of average to good seasons. So it feels very positive. For the first 6 weeks, as I mentioned, of this trading year, FY '26, apples-with-apples. So with that, Delta included, we're up some 30% on the previous year. So very early days. But I think it does fall into the -- our thinking and how we've been talking about our outlook for FY '26 going forward. So with that, I think I'll open up for questions. So we'll just leave that slide on the screen, and we'll open up for questions. Operator: [Operator Instructions] Your first question comes from James Ferrier from Canaccord Genuity. James Ferrier: First question I wanted to ask you about was just on your view on livestock volumes in the year ahead, just in the context of the volumes that were achieved in FY '25 as a baseline, herd sizes as they stand right now. I mean everyone can see the livestock prices, but what's your view on volumes in the year ahead? Paul Rossiter: Yes. Thanks for the question, James. And it is one where there is a little bit of uncertainty going forward, I think particularly in sheep volumes. And just for those who don't know, we saw certainly higher cattle volumes in FY '25, up about 13%. Sheep volumes were down about 8.1%. So we do see that rebuild coming through SA and Western Vic, and that's likely to drag on sheep volumes into FY '26. Cattle is a little bit different just because of the geographical footprint. But it is one to watch. But what we do expect is that if volumes do taper off in sheep, we expect prices to offset because the international thematic for Australian protein remains very strong. And so we just see that price being flowing through the supply chain. James Ferrier: Yes. That makes sense. Second question, on Slide 17. We can see there that crop protection gross profit declined 9% on PCP. What was the volume of product associated with that $129 million of gross profit? Paul Rossiter: Yes, I don't have a volume number to hand, James. So I'll see if I can cover that post. But I will speak to the impact of dry conditions. So we did note a roughly $12 million impact from SA and Vic, [ Riv ] at the half. We saw that continue into the second half, mostly in Q3. We think the impact was roughly $19 million volumes. Yes, we're certainly up in Northern New South Wales, obviously down in SA and Vic, but I don't have the net numbers here. Mark Allison: I think, James, the story is on margin compression as you've seen with other businesses and the sales that we experienced particularly in the dryer areas. James Ferrier: Yes. Okay. Understood. And last one from me and probably one for Paul again. Just some thoughts on D&A, CapEx, interest and tax for the year ahead. Paul Rossiter: Yes. Look, depreciation, well, will increase given the completion of Wave 2 and the commencement of the continued amortization of SysMod CapEx. In terms of CapEx outlook, once again, in FY '26, it is dominated by SysMod. Some of Wave 4 will fall into FY '27, as you can see on the SysMod slide. So it's a bit uncertain, but we think -- I'd say, sort of $20 million to $25 million will fall from SysMod into FY '26 and perhaps another $5 million to $10 million outside of that. In terms of tax, so we will pay a small amount of tax, about $1 million following the submission of the FY '25 tax return. So it will be in February 2026, and then we'll pay effectively pay-as-you-go company tax thereafter. I think your question may be referring to the statutory tax rate, which fell in FY '25. That was pertaining to a tax credit related to prior period for R&D. So that's likely to be nonrecurring. Operator: Your next question comes from Richard Barwick from CLSA. Richard Barwick: Can I just double check, when you're talking SysMod -- and obviously, it looks like some benefits from an EBIT perspective are expected in FY '26. Are you able to put some numbers around that? And then equally, what you would see as the non-underlying OpEx impact from SysMod in '26? Paul Rossiter: Okay. So yes, thanks for the question, Richard. So in terms of benefits, the major tranche of benefits is through an uplift in retail margins. And we see that coming from better control of discounting and better categorization of clients. And just for context, a 1% uplift in retail gross margin percent is about $22 million. So 0.5% uplift there gets us fairly close to the benefits required. The other benefits we see coming from uplift in sales, and that comes from better client data over time, but probably longer dated than the retail margin benefits. In terms of non-underlying OpEx for FY '26, so if we work on roughly 60% CapEx, 40% non-underlying OpEx, over that sort of $20 million to $25 million in FY '25. Richard Barwick: Okay. And my other question is to do with the -- there's quite a sizable impairment of goodwill obviously captured within this FY '25 result. Can you just give us a little bit more background exactly what that related to, please? Paul Rossiter: Yes. So there's a couple of businesses that we impaired, both which were reported on during FY '25. So one was Currin Co, where we lost a number of agents in Victoria. The other was Esperance Rural. Yes, we had, I suppose, an unsuccessful transition post earnout. Mark Allison: I think, Richard, it's -- one of the learnings is that, as you know, we've been highly successful with our acquisition -- bolt-on acquisition template in keeping the vendors in the business. And when we do our post-implementation reviews post earnout, it's been 95% plus positive. And we've identified in the last 12 months, whether it's through tougher conditions or whatever the driver is, that the 2 years post earnout is now an area that we need to really focus on in terms of potential loss of staff as we saw with -- actually, it was longer than 2 years with Currin Co, where the vendor leaves the business, the earnout is completed. Historically, we've seen that in business as usual within ERS. And we've now established a project a couple of months ago to identify how we ensure that we don't get a repetition of that situation because it had been a very high success rate of post earnout of keeping the people. Richard Barwick: And well, I guess it's -- the obvious question is, what are the risks? I mean, obviously, you've got something in place here to try and to mitigate it, which would suggest you are a bit concerned that this could repeat with some -- because I mean you made a lot of acquisitions in the last few years. Yes, how do we think about that risk? Mark Allison: Yes. Well, I think the -- a couple of points, is that if there is -- like something in the order of 100 bolt-on acquisitions, and we've had 2 or 3 like this. Clearly, the Currin Co was a larger one. If you like a sense of Shakespearean irony, the Esperance rural supply defection was to Delta. I'm sure you enjoy that. But the -- I think the materiality of it has dropped off because we aren't pursuing the same sort of strategy on bolt-on acquisitions that we had, as you're aware, given that the rural product supply chain is pretty complete and also given that the ACCC regime is hard to unscramble to do business. The -- our sense is that, that won't be where we'll be getting our growth from. It will be more organic. But I think the issue is that post earnout, the -- and we have time. We have 2 or 3 years each time. We have to have the business as usual hooks and retentions in place for these people. Because as you know, in regional, rural Australia, the personal relationship goes a long way. Operator: Your next question comes from Ben Wedd from Macquarie. Ben Wedd: Maybe just turning to your question -- your comments around capital allocation there and particularly with the potentially moving some of the receivables into third-party lenders there. I'd just be interested in sort of, I guess, any timeframes you can give around that and how that sort of looks from an operational standpoint. Paul Rossiter: Yes. Thanks, Ben. Look, it is something -- and I think the way that I'd explain it firstly is that we are taking a return on capital approach. So where we're not seeing, I suppose, a deep relationship with clients that warrants the use of Elders' balance sheet, then we'll look to obviously do that business with the client that use third-party financiers. So we do see this as certainly something that has commenced already. It's a process that's commenced. And that will roll through FY '26 and beyond. But it won't be something that we seek to do hurriedly either. So it will be an incremental thing over a number of years with a significant start in FY '26, particularly in the fin services and seasonal finance areas. Ben Wedd: Yes. Got it. And then maybe just any comments you can sort of give us around Delta's sort of performance over the last 12 months as it might compare to Elders as well in some of those key categories like ag chem and other cropping areas. Paul Rossiter: Yes. Thanks, Ben. So I mean, just a couple of comments. I think the first thing to note is that Delta's financial year is June 30, and their footprint was very exposed to dry conditions that occurred in FY '25. So I think there are a couple of key distinctions between Delta and Elders. The other being, Elders obviously had an offset in livestock agency that doesn't exist to the same extent in Delta. Yes, so the Delta result was impacted certainly more than Elders by the dry conditions. Trading, since it started raining in July in Delta has been above -- certainly above PCP. So yes, that business is operating very well. Operator: Your next question comes from Evan Karatzas from UBS. Evan Karatzas: Maybe just to follow up on that one then, so sort of the ASIC accounts for Delta. So the EBITDA went from sort of the $53 million to $40 million. Can you sort of just give a bit more information around if you expect that original FY '24 earnings to be realized assuming, I guess, normal conditions? And then anything you can say around the synergy benefit we should expect in '26 for Delta as well? Mark Allison: Yes. I think the key point for us is that what we experienced as the turnaround from these dry conditions was outside the Delta financial year. And so that's what we've experienced ourselves. Just as a note, prior to going to the next phase on the acquisition a few months ago, we -- so Paul, myself and the Chair of the time, Ian Wilton, sat down with the Delta management team to go through their FY '25 results, just to give ourselves comfort that our proposition and thesis on the acquisition remained on track. And after the presentations, discussions, I think, Paul, it's fair to say that we felt very, very comfortable. In terms of your question on the synergies, I think it's a key point for us. We've already had meetings with the team, with [ Jarred ] and Matt and Chris and the team around the synergies. We had planned for 12-month -- sorry, a 3-year development of the -- or extraction of the $12 million synergies. Our belief is that given the timing, given the November 3 timing and the proximity to the FY '26 winter crop that we do have time to do a lot of the work that we wouldn't have been able to do if it had been in the same period the previous year. So our sense is that we can fast track those synergies and bring them through. And as you know, they're largely crop protection. They're largely providing different crop protection supply chains out of Titan into the Four Seasons brand. And with Steve Hines, the person who runs that business within Delta, there's great alignment with Nick Fazekas, who runs the overall crop protection business. So we've established the governance structure, the Board structure, et cetera, around Delta and all the divisions. And again, I feel pretty comfortable and optimistic that we will get -- we will optimize the synergies in FY '26. Evan Karatzas: Okay. And just final question. Just with the debt position, can you provide a number of -- to sort of normalize it if you remove the reduction in carryover inventory in SA, Vic and removing or transitioning some of the select client loans from Elders' balance sheet to third parties, just so we can sort of look for an adjusted or a like-for-like debt position, please? Paul Rossiter: Yes. Look, just very high level and back of envelope, I would say the carryover inventory, I've put a number of around $30 million on that, which we expect to be resolved in the first half. In terms of -- I'll put another bucket in there, Evan, in terms of overdue debtors, we think there's a $20 million to $25 million opportunity there. You may have noted that we have had a $10 million increase in 90-day plus receivables. That is 2 clients -- 2 large clients, that we expect to be resolved in FY '26. So we feel that we're at a peak in terms of overdue receivables as well. And then you've got -- in terms of client receivables or client loans, seasonal finance and loans, I've put a number of sort of around -- a target of around $50 million across financial services and seasonal finance. Evan Karatzas: Okay. That's super helpful. Maybe just a quick one, I'll just sneak it in. The 1Q comments you made, do we assume you're up 30%? Do we assume we're sort of back close to that? I think you previously mentioned, like, a through cycle 1Q average EBIT was around $37 million. Is that sort of where we're, I don't know, trending towards or run rating towards? Paul Rossiter: Yes. And I think the -- in terms of tailwinds in the business, Evan -- so I think the -- certainly, livestock prices are up relative to year-on-year. I'd say that tailwind will moderate the further we get through the financial year. Obviously, livestock prices increased throughout FY '25. But I think in terms of the Q1, it goes back a couple of years, when we gave that number, obviously noting that's not audited. But yes, it's a fair comment. Operator: Your next question comes from Paul Jensz from PAC Partners. Paul Jensz: Just one at the top, Mark, if I can. You talk about the 5% market share you have in the wider farm input space. Can you see some additions to your business or the Elders business? Or is it a case of organic growth from where you are to get a larger part of that pie? Mark Allison: Yes. Thanks, Paul. So when you say the larger rural products, are you referring to finance? Paul Jensz: Right across the board. You had a chart there with the Delta acquisition where you're a small part of a very big pie in farm inputs. and you've got the new structure that you have. I'm just wondering where to from here if you're just such a small part of the pie? Mark Allison: Okay. Yes. So that broader pie includes fuel, like all the finance, et cetera, et cetera. So a whole heap of services that we're not in. So I think our focus with -- well, I think it's -- the focus that Delta has had for a long time, will continue on, where it's a service-based customer-centric approach across the board. Delta is very small in Queensland and -- but ERS is also not that strong in Queensland. So there are geographical gaps, but it will largely be sticking to the knitting of what each of the divisions does best. And in that -- in the case of Delta, although it's got some broader offers, the focus is around that very technical rural products-based customer centricity. Paul Jensz: And that's across the broader Elders business as well, if I look at the new structure that you have? It's really just sticking to the core business? You don't see another bolt-on there? Mark Allison: No, I don't think so. I think our view is that the -- any deviations, slight deviations from where we are now, we've talked about in the Elders Real Estate business, it's around strengthening our commercial real estate in regional rural Australia area, continuing to build on our property management business, which is a really solid good business. I think in ERS, there's a lot of -- in the traditional pink-shirted DRS front end, there's a lot of efficiency. Because we've just put SysMod through ERS, they've got the front-end point of sale across all the branches across Australia. So it's really around all the efficiencies that we promised and controls. And again, customer understanding that Paul talked to in terms of data, that ERS hasn't been doing in the past. In terms of Elders Crop Protection, I think the focus will be some -- a little more on integration because the formulation businesses run stand-alone to the traditional Titan business. So we'll slowly move around integration there on systems. And then feed and processing, really, we're looking at ways of expanding efficiency with acquiring extra land with some increased backgrounding, many of the efficiency programs that we've had previously. So across each division -- and I guess it goes to the point of why having focused divisions makes so much sense. Because each of them have their own nuance, their own focus, and it allows the management teams to really drive the efficiency and profitability. Paul Jensz: Okay. And then if I -- just a second question, if I can, if I build the building blocks towards, let's say, 2027, '28 numbers that consensus have, it doesn't seem to be a lot of, I suppose, underlying organic growth if you do the SysMod 250 staff that came across with the bolt-ons, Delta and the small free kit you get from '25, some of the earnings come into '26. So I'm interested in that organic growth number because I don't think consensus has got a big number in there for it and neither do I at the moment. Mark Allison: Yes. Well, I'm not sure how the -- what the assumptions are on the models. But I do know from a -- I mean, if backward integration is organic growth, and we certainly see it that way, the backward integration opportunity for ERS still has 10-or-so percent to go of the available generic portfolio and the -- just in crop protection and in Delta, there's probably 40% to go. So I think from us doing things that we control, not relying on market conditions, there's a lot of -- and then you've got also the benefits, the lag benefits of the transformational projects. But yes, your observation is probably right, Paul. Paul Jensz: And the final one, I thought others would ask this question, Mark, but I'll do it. The press -- I love talking about management transition, Mark, and your term comes up at the end of next year. I'm interested in whether you could return fire with what the press, like, talking with management change. Mark Allison: Yes. No, I thought the comment in the Australian was relatively accurate. I said when we refreshed the Board and I stayed -- I decided to stay, I said the earliest that I'd leave would be at the end of this Eight Point Plan, so that's September next year. And that's still the case. And it's not a term in the contract. It's an ongoing contract. So basically, my position has been that as a minimum, I'll stay to the end of the Eight Point Plan. Operator: Your next question comes from John Campbell from Jefferies. John Campbell: Firstly, just for clarity, what's the dollar value of adjustments that you've made to arrive at adjusted EBIT? Paul Rossiter: So you're -- in the investor presentation, John? John Campbell: Yes. Yes, it just said $143 million, just for clarity. So I know what we're adjusting. Paul Rossiter: Okay. I might just come back offline on that. So we do have -- we've got a list in the annual report, but yes, I'll come back on that offline. John Campbell: Yes. I can see where you've got that in the accounts. I just wasn't 100% sure which is included in your adjustment calculations. But I think we've got a call on this afternoon, Paul, so we can maybe touch base then. And just Mark, around -- and you sort of touched on it, but I presume with the improving seasonal conditions in the Southern regions that impacted in FY '25, in terms of that competitive intensity in crop protection that you've been talking about, I presume you see FY '26, so that sort of level of intensity and price competition and the like abating over the course of '26? Mark Allison: Yes. I think there are probably 2 components that leads us to think that way. One of them is around the seasonal conditions, as you just mentioned. And the second one is the stabilization of COGS out of Chinese factories. So the idea of lower priced cost of goods coming into Australia and then driving market price down, that doesn't seem to be where it was. Earlier, I think 6 months ago, we were concerned that tariffs on Chinese crop protection into North America may drive dumping of product in Australia and therefore, further drive prices down. If you're caught with high-cost inventory, you're obviously going to be screwed from a margin viewpoint. But our sense is that it's stabilized. And regardless, even a stabilized normal season environment, Australia has the lowest crop protection prices for all around the world. And it's not uncommon for multinational companies to divert product from Australia to Europe because they can make so much more money out of the same active ingredient. John Campbell: Okay. So that all augurs pretty well for crop protection for '26? Mark Allison: It looks like -- yes, as I said, I think we're pretty optimistic, both commodity season and the back of the transformational projects. Operator: Your next question comes from Mark Topy from Select Equities. Mark Topy: I just wanted to ask a question around the property side, the retail, the growth and both in the gross margin and the sort of volumes and some expectation around that and maybe some breakdown between what's organic and what's been achieved by acquisition because you clearly got a very strong growth rate. Can you give us some sense of how that looks going forward now? Paul Rossiter: Yes. Thanks, Mark. So just for clarity, so that was for real estate services. Mark Topy: Yes. Paul Rossiter: Yes, yes. So look, we -- in terms of growth, we see roughly the split between acquisition and organic, about 60% acquisition in F '25, 40% organic. I do note that one of the significant benefits from the acquisition of Knight Frank was to substantially grow our commercial real estate business. It also introduced a valuations business to the group as well. So when we think about real estate growth, it is across residential properties under management, broadacre, commercial and now valuations. So there's a few strings to the bow there. I'd also just make a comment in regards to broadacre. It did grow, but very fractionally in F '25, that part of the book was held back by the dry conditions in South Australia and Victoria. We do expect sort of pent-up vendor demand as those regions improve. Mark Topy: Right. Just thinking about the Tasmania market, kind of, say, how much growth opportunity do you see in that market going forward? Mark Allison: Yes. I think with Tasmania per se, I think it's -- it would be incremental growth. But I think the big benefit of that acquisition, which is the old Knight Frank business, is the commercial real estate knowledge, networks, et cetera, in the Mainland. And we're already seeing that is very, very important. So there are many contacts and insights that we didn't have on commercial real estate that we've gained from that business that is really helpful in our approach to Mainland expansion in commercial real estate. Mark Topy: Great. And just on the Delta side then, can you just talk to the systems and system harmonization in terms of what's being done in the Elders and whether any CapEx might be required if you like to harmonize Delta in line with Elders? Mark Allison: Yes. So the SysMod project is predominantly Elders'. And our approach at the end of Wave 4 when we switched off the AS400, and we're completely on Microsoft Dynamics 360 -- 365, sorry, we might have got a discount. Definitely not. So from that point forward, each of the acquisitions or each of the other divisions, whether that be AIRR, Elders Crop Protection or Delta, will be business case-based. So if there's a business case from the Delta Board around aligning, enhancing systems, then it will be treated on a return on capital business case basis. And we want to take it to business as usual because it's not just an ideological, everything has to be on the same system. This is all around return to shareholders. And all the systems that they're all operating on are fine. Mark Topy: They're all fine. Okay. I was going to say. And then in terms of -- I know you want to accelerate the Delta, but in terms of any risk areas, in terms of that integration, I noticed, for instance, they've got -- they're using different property managers. Do you perceive any sort of issues in migrating Delta across to Elders in that regard? Mark Allison: No. Well, I mean, it's all going to stay the same. So there's -- in terms of backup and stuff, which I think you're talking about. So we've got a mandatory integration. We've got a [ might ], and then there's a light touch component of it. Each of those are being developed with project teams between the businesses. So the -- our view is that it's a well-run business. It's got good management. It's got a strong Board governance to set the direction, and we'll be making the right decisions for the right reasons rather than any kind of ideological control-based decision. Of course, the mandatories around safety, financial transparency, regulatory compliance and so they're mandatories, as you'd expect. Operator: Unfortunately, that does conclude our time for questions. I'll now hand back to Mr. Allison for closing remarks. Mark Allison: Okay. Well, thank you very much to everyone. I did note that we have a couple more in the queue. So apologies to those. Paul and I have a back-to-back with all Elders staff. So 2,000 or 3,000 people will be waiting on the line for 5 minutes. So we've had to call it there. So for those that we haven't been able to talk to, we look forward to talking to you in our one-to-one sessions. But I appreciate everyone coming in, and thank you very much. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Hendrik du Toit: Good morning, ladies and gentlemen. Welcome to the Ninety One interim results presentation for the half year to 30 September 2025. I will highlight the key numbers before moving to the business review. Kim McFarland, our Finance Director, will then present the financial review. I will then update you on recent developments and conclude before we take questions. Those of you participating through the webcast can submit questions during the presentations via the chat function at the bottom of your screen. Assets under management rose more than 19% over the past year. Flows turned around strongly. We recorded net inflows of GBP 4.3 billion for this half year, resulting in adjusted earnings per share growing by 15%. This net inflow number consists of GBP 2.4 billion of organic inflows and GBP 1.9 billion that came from the Sanlam U.K. transaction. The dividend per share increased to 6p per share and operating margins expanded to 32.1%. Staff shareholding grew to 32.7%. The people of Ninety One are fully aligned with all our other shareholders. I'm delighted to report that our business is growing again, in terms of revenues, earnings and assets under management. This is supported by investment returns and a significant turnaround in net inflows. We are sticking to our core strategy and investing in our existing growth drivers, while selectively backing new growth initiatives across our ecosystem. Investment performance remains competitive. The Sanlam relationship is delivering, and Ninety One is poised for further growth. We always show the long-term track record of Ninety One to remind everyone that we are about growth over time and not growth all the time. The business has been built over many years in a patient and predominantly organic way. Markets have been supportive of late, but we are clear that sustaining growth over time takes focus, rigorous execution, discipline and belief. We remain committed to our people-centric, capital-light and technology and AI-enabled business model. Market conditions have improved over the reporting period. The panic that followed Liberation Day is now history, and animal spirits are back supporting overall equity market levels. More interestingly, we are observing a new openness to diversification of institutional portfolios, which includes interest in emerging markets. This interest seems to be driven by the desire to diversify geographically as well as a recovery in relative returns. Given the high concentration levels in indices, we are also witnessing a renewed interest in active strategies. A little over 1 year ago, I reported to you in a world in which active long-only and emerging markets across the capital structure would deeply out of favor. Therefore, Ninety One was experiencing a third consecutive year of hostile business conditions. I'm delighted to report that these conditions have improved substantially over the past year. Despite the strong performance from emerging markets and the rise in financial asset prices generally, we are some way off historic levels of demand at this stage. As mentioned at the end of the previous reporting period, our industry continues to be extremely competitive. Clients are setting high standards and continue to be price sensitive. Fee pressure remains a challenge. It goes without saying that Ninety One is exposed to market levels and how financial assets are priced. A sharp decline in markets will affect revenue generation and new business volumes. More generally, the Internet era is being replaced by the AI era. This touches every industry, including our own. At Ninety One, we are embracing this and look forward to reporting progress in more detail in due course. In summary, conditions have improved, while competition remains relentless in this industry. Equity markets have done well over the past 3 years with headline indices close to doubling. Over the past 6 months, our clients continued to benefit from strong performance. Emerging markets in general have outperformed developed markets and the strength in South Africa further contributed to our assets under management and driving these through the threshold of GBP 150 billion and $200 million, respectively. In fixed income, we have also seen positive returns, even though developed market bonds have had a tough time. Ironically, this is where most of the inflows in our industry have been over the past few years. Emerging market bonds are doing much better, and we expect demand to grow in this space. This is an area in which Ninety One is one of the market leaders. Since our listing, investors showed little interest in emerging markets. We're now seeing a decline in the active outflows in equities and an improvement in the environment for specifically active equities. For the second half year in a row, we're seeing positive active fixed income inflows. But as you can see, we are still well below the long-term demand levels for emerging markets. Judged by recent client engagements, we expect demand to pick up in due course. This assumes a world in which risk assets remain attractive. The outflows that have been with us from 2022 have started to reverse in the second half of the 2025 financial year, and inflows have now accelerated into the first half of the 2026 financial year. In addition, we have added GBP 1.9 billion of Sanlam U.K. assets with the completion of the acquisition of Sanlam U.K. We also benefited from the strongest year since 2020 in terms of market and portfolio growth. We are mindful of the fact that markets do not usually go up in a straight line, and we remain vigilant on the cost front. These slides show organic net flows, excluding the Sanlam take on. We had substantial equity inflows largely in our competitive global equity offerings, and positive flow in all asset classes, except multi-asset. This related to our own performance and general client demand. We have addressed the situation by bringing in new leadership and renewed focus on the multi-asset part of our business. The majority of our client groups were positive for the half year given the pipeline. And given the pipeline, I'm hopeful that U.K. will show positive results for the full year and that South Africa will return to positive net flows for the second half as well. Investment performance has been solid over the period, and we can compete in the areas where we need to compete for net inflows. As always, a few strategies have done outstandingly well while there are also laggards. Overall, we have a competitive offering, which has the potential to generate ongoing net inflows and meet the high standards of our clients. I now hand over to Kim McFarland, our Finance Director, to take you through the financial results. Thanks, Kim. Kim McFarland: Thank you, Hendrik. I'm here to present a set of strong financial results for the period ended 30 September 2025. I would like to highlight that our core operating business has again produced a solid outcome. Management fees and adjusted operating expenses both increased by 3%, resulting in the core business recurring results increasing by 2% on the prior period to GBP 82 million. Management fees were at GBP 290.7 million. This is as a result of the increase in average AUM from GBP 126.7 billion to GBP 139.7 billion, alongside a decline in the average management fee rate to 41.5 bps. More on this later, but worth noting that the increased closing AUM positions Ninety One's revenues well for the next 6 months. Adjusted operating expenses of GBP 208.7 million includes the interest expense on the lease liabilities for our office premises and the full bonus accruals. It does exclude nonoperating costs. The business produced an adjusted operating profit of GBP 98.8 million, up 12% from the prior period. This increase is predominantly as a result of higher performance fees of GBP 4 million. Other income is negligible and there's mainly a number of fair value adjustments on seed investments. There were FX losses as a result of the stronger GBP to USD in the period. So the adjusted operating profit margin increased from 30.5% to 32.1%. And at the finals for 2025, we reported an adjusted operating profit margin of 31.2%. So let me explain further the decline in the average management fee rate. This is calculated as a monthly average and over the 6-month period has shown a slow decline. However, there was a market fall at the end of H1 2026, which we have analyzed. During the period, daily average AUM upon which the management fees are generated, consistently lagged monthly average AUM upon which the average management fee rate is calculated due to the manner in which markets moved markedly during the period. And this effectively overstated the average management fee rate decline by an estimate 0.8 bps. Calculated on a daily averaging basis, the actual daily average rate is closer to 42.3 bps. So closer to a fall in 1 bp over the 6-month period, which is higher than our historic guidance. There were further factors that are impacted on the fee rate in the period, which were a significant AUM increase in lower-than-average fee rate clients. The Sanlam U.K. take on being an example, although this impact was small. However, the take on of large mandates at lower-than-average fee rates has and will have a material impact on our management fee rate, an AUM decrease for higher than average fee rate clients. The U.K. OEIC being an example, and this would have had an estimate 0.5 bp negative impact. And at the same time, there were some downward fee adjustments for existing clients who generally compensated with additional assets. Ninety One's profit before tax after considering the list of nonoperating adjustments, adjusting net -- adjusted net interest income, the small share scheme, net expense, corporate-related professional fees and now the amortization of the intangible asset as a result of the U.K. Sanlam transaction increased by 10% to GBP 102.2 million. At the interim, the share scheme is generally a net expense. And this is largely reflecting the amortization impact from prior year credits where staff bonuses were allocated to Ninety One shares. At the year-end, we have a better understanding of the share scheme and the allocation of annual staff bonuses to Ninety One shares. Remember, we fully expensed the bonus payments within adjusted operating expenses, irrespective of how settled. IFRS requires the amortization of bonus-related share awards over 4 years, which is then included in the share scheme expense. The effective tax rate for the year was 25%, down from 26.3% in the prior period, and this was driven by higher earnings in lower tax jurisdictions. And in the prior period, there were a larger number of nondeductible expenses. So the above factors resulted in a profit after tax of GBP 76.7 million, up 11% from the prior period. And our adjusted EPS shows a 15% increase to 8.4p, more than the increase of adjusted operating profit of 12% due to the lower effective tax rate on the adjusted operating profit and a lower number of ordinary shares for the calculation of adjusted EPS. So this analysis summarizes the absolute movement in adjusted operating profit from H1 2025 to H1 2026. It clearly shows that management fees, performance fees and other income increased. These increases were partially offset by the increase in employee remuneration, but noting business expenses were actually lower by GBP 2.7 million than the prior period. This is the analysis of the movement in adjusted operating expenses. Adjusted operating expenses increased by 3% to GBP 208.7 million. Employee remuneration represented 64% of the total expense base. In the prior period, it was 62%, and increased by GBP 9.5 million to GBP 134.1 million. This was driven by an increase in fixed remuneration consistent with the increase in head count and annual inflation increases as well as an increase in variable remuneration in line with increased adjusted operating profit. Over 50% of employee remuneration remains variable and the resulting compensation ratio was 43.6%, up from 42.9% in the prior period. Business expenses decreased by 3% to GBP 74.6 million. We began to analyze the cost changes, at a high level, we've broken this down -- the movement down as follows: inflation-linked increases of GBP 1.4 million for those costs that are impacted by inflation. FX-linked impact was negative GBP 2 million. And there's been a pickup in technology spend of GBP 1.7 million, with other costs then decreasing by GBP 2.8 million. Technology now is the largest business expense. Previously, it was third-party administration. Looking ahead, we're expecting business expenses to be impacted by inflation, ongoing technology spend and the move into the new offices in Cape Town planned for January 2026. Post the Sanlam integration in South Africa, there will be a cost impact, which will be predominantly headcount driven. So increases to employee remuneration as well as the resulting general operating costs. This is showing the business expenses and total expenses as a percentage of average AUM in basis points over a 5.5-year period. The adjusted operating profit margin over the period is also reflected here. Irrespective of the movement in AUM, business expenses have marginally decreased over the period, even noting the continual investments in our core technology system. Total expenses as a percentage of average AUM hav,e, in fact, declined aided by the growth in the denominator. The adjusted operating profit margin has remained in the range of 31% to 35%, reflecting ongoing cost management with the underlying AUM growth. Ninety One's qualifying capital was GBP 316.3 million at the end of September 2025. In line with our dividend policy, the Board has proposed an interim dividend of 6p, this is an increase of 11%. After this dividend payment, there will be an estimated capital surplus of GBP 155.3 million. This will result in a capital coverage of 245%. During the period, we continued with our buybacks, and this resulted in another return of capital of GBP 20.4 million and a reduction of 14.1 million shares. We did, however, issued GBP 13.7 million of plc shares for the U.K. Sanlam transaction in the period. In line with our capital-light model, since listing over 5.5 years ago, we have returned close to 60% of our initial market capitalization to shareholders. So a few updates regarding the Sanlam transaction. All regulatory approvals have now been secured. The U.K. transaction completed on the 16th of June 2025, with the result of GBP 1.9 billion of AUM on boarded and Ninety One plc issuing 13.7 million shares. It's planned for the SA transaction to be completed by the end of the financial year, which results in expected total onboarded AUM of circa GBP 17 billion and revenue in line with what we previously reported. An additional 112 million shares will be issued when the SA transaction closes. Now reviewing the position for H1 2026. The adjusted EPS and operating margin were accretive. There was a slight dilution on the average fee rate, which I mentioned earlier. And also, as previously mentioned, we will be waiting the shares issued to Sanlam for the determination of the adjusted EPS for the interim and then for the final 2026 results. For the interest, this looks as follows. So shares in issue, excluding Sanlam U.K. is GBP 882.7 million, weighting of shares issued for the Sanlam U.K. is 13.7 million times by 107, the days since the transaction in the period, divided by 183, so the days in the total period, which gives you 8 million shares. So shares in issue for adjusted EPS calculation is 890.7 million. The actual number of shares and issue at end of September 2025 was 896.4 million. The intangible assets arising on the balance sheet for the Sanlam transaction will be amortized over 15 years. To note, this is tax deductible in the U.K. but not in South Africa. And so on that final technical point, I will now hand you back to Hendrik. Hendrik du Toit: Thank you, Kim. At Ninety One, we think long term and our commitment to our strategic pillars do not preclude us from constant improvement and development of our firm. Over the period, we've continued to invest in talent. We've broadened the top leadership team and evolved accountability throughout our firm. We ensured that our 3 core opportunities international public markets, Southern Africa and private markets are adequately resourced to compete effectively as market-facing units, supported by our 3 pillars of investments, client group and operations. And so as we go into the second half of the year, we have formed a dedicated international public markets team, which can focus on the commercial opportunity for a recovery in demand for active investment management especially in international and emerging market strategies. We have a focused and strong Southern African team to take a market-leading business to an entirely new level. Finally, we've reinforced our private markets team with fresh talent and additional senior leadership and asked them to accelerate progress in this growth market. We are backing new growth opportunities out of the recently established Ninety One Foundry. These include in-region presence and partnerships in key emerging markets, allowing us to become domestic competitors in certain regions and deepen our investment insight in these fast-evolving markets. For example, we opened 2 offices in the Middle East in the previous reporting period. We have now put additional resources in, and we are building an on-the-ground domestic business in the Kingdom of Saudi Arabia, which includes a strong investment presence. In Asia, we're developing an exciting joint venture with a Singapore-based alternative investment firm with deep experience and relationships in the region and in particularly China. This will strengthen our investment capabilities in the region as well as positioning us to compete more effectively for capital flowing out of the region. We have established a digital finance unit with dedicated leadership to provide clients in certain markets with a far better experience than they traditionally have received from asset management firms. We've committed substantial resources to AI-related innovation which we will update you on further at the end of the year. I must stress that these developments are fully expensed through the cost line and are not consuming significant additional capital. Over the reporting period, we've made meaningful progress on the technology front, which includes a major systems migration. Now that this has been fully completed, significant resources have been freed up for further enhancements and innovation. These are the additional 3 areas of growth we're pursuing, which we believe will impact the way we run our business in years to come. What we're really trying to do is from strong foundations, build the active investment manager of the future. To become the active manager of the future, AI is key. At Ninety One, we approach AI on 3 levels: advocate, equip and use. So this is how we rate ourselves. We see quite high levels of adoption, we see reasonable levels of experimentation given the widely available AI tools to all our staff members, sort of 6 out of 10. Then our people have embraced it, and we are working hard to get our proprietary data organized for the effective deployment of AI across the firm. The proof of the pudding is in the transformational impact of AI. We have much to do on this front. The business is stronger than it was in the previous reporting period, supported by better business conditions and recovering demand. We plan to improve and modernize our business through disciplined investments in and adjacent to our core activities and markets. Emerging markets and the search for diversification are coming back into favor, which supports us. Active investing has a role to play in this world particularly within emerging markets and in the global equity opportunity set. The strategic clarity and simplicity of our business model enables us to seize the opportunity with pace and strength. In short, we see renewed opportunity for growth. Thank you very much. We can now move on to Q&A. We will take questions in the room first, and then will watch -- then we'll take questions from webcast viewers. [Operator Instructions] I think Angeliki, you had the hand up right in the beginning, so. Angeliki Bairaktari: This is Angeliki Bairaktari from JPMorgan. So your flows were much stronger than the previous semester, GBP 2.4 billion. And we -- you say in your presentation that you feel that active is back. Can you perhaps give us a little bit more color with regards to where you see that strength coming from I think you had APAC, Middle East and also equities. But if you can just give us a little bit more color on the pipeline that you're seeing for the next 6 to 12 months where you see the strength coming from? And that's my first question. And then maybe on the management fee margin outlook. There's a lot of moving parts there, relative to my expectations, the management fee margin followed more. I think we still have some dilutive impact to come from Sanlam once the further AUM gets onboarded on the platform. So how should we think about the run rate, management fee rate for next year perhaps? Hendrik du Toit: I think you've asked the real questions that we all need answers for. So I can give you color on what we see rather than a prediction, Angeliki. So firstly, the -- if I can go to the flow or the pipeline that we see. Firstly, the result is again emphasizing the strength of our diversity. We source capital from the same kind of client but in different regions around the world. They have slightly different perceptions on risk and on willingness to take risk at a point in time. And that's why we've seen equity up weightings from large clients in Asia. And that's really where we've seen it. In the rest of the world, particularly North America, where we've delivered some positive, we are seeing a significant search activity or investigating activity's about how to diversify's their portfolios. That flood's gate has not yet opened. We expect that given the sense that markets normalize over time, and we've come out of a long period of underperformance for the rest of the world relative to the U.S. And we know these things go into 10, 15-year cycles. There's a very good paper on our website about dollar cycles and dollar cycles and international investments seem to be highly correlated. You can go and read that. So -- but what we have seen in the last 6 months picking up from the previous 6 months, not the year ago, but the preceding half year is an intensity or intensification of client and search a client engagement and, call it, presearch engagement. What, of course, can change the flow picture is whether we, in this very competitive world win in the very final stage. I mean an example in the last 6 months, and it really hurts me to say it. But after eliminating all competitors, we came second for a sort of close to $5 billion mandate, one client that would have made this figure look a lot better. And so we are driven, and I think you should understand it Ninety One deals in the upper end of the institutional market. Small numbers of clients make a big difference. The fee on that depends on where they're already engaging with that client at scale, and therefore, the client gets a better deal and we price persistency as well. So clients that are persistent, and this is not price cutting, but clients that are persistent have proven themselves to be persistent over time, get a better deal than those who rent your capacity. And so sometimes, we would not do a deal, which we could do and create great inflows to make all of you happy because we know this client is a capacity renter. And they'll come for 3 years and then cause a problem for us when they go out again, whereas others deserve the respect of a value-for-money deal plus scale benefit. So it's very, very difficult to predict where we are. I think we still, with our underlying guidance of market fee pressure is around -- and I still think it's around the 1 where we are is 50% of our growth typically when we're in growth cycles is upweighting from existing clients, 50% is new. If those existing clients are the big ones, your fee goes lower, if they come from general market, mutual fund market, et cetera, your fees are a bit better. But I think over time, Ninety One is moving towards and increasingly institutional. So the breakdown in the addendum to the slide pack, the appendix where we show institutional versus adviser actually, we are trending towards a much more institutional business. And even in South Africa, where we have a strong advisory business, those advisory firms are getting bigger and bigger and behaving more like institutional multi-manager. So I think -- we're going through that lowering a fee process but hiring of what increasing of volume and therefore, increase operating margin but not necessarily on a fee basis. So I think the 1% we guide to is still the underlying fee compression in our industry. We might as of late, be hit by something a little more or less, but it depends. And it also depends on the growth of the alternatives business because that is a still and where I see the real fee pressure in our industry is actually on the alternatives business. I don't think the 2 and 20 models are going to hold because if clients look at their fee budgets, this is where. So what they're currently doing, just an interesting thing in private equity, private credit, et cetera. They pay the full fee, but then they do a deal on the side to co-invest for nothing. So what is the real effective fee of providing those services and your capabilities to a client for free. So I think about -- it would be a really interesting work -- a piece of work for you to do when you look at that side. So I think that's where the fee pressure is more than in ours, but we are preparing for a world where we have to be at least 1 basis point more efficient every year. And I can't tell you whether we're going to be at 40. Right now, I'll -- Kim, I think you've got the answer. We're running at a slightly higher fee level, maybe you can add here for me, then actually the number shown there. Kim McFarland: Yes. Well, I kind of explained that in my sort of daily -- I think I did that on the call this morning actually as well on the sort of daily, monthly factor. But I think you're sort of -- you're asking the question about looking ahead. And Hendrik is right, we are seeing pressure on the fees, both. You've got the standard 1 bp a year that we advise on. But when you're looking at both new mandates, but actually more so existing client mandates that are coming on board at lower rates and then giving us the asset to compensate. So hence, we're seeing the pickup in the AUM, but they are often negotiating at lower fee rates. So this is why we're definitely seeing more fee pressure. Hendrik du Toit: But for us, it is -- the value lies in embedding those relationships for the long term. And if you can do that, you have a higher-quality business. But what we're not doing is price-cutting to win volume. We don't going out there saying, "Hey, we're cheap". But this -- and I still believe, this market will settle down when nominal interest rates are on the rise again because actually, it's hard for a treasurer or someone to sign a check, when he earns it out of interest, it's easier. So I think there's a -- there is a link, which one day will prove statistically, but we can't give you an exact number now. The next step on the pipeline, we're seeing substantial opportunities against scale ones, so there won't be fee level enhancing ones, they'll probably be roughly where we are for the rest of the year that we should convert. What we don't know is where the unexpected redemptions or changes in strategy can happen with the client. And that's the problem when you deal with these large clients. They get a new CIO, they get staff changes and a new strategy comes in, you're being seen as okay, but not necessarily central to the strategy. So -- but I'm fairly comfortable that the visibility of the pipeline is better than it's been in recent reporting periods. Jonas Dohlen: Jonas Dohlen here from Deutsche Bank. Just one follow-up. Yes, just one follow-up on the fee margin. I was just wondering if that guidance now includes the Sanlam or if that's still on kind of the legacy assets on that 1 basis point... Hendrik du Toit: Sanlam is lower because it's a $20 billion deal. So it's lower, and it's largely fixed income assets. Jonas Dohlen: Yes. But on a group level, you expect 1 basis point... Hendrik du Toit: Yes, on an organic basis. So there's an organic basis and then there's the Sanlam transaction. And what I'm saying, the 1 basis point is the market pressure. If we were to ex Sanlam or if we were to get a big up weighting from a sovereign wealth fund where we already have a premium deal because they've got billions and billions with us, it's probably going to be below that fee level. If we win 500 million mandate chunks, it will be at or around or above that fee level. You see. So that's why I'm saying the market -- the institutional market pressure is roughly 100 basis -- or 100 basis points per year. The -- sorry, 1 basis point per year excuse me. 1 basis point per year. But the -- for us, Sanlam is a separate transaction and then obviously hugely accretive from a profitability point of view, and it depends then what kind of flow we get. Jonas Dohlen: Great. And then just on the tax rate as well. I think you mentioned... Hendrik du Toit: I don't understand... Jonas Dohlen: 25%. Kim McFarland: 25%. Correct. Jonas Dohlen: Being a reasonable number to go forward. I'm just wondering how to kind of square that circle. I mean you have a higher tax rate in South Africa, and that amortization part not being tax deductible as well? Kim McFarland: But we have tax in many other jurisdictions as well. So it's linking up the 2 of it. And -- you're right. When I'm looking at it, I'm looking for the next 6 months and the South African impact is only -- it's going to be in the results for a couple of months next year. I think looking ahead with the nondeductibility of the amortization piece, it will tick up a bit. Hendrik du Toit: Piers, you'll come back in new uniform. Piers Brown: Yes. Indeed, yes, it's Piers Brown from Investec. Hendrik du Toit: Very good. Piers Brown: So very happy about that. I might be greedy and actually, go for 3 questions. So the first one, yes, just back on to the fee rate conversations. So I guess, if you look at this from the perspective of the operating margin, you're -- I mean you printed 32%, which looks very good for the first half. If I take out the performance fees, you -- which I know is a slightly dubious calculation, but it looks like you're maybe sub-30%. But the question would be just on the fee rate outlook, do you think 30% is still the level you can protect? Hendrik du Toit: I think you have to compensate higher average assets under management, that compensates a bit because remember, the markets had a run close to the end, there was Liberation Day down than up. So your average AUM doesn't reflect your actual AUM. And you've got to look at where the sterling is strong or weak, which then deflates a big cost base. So I'm more comfortable than you. But you are right, there's -- the core revenues have not grown as much as they should have. So we don't run to a target actually. And therefore, it's not something we monitor daily. But I'm not at this stage, I'm comfortable that we're going to come back to you with a 25% operating margin, put it that way. Kim McFarland: I think that's too right. I think you've also got to recognize the fact that we're taking on the Sanlam assets, as I said, next year at a low cost. Hendrik du Toit: And I would remind everybody, we've bought I know we call the GBP 1.9 billion acquired growth, but we bought back those shares already. So if you think about it, it's just a mandate win, the big one is going to take a bit longer, but if we can do that, if we have the cash flows, then you know what, it's actually akin to an organic transaction. Piers Brown: Okay. Second one is just on the composition of flows. And sort of relating this into Sanlam, but I mean you've had GBP 1.3 billion of Africa outflows, offset by very strong inflows in Asia Pac. Is there anything in the Africa performance, which is maybe impacted by clients reallocating in advance of Sanlam or... Hendrik du Toit: No, no, it's not Sanlam. It's the -- South Africa is actually a very competitive market, and it's very transparent. When you know exactly what each competitor is doing and your cousin or your kid works at the competitor, you literally know what goes on. And so we had some performance pressure in 1 or 2 strategies, which didn't get -- the market goes quickly, moves quickly against you. We've had the back end of the so-called 2-pot system, which means money was released out of the pension system, where if you're a large provider, you have to suffer that. That is now gone. So that structural bit has left. And then, of course, there was the back end of the internationalization of the SA equity or SA investment market because the exchange controls were relaxed for international opportunities opened up for retirement funds. The Minister gave a big -- a few years -- 2 years ago, a big -- there was a big change in the -- what they call Regulation 28. And that means they could invest more. So there was a structural flow abroad. Typically, to new competitors rather than to someone already has a high wallet share with a client because it just makes sense for those clients. And actually, international passive was a big winner there where we don't compete. So I think those 2 forces are over, think on our investment side, we have all intends -- we intend to be very competitive, and we have recovered quite a lot in terms of competitiveness. So I think on all 3 factors, we're stronger in the second half than the first, but it is one of those markets where if you have a big share and you're not absolutely on top of it, the competitors come after you and we've got some very good competitors in that market. Piers Brown: Okay. Perfect. And just maybe a last one on capital. So 245% capital coverage ratio. I think you've sort of indicated 200% in the past is where you'd like to be. It doesn't feel like there's an awful lot of need for seed capital for some of the new initiatives. So the obvious question is, would you look to move closer to the [ 200% ]? Kim McFarland: We will -- I mean, as you noted, we've continued with buybacks in the actual period. We will continue to look for opportunities to use additional seed capital for buybacks when we're comfortable with the price, and obviously in agreement with the Board. Hendrik du Toit: If pricing is reasonable, we think reducing the denominator is always better than just paying out the cash. But we must look at where the market goes. And who knows, there may be opportunities. Any other questions? Investing definitely add value for money, you'll get your dividend. Varuni, are there any of online questions. Varuni Dharma: Yes. There are a few. First one is from Brian Thomas at Laurium Capital. Are you able to comment on the buyback program that was suspended during the half? Are there any metrics that you take into account in determining when you buy back stock that we should be mindful of? Hendrik du Toit: Before we answer that, there's -- Kim just reminds me, there is one thing in the Africa side. There was a 1 single client sort of -- and many clients pay out and eventually but reallocated away from us as well. So you should sort of have the impact of that number. And that's why I'm quite confident that it can turn around. Sorry, on the buyback, yes, we carefully -- we carefully look at value and value in the context of the industry and the context of what we see ahead because the one downside with buying back is if you overpay for your own stock. And therefore, it's always a consideration and a discussion with the Board. It's not an automatic buyback process. And -- but our industry has been so extremely -- I actually had benefit of last week in Paris when I went to watch the Rugby and I have to remind, I know the French listeners, it was a wonderful moment for South Africa and Paris. But in spite of referee against us, we're still -- but I actually went to watch the Rugby with someone who used to be one of the top financial analysts in the market about 25 years ago -- 20 years ago. And he's gone to private equity. He hadn't looked at valuations of asset managers. He was -- it's a bit like talking to someone who fell asleep 25 years ago because he was completely mind boggled by the relative valuation of asset managers against other financial firms particularly wealth today because in his time, it was exactly the opposite. We were the 20 multiple shops and the others were single digit. So I think broad -- and that reminded me again, that these cash flows, quality cash flows are still, in my opinion, or at least in our opinion, fairly cheap, which is why we have also been acquiring stock slowly and as a management team because we think the market is not appreciating the quality of the cash flows we generate. And so even though they don't -- may not grow as much organically there could be -- and there has been a re-rating of late. Now if the re-rating is too much, we will obviously step away. But our industry is still structurally very cheap compared to other cash flows of similar quality. I mean just close your eyes, 30%-plus operating margins is that's tech. Okay, what do you pay for tech? Palantir last when I looked at 185 PE multiple. So it's very different. And it's in that context that we think rather than in short 1 month, 1 week, 1 quarter valuation cycles. But there is a proper process, which Kim can talk to you about when she reports it again. Do you want to add something, Kim? Kim McFarland: Yes, that's fine. Hendrik du Toit: Any other questions? Varuni Dharma: Yes. Next question, Murray Winckler from Laurium again. Congratulations on returning to net inflows for the business. Headcount increased by 8%, which seems high. What should we expect going forward? Hendrik du Toit: Murray, well to done to you, by the way. You're one of those guys stealing business. We will have to come take it back. Just I mean that is one of the big questions. Can we get to a bigger -- a real efficiency for our business? That's about the digitization and the technology investment. But we should also remember that there was some preparation for -- although we're not taking on many people from Sanlam, there's a significant preparation for taking on a book of that size that -- and then there's also the improvement of our communication with end clients, which we had to invest in to make sure it's there. And again, technology over time will make that a lot easier but it was really important, and we've had challenges on -- with South Africa being on the gray list. We've had real challenges on dealing with our international funds into South Africa and our service capability had to just be much sharper, much better equipped to deal with it. And then we've also been building the private markets business, which is much more -- actually much more human intensive than certain public markets investment businesses. And that's about the reasons. I don't know Kim, are there any other ones that you pick up and you want to... Kim McFarland: I think that's right. I think the pickup in a lot of op staff on the IP platform in South Africa. Likewise, on the Sanlam. A lot of them are actually long-term contractors at this stage because I see it as a temporary thing. So I think the sort of more permanent headcount growth has been in private markets and within the actual business. So I think the question is what are we thinking about it looking forward? I'm not seeing an 8%. I wouldn't be looking at an 8% increase in headcount going forward, I think, would be my answer. Hendrik du Toit: And I think with a better use of technology, we could run the same quality service, leaner, that includes client acquisition, client service, investment processes, but it's very important to do these things very slowly over time. I'm not as bold as the big banks that say that they will run -- I mean, 2 of the big bank CEOs in Global Bank CEOs confirmed to me that they'll double their business over the next 5 years with the same staff levels. That has to be seen whether that's going to realize, but those are ambitious goals. I think we should have similar goals, but it's early stage saying it because the promise and the layer of technology is always there and then the delivery is slightly behind. And we've -- those of us who have worked in the markets a long time have realized that. But definitely don't budget for a 8% staff increase, Murray. That's not going to happen. Varuni Dharma: Next question from Jaime Gomes, Laurium Capital. Can you please explain the expected total onboarded AUM from Sanlam remaining the same as what it was this time last year, circa GBP 17 billion. Has the book experienced some outflows given the strong market performance over the last 12 months? Hendrik du Toit: The book is roughly -- it's the same number. There might be a little benefit rand to sterling exchange. So it might be a little more in sterling. But remember, it's a very fixed income, heavy book. There are also -- there could be a few wins associated as well, but we first got to deliver them. So we're very comfortable that the numbers will reflect what we told the market at least. Varuni Dharma: Next question from Hubert Lam. Can you give us an update on the alternatives business and new initiatives, including private credit? And he has a second question, which is, how should we think about further investments you need to make in AI and tech and what that means for your cost base? Hendrik du Toit: Hubert, nice to get a question from you. I know you have another meeting, so you're not here in person. I would say that my simple answer is private markets are hard. And I'm so glad we didn't buy an overpriced boutique to grow, which then doesn't grow, okay? Because the top guys dominate they've got such a strangle hold. And so that's my one point. I think we found niches which we can live in and defend and grow. And what we have actually done is put some of our -- to make sure they get the full support of the firm, put some of our top leadership very close to the private markets guys and they support them to get through and we build it around and particularly around our emerging markets positioning. Now what we know is the emerging markets haven't had huge flows as such. We think there will be appetite and there will be appetite coming. We modest net inflow have been consistently in that space. But we are building through our cost line, and it's fully reflected in our cost line, we are building capability to be actually -- to be fully competitive in our various areas. And I think our focus is private credit. And private credit and transition credit, and that is very clear, and we have built a market name and position there. So we would expect accelerating flows to follow. But those businesses take -- will take a while to impact -- to truly impact on the bigger Ninety One bottom line. If you model us, model us largely as a long-only business, long-only active business because that's still very dominant in terms of revenues and flows. Kim McFarland: Cost. Hendrik du Toit: And yes, but private market is costly to build. It's high fee, but costly, whereas public markets could be done very efficiently with slightly lower fee, and that's the sort of trade-off between the businesses. But we do see the merger. And so the partnership we announced in the joint venture we announced with in -- with the Singapore based, which we are about to announce because we'll probably -- will probably sign in the next few days, and that's why we haven't been long on detail because anything still -- things have to be -- until they're fully signed, you don't want to talk too much. But there, we have -- we're talking to a business which does long short and crossover between public and private. Now I think these universes are getting closer, and one just has to make sure you understand what happens to the other side of the liquidity fence rather than just staying in the curated even if you want to be a very good long-only business staying in the highly curated screen-based long-only part of life. You've actually got to get -- understand what entrepreneurs are doing and what's happening in the ever longer pre-IPO pipeline because we do know a lot more happens on that side of the fence now from venture right through to growth. And I think that's important for us. But as these things emerge, who knows what product constructs will look like, who knows what client appetite will look like. Clients today are still very organized in boxes between the so-called alternatives units, which is now quite frankly, mainstream and active long only, which is becoming increasingly alternative and passive. So they've got their different boxes. But as they start looking at the total portfolio approach, who knows how they are going to buy and that's what we need to be prepared for. Kim McFarland: And I think the question on uptick in technology spend or AI spend, which was the other one, I think Hendrik mentioned the fact that our big technology replatforming exercise did complete early this year. So those costs are now -- and the ongoing cost of that are actually largely built into our figures. AI has largely been a part of our operating cost line. So the gain, how you should think about it is really a continuation of what our cost base is right now. Hendrik du Toit: Yes. And we absorb in what is available or what can be bought. We don't go to bleeding edge development. The big thing is getting your data organized. And I mean it's been with -- that data story has been with me ever since I've been in this firm. Everyone said we have to organize our data better. But you can get so much more value if you are properly digitized as digital middle business models are showing, it is not trivial and that easy. But as a midsized business, if we can't get it right, nobody can get it right. So -- but we're spending resource and effort on it to make sure we can extract maximum value given the enhancements of the available tools. And they are genuinely moving very fast. And I think 5 years from now, we will be in an entirely different world, and we need to be ready for it. Any other questions, Varuni? Varuni Dharma: Yes, a couple. We have a couple of questions on buybacks. The first one from James Slabbert from Standard Bank. There was a slide on the existing capital stack in the business, would it be aggressive to model for annual buybacks far in excess of earnings remaining after the payout of dividends. I think you've touched on that. But -- so by modeling for buybacks in excess of earnings. And then whilst we're on buybacks, a question from Keenon Choonoo from Investec. Is there a preference between Ninety One Limited or PLCs when considering buybacks? Kim McFarland: So we look at both the plc and the limited lines as far as buybacks are concerned. In fact, we look at even PLCs on the JSE line when we look at buybacks. So we look at all three because there sometimes is a variation in price. So we look at all 3 -- effectively 3 lines, although there's obviously 2 shares to answer that question. As far as buybacks to ceding earnings, we look at buybacks from a capital position. So we -- it comes back to the question asked earlier by peers, you aim for a 200% capital position. We're in excess of that. So I'm rather looking at my capital position, understanding, yes, is there any seed? Is there any regulatory requirements. As you mentioned, there's not an awful lot of that at the moment, but we take that into consideration and at the same time, then look at opportunities for buyback based on surplus capital that we're holding on the balance sheet. Hendrik du Toit: Yes. But we -- what we don't do is this is a highly operationally leveraged business. It will only be an extreme that we will leverage the business. You remember, this is what sticks out asset managers. They go on leverage and then they get the fall in assets under management. They get outflows and the debt stays the same and the equity gets wiped out. So we will be very, very careful to ever go beyond what we can do out of our ongoing earnings or surplus capital. Some other industries, people get very brave. I think, yes, this is probably one of the reasons why we haven't bought the firm from the market yet, okay, because you don't leverage these businesses. . Varuni Dharma: Another question from James Slabbert for clarity on the 1 basis point fee margin compression. Would you apply that to the current fee rates that H1 2026 or the FY '25, so the year-end? Hendrik du Toit: I think we've already done this year, we've already done it. I mean we doubled it. So we think we could have a -- we're not 100% sure, but we could have a far lower decline in the second half, just given what's happened in flow dynamics, excluding the Sanlam. But -- and it's really a gut feel here. But that 100 basis points feels like the underlying trend in the market, not necessarily ours. And James, I wish we can't even forecast it to our Board where we're going to be -- it's very -- you've got a very hard job at doing that. I don't know whether Kim can give you any more wisdom except to say the trend is not up. Kim McFarland: Well, I think you're right. I think you're going to look at the most recent fee rate. And if it's in the half year, so you're taking half or 0.5 based on the most recent fee rate, but then you have to take into consideration, as we mentioned, the Sanlam assets coming on board, which will have a further impact and should we take on any large new mandates in the period. If we see those flows, there's likely to be further fee erosion, hopefully not, but there's likelihood. Hendrik du Toit: You see -- especially when you do the relationship deals, with a large insurance company or something like that. And they are genuinely sensitive because it hits their profit, but they can give you assurance about commitment, timing, i.e., embedded value or present value of the deal, that's different from when you get in the normal distributed pension market OCIOs most -- many of them are in -- or multi managers are different because you're not going to compete on price there at all. So it depends where the flow comes from. What we haven't seen, and I think that's the bit you should understand. We haven't seen the sort of -- I've hinted that there are opportunities to grow. But the good times aren't back yet. When you get into the good times and clients want to deploy fast and -- they just want to get the money out there. Then price sensitivity tends to take a backseat. At the moment, they have lots of time to deploy. They're thinking multiyear. They're not chasing markets. I think if you get up severe underperformance or you get -- and I don't think we're going to see it immediately, but if you get a big correction in the dollar, then that changes life. And that's the positive for us. But I don't want you to model that. Varuni Dharma: Last question from Herman [ Van Veltsa]. Do new clients favor fixed fees? Or do they tend to opt for performance fees? Hendrik du Toit: Herman, nice to hear from you again. Another old campaign. I wish clients wanted to give more performance fees because the way you could resolve this constant fee bickering and say, come on, pay us afterwards, pay us properly. But Interestingly, clients have typically been burned by performance fees because they end up paying more. And so they're reluctant to do that. They're also reluctant to go to the -- I mean, in mutual funds, where it's quite prevalent in South Africa, it's not actually encouraged in the rest of the world. ETFs are very difficult. You can't really do -- it's difficult to do, whereas institutional owners don't want to go and pay the big check and ask their Board to pay a large check to a manager unless it's in the alternative bucket. Now again, if those buckets fade and different kind of people contract with us, we could possibly push more performance fees. We think it's a way to align well, although buy-side analysts or sell-side analysts would say it's lower quality of earnings. But I think we could make more profit. They're very happy to do that when they buy Millennium or Citadel. But for some reason, there is a reluctance in our space because that's just what it is. So we would be quite open because we know, over time, 80% of our offerings beat the benchmark. So it's in our favor. But -- it's not the reality today. So I wouldn't model for much bigger performance fee component in our business. I'd roughly keep it similar, noting that a period of good performance, we will own more performance fees. Thank you very much. Thank you very much, and I'll see you after second half, and I hope the positive -- the positive hence, have realized, but it's up to the market. Thank you. Kim McFarland: Thank you. Hendrik du Toit: Thank you very much, guys.
Operator: Hello, ladies and gentlemen. Thank you for standing by for the Third Quarter 2025 Earnings Conference Call for XPeng Inc. [Operator Instructions] Today's conference call is being recorded. I will now turn the call over to your host, Mr. Alex Xie, Head of Investor Relations and Capital Markets of the company. Please go ahead, Alex. Alex Xie: Thank you. Hello, everyone, and welcome to XPeng's Third Quarter 2025 Earnings Conference Call. Our financial and operating results were issued by Newswire services earlier today and available online. You can also view the earnings press release by visiting the IR section of our website at ir.xiaopeng.com. Participants on today's call from management team will include Co-Founder, Chairman and CEO, Mr. He Xiaopeng; Vice Chairman and President, Dr. Brian Gu; Vice President of Corporate Finance and VW Projects, Mr. Charles Zhang; Vice President of Finance and Accounting, Mr. James Wu; and myself. Management will begin with prepared remarks, and the call will conclude with a Q&A session. A webcast replay of this conference call will be available on the IR section of our website. Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties is included in the relevant public filings of the company as filed with the U.S. Securities and Exchange Commission. The company does not assume any obligation to update any forward-looking statements, except as required under applicable law. Please also note that XPeng's earnings press release and this conference call include the disclosure of unaudited GAAP financial measures as well as unaudited non-GAAP financial measures. XPeng's earnings press release contains a reconciliation of the unaudited non-GAAP measures to the unaudited GAAP measures. I will now turn the call over to our Co-Founder, Chairman and CEO, Mr. He Xiaopeng. Please go ahead. He Xiaopeng: [Interpreted] Hello, everyone. In Q3 2025, XPeng reported record sales -- record results in key operating metrics with new highs in deliveries, revenue, gross margin and cash reserves. Vehicle deliveries for the quarter totaled 116,007 units, a 149% increase year-over-year. The all-new XPeng P7 launched recently quickly became one of the top 3 BEV sedans priced between RMB 200,000 to RMB 300,000 boosting monthly deliveries to over 40,000 units starting in September. Additionally, the company's gross margin exceeded 20% for the first time in Q3, and we reduced our net loss further. Our goal is to achieve breakeven for the company in the fourth quarter. These continuous operational improvements strengthen our focus on physical AI R&D, supporting the targeted mass production of our VLA 2.0 model, Robotaxi and humanoid robot in 2026. As AI models advance and become increasingly integrated with real-world data, machines are slowly gaining the ability to interact, communicate, transform and create within our physical environment. This development is reshaping the future of mobility and daily life. Over the past 11 years, XPeng has dedicated itself to building full stack technologies in-house evolving from software-defined vehicles to the emerging realm of physical AI. We understand that vehicles and humanoid robot, the 2 primarily applications of physical AI, share a homogeneous physical world model, SoCs and infrastructure, allowing for rapid iteration and evolution. Excitingly, new capabilities are continuously emerging from our physical AI technology stack. Over the next decade, my goal is to make XPeng a leading global company in embodied intelligence. Focused on physical AI applications, we're developing an extensive portfolio of technologies, products and supporting business ecosystem. Besides providing AI-powered vehicles to consumers worldwide, we aim to deploy pre-installed mass-produced Robotaxi on a large scale and achieve the mass production of humanoid robots. We believe that an open and dynamic ecosystem is crucial to unlocking the full potential of physical AI for humanity. To achieve this, we plan to open source our physical world model, launch Robotaxi services in partnership with mobility platforms and relieve our humanoid robot SDK. This approach will expand the physical AI application ecosystem through collaborations with business and technology partners and accelerate the value creation process. I'm also glad to report that as we introduce the one vehicle, dual energy product cycle for AI vehicles, we'll expand our scale and increase our NEV market share through a wider product range. On November 6, we launched presales for the XPeng X9 Super Extended-Range EV, an industry frontrunner in extended-range vehicles equipped with a 5C rate high-capacity LFP battery and a total range of up to 1,602 kilometers. It is the world's first large 7 seater to offer the longest range, highest AI computing power, smallest turning radius and most efficient space utilization in its category. We see super extended-range EVs as crucial for accelerating the shift from ICE vehicles to NEVs. Since presales began for the X9 Super EREV, we've experienced unprecedented interest, especially in northern regions and inland cities of China, attracting many customers who previously hesitated to switch to BEV models. To date, preorders for this model are nearly 3x higher than the presale of the previous X9. On a like-for-like basis, the X9 Super EREV will officially launch on November 20 with deliveries starting immediately afterwards. I anticipate reaching a new delivery record in December. We plan to introduce 3 super extended-range products in Q1 2026 focusing on alleviating key challenges for our EREV users by offering long, pure electric range and quicker 5C supercharging, thereby capturing more of the EREV market. We have put in more R&D expenses in 2025. As a result in 2026, we'll also launch 4 new one vehicle, dual energy models, including our first product launch in some key market segments. These innovative products will help us establish a presence in these markets and build leading products like the MONA M03. I'm confident that the 7 one vehicle, dual energy models with super extended-range technology debuting next year will greatly increase our total addressable market or TAM and provide significant sales growth opportunities. On the global business front, we maintained strong sales growth and established a solid foundation for long-term expansion through our localized approach. In September 2025, our monthly overseas deliveries exceeded 5,000 units for the first time, a 79% increase year-over-year. During the third quarter, we grew our global presence with 56 new overseas stores, expanding our sales and service network to 52 countries and regions worldwide. Additionally, our first European localized production facility at Magna plant in Graz, Austria, officially commenced operations with the initial batch of XPeng G6 and G9 rolling off the line. Simultaneously, XPeng's R&D center in Munich, Germany, officially began functioning, helping us better understand overseas customer needs and accelerate technological advancement and product launches. In 2026, we plan to introduce 3 new overseas models, including popular mid- to small SUVs that meet the diverse preferences of global consumers. Our strong focus on investing in AI large models, computing infrastructure and data set is driving the continuous emergence of advanced capabilities from our physical world model. Our upcoming VLA 2.0 model, which has 10x more parameters than its predecessors will substantially enhance safety and user experience in intelligent driving. From my own recent driving experience during very complicated and complex road conditions, we experienced very impressive and unparalleled driving experience from the intelligent VLA model. So starting from late December, we will initiate a co-creation program with our early adopters. In the early quarter of 2026, we aim to deploy the VLA 2.0 model across the entire Ultra lineup. I see the mass production of VLA 2.0 as a major breakthrough in physical AI models, offering a significant generational leap in user experience and attracting more people to choose XPeng for its leading intelligent driving technology. Going forward, XPeng will open source it's VLA 2.0 model to global commercial partners, aiming to provide industry-leading advanced driver assistance experience to a wider audience. Volkswagen will be the initial launch customer for the VLA 2.0 model. Additionally, XPeng's Turing AI SoC has earned a formal sourcing designation from Volkswagen with codeveloped vehicles expected to start mass production early next year. Revenue from licensing our technology to external partnerships will be reinvested into our R&D, mainly to support iteration and upgrades of the Turing SoC and VLA models. This fosters a positive cycle of innovation and commercialization. We invite more automakers and Tier 1 manufacturers to collaborate with us on the Turing SoC and VLA 2.0, working together to promote the adoption of advanced intelligent technologies in both Chinese and global markets. Traditionally, end-to-end models were able to maybe reach advanced Level 2 at its best; however, the rise of physical world model is speeding up the arrival of true autonomous driving. I believe that only pre-installed mass-produced Robotaxis with a strong ability to generalize can achieve widespread adoption and create a sustainable business model. In 2026, XPeng plans to launch 3 Robotaxi models. Our technology stack for Robotaxi does not depend on high-definition maps or LiDAR. This approach enables us to address current industry's challenges, including high cost, operational limitations and poor generalization, allowing for an efficient and scalable deployment worldwide. We intend to begin pilot operations of XPeng Robotaxi in China in 2026, continuously improving both software and hardware of Robotaxi while building an operational ecosystem. I believe that a collaborative ecosystem where all industry stakeholders' benefit is key to scaling rapidly. Therefore, we plan to open our SDK to our partners, and Amap will be the first ecosystem partner for XPeng Robotaxi. We also invite more companies in the mobility sector to explore Robotaxi collaboration opportunities with us. Our humanoid robots adopt a technology road map driven by physical world model. With full support from our vehicle and powertrain R&D teams, we unveiled our next-generation IRON robot at the latest XPeng Tech Day. The IRON's human-like posture and agile gait surprised and deeply moved many XPeng fans and also highlighted the great commercial potential of humanoid robots. Currently, IRON demonstrates only a very small fraction of its capabilities. In Q2 2026, we plan to achieve full capability integration through cross-domain innovation aiming for performance and user experience for far surpass current market offerings. Our target is to begin mass production of advanced humanoid robots by the end of 2026. Once produced, IRON will be first deployed in commercial scenarios, providing services like tour guiding, retail assistance and patrols. By the end of next year, I hope IRON will be working alongside us at XPeng stores, campuses and factories as our new team members. Additionally, XPeng Robotics will open its SDK to global developers, inviting partners from various industries to collaborate on secondary development. This will enable IRON to be trained and to evolve across diverse and long-tail real-world well scenarios, unlocking broader application possibilities. From a long-term perspective, I believe the market potential for humanoid robots will exceed that of automobiles. Once a new generation of robots reaches the inflection point just as China's EV industry did with electrification, we expect explosive growth ahead. I envision that by 2030, XPeng robots could sell over 1 million units annually. With the launch of our one vehicle, dual energy product cycle, I expect total deliveries in the fourth quarter to reach between 125,000 and 132,000 units reflecting a year-over-year growth of 36.6% to 44.3%. We project fourth quarter revenue to be roughly between RMB 21.5 billion to RMB 23 billion, up 33.5% to 42.8% from the previous year. XPeng's AI-driven vehicle business is in the early stages of rapid expansion in terms of scale and market shares, while Robotaxi and humanoid robot programs are swiftly moving forward and towards mass production. I'm confident that XPeng will establish itself as a leader in physical AI, both in China and globally, delivering greater value for our customers and shareholders worldwide. Thank you, everyone. With that, I'll now turn the call over to our VP of Finance, Mr. James, who will discuss our financial performance for the third quarter of 2025. Jiaming Wu: Thank you, Xiaopeng. Now let me provide a brief overview of our financial results for the third quarter of 2025. I'll reference RMB only in my discussion today, unless otherwise stated. Our total revenues were RMB 20.38 billion for the third quarter of 2025, an increase of 101.8% year-over-year and an increase of 11.5% quarter-over-quarter. Revenues from vehicle sales were RMB 18.05 billion for the third quarter of 2025, an increase of 105.3% year-over-year and an increase of 6.9% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly attributable to higher deliveries from newly launched vehicle models. Revenues from services and others were RMB 2.33 billion for the third quarter of 2025, representing an increase of 78.1% year-over-year and an increase of 67.3% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily attributable to the increased revenues from after sales services and technical R&D services rendered to the Volkswagen Group due to the successful achievement of certain key milestones in the current quarter. Gross margin was 20.1% for the third quarter of 2025, compared with 15.3% for the same period of 2024 and 17.3% for the second quarter of 2025. Vehicle margin was 13.1% for the third quarter of 2025, compared with 8.6% for the same period of 2024 and 14.3% for the second quarter of 2025. The year-over-year increase was primarily attributable to the ongoing cost reduction, while the quarter-over-quarter decrease was due to targeted promotion to clear outgoing inventory during product transition. R&D expenses were RMB 2.43 billion for the third quarter of 2025, representing an increase of 48.7% year-over-year and an increase of 10.1% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were mainly due to higher expenses related to the development of new vehicle models and technologies, as the company expanded its product portfolio to support future growth. SG&A expenses were RMB 2.49 billion for the third quarter of 2025, representing an increase of 52.6% year-over-year and an increase of 15% quarter-over-quarter. The year-over-year and quarter-over-quarter increases were primarily due to higher commission to the franchised stores, driven by higher sales volume as well as higher marketing and advertising expenses. As a result of the foregoing loss from operations was RMB 0.75 billion for the third quarter of 2025, compared with RMB 1.85 billion year-over-year and RMB 0.93 billion quarter-over-quarter. Net loss was RMB 0.38 billion for the third quarter of 2025 compared with RMB 1.81 billion year-over-year and RMB 0.48 billion quarter-over-quarter. As of September 30, 2025, our company had cash and cash equivalents, restricted cash, short-term investments and time deposits in total of RMB 48.33 billion. To be mindful of the length of the earnings call, I will encourage listeners to refer to our earnings press release for more details on our third quarter 2025 financial results. This concludes our prepared remarks. We'll now open the call to questions. Operator, please go ahead. Operator: [Operator Instructions] For the benefit of all participants on today's call, if you wish to ask your question to management in Chinese, please immediately repeat your question in English. [Operator Instructions]The first question today comes from Tim Hsiao with Morgan Stanley. Tim Hsiao: [Foreign Language] So my first question is about the physical AI because in the past, the competitive advantages of other companies were reflected in several aspects like cost, brand and channels. Just wondering if the management could elaborate a bit more about what aspects XPeng's long-term competitive advantage in physical AI will be demonstrated? And how will the company continuously enhance its strength in these areas? That's my first question. He Xiaopeng: [Interpreted] I think this is definitely a big question. The traditional way for automakers to make money is completely different from the new physical AI model generated kind of business format. They come from different DNAs. Traditionally, older traditional automakers focus on their own positioning and also about how they target their user segments and then everything boils down to their integration of Tier 1 suppliers and all the other different parts of the supply chain. However, when it comes to a physical AI-generated model, the definition is different. We determine what the -- we -- everything boils down to the definition of the future tech. It involves full-stack technology capability and also custom integration. For example, the launch of our IRON robot is a great example of that. So that's why different DNA is going to generate different products and different growth momentum. In the future, I believe that cars will be a new format of robotics, and it's going to actually come to the real life in the coming 5 to 10 years as the next generation of robotics in our life. So traditionally, the integration of supply chain is completely different from what we are looking at right now, which is the physical AI technology integration across different domains and involves software, hardware and infrastructure upgrades, which will lead to a completely new set of products. As a result, traditionally, software were only a small percentage of traditional car development, whereas right now, it takes up a large part of new product development. And I believe that when you look at our future developments, we are actually going to see more and more physical AI components in the future for car development over 50%, and we are going to see that very, very soon. Thank you. Tim Hsiao: [Foreign Language] My second question is about revenue from the collaboration with Volkswagen. So first of all, congratulations on the project wins of Turing chips at Volkswagen. So may I know from which quarters the related revenue will start to kick in? And how should we think about the trend of the revenue contribution from the collaboration with Volkswagen in December quarter and the full year 2026? That's my second question. Charles Zhang: Tim, this is Charles. So in Q3, we delivered a few key development milestones on time. So you probably have seen that the revenue from the technology collaboration increased significantly quarter-over-quarter. And we continue to see that there are a few key development milestones to be delivered in Q4. So we believe that the revenue from technical collaboration in Q4 will be expected at a comparable level we see in Q3 2025. And then regarding your question on the Turing SoC. Yes, we were -- our Turing SoC was selected by Volkswagen for the 2 B class vehicles we're jointly developing. And we have already started to supply the Turing SoC to some of the -- our partners, the preproduction and verification vehicles. So therefore, the revenue -- we would expect that the revenue from Turing SoC will start to be recognized in Q4 and probably in the small amount. But however, as our jointly developed vehicle SOP from early next year, and we would expect the revenue from the Turing SoC will ramp up with the sales volume of the 2 vehicles we jointly developed. In terms of the revenue from the technical collaboration in 2026, and we expect that as long as we can deliver the key milestones that are scheduled in 2026, we would expect that the revenue -- the technical -- the revenue from the technical collaboration for the full year 2026 would be comparable to that of the revenue we recognized in 2025. So I think looking back, we have demonstrated that we can -- well, we delivered the revenue from commercialization of our technology for 7 consecutive quarters. And I think we believe that there are still opportunities we would like to explore to commercialize our technology and also as our CEO, Xiaopeng, mentioned, and we will reinvest such revenue from the licensing or technical collaboration back into our R&D. Thank you, Tim. Operator: Next question comes from Nick Lai with JPMorgan. Y.C. Lai: [Foreign Language] My first question is -- my 2 questions is actually related to humanoid robot strategy and ambition in the longer term. At a recent Technology Day, XPeng demonstrated our first humanoid robot IRON which worked really like human. And can you talk about our technology road map and compare with the comparable peers? And where is our competitive advantage comparing with the peers in the medium and longer term? That's my first question. He Xiaopeng: [Interpreted] Thank you. Because there are so many robotics companies in the market, to be honest, the technological and product development road map and strategy of XPeng's robotics is moving forward as we expect, according to our own plan. We have paid really little attention to any other differences in the robotics industry to other companies before we launch our own products. Now when we look at XPeng, for example, our product philosophy is highly theoretical. You can actually -- well, it's highly human-like. That is the goal of developing our own humanoid robot. What's interesting about our product is that we realize that when we incorporate muscles and very bionic skin on to our robots, we actually attracted a lot of people to dare to hug him. And this is very, very exciting because traditional robots really were not that attractive and appealing for human beings to give them a hug. In addition to that, we also would like to mention that in the future, I believe that across many aspects of lifeline work, we are going to see more and more robots that is working alongside us. So for the current generation of XPeng robots, last time that we launched it, it was actually the seventh generation, and we are going to begin mass production of the eighth generation of our humanoid robots. In fact, when we look at some of the available robotics in the market, I believe that a lot of them are between generation 3 and 5, which is mainly being driven by joints and all the operation of different hardware. And when you look at the operation of hardware and software, you can see that the available products in the market look very similar in the way that they walk and they move. And these kind of robots, I believe, are very, very hard or difficult to commercialize in the end. So in the future generations of our robot, we actually have been thinking about what kind of technological route we should be used, and we have fully integrated actually hardware and software driven by integrated AI. So this time, you can see that the robot that we showed to the market is based on our full-stack R&D capability and cross-domain integration. I believe that XPeng Motors has many advantages when it comes to our robotics and humanoid robot development. For example, our physical AI resources have a synergy effect with our AI cars. For example, we actually are considering may be producing higher than car grade performance for our humanoid robots. And also our thinking logic on how to conduct business and mass production of our humanoid robot is largely driven by our knowledge and industry know-how in the EV industry. For example, when we build the future sales and marketing layout and globalization, there's a lot of synergistic effects that we can enjoy from the existing layout with our car sales. Also I believe when it comes to the future robotics development, some company will still -- some of the players will come from auto-making industry. And I believe that XPeng will definitely have a first-mover advantage in this regard because of the data, the SoCs and the capability that we have. Thank you. Y.C. Lai: [Foreign Language] My second question is also related to humanoid robot long-term strategy and operations. And from here to commercialization, what are the key critical milestones that we should be mindful? And from now towards the end of '26, can you remind us what the capacity and expected scale of our human robot operations? And also in terms of use case, by, say, 2030, you mentioned that 2030 we target to deliver 1 million units, can you also talk about the use case in the longer term? He Xiaopeng: [Interpreted] Thank you. To be honest, IRON's mass production is probably the most challenging kind of vehicle or products I've ever worked on at XPeng Motors, if I have to make the comparison between mass-producing IRONs and other cars because there's still a lot of challenges. For example, our ultimate goal is for it to be easily trained with human language so that it can really help us in various ways, and there's a lot of room for improvement there when it comes to capability integration. For example, if this robot can walk or run in various safe postures that requires a lot of integration of capability as well. For example, it needs to have all the joints embedded in management and also full coupling of different wiring, et cetera. Also, if we need to allow it to have more generalized kind of dexterous hand movements, well, it will also require a lot of hand-based VLA, which we believe by beginning of next year will be integrated. We also need to allow it to have that kind of communication and language-based communication capability between the robot and humans. So that also will come from, for example, a lot of VLM and VLT, which is the small brain and large brain kind of modeling capability. But what I'm really excited to share here is that we will start entering the 1.0 stage of our new generation of mass-produced models next month. I believe that in the next 10 months, we'll be able to actually promote the robot development in an orderly manner during mass production. And I think that's the first part of my answer. Thank you. I think the ramp-up in robot production capacity is much simpler compared to cars. However, the commercialization of robots is indeed very, very challenging. It requires us to look for really new heights of technology and ultimately achieving more capabilities. Therefore, we hope to initially implement in several commercial scenarios included tour guiding, shopping or retail assistance, et cetera. In 2026, we hope that we actually can see a lot of our own robots working alongside us at our XPeng stores, campuses for the first stage of field testing. At the same time, we are also opening our SDK to more of our partners so that our partners can easily and simply buy our robots and train them for commercialization purposes. If your question is about future possibilities of scenario application, I think it's going to be even more than you think. For example, for commercialized robots, maybe you can switch their arms and allow them to go into the industrial production scenarios. And when will the robots go into our household setting? I think maybe 5 years' time, we still have a big chance of achieving that. And I hope that through opening our SDK, we can allow more kind of partners to help us tackle those diverse and long-tail scenarios of application so that we can all enjoy a better robotic future and build a better ecosystem. Thank you. Operator: The next question comes from Ming from Bank of America. Ming-Hsun Lee: [Foreign Language] Why does XPeng choose to launch Robotaxi service in 2026? Could you share your technology inflection point or how fast you lower your cost? And compared to other Robotaxi companies in China, what is XPeng's technology path or business model? What is your advantages? He Xiaopeng: [Interpreted] Thank you, Ming, for your question. I think that within our R&D strategy, there are 2 key aspects, which are full-stack self-development and also cross-domain integration. I believe that in 2026, we will be actually seeing a collection of inflection points within our own development system. For example, we are going to be able to launch our current models into the Robotaxi configuration of fleets, which, by that time, we believe that the inflection point will arrive. At the same time, our VRM models will continue to offer new capabilities for our future vehicles to be more robotic-like. In addition to that, our current second-generation VLA can actually train our intelligent driving Ultra cars and also in the future, maybe also train our mass version of cars using the same kind of large model, too. In other words, we have our cross-domain capability based on our robotic development, which really can solve a lot of Robotaxi current limitations, for example, the high cost of production and also the limitation of the mobility destinations. For example, current Robotaxi now cannot really handle very complicated and complex road conditions and also in residential areas that has a lot of unpredicted scenarios and also a lot of them currently require LiDAR for their perception capability and so on. So in 2026, we hope that by commercializing fully shared L4 capability in our Robotaxi. We actually can have the dual development of the driverless L4 model together with an assisted driving L4 model. With the launch of both method or road map in the future, I think very soon, it will be proven that XPeng has actually a better commercial logic thinking compared to other Robotaxi companies and that will give us a great competitive advantage. Thank you. Ming-Hsun Lee: [Foreign Language] So how does the management team think about the commercialization of your Robotaxi business? Especially in the future, what is your planned milestone, for example, like in terms of the number of fleet? Or when will you plan to roll out in different cities or overseas market? And also currently, you already have a cooperation with Gaode, Amap, and could you elaborate more about your cooperation? And in the future, do we expand -- do you plan to cooperate with small partners like other ride-hailing companies? He Xiaopeng: [Interpreted] Thank you. Actually, next year, XPeng is going to launch 3 different types of Robotaxi models at different price points to support different mobility purposes and demands. In the next phase of development, I believe, with the premise of regulatory approval, our priority is to really get everything running smoothly, when it comes to the whole technological and operation and business model. So in that scenario, we hope to work with more and more business partner in the ecosystem. For example, Amap will be a great partner. They are going to give us more development support when it comes to traffic and also payment and operation and services, et cetera. That really set us apart from a lot of the autonomous driving OEMs. And I believe that in the future, for different countries and regions and different steps of development, we are going to actually launch more partnership with different service providers across different lanes. And for XPeng, what we need to do is that we are building our toolbox really well, and we're opening up our interface capability so that we can work more with our ecosystem partners in the future across different countries and cities. And so once we really get everything up and running commercially in different environments, we can then quickly build our ecosystem. This is one of our considerations. Thank you. Operator: The next question comes from Tina Hou with Goldman Sachs. Tina Hou: [Foreign Language] Let me translate my first question. So first, I would like to understand, over the next 1 to 3 years, do we have a rough revenue estimate or breakdown for our new businesses, including Robotaxi, humanoid robot as well as eVTOL? Gui Hongdi: Tina, it's Brian. First of all, I would say that for these future development areas, we do not provide any numerical guidance at the moment. Clearly, all those 3 areas, we anticipate volume, scale level production and operations in the next 12 months. For example, the Land Aircraft Carrier from our flying car company is aimed to be delivered to end customers before the end of next year, will be in volume, also scale, which I would say, in the thousands of range. But the other 2, for example, the humanoid robot as well as autonomous driving Robotaxi, as we just discussed earlier, next year will be actually a year we'll see a lot of operational testing as well as scaling up process to make them ready for large quantity production and use. So I would say the contribution from next year will probably be limited. But I think the volume we'll expect to ramp up rapidly once the model and the stability of these products is proven in the use, consumer end as well as application end. So the long-term goal of having 1 million per year humanoid robots sort of sales by 2030 is our long-term goal. And that is something that we have good confidence given we see the quick ramp-up in terms of technology as well as multiple application areas in home, in offices, in factory settings. So with all these future areas, we believe the potential is immense. So at this moment, unfortunately, I cannot give you the exact breakdown as well as precise cost estimates because these are still, I would say, evolving. But I think the overall trend is very exciting for us. Tina Hou: [Foreign Language] So my second question is regarding our passenger vehicles. So wondering if we can get more details on the new models, their segment as well as price segment, both in the domestic market as well as overseas and also do we have a volume target for 2026? Charles Zhang: Tina, it's Charles here. I think we believe that one chassis, dual powertrain vehicles present very attractive opportunities. It is also one of our strategic initiatives to expand the volume and the TAM of our -- each of our vehicles. So I think on November 20, we are launching the X9 with pricing, that will be our first, we call it the Super EREV product to be launched. And then you probably also have noticed that we have -- we already have 3 existing vehicles, Super Electric model, already registered with regulators, and we plan to launch those 3 products in early 2026. As Xiaopeng also mentioned that we have 4 vehicles -- 4 new vehicles when we launch, it will be equipped with both BEV as well as EREV powertrain options. And those 4 new vehicles are positioned in the different various segment -- various pricing segments we're in. And we believe that, that will continue to enhance our product portfolio in each of the price segments we're targeting. So in terms of the growth into next year, and we believe that the huge -- the one chassis, dual powertrain vehicle models, the 7 models will significantly drive our growth next year. And also another growth driver we have seen is that the international market will continue to be a major growth driver for us. With our current products available in the international market, we have already hit 5,000 per month for September and also October, the 2 consecutive months already. And of the 7 new vehicles we're launching next year, 3 of them -- at least 3 of them will go to international market. And so we are confident that the international market volume will continue to be a very important growth driver for us into 2026. Operator: The next question comes from Pingyue Wu with Citic. Pingyue Wu: [Foreign Language] I have 2 questions. And my first question is about the new EREV model. And what do we think about the growth potential of our new EREV models in 2026? And my second question is about the humanoid robots. And how do we think about the fuel economy of the humanoid robots since we have implemented some new technologies, for example, the solid-state batteries and et cetera. And in terms of the affordability, will IRON robot be affordable for family, say, like RMB 200,000 or even less? He Xiaopeng: [Interpreted] First of all, regarding the first question, I think what's interesting that we discover from the sales figures that we gather from -- since the launch of X9 was that the targeted customers and also the actual users of BEV and EREV are quite different. So we believe that we can expect to actually see several times of quarter-over-quarter growth when the new version of X9 actually get delivered, and actually different customer groups, when they purchase BEV versus EREV, they are using the cars across different scenarios as well. And specifically, what I want to share is that, obviously, BEV and EREV users in different sizes or scale of cars are also different. In larger vehicles, the percentage of EREV adoption is higher, whereas for Class A vehicles, especially smaller passenger vehicles, BEV ratio is actually higher. So I think we'll have to wait for more numbers to show maybe by Q4 and also Q1 next year before we actually can give you a more concrete answer. Thank you. And the second part of your question, regarding the pricing affordability of robotics, I think, first of all, the pricing logic is very different between cars and robots. When we look at the BOM cost of our Gen 6 and Gen 7 robots, they remain very high last year. But by first half of this year, when we were preparing for true mass production, we actually have enough reasons for us to actually believe the future retail sales price of the robotics -- of the robots can be very similar to car prices. And the second point that I want to mention here is that the traditional way of pricing a car is weight-based. It involves how many kind of iron and lithium and all kinds of elements included and components included in making a car, whereas robots, it's very different because the percentage of software in a robot is over 50% since day 1, whereas the number is only 10% to 20% for a lot of cars. In other ways, you have to put in a lot of cost to train the software and the model, and you need to have the overall capability to do a lot of integration and also domain controller as well. For example, you need to be able to combine all 4 SoCs into a super domain controller so that you can make them as light as possible and as affordable as possible. And these remain very challenging for many industry players. In other words, we really have high hopes for our future when it comes to robotics development. Hopefully, we are going to -- we expect to handle a limited amount of SKU integration, not as many SKU as when you're making a car. And we also will try our best to make the pricing of robots as affordable as possible. So it really can truly help and empower thousands of households in the future. Thank you. Operator: The next question comes from Xiaoyi Lei with Jefferies. Xiaoyi Lei: [Foreign Language] I have just one question. Could you please provide an update on the progress of our overseas localized production for next year? And additionally, how do we plan to leverage our smart driving capabilities to drive the sales growth in international markets? Gui Hongdi: It's Brian, again. Just to address your question on overseas plan for next year. You're right, we actually initiated our local production this half -- second half of this year with first factory in Indonesia and also the -- another factory production facility with partnership with Magna in Austria. Those, I think, is slowly ramping up the capacity. So we anticipate the volume for next year's production in these 2 plants will continue to rise and support our overall sort of overseas growth. I think in the Europe, we are looking at the tens of thousands in terms of numbers of vehicle locally produced there. And in Indonesia, I think probably a smaller, but also a sizable number, high thousands is something that we want to achieve. Looking beyond those 2 plants, we continue to look at additional opportunities to have local capabilities in other markets as well as building local supply chain capabilities to support the localization in these key regions. So we will be increasing our local content, increasing our local stores materials and also looking for further localization strategy to be implemented. So that's something I think is ongoing. I think it's a must do for a company has global ambitions. Looking at the global product sales next year, I think, as Charles mentioned, we're looking for higher growth in the international markets compared to our domestic market. We're also looking for higher contribution economically from those markets. So I would say in the next year or the year beyond, we're looking at a faster growing, higher profit contribution for our international businesses. Operator: Since there are no further questions, I'd like to turn the call back over to the company for any closing remarks. Alex Xie: Thank you once again for joining us today. If you have further questions, please feel free to contact XPeng's Investor Relations through the contact information provided on our website or the Piacente Financial Communications. Operator: This concludes today's conference call. You may now disconnect your lines. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Ladies and gentlemen, good day, and welcome to Full Truck Alliance Third Quarter 2025 Earnings Conference Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mao Mao, Head of Investor Relations. Please go ahead. Mao Mao: Thank you, operator. Please note that today's discussion will contain forward-looking statements relating to the company's future performance, which are intended to qualify for the safe harbor for liability, as established by the U.S. Private Securities Litigation Reform Act. Such statements are not guarantees of future performance and are subject to certain risks and uncertainties, assumptions and other factors. Some of these risks are beyond the company's control and could cause actual results to differ materially from those mentioned in today's press release and discussion. A general discussion of the risk factors that could affect FTA's business and financial results is included in certain filings of the company with the SEC. The company does not undertake any obligation to update these forward-looking information, except as required by law. During today's call, management will also discuss certain non-GAAP financial measures for comparison purpose only. For a definition of non-GAAP financial measures and a reconciliation of GAAP to the financial results, please see the earnings release issued earlier today. Joining us on the call from FTA's senior management are Mr. Hui Zhang, our Founder, Chairman and CEO; and Mr. Simon Cai, our Chief Financing and Investment Officer. Management will begin with prepared remarks, and the call will conclude with a Q&A session. As a reminder, this conference is being recorded. In addition, a webcast play of this call will be available on FTA's Investor Relations website at ir.fulltruckalliance.com. I will now turn the call over to our Founder, Chairman and CEO, Mr. Zhang, please go ahead, sir. Hui Zhang: Hello everyone. Thank you for joining us today for our third quarter 2025 earnings conference call. In the third quarter, FTA continued to reduce logistics costs and enhance efficiency across the road freight industry by leveraging digital and intelligent technologies, amid a complex and evolving macro environment. Anchored by our core “user-centric” ethos, we strengthened our user protection mechanisms, enhanced our platform ecosystem, and further elevated the overall experience for both shippers and truckers. Our ongoing enhancements to transaction efficiency and service quality drove total fulfilled orders to 63.4 million, a year-over-year increase of 22.3%. This continued growth underscores the industry’s accelerating transformation from traditional offline logistics transactions to digital and intelligent logistics solutions. Furthermore, we consistently improved operating metrics across three key areas during the quarter: user operations, ecosystem development, and technology enablement. For shipper users, we further expanded our brand visibility and drove targeted user acquisition of SME shippers, while refining the user experience across different cargo categories and freight scenarios. As a result, average monthly active shippers reached 3.35 million in the third quarter, up 17.6% year over year. The number of shipper members grew significantly year over year, reflecting rising user engagement and stickiness. In addition, fulfilled orders contributed by direct shippers increased to 54%, demonstrating ongoing optimization of our user structure. In terms of trucker ecosystem, we continued to promote and enhance our trucker credit rating and membership program to incentivize high-quality service and elevate trucker benefits. These initiatives boosted capacity and increased reliability of truckers, driving the overall fulfillment rate to 40.6%, an increase of approximately 6 percentage points year over year. Simultaneously, we reinforced our trucker protection framework to better safeguard their rights and interests. By the end of the quarter, the number of active truckers fulfilling orders over the past 12 months reached 4.48 million, marking another historical high. On technology, we accelerated full-chain AI deployment across the platform, leveraging our extensive scenario-based logistics data to address critical pain points in freight matching. Moreover, the successful acquisition of Giga.AI, previously known as Plus PRC, significantly bolstered our AI capabilities and technological foundation, positioning us for sustained innovation and operational excellence. Our robust operational performance this quarter translated into healthy financial results. Total revenues reached RMB 3.36 billion, representing a year-over-year increase of 10.8%. Transaction service revenues grew 39.0% year over year to RMB 1.46 billion, accounting for 43% of total revenues and reflecting continued optimization of our revenue mix. Non-GAAP adjusted operating income reached RMB 849.1 million, while non-GAAP adjusted net income reached RMB 988.1 million. Looking ahead, FTA will continue to penetrate the road freight markets and cultivate a resilient and sustainable ecosystem for both shippers and truckers, driving the industry’s digital and intelligent transformation and empowering enterprises with greater logistic competitiveness through continuous technological innovation. Thank you all once again. Now, I’ll pass the call over to Simon, who will provide an update on our third quarter’s business progress and financial results. Simon Cai: Thank you, Mr. Zhang, and thank you all for joining today's earnings conference call. I will now provide an overview of our operational highlights and financial results for the third quarter of 2025, starting with our operational performance. During the quarter, we sustained solid growth momentum with continued improvements in key operating metrics highlighting the strength and resilience of our business model. Despite challenging macro conditions and adverse weather such as typhoons and certain regions that temporarily disrupted freight demand during the quarter, we continued to deliver strong order volume growth. Total fulfilled orders once again significantly outperformed the broader freight industry, reaching RMB 63.4 million in the third quarter representing a year-over-year increase of 22.3%. The steady growth in fulfilled orders was driven by the healthy engagement of our shipper users and the ongoing enhancement of our fulfillment service infrastructure leading to improvements in both scale and service quality. In the third quarter, our overall fulfillment rate reached 40.6%, increasing by more than 6 percentage points from the prior year period. Specifically, the average fulfillment rate of mid and low frequency shippers reached nearly 60% and their contribution to total fulfilled orders increased to 54%. The positive outcomes are the result of our ongoing optimization in shipper structure, which further strengthens the reliability and sustainability of our ecosystem. These achievements underscore the effectiveness of our long-standing refined operations strategy, laying a solid foundation for the platform's long-term high-quality growth. Turning to user growth. Average monthly active shippers reached 3.35 million in the third quarter, increasing by 17.6% year-over-year. Our shipper membership program continued to gain traction with over 370,000 active members in the 288 membership program during the quarter, representing a significant year-over-year increase. In the meantime, 12-month rolling retention rate for shipper members held steady at around 80%, underscoring the strong appeal of our services and the high stickiness of our user base. In addition, the number of active truckers fulfilling orders over the past 12 months hit a new record, increasing to 4.48 million in the third quarter, while the next month retention -- next month's retention rate for the truckers who responded to orders was consistently above 85%. We're delighted to see that our trucker users continue to demonstrate strong platform loyalty. During the quarter, we also continued to enhance our trucker infrastructure by expanding the breadth and the depth of the right protection program, which helped improve truckers' order acceptance rate and experience. For example, supported by targeted incentive programs and diversified protection mechanisms, the number of trucker members continue to grow. These trucker members have significantly higher order acceptance rate as compared to nonmembers, creating a positive flywheel of user engagement, other growth and platform stickiness. Now turning to monetization. Building on a solid foundation of steady growth in order volume, we continue to explore and unlock monetization opportunities. These efforts enabled us to deliver another quarter of robust top line performance despite strategic changes to some noncore business such as freight brokerage, backed by significant improvements in operating leverage. As a result, transaction service revenue grew 39% year-over-year to RMB 1.46 billion. To further break down, monetized order penetration rate reached 88.6%, up nearly 6 percentage points from the prior year period, and average monetization per order increased to RMB 25.9 from RMB 24.4 in the prior year period. These improvements stem from our deepened understanding of high-value users and our ability to meet their increasingly diversified needs through upgraded services and tailored incentive programs. At the same time, our growing scale enable us to drive down unit operating costs, leading to enhanced monetization efficiency and profitability while maintaining fair trucker earnings and strong order fulfillment. Looking ahead, we remain keenly focused on further unlocking the monetization potential of high-value users, leveraging our intelligent freight matching system and flexible subsidy strategies. In addition, our refined and tiered membership system enables us to cultivate and empower our core transportation capacity, further reinforcing a virtuous cycle of user growth, operating excellence and profitability improvements. We're confident that we are well positioned to achieve our full year targets and deliver long-term sustainable value to our platform and stakeholders. Now I'd like to provide a brief overview of our 2025 3rd quarter financial results. Our total net revenues in the third quarter were RMB 3,358.2 million representing a 10.8% increase year-over-year, primarily attributable to an increase in revenues from freight matching services. Net revenues from freight matching services including service fees from freight brokerage models, membership fees from listing models and commissions for transaction service were RMB 2,797.6 million in the third quarter representing an increase of 9.6% year-over-year, primarily due to the record increase in transaction service revenues. Revenues from the freight brokerage service in the third quarter were RMB 1,094.3 million, compared to RMB 1,280.9 million in the same period of 2024, primarily attributable to a decrease in transaction volume and partially offset by an increase in service fee rate. Revenues from freight listing services in the third quarter were RMB 247.1 million, up 10.6% year-on-year, primarily due to the falling number of total paying members. Revenue from the transaction service in the third quarter were RMB 1,456.1 million, up 39% year-over-year, primarily driven by increase in other volume penetration rate and per other transaction services. Revenues from value-added services in the third quarter were RMB 560.7 million, up 16.9% year-over-year. The increase was primarily due to growing demand for credit solutions. Third quarter cost of revenues was RMB 1,605.2 billion compared with RMB 1,364.9 million in the same period of 2022, primarily due to increases in VAT-related tax charges and other tax costs, net of grants from government authorities. These tax-related costs net of government ground totaled RMB 1,427.2 million compared with RMB 1,221.6 million in the same period of 2024, primarily due to an increase in tax costs net of government grounds related to the company's freight brokerage service. Our sales and marketing expenses in the third quarter were RMB 438.8 million, compared with RMB 412.5 million in the same period of 2024. The increase was primarily due to further investments in enhancing user ecosystem construction and protecting user rights and interests. General and administrative expenses in the third quarter were RMB 161.6 million compared with RMB 222.9 million in the same period of 2024. The decrease was primarily due to lower share-based compensation expenses. R&D expenses in the third quarter were RMB 233.3 million compared with RMB 195.1 million in the same period of 2024. The increase was primarily due to the inclusion of Giga.AI previously known as Plus PRC's R& -- Plus PRC's R&D costs. Following the completion of our further investment in Giga.AI on July 9, 2025, and its subsequent consolidation into our financial results. Income from operations in the third quarter was RMB 776.3 million, an increase of 1.9 percentage from RMB 762 million in the same period of 2024. Net income in the third quarter was RMB 921 million compared with RMB 1,121.9 million in the same period of 2024. Under non-GAAP measures, our adjusted operating income in the third quarter was RMB 849.1 million compared with RMB 884.5 million in the same period of 2024. Our adjusted net income in the third quarter was RMB 988.1 million compared with RMB 1,241.2 million in the same period of 2024. Basic and diluted net income per ADS were RMB 0.87 in the third quarter compared with RMB 1.06 in the same period of 2024. Non-GAAP adjusted basic net income per ADS was RMB 0.94 in the third quarter of 2025 compared with RMB 1.18 in the same period of 2024. Non-GAAP adjusted diluted net income per ADS was RMB 0.96 in the third quarter of 2024 compared with RMB 1.17 in the same period of 2024. As of September 30, 2025, the company had cash and cash equivalents, restricted cash, short-term investments, long-term time deposits and wealth management products with maturities over 1 year of RMB 31.1 billion in total compared with RMB 29.2 billion as of December 31, 2024. For our fourth quarter 2025 business outlook, we expect our total revenues to be between RMB 3.08 billion and RMB 3.18 billion compared with RMB 3.16 billion -- RMB 3.17 billion in the same period of 2024. Excluding freight brokerage service, net revenues are expected to range from RMB 2.18 billion to RMB 2.28 billion, representing an estimated year-over-year growth rate of 17.1% to 22.5%. These forecasts are based on the company's current and preliminary views on the market and operational conditions, which are subject to change and cannot be predicted with reasonable accuracy as of the date hereof. That concludes our prepared remarks. We would now like to open the call to Q&A. Operator, please go ahead. Operator [Operator Instructions] Your first question comes from Ronald Keung from Goldman Sachs. Ronald Keung Goldman Sachs Group, Inc. [Foreign Language] I want to ask about field orders that had still maintained very solid growth momentum, increasing 22%. So what were the main growth drivers? And can you share the outlook for the fourth quarter and next year? Simon Cai: Yes. Thank you, Ronald. Our fulfilled others continue to outgrow the broader market in the past quarter due to key 3 factors. First, solid user acquisition provided a strong foundation for growth with deeper brand penetration along SMEs and steady improvements in the market's acceptance of online freight matching models, the number of newly registered shippers continue to grow organically. In addition, we continue to focus on proactively reaching potential users through key touch points via highly efficient marketing channels, including app stores and high-traffic offline placements such as high-speed railway stations. As a result, the first order conversion rate of new users improved substantially year-over-year. Secondly, higher engagement from existing users, coupled with ongoing product optimization, continue to enhance our matching efficiency. During the quarter, human frequency among shipper members further improved year-on-year, demonstrating strong customer loyalty and stickiness. On the trucker side, we introduced the new cargo zone, which highlights newly posted high-quality orders and help truckers secure attractive opportunities more efficiently and driving improved performance in matching and fulfillment. On the shipper side, we further streamlined the order posting interface by removing or reducing unrelated entries and product sections. These initiatives made the other placement process more intuitive and efficient, significantly improved user experience and effectively boosted repeat order intent. Third, the new uses new business continued to drive incremental other incremental growth momentum supported by improving service quality and growing user base, both our lesson truckload and interested businesses continue to deliver robust growth in the third quarter. As these 2 businesses continue to mature and improving operational efficiency, we expect that on top of the solid growth in our core food truckload business, they will further satisfy the diversified needs from both our new and existing shippers and supporting our long-term order volume growth. Looking ahead, we remain confident in our platform's order volume growth momentum. Despite ongoing macro uncertainties, our dominant position and rising digitalization penetration has driven deeper engagement among SME shippers and maintain stable member retention and enhanced matching efficiency consistently, all supporting sustained order growth. At the same time, we will continue to optimize our user ecosystem by strengthening qualification reviews and credit rating systems to attract and retain highly credible, highly active users and laying a solid foundation for our high-quality order growth. Thank you. Operator Your next question comes from Eddy Wang from Morgan Stanley. Eddy Wang Morgan Stanley [Foreign Language] In the third quarter, the number of the monthly active shippers reached 3.35 million, representing a year-over-year increase of 17.6%. What are the major drivers behind the growth? Simon Cai: Thank you, Eddy. In the third quarter, the number of monthly active shippers continue to grow very steadily, supported by more efficient multichannel user acquisition and organic growth driven by referrals. These drivers not only grew our user base but also helped to strengthen the overall engagement and quality of our active users. First, our highly efficient multichannel user acquisition efforts continue to drive steady growth in shipper users. We implemented a dual approach combining brand exposure and targeted conversion. We improved online acquisition efficiency by strengthening App Store campaign management and optimized keyword search while refining download page design and user conversion funnels. Off-line wise, we expanded advertising in high-traffic areas such as high-speed real stations, subway business districts and key commercial hubs. We also leveraged the scenario-based outreach channels, such as truck stickers to reach SMEs with actual shipping needs. This integrated online and offline approach not only enhance brand awareness, but also effectively attracted high potential shippers laying a solid foundation for sustained user growth. Second, word-of-mouth referrals continue to serve as the primary driver of organic shipper growth. Unlike consumer-facing businesses, most shippers are small- and medium-sized business whose decisions are driven mostly by trust, often requiring longer commercial cycles, but resulting in higher retention and repeat purchase rates. During the quarter, we continued to invest in service reliability, capacity assurance and fulfillment experience optimization, further strengthening user trust. As a result, word-of-mouth referrals from existing shippers became the most efficient channel for user acquisition. Notably, new shippers acquired through referrals tend to be of higher quality with stronger fulfillment rates and long-term engagement as compared with other acquisition channels while coming at lower acquisition costs. Looking ahead, we will continue to pursue a dual engine growth strategy, combining brand-led acquisition and referral-driven expansion. On 1 hand, we'll continue to optimize our marketing strategy to improve acquisition, efficiency and brand penetration within target user groups. On the other hand, we will -- user satisfaction by improving service quality and strengthening protection mechanisms, reinforcing trust and professionalism within the shipper community. These initiatives will support high-quality sustained growth across the shipper ecosystem supporting our long-term growth. Thank you. Operator Your next question comes from Brian Gong from Citi. Brian Gong Citigroup Inc. [Foreign Language] I have a quick question on ecosystem improvement on trucker side. Can you give an update on key divestments of trucker members in the third? Simon Cai: Thank you, Brian. As of the end of September, our active trucker members continue to grow steadily, reaching almost 1 million members achieving further growth compared with the previous quarter. Structurally, roughly 30% of trucker MAUs in the long-haul segments or membership subscribers and contribute to over 40% of the volume in the long haul segment. This state underscores the higher engagement and stronger stickiness of our trucker members who have become the core pillar of our capacity network. During the quarter, we continued to upgrade our trucker membership tiering system. The current framework focuses on 3 key dimensions for truckers, cost reduction, fulfillment enhancement and risk protection. Our commission coupons helped truckers effectively reduce service costs during order fulfillment and our premium cargo bidding cards increased truckers' visibility and ranking priority in matching with high-quality shipments. We also relaunched the freight payment protection program, expanding its coverage scope, which further strengthened truck trust and security doing transactions directly addressing many of the fundamental operation needs. Overall, the trucker membership program has become a key driver in securing high-quality trucker capacity and improving fulfillment efficiency on the platform. Looking ahead, as we further expand membership benefits and refine incentive programs, we expect trucker programs to contribute to a growing share of our total transportation capacity and building a stronger and more sustained -- sustainable foundation for continued order growth and fulfillment stability. Thank you. Operator Your next question comes from Yuan Liao from Citic. Yuan Liao: [Foreign Language] Under the current policy environment of innovation, so how has the company implement any measures to align with these policy objectives and offer enhanced protection of our benefits to shippers and truckers? Simon Cai: Under the current policy environment of an anti evolution, the -- so we basically -- against the overall background of anti evolution and promoting high-quality growth, our strategic directions remain clear. We will continue to pursue sustainable high-quality growth through ecosystem refinement, structural optimization and user protection enhancement. First, we remain committed to enhancing ecosystem integrity with a key focus on advancing healthier user protocols by implementing ID verification and fulfillment credit scoring as well as refining user tiering. We enhanced the value of user accounts and increased switching costs which in turn accelerates the exit of low-quality users. At the same time, we have shifted the focus of our credit rating system for both shippers and truckers or frequency of transaction to quality of their behaviors. This system evaluates metrics such as fulfillment rates, positive feedback rate and complaint rate, reinforcing both through rewards and disciplinary measures to guide users towards higher standards and stronger trust fostering a healthier platform ecosystem. Second, we have focused on emphasizing fair pricing and healthy competition on our platform. For example, to prevent malicious pricing competition, we employ algorithms to identify and block abnormally low prices in real time, removing or restricting orders that fall significantly outside reasonable market price ranges. Additionally, we incorporated a price rationality weighting into our order matching, prioritizing the pairing of high-quality freight with reliable truckers. This approach protects truckers' earnings and enhance shippers fulfillment certainty. Together, these measures provide a robust technological foundation to healthy market behaviors between truckers and shippers. At the same time, we achieved notable progress in strengthening user protection and trust. Our upgraded comprehensive protection program currently provides full coverage for key risks for both user groups, including fleet payment defaults, empty runs and cargo damages to address truckers top concerns of timely freight settlement, we have implemented a guaranteed compensation account that provides trucker members with expedited reimbursement for freight, empty runs and cancellations, ensuring prompt payment and minimizing trust barriers throughout the fulfillment process. Overall, we are building a more sustainable efficient and transparent freight ecosystem by continuously optimizing user -- our user base, fulfillment certainty and matching and protection framework. Our focus on high-quality growth is reflected not only in a healthier user base but also in continuous improvements in our service quality and governance. Looking ahead, we will continue to focus on improving user trust, operational efficiency and fulfillment quality driving development sustained development of the freight industry and laying solid foundation for our growth. Operator Your next question comes from Wenjie Zhang from CICC. Wenjie Zhang China International Capital Corporation Limited [Foreign Language] My question is regarding freight brokerage business. I wonder what's the rate of progress of the business since the pricing adjustment in August? Could you give an update on user retention and profitability for in these changes? Simon Cai: Yes. Thank you. The business generally performed better than we expected. So in the third quarter, our freight brokerage business transition to a higher service fee rate, steadily and the overall performance was good. Following the expected gradual removal of tax rebates and increasing service fee rates to between 10% to 11%. User behavior showed healthy structural improvement. From a user perspective, churn from shippers in the third quarter was primarily concentrated among those who demanded frequent VAT invoicing service only and contributed to limited value to the platform beyond invoicing fees. Conversely, retention rates among shippers with small and medium value VAT invoices remained above 80%, significantly exceeding our expectations. These users are generally less price sensitive and care more about the convenience of freight matching and fulfillment certainty, which kept their engagement rates stable following the policy adjustments. Currently, invoicing plus freight matching orders represent over 70% of the total orders in our freight brokerage services, highlighting the growth importance of our matching service and the strong alignment between this business and the platform's core capabilities. At the same time, we are closely monitoring user retention and structural shifts in our user base, with a particular focus on the long run stability of small- and medium-sized shippers and ongoing conversions of new users, ensuring that the benefits of these structural optimizations are sustained and reinforced. From a financial standpoint, the freight brokerage business primarily aimed to increase stickiness by enhancing shipper experience and platform engagement rather than a major profit contributors. Although this is emphasis on invoicing results in relatively low margins and a limited impact on our overall profit, it still plays a strategic role in strengthening our user engagement and refining more order fulfillment. Looking ahead, we will continue to focus on improving the experience for small and medium-sized shippers, gradually expanding contribution from high-quality users and ensuring that the freight brokerage business delivered sustainable performance under the new policy. Operator Your next question that comes from Ritchie Sun from HSBC. Ritchie Sun HSBC Global Investment Research [Foreign Language] In the third quarter, revenue from freight listing reached RMB 247 million, up 10.6% year-on-year. So what were the main growth drivers? And how do you feel the user payment conversion trends going forward? Simon Cai: Thank you, revenues from -- our freight listing service continued to grow steadily in the past quarter, primarily driven by growth in paying users and the ongoing optimization of the membership structure. As of September 2025, the number of shipper members on our platform reached 1.27 million. The majority of the incremental growth came from the 288 membership program, which was launched last year. This program was designed to meet the needs of small and medium-sized business owners new to our platform by lowering the entry barrier and offering benefits such as freight rate, coupons and other placement tracking. The program significantly improved membership conversion and user satisfaction. Looking at the membership mix, while 688 memberships achieved steady year-over-year growth in this quarter, the 288 membership showed the most robust growth across free membership tiering with active members increasing by more than 300% compared with the same period last year. The strong growth not only broadened our user base, but also strengthen the platform payment rate. Notably, the number of high-frequency shippers under the RMB 1688 tier continue to decline, reflecting a structural shift in our shipper base. This change reflects the platform's ongoing optimization and matching efficiency and fulfillment guarantees, which are gradually replacing traditional agent roles and further encoding the quality of our user ecosystem. Turning to user conversion. Our latest data shows that around 20% of the users who reach the limit of their 288 membership chose to upgrade to the RMB 688 tier. These results are aligned with our initial expectation when designing the program and underscore the effectiveness of our tiered membership system. Our membership business has established a healthy growth cycle that attracts users, low-entry barriers ratings and with area experience and drives upgrades through tiered benefits. This model enables long-term and steady penetration among direct shippers and supports the high-quality growth of the overall business. In addition, retention among existing members remains robust, demonstrating solid user stickiness. As of the end of the third quarter, our 12-month rolling retention rate for shipper members held steady at around 80%, consistent with prior quarters. This validates our ongoing optimization in member experience and reflects strong recognition from shippers from our platform's reliable fulfillment capabilities and responsive service. We expect the 288 and 688 memberships to continue driving growth in freight listing service revenue. Meanwhile, as the platform continues in-house features such as fulfillment protection and shipment tracking and payment conversion rates are expected to trend up steadily. We will continue to optimize our membership program and benefits aiming to further strengthen long-term user retention and lifetime value. Thank you. Operator Thank you. That concludes the question-and-answer session. I would like to turn the conference back over to management for any additional or closing comments. Mao Mao Head of Investor Relations Thank you all for joining us today. If you have any further questions, please feel free to contact us at Full Truck Alliance directly or TPG Investor Relations. Have a good day. Operator That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to Aramark's Fourth Quarter and Full Year Fiscal 2025 Earnings Results Conference Call. My name is Kevin, and I'll be your operator for today's call. At this time, I'd like to inform you this conference is being recorded for rebroadcast. And that all participants are in a listen only mode. We will open the conference call for questions at the conclusion of the company's remarks. please proceed. I will now turn the call over to Felise Kissell, Senior Vice President, Investor Relations and Corporate Development. Ms. Kissell, please proceed. Felise Kissell: Thank you, and welcome to Aramark's earnings conference call and webcast. This morning, we will be hearing from our CEO, John Zillmer; as well as CFO, Jim Tarangelo. As always, there are accompanying slides for this call that can be viewed through the webcast and are also available on the IR website for easy access. Our notice regarding forward-looking statements is included in our press release. During this call, we will be making comments that are forward-looking. Actual results may differ materially from those expressed or implied as a result of various risks, uncertainties and important factors, including those discussed in the Risk Factors MD&A and other sections of our annual report on Form 10-K and SEC filings. We will be discussing certain non-GAAP financial measures. A reconciliation of these items to U.S. GAAP can be found in our press release and IR website. With that, I will now turn the call over to John. John Zillmer: Thanks, Felise, and thanks to all of you for joining us. On today's call, Jim and I will review our fourth quarter and full year results including the strategic, financial and operational milestones accomplished in fiscal '25. We've built upon our historically strong consistent performance and advanced a number of initiatives that position us well for the years ahead, which will be discussed in more detail. First and foremost, we take delivering on our commitments very seriously, and it's important to understand that as we onboard an unprecedented level of new business, we took the appropriate time to work closely with certain large clients in preparing for a seamless transition to Aramark becoming their new hospitality partner. In some cases, this led to a shift in the timing of new account openings, which impacted revenue in the fourth quarter. With many of these sites now up and running, we are well positioned for strong revenue performance in the quarters ahead. We are more resolved than ever to meet and even exceed the high yet very attainable bar we set for ourselves. This past year has represented many consequential firsts for the company, all of which contribute to the strong growth trajectory for the businesses, including annualized gross new wins of $1.6 billion, which is 12% higher than fiscal '24 and reflects the largest contract awarded in FSS U.S. history and the second largest globally. An industry-leading client retention rate of 96.3%, with many lines of business and countries in the portfolio above this retention level. All combined, resulting in net new of 5.6%. Over $1 billion of new purchasing spend added for a second consecutive year in our supply chain GPO network. And lastly, achieving a leverage ratio of 3.25x, a number we haven't seen since prior to when Aramark went private in 2007. Our new business pipeline across the organization is significant, including first-time outsourcing opportunities, and we are already off to another strong start at this early stage of the fiscal year. This includes adding Blue Origin, Pennsylvania's Eastern Public Schools, the Welsh Rugby Union as well as expanding our services for Airbus. I have great confidence in the company's continued ability to achieve net new of 4% to 5% of prior year revenue, with retention levels exceeding 95% in fiscal '26 and beyond. And when we over-deliver on this metric, we reward our teams appropriately, as was the case particularly in the fourth quarter, reflected in additional incentive-based compensation from net new business, an objective representing 40% of the company's incentive plan for leaders across the organization. Moving to our results in the quarter. Aramark's organic revenue increased 14%, largely from net new business and base business growth. Excluding the 53rd week, organic revenue was toward the higher end of our long-term growth model. FSS U.S. grew organic revenue 14% in the fourth quarter. Again, excluding the 53rd week, organic revenue was up mid-single digits, led by Workplace Experience and Refreshments continuing its pace of record net new business, Collegiate Hospitality with strong retention rates, meal plan optimization success, and benefiting from higher student enrollments, particularly from our portfolio of academic institutions in the popular South and Southeast. And Healthcare reporting its best performance in over 2 years. Our Healthcare+ business was recently named #1 in Best Places to Work by Modern Healthcare for our commitment to a people-first culture and operational excellence across the industry. While we are encouraged with our roster of high-performing teams as the MLB playoffs approached, the outcome was not what we anticipated with the majority of our teams ultimately falling out of playoff contention. We've now entered the NFL, NBA and NHL seasons where fan attendance has been strong to date. Leveraging our expertise in professional sports, Aramark's Collegiate Sports business is experiencing double-digit revenue growth with per capita rates up 14% year-over-year, driven by increased concession spending and expanded premium services. I also want to commend our employees in the Destinations business, who worked closely with the National Park Service to assist during and following the devastating Dragon Bravo fire in the Grand Canyons North Rim. We had been operating the historic Grand Canyon Lodge, which was severely damaged. While it's still early, we are supporting the recovery and rebuilding efforts in the region and are optimistic about what's ahead for their visitor experience at the North Rim. We continue to expand our enterprise-wide capabilities and collaboration, which resulted in our new multiyear agreement with the University of Pennsylvania Health System, the largest contract win ever in the U.S. from one of the most prestigious medical systems in the world. We are proud to put our understanding of sophisticated and complex health care systems to work in new settings. We will be providing patients in retail food, environmental services and patient transportation, alongside an integrated call center to support these operations at sites across a nearly 4,000-bed, 7 hospital system. Among our many technologies offered at Penn Medicine will be an AI-driven patient menu platform that configures patient meals based on diagnosis and dietary requirements, in addition to proven robotic applications for both environmental services and meal preparation. Our proprietary AIWX platform will be used to map staffing and other needs, as well as our Quick Eats micro markets and mobile ordering platforms. We look forward to launching operations early in calendar '26 and are working closely with Penn Medicine to identify other opportunities to further grow the partnership. Additional clients added to the U.S. portfolio in the fourth quarter included Chicago's DePaul University in Collegiate Hospitality, where we'll begin operating next semester. Discover, following the acquisition by Capital One, also a client, as well as expanding our hospitality services into top-tier law firms within Workplace Experience. Now on to International. Once again, International delivered consistent double-digit organic revenue growth increasing 14% in the fourth quarter, with approximately 3% growth coming from the 53rd week, led by substantial new business, high retention and strong base business growth. All geographic regions contributed to this performance, with particular strength in the U.K., Canada, Ireland, Spain and Latin America. Toward the end of the quarter, International experienced its highest revenue ever for a single 1-day event when the NFL's Pittsburgh Steelers played the Minnesota Vikings at Croke Park Stadium in Dublin, Ireland, all Aramark clients. We also just had great success at Olympic Stadium in Berlin, Germany with another NFL match-up as the league's fan base continues to quickly grow in Europe. International was awarded new clients in the fourth quarter across sectors and geographies. This included expanding our growing presence in the UEFA Champions League and Bundesliga with the addition of Bayern Leverkusen Football Club in Germany, the health care network of Hospital Italiano in Argentina, energy exploration and developer, ENAP, in Chile, and mining leader, IAMGOLD, in Canada. Looking forward, we expect International to maintain its strong business momentum, delivering on a growth agenda focused on culture, team, capabilities and process. Turning to global supply chain. Avendra International added another $1 billion of new purchasing spend in its GPO network this past fiscal year, primarily from travel and leisure, health care, senior living and education. The supply chain team is also leveraging enhanced technology capabilities to optimize client compliance and contract productivity. We're making the appropriate investments to build upon our strong analytics and client mobile chatbot platforms. These powerful tools put the answers our frontline clients need in the palm of their hand and continue to deliver back-end efficiencies in our supply chain operations. We are now deploying these solutions globally. We are expanding our international footprint and supply chain, and the Quantum acquisition has fit well into the portfolio, contributing accretive growth to both Europe and Latin America. Inflation levels have been as expected, and we currently estimate inflation around the 3% range heading into the new fiscal year as we continue to effectively manage the broader macro environment. Our teams are closely monitoring any changes in the marketplace and will leverage our extensive capabilities to support our clients. Before turning the call over to Jim, I want to reiterate that our teams across the company are hard at work and focused on accelerating performance, and we are already seeing success entering the new fiscal year in leveraging enterprise-wide capabilities, starting operations for a record number of new clients, maintaining our client retention momentum, optimizing global supply chain strategies and, lastly, pursuing substantial growth opportunities. Jim? James Tarangelo: Thanks, John, and good morning, everyone. We reported another year of commendable operational performance on both the top and bottom line, a testament to the capabilities of our business model. We are experiencing unprecedented levels of success in key leading indicators of performance, annualized gross new wins and client retention, which provide us the momentum to deliver our expected growth in fiscal '26 and even beyond. I want to now provide some insights into our fiscal '25 financial performance before reviewing our expectations for the upcoming fiscal year. As John reviewed, fourth quarter organic revenue was up 14%. The growth was driven by new business, high retention levels, increased base business and the benefit of the 53rd week which contributed approximately 7%, more than offsetting a shift in the timing of new account openings. For the full fiscal year, we reported revenue on a GAAP basis of $18.5 billion, up 6% compared to the prior year, with approximately 1% of foreign currency impact. Organic revenue grew 7% versus the prior year, again from net new business, base business and 2% from the 53rd week. And as you know, also reflects the company's portfolio exits in Facilities in the prior year. Adjusted operating income for the quarter was $289 million, and grew 6% on a constant currency basis, led by higher revenue levels, leveraging technology capabilities, particularly in supply chain, and above-unit cost discipline. The increase more than offset higher incentive-based compensation of $25 million recorded in the quarter associated with achieving record net new business. As a reminder, our growth-oriented model is structured with 40% of our incentive-based compensation tied to an annualized net new business metric. Throughout the fiscal year, we accrued this compensation based on expected performance. The Penn Medicine win in the fourth quarter, in particular, resulted in a maximum payout under the incentive plan for this metric. Additionally, we did have higher prescription claims in the quarter along with some new business start-up costs in Higher Ed and Collegiate Sports, areas of attractive growth for the company. Excluding these expense items in the quarter, AOI margin would have been higher by 70 basis points. The company has taken decisive actions to decrease future medical expenses related to elective lifestyle prescription, specifically GLP-1 coverage. For fiscal '25, AOI was $981 million, up 12% on a constant currency basis, which represented AOI margin expansion of nearly 25 basis points. This growth was led by our operating levers and the estimated contribution from the 53rd week of approximately 2%. Which more than offset the additional incentive-based compensation I just mentioned, affecting AOI growth by 3% or 20 basis points. Turning to the business segments. The U.S. reported AOI growth of 2% during the quarter. Growth was due to higher revenue levels, enhanced technology capabilities and effective cost management. AOI growth in the quarter more than offset the higher expenses associated with incentive-based compensation, medical and some new business start-up costs already mentioned. We also took the opportunity to make some strategic reinvestments within Destinations, which included property development, digital marketing optimization and other enhancements to drive the guest experience. To a lesser extent, we did feel some effect from our MLB teams falling out of playoff contention. The International segment experienced AOI growth of 31% during the fourth quarter and 21% for the full year, both on a constant currency basis. AOI margin for the year improved by more than 40 basis points. AOI growth and margin expansion was led by higher revenue, effective cost management and supply chain efficiencies. For the fourth quarter, adjusted EPS was $0.57, up 6% on a constant currency basis. For the full year, adjusted EPS was $1.82, an increase of almost 20% and on a constant currency basis. The additional incentive-based compensation impacted adjusted EPS by $0.07 in both the fourth quarter and full year. On a GAAP basis, Aramark reported consolidated operating income of $218 million and EPS of $0.33 in the fourth quarter. And for fiscal '25, operating income was $792 million and EPS was $1.22. This included severance charges from restructuring initiatives to further optimize operations as well as a noncash asset write-down in the fourth quarter associated with a minority interest investment made in the previous fiscal year. Moving to cash flow. Consistent with our normal seasonality of the business, the fourth quarter generated a significant cash inflow, which contributed to our strong cash flow for the full year. Net cash provided by operating activities in fiscal '25 was $921 million, and free cash flow was $454 million. Our free cash flow grew by more than 40% compared to the prior year period from higher cash from operations and favorable working capital, particularly from improved collections. Our cash flow performance and higher earnings resulted in our consolidated leverage ratio improving to 3.25x at the end of September, down from 3.4x a year ago and represent the company's lowest level in nearly 20 years. We closed the fiscal year with more than $2.4 billion of cash availability. This provides us with the continued flexibility to execute on our capital allocation priorities, which effectively optimizes investing in the business, reducing leverage below 3x and increasing the quarterly dividend, which was just increased by 14%, while repurchasing stock utilizing excess cash generation. I'll now wrap up with our outlook for fiscal '26. Based on our current expectations, we anticipate the following full year performance. Organic revenue of $19.45 billion to $19.85 billion, representing growth of 7% to 9%. AOI of $1.1 billion to $1.15 billion, an increase of 12% to 17%. Adjusted EPS in the range of $2.18 to $2.28, reflecting growth of 20% to 25%. And a leverage ratio below 3x. One point to keep in mind on the quarterly cadence for fiscal '26. There is a slight calendar shift from the 53rd week in fiscal '25, which has no effect on the full year fiscal '26 numbers, with more detail in the analyst modeling section of our earnings slides. In summary, we remain resolved in driving our strategies to capitalize on the significant growth opportunities for the business centered on strong revenue growth and through new business wins, high client retention rates and base business growth. At the same time, we expect to continue accelerating our profitability from our multiple operating levers, including differentiated supply chain capabilities and disciplined cost management, enhancing our efficiencies and scale across the business. With a resilient business model and a clear path forward, we are well positioned to deliver long-term value for our shareholders. We believe the future of the company is extremely bright, and we're energized about the opportunities ahead. Thank you for your time this morning. John? John Zillmer: Thank thank you, Jim. With fiscal '26 now underway, we look ahead with great confidence. Our efforts are centered on building a high-performing, sustainable business focused on providing exceptional hospitality services to our clients. I want to reiterate that we are committed to creating significant value for our shareholders and are taking the appropriate actions to realize this unwavering objective. And operator, we'll now open the call for questions. Operator: Thank you. We will now begin the question and answer session. If you have a question, please press star then 11 on your touch tone phone. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. In order to accommodate participants in the question queue, please limit yourself to one question and one follow-up. Remove yourself from the queue, please press star 11. Our first question comes from Ian Zaffino with Oppenheimer. Ian Zaffino: Very impressive on the new win side. I mean, I guess this kind of just speaks to the culture of the company, retentions going up. And I guess this is just a culmination of a very kind of client-focused culture here. Glad you're taking the time to spend time with the clients to do so. But the question would be, when we're thinking about these new account openings, can you maybe just delve a little bit more into the shift in timing? Was this in particular sectors or areas? Do you think it will continue? Any economic related factors that you didn't mention? Or any kind of other color there would be helpful. John Zillmer: You bet. Yes. First of all, it was the calendar shift or the opening shift, if you will, really occurred in multiple businesses, Corrections, Workplace Experience and Healthcare, all had kind of late-breaking opportunities for openings, which were deferred into calendar -- into fiscal '26. Without going into specifics, the impact was significant in the quarter, but it was appropriate from a timing perspective to make sure that we could open effectively. And frankly, it was also appropriate for the timing of the client. It was really ultimately their decision with respect to the opening timing. So yes, it was significant. It's not typical. Generally, we -- when we sell accounts, we tend to open them in the year that we sell them. This was a result of a number of different opportunities, all of which were terrific for the company. And we're very excited about the overall results. As you know, we sold nearly $1 billion of new business -- of net new business this year, on a gross basis, $1.6 billion. So just a fantastic performance by the entire team delivering on the new business objectives, and with the retention rate exceeding 96.3%, just ends up being a great trajectory for '26. Ian Zaffino: Right. And since you mentioned new business, congratulations on this Penn deal, and this will bring me into my next question. Maybe you could talk about 2026 cadence here. Maybe talk about that UPenn contract, how that kind of ramps throughout the year. Do you have any other deals baked in to the guidance or how are you thinking about deals? And then also, just as you talk about cadence, just maybe day count, playoff lapping, which might mean maybe a better back half of the year. But any other color you can kind of give. John Zillmer: Sure. With respect to Penn specifically, Penn will begin -- we'll begin operating at Penn in February. That will be staged over the course of several months as we open up the operations in the individual locations over multiple cities and multiple institutions. So it is a very exciting process. As you know, much of it was self-operated, so we're converting self-op, we're converting some competitors' operations as well. So a very complex opening. So taking the time to do it effectively, I feel absolutely committed to delivering on the performance for Penn and, frankly, to taking the time to do it right for Aramark as well. So in typical fashion, we have significant new business expectations for next year as well, but really don't have any cadence, if you will, on those opportunities. Our pipeline is very robust and very strong. We've had very strong early successes. As I mentioned, the Welsh Rugby Union and others, DePaul University opening as well. So the cadence, I think, is going to be more normal next year than it happened this year. So all in all, very strong results, and we're very pleased. Operator: Our next question comes from Toni Kaplan with Morgan Stanley. Toni Kaplan: I wanted to start with a question on margins. Just wanted to understand with the new wins that you got this year, I know there's this cost dynamic where sometimes there is a ramp in higher costs when you ramp up on those contracts. And so I just wanted to understand the cost trajectory there. And then also, if you could talk about any AI initiatives or other efficiency initiatives that should contribute to '26 margins? James Tarangelo: Yes. So we've had really good progress right on margins. I mean, from 4.6% to 5.1% to 5.3% this year. And if you look at the midpoint of the guidance I think for next year, to be at about 5.7%. So sort of consistent 30 to 40 basis points of margin appreciation has been generated. So yes, we do have some -- obviously, with the large wins coming in next year, that will be associated with maybe some incremental start-up costs. But I think we're able to offset that with the continued productivity we're seeing in our supply chain, in particular, leveraging AI in supply chain and across other functional areas. And then continuing to scale our overhead. We have very good visibility with respect to our corporate costs and SG&A. We're able to take on this business really with not adding much in the way of new above-unit overhead costs. So I think we're fit for purpose and able to take this on and still continue to leverage the operating levers that have been working well for us over the past couple of years. John Zillmer: Yes. And Toni, I would just add, normalized opening costs are baked into our projection and into the guidance. So we don't anticipate opening costs impacting our guidance negatively next year. If we continue to see accelerating performance in terms of net new, that ramp does occur. But as Jim said, we're basically able to offset those cost increases through efficiency, through productivity, through SG&A leverage and through supply chain dynamics. So we're very comfortable with the continued margin accretion as we continue to grow the company. Toni Kaplan: Great. And then you mentioned the double-digit growth in Collegiate Sports, which is great. And just want to ask about the pipeline there and particularly how the progress is going with converting some of the education contracts, either sports to education as well or education to sports, et cetera, that would be great. John Zillmer: Sure, you bet. We have taken the opportunity. We do engage both the Collegiate Hospitality and the Sports & Entertainment teams collectively when we pursue those opportunities. As you'll remember, we added Arizona State's system this year. As we grew the relationship there, we added the sports. That's being run by our Sports & Entertainment team. And Oklahoma, that's being run by our Sports & Entertainment team. We are pursuing several large university athletic programs right now. They're currently underway and that we have engaged the S&E team on those opportunities. So we run them based on what we think the needs of the business are, particularly if there's alcohol involved. Our S&E team has extraordinary capabilities with respect to the delivery and the appropriate management of alcohol systems in university environments. And so we engage both sides of the organization to do it. And we are seeing significant opportunities for growth there and major institutions that are currently self-operated and looking for support and help and also some competitors who are currently out for bid as well. So it's a great marketplace and we intend to -- we're the #1 company in that space and we continue to be focus aggressively on pursuing growing it. Operator: Our next question comes from Leo Carrington with Citi. Leo Carrington: If I could ask a follow-up on that Penn Medicine deal. What's the implications in terms of the potential for further hospital groups to follow suit and consolidate and outsource their catering? What can you tell us about the rest of that subsector, if you like? And then secondly, on the B&I segment, the organic growth, even excluding the 53rd week, was quite a sharp acceleration. My understanding is this is the most consolidated segment. So can you elaborate on what is driving your market share growth here in terms of your capability? John Zillmer: Sure. I think both great questions. First of all, on the health care systems, yes, there are significant new opportunities that we're pursuing in health care for self-op conversion, large systems adopting strategies like Penn did to go ahead and find ways to become more effective and to reduce their overall cost of operation. And we're able to deliver very significant benefits to the institution as a result of both our supply chain capabilities as well as our systems that we're bringing to bear across their enterprise. And so the solutions that we offered to Penn are very, very transferable to other institutions, and we think the opportunity there is very large. So in this particular case, Penn is such a wonderful institution and has such a stellar reputation that we do believe other systems will follow their lead in terms of consolidation and systemization, and we're already pursuing new opportunities in that regard. With respect to B&I, Workplace Experience group, our team has just done a fantastic job growing that business, pursuing opportunities, competitive opportunities, and as you noted, continue to grow share across the organization. I think it's a function of both our capabilities, our different brand offerings, if you will, under the Workplace Experience umbrella, and frankly, just overall performance. Our team is delivering at a very high level. Our customers recognize that, our potential new clients recognize that. And so we've been able to grow that share in a number of niches where we haven't historically competed. So we're very excited. It's got -- it has great leadership, and we're very confident in its future growth opportunities as well. James Tarangelo: Yes. And John, I would just add that it also includes our refreshment services, coffee service and micro market, which is also growing very rapidly, very consistently. Both Workplace Experience, Refreshment Services, high levels of retention, high levels of net new as a result of the branding and success they've had with clients that John just mentioned. So we're seeing it from really all parts of that organization. Operator: Our next question comes from Andrew Steinerman with JPMorgan. Andrew Steinerman: It's Andrew. When you talk about base business growth, I'm pretty sure you're talking about both price increases and other base business growth like cross-selling. And so with that, in mind, could you just go through the organic revenue drivers between net new price increases and other base growth both in the fiscal '26 guide as well as '25 just completed? James Tarangelo: Yes, I'll take that. So yes, in terms of the components of growth for fiscal '25, the base business growth was consist of volume and price. And pricing generally has been at about 3%, and so base business sort of 3.5% in '25. Net new contribution, that's the in-year contribution, about 1.5%, and then the 53rd week added about 2%. That gets you to the 7% for fiscal '25. And in terms of the outlook for '26, we'd expect to gain about 3% to 4% base business growth, roughly 3% or so coming from price. And then again, given the strong levels of retention and record new, be in the 4% to 5% range on net new contribution in fiscal '26. And this is on an apples -- on a 52-week comparison to the prior year. That gets you to the guide of 7% to 9%. Operator: Our next question comes from Jaafar Mestari with BNP Paribas. Jaafar Mestari: I had just a follow-up on this net new business contribution in '26 in the year. Given where you ended at the end of '25 and given some of your KPIs in terms of new signings and retention being very much forward-looking, why is the outlook for '26 not a bit stronger in terms of the contribution in that year? The 5.6% wasn't reflected in '25 because of the timing of some of those signings and the ramp-up, should we now expect it to be reflected in '26 fully? James Tarangelo: Yes. So there's a couple. So as we -- so Penn Medicine, remember, it's an annualized number, and Penn Medicine, for example, the largest one, is starting early in the year and will ramp up throughout the course of fiscal '26. And then the Oakland A's is another large win that will have more of an impact into the following fiscal year. So that's why there's some -- there's always a bit of timing between the annualized and in-year realization of those revenue. Jaafar Mestari: That's clear. And then one follow-up on the margins. You're right, obviously, that the guidance in '26 will mean that the margin improvement year-over-year will be between 30 bps and 40 bps. But that's using as a starting point '25 with some of the items you flagged, including the exceptional sales team compensation in Q4. And so a similar question here, if we don't expect those to reoccur -- if they reoccur, fantastic, it's something you've signed a lot. But if we don't expect those to reoccur, shouldn't the margin in '26 normalize a touch for those and then grow 30 to 40 bps on a normalized basis? James Tarangelo: Yes. If you look at the range of outcomes, so I think if you sort of the low end and high end of the range, right, sort of 5.6% to 5.8%, and as I mentioned, 5.7% in the middle. So the range of outcomes is wider. So correct, those items, if you don't -- if they repeat, it's a good problem to have. But sort of, yes, if you normalize fiscal '25 and you're in the 5.4%, 5.5% neighborhood. The other factor is, given the large ramp-up of these accounts, there will be some additional start-up costs in '26 that is baked into the guidance. You can think about that as sort of maybe 10 basis points as part of that. Jaafar Mestari: It's baked in. And then just last point, very quickly. You've updated us on health care opportunities where you're saying you're still working on some material opportunities. Another area where you've been talking about some potential big wins to come was Corrections. Any update here? Is the decision-making process in that segment just very slow? John Zillmer: Yes. We actually had some significant Corrections new wins, some of which did actually get recorded as wins in the net new and are ramping up now. So we are continuing to pursue additional state systems and it continues to be one of our largest opportunities for self-op conversion. And so we think the pace of that business's growth will continue, both on the correctional feeding side as well as the commissary side of the business as well. So still a very significant total addressable market available to us to pursue and very confident in that team and its approach to the business and its ability to generate top line growth. Operator: Our next question comes from Neil Tyler with Rothschild and Co. Neil Tyler: I'm just interested in the restructuring measures that you've initiated in the International business. Can you talk a little bit about the thought process and maybe operational metrics that prompted you to initiate restructuring in a business that seems to be growing very healthily? And then secondly, perhaps when you're talking -- when you refer to the postponement or sort of slightly delayed startup of some of the operations, can you talk a little bit -- give us a little bit of a sort of context or description around what sort of factors need to be considered when you decide to slow down the start-up of operations in a contract? Maybe give us some anecdotal evidence or anecdotal sort of description of why that might be the case. John Zillmer: Yes. It's really more client-driven than it is Aramark-driven. Clients have time frames that they have -- that they're working under, and in particular, they're dealing with multiple constituents. One of those opportunities, for example, using Penn as an example of an account that we anticipated potentially opening earlier, they had to work through a number of different decision processes. They needed to inform their employees, they needed to work through union relationships. And so really, we tend to respond to our clients' needs and our customers' needs more than ours with respect to timing. And that was also very significantly evident in a couple of those correctional opportunities where decisions were deferred by states and in a couple of opportunities in the Workplace Experience group where we had a large client we were already serving that was making a decision to displace a competitor that was also a customer of theirs. So as I said, more often than not, these deferrals tend to be related to customer timing, not Aramark timing. And we just had a number of them occur that affected our fourth quarter this year. James Tarangelo: Yes. And on the restructuring in the International, again, the backdrop here, this -- the International group has had a long track record of success, multiple quarters, multiple years of up double-digit growth. So this is a business we're happy to invest where we need to, to make sure we're well positioned to achieve our financial targets and streamline the business a little bit. So it's geared toward streamlining some SG&A and optimizing some SG&A. As you know, it's fairly expensive to do that in certain parts of Europe. So that was a piece of it. Optimizing a little bit in mining in South America to position us for the coming year. And then there is a final piece that was related to some real estate consolidation as well, some of the bolt-on deals that we did presented an opportunity to bring those together more efficiently. Neil Tyler: Got it. And then just going back to the first question just so I have it clear in my mind. When we think about the slight growth shortfall relative to the sort of lower end of your guidance that occurred in the fourth quarter, is it fair to characterize the majority of that as being down to contract timing as opposed to sort of the comp effect of things like the MLB playoffs and the like? John Zillmer: Yes. I think that was certainly the most significant part of it. The MLB impact was secondary. The closure of the Grand Canyon was certainly secondary to that. So there are a couple of items. Rather than giving you a laundry list of every reason, the one that I would really focus on is that, opening deferral mechanism and timing of that. But the other 2 impact items were also part of that fourth quarter. Operator: Our next question comes from Jasper Bibb with Truist Securities. Jasper Bibb: I wanted to ask if you could give us a bit more detail on the organic run rate into fiscal '26, maybe using what organic growth looked like in October or September excluding the 53rd week? James Tarangelo: Yes. Thanks, Jasper. Yes, so the cadence in '26, so just a couple of points here, I said that the 53rd week will have an impact on the cadence, as I mentioned in my comments, on '26. So essentially, we have a strong operating week in higher ed and K-12, in particular. That sort of gets absorbed into fiscal '25 with that extra week. So with that, you could think about losing a few days in Q1 that will come back in Q2. So first half growth will be kind of consistent with our run rate. But I think the first quarter, think that sort of minus 3%, 3.5% versus the run rate that will be captured back in the second quarter. So that's the cadence I wanted to note. But we're exiting with good speed, good run rate here as we exited here in Q4, and good momentum as we expected in October and the outlook for Q1. So it's running according to track, but I just did want to note there's some timing of -- due to the 53rd week that will have no impact on the full year, just quarterly. Jasper Bibb: Maybe give us a bit more detail on the quarterly cadence of margin. I imagine with the contract ramps, you might be a little lower in the first half than is seasonally normal and stronger in the back half. Is that a fair interpretation? Or any other detail you can give us on what that will look like? James Tarangelo: Yes. I think that's fair. But again, the larger driver on the margins will be the same thing. It's the drop-through on the revenue in Q1 versus Q2. So the first half will look normal. But given less revenue in Q1, there will be a margin impact on Q1 as well, but it will even out in the -- for the full first half. Operator: Our next question comes from Andrew Wittmann with Baird. Andrew J. Wittmann: I think the last question is actually a really important question. And I understand that you commented on percentages here, Jim, for the revenue first quarter down 3% to 3.5%, bigger -- sounded like bigger impact to margins just because you don't get the fixed cost leverage. Did you want to -- did you want to be even more precise on that one? I think we can all do math, but did you want to give revenue and EBIT kind of numbers for 1Q? I just feel like it's a big enough change. And then I think as we -- given kind of the last couple of quarters how numbers have been kind of moving around a lot, it might be even better to give actual numbers for 1Q. I know that's a big ask, but I just think it's important here. James Tarangelo: Yes. Again, I think what I would just say there, if you think about the first half versus second half, and if you sort of again adjusting for the 53rd week, and I'll just give a sort of ballpark, if you're sort of running at sort of 7% to 8% in the first half, a little bit higher, in the second half, right, I mentioned about a 3% impact in Q1, you could think of that coming off of the 7% to 8% roughly, and then that will be captured back in Q2, just to give you a little bit of sense. But again, I don't want to be too specific, but that gives you a sense of some of the movements. Andrew J. Wittmann: Okay. And then, John, maybe have you comment a little bit more on the pipeline. Obviously, it's been robust. Can you give a little bit more there, kind of what you're seeing, how the size of the pipeline compares today versus maybe this time last year? I think that would be kind of helpful to just build some mental model for all of us around how the top line might unfold this year. John Zillmer: Yes. I would say the pipeline continues to be very robust. And at least as good as last year at this point. So we continually build on those pipeline of opportunities and we continue to add new markets and new niches that we're pursuing aggressively to go ahead and expand our total addressable market, adding sectors, in particular, if you think about Workplace Experience, really aggressively pursuing new opportunities in the legal world, if you will, in top-tier law firms. If you look in International, pursuing new mining initiatives, new remote camp initiatives. So we continue to build the pipeline with lots of new opportunities, and it continues to be very robust. So I would say there's really no fundamental change year-over-year other than we're continuing to invest in the growth of the enterprise. We expect it to continue. Very encouraged by the strong results this year. And also, again, encouraged by the very strong retention rate and the discipline inside the organization. And so all in all, I think it leads to fundamentally a very strong trajectory going into '26. And as Jim described, we'll have our seasonal kind of normal impacts on a quarter-to-quarter basis. But overall, I think our full year guidance is absolutely achievable and, yes, very comfortable with the ranges that we've talked about. Operator: Our next question comes from Shlomo Rosenbaum with Stifel. Shlomo Rosenbaum: Can you just talk -- just getting back a little bit more to those contracts that didn't start quite as expected in the fourth quarter. Can you just talk a little bit more about whether there were carry costs that were incurred as part of that? And for some of those contracts, does that continue into the first quarter in terms of impacting margin? Or just trying to have a better understanding as to the impact financially. And then frankly, the visibility that you have in terms of managing your business towards those things. And then I have a follow-up. John Zillmer: Yes. I would say, yes, there is a little bit of ramp-up in starting costs, particularly for those accounts that have already opened in the first quarter on the correction side and in some of those other businesses. So yes, we were preparing to open them and incurring costs in the fourth quarter in terms of the run rate opening costs, if you will. So there is some -- a little bit of an impact there that dribbles into the fourth quarter or into the first quarter, I would guess. But I wouldn't characterize it as overly significant. So I think all in all, the -- I would point you to 2 big items. Obviously, the medical costs last year were a significant impact on the total earnings of the company, both the medical claims cost as well as GLP-1s. And we have taken very decisive action with respect to the GLP-1 impact and which will go into effect in the -- in January and which will significantly reduce our costs year-over-year from that perspective. So if you look at the 2 big impact items in the quarter, there are medical costs and the higher incentive compensation. I'll take those higher incentive costs every year if I can achieve those kinds of numbers, and drive permanently the growth trajectory of this organization by outperforming on new growth, I'll do it every time. And I feel very good about that. And I love the fact that I've got to pay the people of this organization for delivering on those results. The GLP-1s, we've taken care of that; that won't be an issue. So if I really look at year-over-year, the earnings miss in the quarter, I would be focusing on those items as opposed to the other details in the business. That's really where the fundamental miss was. Shlomo Rosenbaum: Okay. And then one of the things when you started years ago and you and I talked about the focus on retention, and you've done -- you really moved the retention up significantly. And I was wondering, are we looking at retention right now as a steady state? Or hey, it was kind of unusually high, we're usually looking for like around the 95%, but we had some big contracts that really skewed those numbers? Or is the bar just moving higher because of the operational changes that you've made within the business in terms of getting ahead of some of those contracts, better servicing the contracts, better in [indiscernible]? As we sit here next year, are we going to talk about 96% plus again or we should think that, hey, annually, you want to expect 95% and, if you can outperform, you outperform? John Zillmer: Well, I think I would love to be sitting here next year talking about 96% or higher again. We have very high expectations for our people. We hold them accountable. And so it's our expectation that we're going to get better, not worse. Part of that is both performance, part of it is negotiation. Part of it is continuing to find ways to extend agreements with clients and customers proactively. So this is a process we are fully engaged in all the time. And so I would love to sit here and say next year, we'd love to hit 97%. I don't know if that's possible. But we're going to be striving to that and we're going to do the best that we possibly can. And so yes, 95% should be a floor. It should never be -- it should never fall below that. And frankly, we have high expectations that we can do better. And we're raising the bar for our people all the time. Operator: Our next question comes from Josh Chan with UBS. Joshua Chan: On that retention point, I know that some years, it's never easy, but some years, it's easier than others to retain business just because of the cadence of what comes up for renewals. Could you just like remind us what's happening in 2026 compared to '25 in terms of what of your contracts may be rebid or have to come up for renewal? John Zillmer: Yes. I would say it's pretty much a normal year, a normal expectation. Some of the businesses that have more cyclical contract renewals like K-12, like Corrections will have their normal cadence. And those are the ones that are really impacted and have different impact items -- or different cadences year-over-year. I would say, we're very well positioned this year from a retention perspective. Last year, going into the year, we had Arizona State was our largest Higher Education contract. It was going out for bid for the first time in over 20 years because the State of Arizona dictated that it needed to. We retained that business and grew it. So that was a very exciting result. But I would characterize '26 as kind of a normal year, really no high-impact items one way or the other. So we continue to be focused on delivering at a very high level from a retention perspective. Joshua Chan: And then I think, Jim, you talked a little bit about the impact in Q1 from the calendar shift. I guess does Q1 not also have the Major League Baseball dynamic as well? And maybe could you just kind of put a finer point on whether that will have a material impact also on the growth rate, just so that everybody can be baselining off of the right numbers? James Tarangelo: Josh, you're correct, there's less. You only had the Phillies advanced to less playoff games in '26 versus '25 Q1. But having said that, the overall strong retention and net new coming to the year should offset that. So I would say, more of a normal cadence aside from that. So a little downward pressure from playoffs, but offset by other areas of growth in the business. So the main factor I would say in Q1 is just simply the calendar shift. Operator: Our next question comes from Stephanie Moore with Jefferies. Stephanie Benjamin Moore: Maybe touching on a more of a higher-level question. I'd love to get your thoughts as you look at -- reflect back on fiscal '25 and you look towards fiscal '26. Just what you're seeing from an overall in-sourcing versus outsourcing trend, how '25 compared to maybe prior years? And then in the same vein, if you could touch on just the competitive landscape, especially given maybe some more changes with one of your competitors as of late. John Zillmer: Yes, I would say the level of first-time outsourcing continues to be in an elevated state. And in particular, for us this year, the single biggest impact item was the Penn contract and the fact that they were moving to first-time outsourcing in a number of those operations. But we continue to see elevated outsourcing in a number of the segments, in particular, Higher Education, particularly in their sports side and university athletic departments really seriously considering outsourcing as a strategic alternative, particularly as they cope with the realities of the NIL environment and their need for funding. So I continue to see a very, very strong marketplace, a very strong opportunity set, if you will, across a range of sectors. It's not limited to just one; it's in multiple sectors where that first-time outsourcing continues. And we're enjoying very significant success. As an organization, we have grown our share this year. We've had a very significant performance against self-op and against our competitors as well. And we just focus on those opportunities one at a time. We believe we focus on the strength of our operations and on our client relationships and we sell from a position of quality and consistency and program. And we've been very successful doing that against all elements of the market. So we're very pleased with our overall results, but we are striving to do better day in and day out, and we'll continue to compete aggressively on quality and capability and client relationship. And that's how we win. Operator: I'm not showing any further questions at this time. I'd like to turn the call back over to Mr. Zillmer for closing remarks. John Zillmer: So again, thank you all for your support of the organization. We're very pleased with the overall performance, most especially with the net new and with retention this year. Really very strong finish to the year. We're very excited about our prospects for 2026 and the future ahead for the company and for our shareholders. Thank you. Operator: Thank you for participating. This does conclude today's conference call. You may now disconnect, and have a wonderful day.
Operator: Hello, and welcome to Freightos' Q3 2025 Earnings Conference Call. A press release with detailed financial results was released earlier today and is available on the Investor Relations section of our website, freighters.com/investors. My name is Anat Earon-Heilborn, and I'm joined today by Dr. Zvi Schreiber, the CEO of Freightos; and Pablo Pinillos, CFO. Following the prepared remarks, we'll open the call for questions. We are sharing slides during the call and using video, so we recommend using Zoom on a computer rather than dialing in by phone. The slides as well as a recording of this earnings call will be available on our website shortly after the call. Please be aware that today's discussion contains forward-looking statements, which are subject to a number of risks and uncertainties. Actual results may differ materially due to various risk factors. Please refer to today's press release and our SEC filings for more information on risk factors and other factors, which could impact forward-looking statements. Copies of these reports are available online. In discussing the results of our operations, we'll be providing and referring to certain non-IFRS financial measures. You can find reconciliations to the most directly comparable IFRS financial measures along with additional information regarding those non-IFRS financial measures in the press release on our website at freightos.com/investors. The company undertakes no obligation to update any information discussed in this call at any time. Before we begin, I'd like to note our upcoming investor events. In December, Freightos will participate in the AGP Electric Vehicle and Transportation Conference and [indiscernible] year-end investor conference. In February, the company will participate in the Oppenheimer Emerging Growth Conference. Links to webcast when applicable and other event updates can be found on our website. Today's earnings call will begin with an overview of Q3 performance and overall progress by Zvi. Next, Pablo will present the financial results and the guidance for Q4 and full year 2025. We'll conclude with Q&A. Questions can be submitted in writing during the call by using the Q&A feature in Zoom. Zvi, please go ahead. Zvi Schreiber: Thanks, Anat, and welcome, everyone. And today, I'll cover 3 topics. I'll start with the quarter's highlights and what they mean. Next, I'll discuss the product and network progress that will power our next phase of growth. Lastly, I'll share how the digital transformation of ocean carriers is creating a significant midterm opportunity for Freightos, particularly as we expand our multimodal capabilities. First, let's start with the quarter. In Q3, we processed 429,000 transactions, up 27% year-on-year. It's our 23rd consecutive quarter of record transactions. Unique buyer users were about 20,600, and the number of carriers with more than 5 bookings from our platform during the quarter increased to 77%. Most major airlines are already connected to our platform. So new airline additions are often regional or niche airlines at this point. We're focused on expanding airline coverage in Asia and expect further global expansion as smaller carriers look to leverage our digital channel. These metrics tell a consistent, more buyers and more sellers are using Freightos more frequently, driving short-term revenue growth and long-term scalability of our business. This gives us both breadth and depth on the platform, more opportunities to monetize transactions and to deepen relationships with higher frequency users. Now, let's put this performance in context of the market. During Q3, air cargo volumes increased 4% compared to Q3 2024, reflecting growth in many markets, even as transpacific e-commerce volumes faced headwinds from tariffs and changes to U.S. import regulations. According to our Freightos' Index, FCX, average global air cargo rates decreased 6% compared to Q3 last year. The bigger picture in the freight market, given tariffs and macro uncertainty, is that of volatility and nervousness. Such conditions make speed, transparency and automation in logistics more important. When customers need to move faster and make decisions with less friction, they turn to digital platforms. This is helpful to our Platform segment, but the market nervousness is unhelpful for selling solutions. Now, let's discuss product and network progress. We're excited to highlight our strategic partnership with Visa and [indiscernible], announced by Visa a couple of weeks ago. This collaboration enables us to provide freight forwarders and importers and exporters with access to modern financing solutions through our platform. The partnership integrates Visa's global commercial solution expertise with transcard's payment orchestration technology, creating a more efficient payment experience for our users. The fact that a global leader like Visa has chosen to partner with Freightos demonstrates the significant potential they see in the $600 billion international freight markets and the role that we, Freightos, play in it. Next, we launched and commercially validated our new multimodal rate management and quoting SaaS product, WebCargo Rate & Quote ocean. In Q3, we completed a rollout at our first multinational freight forwarder customer and proved that the workflow quoting air and ocean in 1 product works well in practice. Unifying air and ocean quoting allows freight forwarders to give a superior service to their customers, the importers and exporters. But the real transition towards digital booking happens when that workflow is supported by bookable carrier inventory. For Ocean, that bookable inventory depends on carriers digitalizing more meaningfully, so we can connect them to our platform. I'll expand on that in a moment. A notable early adopter of this product, the new multimodal solution, is Nippon Express, a top 5 global freight forwarder. Nippon Express expanded its use of Freightos this quarter, moving from our own usage to a multimodal deployment across much of its global network. This expansion increased their annual commitment to Freightos by multiples. Given that 90% of goods are transported by ocean, we expect to see many more upsells from air to ocean. Other successes in our Solutions segment this quarter included a number of renewals and targeted scope expansions. For example, we closed an upsell of our terminals rates benchmarking capabilities to a global mining company, expanded Procure tendering functionality with a top 5 pharma company and extended our terminal data contracts with a major electronics customer. That said, we had anticipated even stronger solutions revenue growth than the 30% year-on-year we delivered this quarter. As we mentioned earlier in the year, due to tariffs and the current macro environment, enterprise SaaS deals have had longer sales cycles. So in the meantime, we're strengthening commercial execution. Michael recently joined Freightos as Chief Revenue Officer. Michael brings deep experience scaling digital logistics and enterprise sales, most recently as VP at Premion and previously as SVP of Sales for Intermodal at Project 44 and other B2B companies. He has a proven track record of building commercial relationships across carriers, forwarders and shippers, which will help us further scale multimodal adoption and our enterprise deployments. Michael will ensure Freightos has world-class sales and customer success capabilities with value-based selling to both enterprises and small and medium-sized businesses worldwide, optimizing our LTV to CAC ratio. Now, we talked about our updated software solution for quoting Ocean, but what about ocean booking transactions on our platform. This, of course, requires ocean carriers to make capacity pricing in booking, available digitally, through APIs. We discussed One Ocean Carrier integration success on our last call. And in Q3, we made progress with 2 more integrations, which we expect to go live in the coming quarters. Each integration brings more capacity into our system in an automated form, helping forwarders better source and decide on shipping options in real time. We're now among the first platforms receiving rates from several major global ocean carriers. And our launch of a next-generation ocean rate management solution is, of course, synergistic with our platform finally making progress integrating to ocean liners. With ocean representing approximately 3x the GBV of air cargo, the potential is significant, but we do expect adoption to follow a measured pace, as the conservative industry works through its transformation. We anticipate meaningful revenue contribution in the midterm, not in the immediate future as this transition continues to unfold. Of course, platform growth is not limited to new carriers. Once a carrier is launched on Freightos, we can continue to grow in different geographies. We can add more advanced services, like expanding from general air cargo to temperature control services, expanding from spot bookings or one-offs to handling bookings against negotiated contracts. So these are the operational and commercial priorities that drove our Q3 progress. Pablo will now walk through the financials and explain how these milestones translate into revenue, margin and cash. Pablo? Pablo Pinillos: Thank you, Zvi, and good morning, everyone. I will now go through how the quarter's operating progress translated to the P&L, cover cash and liquidity and then walk through our near-term outlook and priorities. Revenue for the quarter was $7.7 million, up 24% year-over-year. Platform revenue was $2.6 million, up 15% year-on-year, and Solutions revenue was $5.1 million, up 30% year-on-year. As Zvi we said, Solutions and Platforms support each other. The way solutions drive bookings is practical and proven. Our mission-critical SaaS solutions become embedded in a customer's day-to-day operations. Our customers centralized pricing and workflow on freighters and makes it far easier for them to go and then convert those quotes into bookings. Our data supports that dynamic, forwarders that adopt our tools tend to grow transaction volume materially over time. Looking to our cohort data, we see 3 to 4x growth in transaction volumes for cohorts over their initial 2 years using our platform. Put it simple, solutions creates the stickiness that enables more frequent platform bookings because we're still early in the industry's transition to platform model, solutions today represents the majority of our revenue. Over the long term, we target Platform revenue to scale faster and ultimately outpace solutions revenue. Now, let's take a closer look at Platform revenue. You will notice that platform transaction volume and GBV are growing faster than our platform revenue. This is purely due to our business mix. Take rates are not going down in any segment. Our WebCargo platform, which connects freight forwarders with carriers, consistently grows at a faster rate than Freightos.com, which serves importers and exporters. WebCargo operates mainly on a fixed fee model with a lower implied take rate compared to Freightos.com higher take rate structure. As the fastest-growing web cargo continues to outpace Freightos.com, the aggregate revenue platform naturally grows more slowly than transactions volume. Our carrier cohort analysis reinforced this, carriers run quickly after integration, producing a strong booking growth, but much of that early volume is under relatively low fixed fees. So it doesn't translate into proportional transaction revenue immediately. Gross margins were strong this quarter. On an IFRS basis, gross margin improved from 65% a year ago to 69.1% in Q3 this year. And our non-IFRS gross margin rose from 72.7% to 74.8%. That improvement reflects the inherent operating leverage in our model as we continue scaling. We are seeing benefits from automation efforts in customer services, which allow us to handle more transactions with our proportional increases in personnel or infrastructure costs. Looking ahead, restructuring our hosting agreements and infrastructure improvements represents our next significant opportunity to enhance margins. While we have made good progress optimizing our infrastructure costs, there is still more efficiencies to capture. Adjusted EBITDA improved to negative $2.6 million in Q3 2025 versus negative $2.8 million in Q3 last year. That improvement reflects revenue growth, a stronger gross margin and disciplined cost management. Those operational gains were, however, partially offset by continued currency impact, a stronger euro on cycle versus the U.S. dollar, reduced the gain in adjusted EBITDA compared to our operating performance. Our hedging program limited the impact on the cash, so the translation effect shows in the P&L more than in the cash balance. We closed the quarter with **$30.6 million in cash and short-term bank deposits**, a position that supports our continued measured investments in product and commercial execution, while we scale the business to breakeven. Looking ahead, we remain focused on the levers that will narrow losses and drive durable profitability. The overall plan remains the same, keep growing revenue and margins while keeping OpEx close to constant. Our new CRO is already laser focused on cost-efficient growth. With these concrete actions, we continue to plan to reach adjusted EBITDA breakeven in Q4 2026. For the fourth quarter of 2025, we anticipate continued year-on-year growth across transactions, GBV and revenue. Adjusted EBITDA will likely continue to be impacted by foreign exchange headwinds. This means that for the full year, we now expect a more modest year-on-year improvement in adjusted EBITDA than what we have projected at the beginning of the year. Despite successfully reducing our total cost by almost 5% this quarter and 3% year-to-date compared to our budget in a constant currency basis, exchange rate fluctuations have created an unfavorable impact that has significantly reduced these cost savings. A secondary factor relates to our revenue composition, while we remain on track to meet our revenue guidance despite a challenging year on the logistics industries, the mix between our revenue streams differs from our initial expectations. We are finishing the year with a slightly better performance of platform revenue relative to solutions revenue than what we had planned, which we attribute to the longer sales cycles, as Zvi has mentioned it earlier. Since solutions typically generate higher margins, this shift in mix has modestly impacted our overall profitability. Nevertheless, we are pleased that our cash spend remain on track throughout the year. We expect to end the year with cash and equivalents of approximately $27 million, reflecting on cash burn of about $10 million for 2025 compared with $15 million in 2024. We remain focused on the fundamentals, growing revenue while maintaining disciplined cost management and operational efficiency. Based on these fundamentals, we continue to expect reaching breakeven adjusted EBITDA by Q4 2026. Anat Earon-Heilborn: Our first question will come from the line of Jason Helfstein. Jason Helfstein: So when I look at the contribution margin, it's basically year-to-date, it doubled year-over-year, so clearly, you're seeing efficiency and the sales cycle. I think your OpEx, excluding sales and marketing, is up 9% against revenue up, I don't know, some 27% or 29%. And obviously, you called out the pressure of the FX. So you're doing everything you can do. I guess the question is, and you've now told us you're going to -- the plan is breakeven EBITDA by the end of next year. So I guess, is there anything you could do to grow faster organically or inorganically? And I guess, how much of the gating factor growth at this point is kind of the path to breakeven EBITDA and managing the cash balance? And then I have 1 quick follow-up. Zvi Schreiber: Yes. Thanks, Jason. Well, that was a complicated question. So I'm thinking where to start from. The -- look, it's a constant balance. I mean, even now as we finalize our budget for next year, it's a constant balance between growth and breakeven. And we very much want to grow and break even by the end of next year. And so it's a balance between them. For sure, yes, we're doing what we can. Thank you for calling out. We have done a lot of work on efficiency. In fact, if you look back a bit, we've grown in the last -- 2 years, I think revenue has grown 40-something percent and the team hasn't grown at all. So we're certainly becoming more productive the whole time. And beyond that, we are, of course, now with AI, there may be further opportunities for efficiency. So we've been doing that the sort of the hard way, and now, there may be other ways to become more efficient. And Pablo mentioned, we're already seeing some improvements in the customer support using AI. So we're going to continue pushing on that side as well. And then, it's just the balance between how much do you want to spend in sales and marketing to grow, but also to break even. And we'll -- we're finalizing a budget, which will allow us to grow as fast as we can without compromising the target of breakeven. Jason Helfstein: And then just to follow up. I mean, where do you feel like we are with kind of the tariffs volatility? Like are we at a point where now you feel like you're seeing kind of normal shipping volumes? And I don't say normal, like the volatility has slowed down. Like are their patterns now that makes sense? Or it still feels like the ecosystem is still working through the kind of week-to-week changes around certain products and certain tariffs, et cetera? And I don't know if you want to call out China specifically, but any color how it's impacting your kind of thinking, your forecasting of the business. Zvi Schreiber: Yes. It's a bit of both. I mean, certainly, there is not as much uncertainty as there was in April or something like that. But even so I just saw today a headline that President Trump canceled certain tariffs on food. And so it's still -- a, there's still some uncertainty, and you never know what you're going to -- what's going to happen tomorrow. And secondly, even if there's no uncertainty, the tariffs are higher, and that certainly creates some friction for imports to the United States. So in the market data, I presented actually that the overall global trade is up on the year, but trade with the U.S., if I'm not mistaken, was down a bit. So it's still an issue. The uncertainty is still an issue, the tariffs themselves still creates some friction, but it's not at the levels that it were and people are at least to some extent adjusting to the new normal. Like I said in my remarks, it affects us more. We don't feel it's affected. On the platform side, it can be good as well as bad because uncertainty drives the need for marketplaces and finding new opportunities to ship in different ways or from different sources. But solutions, yes, although things have somewhat stabilized, people are still -- freight forwarders, importers and exporters are still more nervous than they used to be to write big checks. We're now busy talking to customers about their plans for next year and getting a feel for whether things can get back to normal. But it was harder to get a big contract signed this year for sure, although we did several, but it was harder than expected, yes. Anat Earon-Heilborn: Next question from the line of George Sutton. George Sutton: I wondered if we could just talk about penetration. You mentioned a lot of the growth will come from -- at least on the air cargo side, from just growing your penetration with the carriers. Can we talk about where we stand in terms of penetration? Any sort of cohort type analysis that you could suggest? Zvi Schreiber: Yes. If you look at -- it sort of -- it varies quite a bit by geography. Our penetration in the European market from a supply perspective is very high. We've got virtually every airline in Europe turned on to the platform, at least for a lot of the capacity, not always for all their capacity. But in Europe, we have a very significant penetration. We have a very nice proportion of the freight forwarders in Europe. I don't know have exact numbers to hand. I don't know exact numbers at all because there isn't a very reliable list, but very significant in the U.S., we're growing nicely, but it's still smaller penetration. And in Asia, we reckon we're still sort of -- whether you look at supply or demand, we're still in the single digits of penetration. That's still a huge amount to do there. George Sutton: So I wondered if you could explain the Visa link and how that might impact your opportunity? And just give us a sense of how it was occurring prior to that or separate from that. Zvi Schreiber: George, you said Visa? George Sutton: Yes. Zvi Schreiber: Yes. Good. So 1 of our initiatives with airlines, both to add more value and to get -- to monetize more to get a better take rate with the airlines is handling payments. That's still a minority of the transactions, the vast majority of transactions on our platform or with airlines. And in most cases, the freight forwarder books on our platform and then pays through an off-line system. But we have a growing platform value add, where we handle the payments. And up to now, we've been doing that with other financial partners or through our own sort of bank accounts in certain cases, depending each country with its regulation, et cetera. Now, with Visa, obviously, we have a partner who's a worldwide name and who has credit lines and other sort of financial technology that we just don't have. So we definitely think that this will enhance our payment solution a lot, and we hope to see payments growing. And over time, really bringing up our average take rates with the airlines, which as you know is one of the issues is we have this fantastic amount of airline revenue being generated from our system. The monetization is still modest. Payments is definitely a way we increase that. and the partnership with Visa is a key way that we make our payments more attractive. George Sutton: Last question for Ocean [indiscernible] midterm growth opportunity, but maybe how you define midterm? Zvi Schreiber: George, you were pretty cut off there, but I think I got the question. George Sutton: I'm just curious how you're defining midterm growth relative to the ocean carriers. Zvi Schreiber: Okay. Yes, very good. That's what I thought you said. So how do I define midterm? Let's say only meaningfully contributing to revenue in 2028. Next year, I don't think Pablo is even going to budget at all for -- there'll be some, but I don't think there's -- it will be even in the budget, 2027. It will start growing. I think it's only in 2028 that we get significant revenue from that aspect. But, of course, just to remind you, and we've discussed this before, George, but once you become the leading platform, that can be a -- that can hold for decades. So this is a very strong long-term opportunity. Pablo Pinillos: Yes, to double down on what you just said, and we will provide guidance for 2026, whenever we provide, but we will probably won't assume revenue for oceans bookings in 2026 at all, and really, really, really probably a small 2027. Any significant will come in 2028, as you said. Zvi Schreiber: But on the solutions side, we did start to see -- I mentioned the deal with Nippon Express and a couple of others where I didn't give names, we will see a nice contribution from solutions to ocean in already in 2026. Anat Earon-Heilborn: Okay. I'm going to read a question from the chat. So as you've stated earlier that platform revenue will be driving the revenue in the future, what target do you have for the take rate by the end of 2026? Zvi Schreiber: Pablo, you want to take that or do you want me to comment? Pablo Pinillos: No, I can start. So we are finalizing the plan for next year. And of course, the -- we will be driving plan to increase the take rate. It will all depend, as we've been saying about the mix, the business mix and how the growth in the WebCargo platform versus the Freightos.com, and within that mix, what are the fasting growth carriers that will drive that mix. Right now, we are in the middle of addressing all of that, and -- but for sure, the take rate will not decline year-on-year, and we are expecting that to grow. Anat Earon-Heilborn: Next question is why is revenue growth slowing down in Q4 despite the addition of carriers and forwarders? How much do you expect FX headwind to affect the revenue? And if the FX stays at the same level as Q4, would it delay the timing of breakeven point? Pablo Pinillos: Let me take this, Zvi. So this, again, for us, is the slowdown in Q4 revenues is related to slower revenue -- solution revenues coming in that we have seen a slightly delayed in being able to close business. It's important to say as well that the -- most of our revenue in Solutions revenue is recurring with a small piece of nonrecurring revenue, and the decline of Q4 that we see is specifically related to a competition of one of development that finished in Q3 that when we did plan, we expected to -- that the Solutions revenue will overcome that decline. But so far, we are -- due to the delays, we are not able to foresee that in the future. And the second question is, if FX stays at the same level as Q4, it won't -- from our point of view, it doesn't mean that it will delay our breakeven in 2026. As a guiding principle, we're going to manage expenses as needed to breakeven in Q4 2026 even if the Solutions revenue, it doesn't accelerate in the future. Zvi Schreiber: And I think Pablo, the FX is mainly affecting us on the expense side, right? Our revenue is mostly dollars and less affected by FX. Pablo Pinillos: Yes. But if the FX maintains the same in a 12-month cycle, everything at the end compensates. Zvi Schreiber: Yes, because we'll budget for next year based on the exchange rates that we know now. And just to emphasize a point that Pablo made, the -- our solutions revenue is mostly recurring. And recurring revenue for solutions will be up, we believe, in Q4, not by as much as we hope for the reasons we discussed, but it will be up. And if you see a dip, it will be just, as Pablo said, because of a nonrecurring project, which has recently come to an end. Anat Earon-Heilborn: Okay. The next question, I think we answered part of it, but the second part -- of the first part, so you recently launched WebCargo Rate & Quote integrating Air and Ocean quoting into a single multi-model platform. What early traction have you seen with major forwarders? And how quickly do you expect Ocean to scale relative to Air in terms of transactions and platform revenue? So I think we answered to George about the second part, but maybe we can talk about the traction with forwarders? Zvi Schreiber: Yes. So I want to separate when it comes to Ocean, which is obviously a major part of how we grow in the next few years. I want to separate Platform and Solutions. Platform, as we said, we are connecting 1 by 1 to some very big ocean carriers, which is exciting progress, but we're not yet at critical mass. We're not expecting for at least a few months to see real volume on the platform side. But Solutions, we mentioned Nippon Express, we mentioned a couple of others. I can also mention that we've just started selling ocean to some of our small forwarders. And so we expect to see good traction on the Solutions side. With Ocean, we have -- the great thing is it's existing customers. So we have 4,000 freight forwarders roughly using our solution for air using our software for air. And so it's just going back to the same freight forwarders and saying now we've got a modern solution to ocean, you can do air and ocean in 1 platform in a beautiful modern software. And so we expect that to be a major part of how we grow solutions revenue next year. Anat Earon-Heilborn: Okay. Our next question is about revenue share with partners. If partners like Meg cap Aviation bring 13 carriers to Freightos platform, what would make a benefit from the partnership? Would get the revenue share from this partnership? Zvi Schreiber: It's not -- yes, interesting question. It's not really a revenue share scenario because they are resellers of the carriers. They're a general sales agent or whatever arrangement they have. So from our perspective, they're a carrier. They may be a virtual carrier, but we treat them as a carrier. They pay us a fee for bringing them a booking. And then, what's between them and the airline is between them and the airlines. So they're not a channel in that respect. They may be a reseller of the airline. But as far as we're concerned, they're a carrier or a virtual carrier. They're the ones selling the capacity on our platform. Anat Earon-Heilborn: Okay. Our last question, I believe. Could you please say how much proportion is recurring and nonrecurring among the solutions revenue? Zvi Schreiber: I don't think we give numbers, but Pablo, I think it's fair to say that a very big majority is recurring of our solutions revenue, right? Pablo Pinillos: Nonrecurring, it doesn't get up to 5%. Zvi Schreiber: Yes. We only mentioned it this quarter because there was a big part of the nonrecurring came to an end. And that's actually not -- it's not our business model to do nonrecurring. We do it sometimes because we have to help the customer -- if we need to help the customer with a project and help them adopt our software, we do it sometimes. And we had 1 big project, which just came to an end on the nonrecurring, but yes, as Pablo said, that's not our model. Our model is selling SaaS and data subscriptions, and it's almost all recurring. Anat Earon-Heilborn: Okay. That was the end of the questions. Thanks, everyone, for joining. Have a good day. Zvi Schreiber: Thanks. Pablo Pinillos: Thank you.
Operator: Good day, and thank you for standing by. Welcome to the J&J Snack Foods fourth quarter 2025 conference call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll 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. Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Reed Anderson with ICR. Please go ahead. Reed Anderson: Thank you, operator, and good morning, everyone. Thank you for joining the J&J Snack Foods Fiscal 2025 Fourth Quarter Conference Call. Before getting started, let me take a minute to read the safe harbor language. This call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical facts should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, expectations, and objectives as well as our anticipated financial performance. Operator: This includes, without limitation, Reed Anderson: our expectations with respect to the success of our cost savings initiatives, and customer demand improvements in the sales channels in which we operate. These statements are neither promises nor guarantees and involve known and unknown risks, uncertainties, and other important factors that may cause results, performance, or achievements to be materially different from any future results, performance, achievements expressed or implied by the forward-looking statements. Risk factors and other items discussed in our annual report on Form 10-Ks and our other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on the call today. Any such forward-looking statements represent management's estimates as of the date of this call today, 11/17/2025. While we may elect to update forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause expectations to change. In addition, we may also reference certain non-GAAP measures on the call today, including adjusted EBITDA, adjusted operating income, or adjusted earnings per share. All of which are reconciled to the nearest GAAP measure on the company's earnings press release, which can be found on our Investor Relations website. Joining me on the call today is Dan Fachner, our Chief Executive Officer along with Shawn Munsell, our Chief Financial Officer. Following management's prepared remarks, we will open the call for a question and answer session. With that, now like to turn the call over to Mr. Fachner. Please go ahead, Dan. Dan Fachner: Good morning. I am pleased with our fourth quarter results. Despite a challenging backdrop during the summer, we delivered adjusted EBITDA of $57.4 million on sales of $410.2 million, down 3.9% on sales versus the prior year. As anticipated, over half of the sales decline was associated with our frozen beverage business, as we lapped strong volumes from the Inside Out 2 movie last year. Pretzel sales in both retail and food service rose in the quarter, reflecting progress on key initiatives to drive growth through innovation. Pretzel growth helped to offset some declines in frozen novelties, that we are addressing through marketing, trade spend, and innovation. For the full year, adjusted EBITDA was $180.9 million while net sales increased 0.5% to $1.58 billion. Although 2025 was a more challenging year, I'm encouraged by our operational execution in the second half, which puts us in a strong position moving forward. Some bright spots for fiscal 2025 include we achieved record sales, and adjusted EBITDA in fiscal Q3. We modernized our flagship Super Pretzel product with a recipe enhancement, and fresh packaging. The effort to reinvigorate our pretzel business led to a 2.7% pretzel sales increase in 2025 driven by a strong second half performance with sales up 8% compared to the prior year. The rollout of Dippin' Dots to theaters was substantially completed with a presence now in almost 1,600 theaters. Dippin' Dots Sundays were launched at retail with great success, adding approximately $5 million to the top line. We optimized our frozen beverage distribution and service network, which reduced expenses by 2% in the fourth quarter. Now I'll talk through some initiatives underpinning our optimism for fiscal 2026. To start, we have initiated a business transformation program which we are calling Project Apollo. That will generate sustainable efficiencies and cost savings across the enterprise. Some key elements are already underway and we expect the program to deliver at least $20 million of annualized operating income once all the initiatives are implemented in 2026. The initial focus of Project Apollo is consolidation of our manufacturing network. During the fourth quarter, and early in 2026, we announced the closure of three facilities, Holly Ridge, North Carolina, Atlanta, Georgia, and Colton, California. Production from these facilities will either be consolidated into other facilities or discontinued as part of an ongoing portfolio optimization. The closures reflect the next logical step in the evolution of our manufacturing footprint and are enabled by the investments we have made in our plants to modernize and expand capacity for core products and to build out our regional distribution centers. We expect annualized savings associated with the plant closures of approximately $15 million which should be materially complete in 2026. We are also undertaking various initiatives within our distribution system that will generate approximately $3 million of annualized savings. The remaining net savings from Project Apollo are associated with various administrative initiatives we expect to realize most of the annualized freight and administrative related savings by 2026. The initiatives I have just outlined represent the first phase of Apollo. We are working on a second phase that is focused on generating within the plants further efficiencies following the completion of the consolidation work. We are also developing a robust roadmap for modernizing our system and tech infrastructures to streamline additional corporate processes and sharpen the quality of our data analytics. We'll be sharing more as the next phase of the project work is finalized. I am energized that the projects we have identified will generate durable structural savings and will do so relatively quickly in fiscal 2026. I'm encouraged by the impact that these actions are having on our early performance so far in Q1. Our operating teams are focused on the closures and seamless redeployment of production within our network to prevent any disruption to customer orders. I'm also excited about several commercial and innovation initiatives that are being rolled out for our fiscal 2026. Starting with the commercial activities. We will commence shipping churros to a major QSR later in fiscal Q1 as part of a limited time offer program. We expect the program to be successful given it is such a great fit with this customer and believe there is potential to be converted to a permanent volume. We are completing the rollout of ICEE machines for a large and growing convenience store operator in the Southwest, the frozen beverage test with a major West Coast QSR operator is nearly complete and we are encouraged by the results. And the handheld capacity outage should be remedied by the start of our second quarter. With respect to innovation, we have several exciting launches around the corner for fiscal 2026 with most of these products available to consumers beginning the fiscal second quarter. These innovation items underscore the quality, and breadth of our iconic brands. Our new protein pretzel for retail will be available for consumers as a four-pack of large pretzels with 10 grams of protein or a smaller mini pretzel with seven grams of protein per serving. We are rolling out Super Pretzel pizza sticks, and queso sticks which are smaller pretzel bites with tasty fillings. On the frozen novelty front, we are introducing Luigi's Mini Pops which feature exciting flavor profiles and better-for-you attributes such as hydration, and immunity support. We are extending our popular Pet Street brand, Dogsters, to include a new mini ice cream sandwich. Regarding Dippin' Dots innovation, I am pleased to announce that we will be launching Dippin' Dots in its original form for resale. This represents another major growth milestone for the brand. Additionally, we are introducing two new flavors to the Dippin' Dots retail sundae lineup, taking the flavor total to four. The outlook for theater also is encouraging. As the industry continues closing the gap, to the pre-COVID environment. Box office sales for the period that aligns to our fiscal 2025 up 10% versus the prior year. Industry sources are projecting North America box office sales that aligns with our fiscal 2026 to increase by 9% supported by a great lineup of movies that includes Wicked for Good, Zootopia 2, and Spider-Man, A Brand New Day. The lineup for our fiscal first half looks particularly promising as compared to last year's slate. With $106 million in cash and no debt, our financial position remains strong. And we continue to take a balanced approach to capital allocation across three areas: investing in our business to drive growth and operational efficiency, strategic acquisitions, and returning capital to shareholders through dividends, and share repurchases. Given the current trends of our business, and outlook for fiscal 2026, including the benefits we expect to realize from Project Apollo, we expect to increase our focus on share repurchase activity as we see compelling value in our shares. Share repurchases totaled $3 million in the quarter, and we intend to accelerate our pace significantly during the current quarter. I'll now turn the call over to Shawn to discuss the quarter and full year results in a little more detail. Shawn? Shawn Munsell: Thanks, Dan. And good morning, everyone. Before I discuss the results, I'd like to note that we no longer allocate all corporate expenses to segment results. Starting with the fourth quarter, as Dan indicated, we are pleased with our Q4 performance. This methodology change has been applied to our historical results, with some expenses now captured as unallocated corporate expense. We believe we are well positioned early in fiscal 2026. 1.1% to $259.3 million as volume softness more than offset price increases. Soft pretzel sales increased 3.6% marking consecutive quarters of year-over-year sales growth. Bavarian pretzel sales continue to lead the growth. Pretzel dollar share increased 1% in the quarter. Frozen novelties declined 5.1% driven primarily by transition between Luigi's and ICEE branded products. We expect volumes to normalize over time. Churro volume declines primarily reflect the wind down of last year's LTO, with a major QSR customer. Retail segment net sales declined 8.1% primarily driven by lower frozen novelty volumes, partly offset by higher pretzel volume. We are taking action to support our frozen novelty business with shopper marketing and trade spend. And we see improving trends in the recent four-week data. Dogsters continues to stand out of the portfolio with sales and units up in the quarter and we anticipate additional distribution in 2026. Handheld sales declines reflect the temporary capacity constraints from the fire at our North Carolina facility last year. Soft pretzel sales increased 9% continuing the momentum from the third quarter. Frozen Beverage segment sales declined 8.3% attributed to lower beverage volume in the quarter. Foreign exchange translation did not have a significant impact on segment results in Q4. Beverage volume declined primarily due to lower theater sales. As we lapped the success of the Inside Out 2 movie last year. Box office sales for our fiscal fourth quarter are estimated to have declined approximately 11%. As I mentioned earlier, we expect the theater industry to continue its rebound in 2026, and we're encouraged by the solid lineup of movies that we expect will be popular with our target consumers. Consolidated gross profit was $130.2 million compared to $135.5 million last year. While gross margin was 31.7% compared to 31.8% last year. Gross margin in frozen beverage declined given the lower mix of beverage revenue in the quarter. Tariff costs added approximately 35 basis points to cost of goods. These unfavorable impacts were partly offset by insurance proceeds for business interruption costs, related to our handheld capacity constraints. And early plant consolidation savings in the quarter. Operating expenses increased 24% to $118.8 million or 29% of sales. Which included $24.8 million of nonrecurring charges primarily related to Project Apollo plant closures. Plant closure charges predominantly reflect noncash asset write downs and write offs totaling approximately $21 million. We expect additional plant closure and other nonrecurring costs associated with our business transformation project of $3 million to $5 million in fiscal 2026. Marketing expenses were $32.6 million or 4.8% higher than in the prior year driven by increased spending on new sponsorships and other promotional activities. Distribution expenses for the quarter declined 8.3% on lower volume and steady efficiency gains. The efficiency gains were driven by fewer internal transfers and better truck utilization. Distribution as a percentage of sales declined to 10.3%, compared to 10.8% in the prior year. Administrative expenses were $19.1 million, an increase of 5.1% from the prior year primarily associated with higher compensation expenses. Adjusted operating income was $37.7 million as compared to $42 million in the prior year. Adjusted EBITDA for the fourth quarter was $57.4 million versus $59.7 million last year. The effective tax rate for the quarter was 4.8%, compared to 26.8% in the prior year. Adjusted earnings per diluted share were $1.58 versus $1.60 last year. The significantly lower effective tax rate in the quarter primarily reflects a change in estimate on our blended state tax rate and the corresponding impact on the valuation of our net deferred tax liabilities. Our balance sheet and liquidity position remains strong with approximately $106 million in cash and no long-term debt as of quarter end. We had approximately $210 million of borrowing capacity under our revolving credit agreement. Let me briefly touch on full year results. Sales increased 0.5% to $1.58 billion as price increases helped to offset lower volume. Growth in foodservice, which was up 1.6%, was partially offset by declines in retail, including from lower handheld sales related to the capacity constraints. While frozen beverage was essentially flat. Unfavorable foreign exchange rates for fiscal 2025 reduced the top line by approximately 40 basis points. Adjusted operating income was $108.2 million as compared to $130.4 million in the prior year. Adjusted EBITDA for the fiscal year was $180.9 million versus $200.1 million last year. Adjusted earnings per diluted share were $4.27 versus $4.93 last year. That concludes our prepared remarks, and we are now ready to take your questions. Dan Fachner: Operator? Operator: Star 11 on your telephone. And wait for your name to be announced. To withdraw your question, please press 11 again. Dan Fachner: Our first question comes from Jon Andersen with William Blair. Jon Andersen: Hey, good morning. Dan, Shawn. Thanks for the question. Dan Fachner: Good morning, Jon. Jon Andersen: Hey. I wanted to start by getting you to mention the portfolio optimization work that is going on. And that's one of the reasons why the closure of the three facilities, you know, you were able to do that while kind of moving production on production that you're going to keep. Can you talk about the impact of that portfolio optimization on sales both kind of in quarter but then how to think about that perhaps going forward as we look to kind of 2026 and what impact that might have on the top line. We'll start there. Dan Fachner: Sure, Jon. Thank you. That's one of the things that we've been talking about for a while, especially as it relates to our bakery group of optimizing that portfolio. And then as you look at our plans and the consolidation that we've been working on with the plants, it just made sense that during this timing that we'd be able to optimize the portfolio that we have and be able to consolidate some of these plants. The total impact of that, if you think about our business growing in that mid-single-digit rate year over year, might be a one, one and a half percent impact on that overall sales. But we're, you know, we're kind of bullish. It's the play that we called a couple years ago as we continue to build efficiencies inside our system and put in some new plants or new lines within our plants. And then rebuild the distribution system now allows us to be able to go back and optimize. And we're really excited about that work that's being done. Shawn Munsell: Yep. And in terms of timing, Jon, you know, think about that as being kind of near that full run rate sometime in Q2. Jon Andersen: Okay. Helpful. And maybe stepping back even a little bit more, but I know you don't provide specific guidance. But as we exit '25 and think about '26 at this point, there are quite a few moving parts, some of which should be tailwinds. And some of which might be a bit of a headwind, but headwinds for the right reason in terms of the portfolio work. Can you talk at all about just kind of the macro environment? Dan Fachner: And you know, kind of try and combine that to the extension to can't can with some of the internal initiatives. To give us some sense of how you're thinking about '26, both from a maybe a top line perspective, but also a margin standpoint because with the transformation work that's happening, I think some of the pricing that you've been able to implement and may implement to offset commodity costs. There's a lot of different ways that we could go with this. So just want to get your any commentary you could provide forward-looking around that. Thank you. Yeah. The macro environment, if I started there first, we still think that there's a consumer sentiment that is cautious. Alright? And so, we're gonna continue to watch that, especially as it relates to our retail side of our business. But we're really, really feeling some good momentum as we exit '25 and enter into '26 with some of the great things that we have going on. The plant closure benefits that we already talked about, some tremendous innovation. The teams are doing a really, really good job with that. And we feel positive as we move into 2026 and some even early results in Q1. And we think the theater industry is bouncing back some. So we feel good about the overall business as we move into it. You know, we think back at '25 and know, we think of some of the challenges that we faced there. And you kind of you can kind of tally it up to just a few primary factors. We had that big churro LTO that we're not facing anymore. We had some unfavorable foreign exchange impact. We had the chocolate cost inflation. Most of that hit us in the first half of the year. But when you really look at the second half of the year, you know, the second half EBITDA was just shy of what we delivered the second half of '24. So for all those reasons and the Apollo that we're doing, we're really we're a little bullish on 2026 as we turn that page. Shawn Munsell: Yeah. That's helpful. You'll see those closure benefits relatively quickly in the P&L. We just announced the closure of that third facility. So consider by the time you get to the second quarter, we should be at or very near that full run rate. Jon Andersen: And Shawn, on that, you mentioned the full run rate. Do you mean on the plant closures or on the kind of the Shawn Munsell: Yeah. That's right. So on the plant closure component, the $15 million, we should be very near that full annualized run rate come the second quarter. And then the rest of those savings, you know, think about that, you know, sort of layering in in the third and the fourth quarter for the balance of the year. Jon Andersen: Excellent. Super helpful. Just one more question. You talked about maybe a little bit of a near-term or short mid-term adjustment to your capital allocation approach with a greater focus on share repurchase. Can you talk about, you know, just kind of ongoing how you how you kind of evaluate that? And what kind of acceleration or step up we might anticipate there to the extent that you can. Comment on it. Thank you. Shawn Munsell: Yeah. So, yeah, for sure. And, you know, we said in the prepared remarks that, you know, we're we intend to accelerate our stock buybacks here in the quarter when the window opens. Just for context, and I'm not you know, I'm not implying that this is the amount by which we're we're gonna execute. But, you know, we've got about $42 million remaining on the authorization that we implemented earlier this year. We did buy back about $3 million worth of stock in the quarter. But notably, we pulled back a little bit on that. Dan Fachner: You know, there was some M&A in the pipeline, and we thought that it would be a prudent thing for us to do. But we'll be buying back some stock this quarter. Jon Andersen: Oh, maybe I have to follow-up on that one. You just mentioned M&A in the pipeline. Can you comment at all on that? Should we be thinking about some near-term actions there? Dan Fachner: I wouldn't go that far, Jon. We were looking at a couple different things that just caught our attention. And so at the period of time where we had the window open to be able to buy some stock back, we were just trying to take a conservative approach there. But I would not go as far as to see anything imminent on the M&A front. Jon Andersen: Okay. Thanks. And looking forward to a strong '26 behind these initiatives. Thanks. Dan Fachner: Great. Thank you. Yep. Thanks. Operator: Our next question comes from Scott Marks with Jefferies. Scott Marks: Good morning, Scott. Dan Fachner: Good morning. Scott Marks: Hey. Good morning, guys. Thanks so much for taking the questions. Wanted to ask first about this efficiency initiative. You mentioned Project Apollo, and then you mentioned kind of a second phase where you're looking at some more automation and efficiencies within the existing or remaining facilities. Just wondering if you can share some more color on that and how we should be thinking about the timeline for that, maybe expected benefits. Thanks. Shawn Munsell: Yeah. Sure. So the way I think about that is probably gonna be later '26, but, you know, more likely 2027. And I'd say that that's gonna be a combination of just, you know, automation and process improvement. You know, once we get the consolidation work behind us, you think about it as just making those plants more efficient. You've got some plants that are gonna be taking on, you know, new production. So for 2027, it's, you know, for '26, it's, you know, optimize the network. And then 2027, kind of optimize further within the four walls of each of those plants. Scott Marks: That's helpful. Appreciate that. And then, next question for me. You touched on some challenges in the frozen novelty business within retail. Wondering if you can kind of share any color on what's been happening there and how we should be thinking about the stabilization of some of those. Dan Fachner: Yeah. We touched on that at the end of last quarter. That's just a segment where the consumer probably has hit the hardest. And really saw those, most of that impact in July. The teams have been working really hard at greater marketing and trade spend within that category, and we're starting to see it come back. And we think that will continue to come back over this next year. We're actually feel like we've corrected the things that we needed to correct and I'm really pleased. I met with that retail team this last week, and they're doing a nice job. And I think we'll see that come back over this year. But it is an area where I think, just a consumer sentiment where you'll see the biggest summertime. So if you challenges. So don't forget that, you know, it's frozen novelties. It's this July, it's hard to make those back up in the back half of the quarter. But the teams are working hard at getting the right trade spend as it relates to those. Shawn Munsell: And again, it was in the prepared remarks, but we've got a great pipeline of frozen novelty innovation planned for '26 that's right just around the corner. So we're excited about that. And, you know, going back to your prior question, Scott, I failed to mention that I didn't want to imply that, you know, sort of, like, all the additional automation is gonna be in 27. If you look at the closure of the Colton plant and the consolidation into a nearby plant in California, that was taking what was basically production through manual process and converting it to almost fully automated process at the plant that it's being shifted to. Scott Marks: Got it. Appreciate the follow-up there. I'll pass it on. Thank you. Shawn Munsell: Yep. Thanks. Thank you, Scott. Operator: Press 11 on your touch tone phone. Our next question comes from the line of Todd Brooks with The Benchmark Company. Todd Brooks: Hey. Good morning, Todd. Dan Fachner: Good to talk. Todd Brooks: To you about. Dan Fachner: Few questions kind of feeding off some of the things that we've heard earlier. Todd Brooks: Shawn, can we talk about I think we were talking about the consolidation or the rationalization of some of the bakery products and dinging a revenue algorithm by maybe 100 to 150 basis points? Shawn Munsell: In fiscal twenty six. Can you walk us through, like, where does the algorithm stand now for a baseline level? Does still start in that mid single digit place and we back off to Todd Brooks: Yeah. Yeah. That's right. Yeah. That's exactly right, Todd. Shawn Munsell: Okay. Great. And then the rationalization in Bakery, when like, how does that fall during the year? When should we see kind of the biggest drag from the 100 to 150 basis Todd Brooks: Yes. You'll start seeing it in the second quarter. Shawn Munsell: Okay. Great. Todd Brooks: Secondly, Dan, you've ripped through a list of exciting commercial opportunities for fiscal twenty twenty six. Can you maybe drill down a little bit on the two or three you think are the biggest needle movers and maybe status and timing. Dan Fachner: Yeah. We're really pleased just in total with pipeline that we have going through. Through the system. And have some some really nice opportunities. You know, we have the LTO with a with the churros with a big customer that ran an LTO last year, and it's a perfect fit with this customer that we know is gonna is gonna do well. And we have anticipations that it does so well that maybe it sticks also. So really excited about that particular one. On the frozen beverage side, we're in the midst of rolling out a large c store. In the in the Southwest that has the potential to continue to grow as their you know, that they're striving to be the third largest c store in the country. Also have talked a few times about a test that we have with the QSR in the frozen beverage in the West Coast. Just continues to do really, really well. We're in the third phase of testing now kind of bringing that to an end and having live conversations about how we might roll that out in this year. So really encouraged by the things that we have going on. You know, the last thing I touched on was just that handheld that we were up against with the fire last year in August. And now are just about as we hit the second quarter should have that capacity caught up and see the benefits from that in 2026 as well. Teams are doing a great job. Lot of really good opportunities, and pipeline is as strong as I've seen in a while. Todd Brooks: Okay. Great. Thanks. And the final one for me. Shawn, is there a way to kind of frame up And and I ask about kind of gross margin potential for the business. But obviously, you've identified savings from Apollo one. You've identified a framework for what Apollo two will consist of for maybe a plant efficiency and automation standpoint kind of post Apollo maybe. Can can you talk to what you think the the gross margin potential for the business is? Thanks. Shawn Munsell: Yeah, I'd say that we're still committed improving the gross margin. Getting up above 30% on an annualized basis, toward the mid thirties, let's call it. And you can do the math and see that, you know, that you know, just that the $15 million of plant consolidation savings, you know, all that's gonna roll through your gross margin. Obviously, there's some OpEx savings associated with this leg of Apollo, but, you know, that's that's not gonna get you all the way there. Obviously, but it's gonna help to close the gap. And I would think that we're just gonna keep kind of chunking away at that over the next few years. You know, through, you know, through Project Apollo and, you know, growing the business. The one thing we didn't talk about is the extent to which we can continue to grow the top line as we have historically. And start seeing some leveraging impacts as we, you know, both at the at the plant level and with respect to OpEx. Todd Brooks: Okay. And just a follow-up on that. Thoughts on CapEx in '26 based on the work that you're doing? Shawn Munsell: I would say about in line with fiscal twenty five, but we're working to trim that. Todd Brooks: Okay. Perfect. Thank you both. Shawn Munsell: Yep. Thank you, Todd. Operator: That concludes today's question and answer session. I'd like to turn the call back to Dan Fachner for closing remarks. Dan Fachner: Thank you, operator. In closing, I want to emphasize that while fiscal twenty twenty five presented its challenges, we built significant momentum in early fiscal twenty twenty six through our strategic initiatives and operational improvements. Our innovation pipeline is robust and should drive sustainable growth in key categories while Project Apollo enables meaningful efficiency improvements. With a strong balance sheet, including $106 million in cash and no debt, we're well positioned to invest in growth opportunities, while returning capital to shareholders through share repurchases. Thank you for your continued support, and we look forward to updating you on our progress throughout fiscal twenty twenty six. Thank you very much. Reed Anderson: This concludes today's conference call. Operator: Thank you for participating. You may now disconnect.
Alexandra Schilt: Good morning, and thank you for joining Else Nutrition's 2025 Third Quarter Financial Results and Business Update Conference Call. On the call with us today is Hamutal Yitzhak, Chief Executive Officer of Else Nutrition. The company issued a press release on November 14, containing its 2025 third quarter financial results, which is also posted on the company's website. If you have any questions after the call or would like any additional information about the company, please contact Crescendo Communications at (212) 671-1020. The company's management will now provide prepared remarks reviewing the financial and operational results for the third quarter ended September 30, 2025. Before we get started, we would like to remind everyone that today's call will contain forward-looking statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected, and the company undertakes no obligation to update these statements, except as required by law. Information about these risks and uncertainties are included in the company's filings as well as periodic filings with regulators in Canada and the United States, which you can find on SEDAR and Else Nutrition's website. With that, we will now turn the call over to Hamutal Yitzhak, Chief Executive Officer. Please go ahead, Hamutal. Hamutal Yitzhak: Thank you, Alexandra, and good morning, everyone. The third quarter of 2025 represented a period of stabilization, focus and disciplined execution for Else Nutrition. We entered this quarter determined to build upon operational progress made earlier in the year, and I'm pleased to share that we delivered impressive results while continuing to position the company for sustainable profitable growth. The transformation we delivered is not subtle. It is meaningful, measurable and foundational to the future of this company. Let me begin with what matters most, the strength of our financial turnaround. In Q3, our gross margin surged to 34%, up from negative 9% a year ago and a negative 3.7% last quarter. This level of expansion reflects big structural improvements across manufacturing, supply chain and cost management. At the same time, we reduced operational expenses by 68% year-over-year, bringing them down to $1.15 million from $3.56 million. These reductions came from disciplined decision-making streamlined organizational processes and a firm commitment to focusing on value drivers. Perhaps most importantly, our monthly cash burn fell below $200,000, down from $1.15 million a year ago. That is one of the most significant improvements we've achieved as a company, and it speaks directly to the sustainability of our operations going forward. Revenue for the quarter was $1.66 million compared to $1.79 million in Q3 last year. And while revenue softened due to temporary out-of-stock issues, we saw no indication of weakened demand. In fact, demand for our powder plant-based nutrition portfolio and for our kids ready-to-drink products remain strong across both online and retail channels. These supply constraints were temporary, and we are already addressing them. We expect revenue to resume growth as inventories stabilize. These results give us confidence in our path towards cash flow breakeven between late 2026 and early '27. Behind these metrics is a tremendous amount of operational work. Throughout the quarter, our teams executed this with precision. We simplified the organization, strengthened forecasting and logistics, realigned roles and responsibilities and built more accountability across every part of the business. Else Nutrition is now operating as a leaner, more agile and far more efficient company than it was even 2 quarters ago. As we continue to reduce our manufacturing costs, both in the U.S. and in Europe, we believe that we can sustain our gross margin improvement through 2026 and beyond. As our financial and operational foundation strengthens, we are now in a better position to advance one of our largest long-term value drivers, our plant-based infant formula. The regulatory landscape in the U.S. is evolving in a way that strongly aligns with our mission and technology. The modernization of infant formula standards, including development tied to the financial year 2026 Agriculture Appropriations Bill and recommendations from the National Academies of Sciences, Engineering and Medicine signals a clear recognition of the need for innovation. We are preparing for the next clinical phase required to bring our infant formula to market. This process is rigorous, but we are committed to it. We believe that families deserve cleaner, dairy-free, scientifically sound infant nutrition and we intend to be a leader in shaping that category. At the same time, our strengthened financial position and operational momentum have accelerated interest from several international partners, including major global nutrition and food companies. We are in active discussions regarding commercial distribution, co-manufacturing and R&D collaborations. While these discussions are still early, they speak volumes about the credibility of our brand, the quality of our science and the potential scale of our product portfolio. Overall, Else Nutrition is becoming a stronger, more disciplined and more scalable company. We have stabilized the business, informed our cost structure, broadened our operational capacity and positioned the company for long-term sustainable growth. Looking ahead, our priorities are clear. We will continue expanding margins, driving operational efficiency, supporting clinical and regulatory progress, strengthening our commercial footprint and pursuing strategic partnerships that can accelerate scale globally. At this point, I'd like to address questions that came in from investors. Alexandra, please lead the Q&A session. Alexandra Schilt: Thank you, Hamutal. Our first question is, can you elaborate on your regulatory outlook heading into 2026? Hamutal Yitzhak: Sure. We remain encouraged by both legislative and scientific development. The U.S. market is moving towards modernized standards that better accommodate innovation and Else is well positioned to benefit. Our goal is to initiate the next phase of clinical trials in the near term, paving the way for plant-based and formula category. Alexandra Schilt: Thank you, Hamutal. Our next question is, how are you approaching partnerships and/or collaborations? Hamutal Yitzhak: Well, we continue to explore strategic partnerships that could expand global distribution, accelerate R&D and strengthen our operational footprint. These opportunities represent a validation of our IP and market positioning. Alexandra Schilt: Our next question is, can you explain the rationale and impact of Else Nutrition's recent 10-for-1 share consolidation? Hamutal Yitzhak: Of course, effective November 6, 2025, we implemented a 10-for-1 share consolidation to simplify our capital structure and support the continued viability of the company. All shareholder ownership remains fully proportionate, every 10 pre-consolidation shares now equal 1 post-consolidation share with no change to the total value of individual holdings. All outstanding options and warrants have been adjusted accordingly. This decision was not made lightly. After implementing extensive cost-saving measures and working to preserve the business, the consolidation became an essential part of our broader restructuring efforts. We appreciate investors' concern and remain committed to the company's long-term stability and strategy. Alexandra Schilt: Thank you, Hamutal. That does conclude the Q&A session. At this point, I'll turn it back over to you for closing remarks. Hamutal Yitzhak: Thank you, Alexandra. In closing, I want to thank our employees for their dedication and agility, our investors for their continued confidence and our consumers for believing in the Else's mission. We are building something meaningful, a new standard for clean, plant-based nutrition, and I am more confident than ever that Else Nutrition is on the right path to long-term success. We are excited about the road ahead, and we look forward to sharing further progress in the coming quarters. Thank you for joining us today and for your continued support. Operator: Thank you. Ladies and gentlemen, this concludes today's teleconference. Thank you for your participation. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Good day, ladies and gentlemen. Thank you for standing by, and welcome to the Niu Technologies Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, we are recording today's call. If you have any objections, you may disconnect at this time. Now I will turn the call over to Ms. Kristal Li, Investor Relations Manager of Niu Technologies. Ms. Li, please go ahead. Kristal Li: Thank you, operator. Hello, everyone. Welcome to today's conference call to discuss Niu Technologies results for the third quarter 2025. The earnings press release, corporate presentation and financial spreadsheets have been posted on our Investor Relations website. This call is being webcast from company's IR site as well, and a replay of the call will be available soon. Please note, today's discussion will contain forward-looking statements made under the safe harbor provision of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve risks, uncertainties, assumptions and other factors. The company's actual results may be materially different from those expressed today. Further information regarding the risk factors is included in company's public filings with the Securities and Exchange Commission. The company does not assume any obligation and update any forward-looking statements, except as required by law. Our earnings press release and this call included discussion of certain non-GAAP financial measures. The press release contains a definition of non-GAAP financial measures and the reconciliation of GAAP to non-GAAP financial results. On the call with me today are our CEO, Dr. Yan Li; and CFO, Ms. Wenjuan Zhou. Now let me turn the call over to CEO, Yan. Yan Li: Thank you, Kristal. Hello, everyone. Thank you for joining us today. In Q3, we delivered solid and sustained progress across all key strategic priorities, supported by disciplined execution in product innovation, channel expansion and brand elevation. Our results reflect the continued growth of our core China business and early signs of transition in our overseas operations, laying a strong foundation for the next phase of growth. For the third quarter of 2025, the total sales volume reached 465,000 units, representing a strong 49.1% year-over-year increase. This growth was driven primarily by exceptional performance in China, where sales rose to 451,000 units, up 74% year-over-year, supported by our strengthened product portfolio and effective channel expansion. Overseas volume reached 14,000 units, declining year-over-year, mainly due to weakness in the micromobility sector. Our total revenue grew 65% year-over-year to RMB 1.69 billion, accompanied by gross margin expansion to 21.8%, up 8.0 percentage points from the prior year or 1.7 percentage points sequentially. This improvement was driven by a favorable shift in the China product mix with increased contribution from higher-value models. Notably, sales of models priced above RMB 8,000 accounted for over 10% of China sales. Net profit for the quarter was RMB 81.69 million, extending the profitability momentum established in Q2. This improvement reflects daily efficiencies from higher volume and our continued focus on operational excellence. Those results underscore our ability to execute with discipline and resilience amid evolving market dynamics. We remain confident in our long-term strategy and the progress achieved this quarter provides a strong foundation for sustainable growth. China remained our primary growth engine in Q3 with unit sales rising 74% year-over-year to 451,000 units. A key driver was the channel inventory buildup ahead of implementation of the new national standard for electric bicycles, which provided a substantial short-term boost. This performance was also supported by successful product launches, strong brand-driven demand and steady channel expansion. The momentum built through 2024 and into 2025 reflects our refined strategy, enhanced competitiveness and growing consumer preference for Niu. In Q3, the China electric bicycle market entered a critical transition phase under the new national standard. While production of noncompliant models ceased after August 31, retail sales of existing inventories are permitted until November 30, 2025. This prompted distributors and retailers to build inventories in July and August, effectively pulling forward demand from October and November and created a temporary sales boost in Q3. Now to prepare for this regulatory shift, we emphasized on 3 actions: upgrading the existing high-end electric bicycle models to capture the short-term demand, rolling out the new electric motorcycles unaffected by this regulation to target lower-tier cities and redesigning and retuning our entire electric bicycle lineup to fully comply with the new standard for the rollout in Q4 2025 and Q1 2026. First, to capture is premium electric bicycle demand surge under the old standard, we launched the upgraded flagship models, the NXT Ultra 2025 and FXT Ultra 2025 version, each priced at RMB 11,999. The NXT Ultra 2025 introduced 10 major upgrades with 77% of core components redesigned to elevate the benchmark standards across safety, power intelligence. The FXT Ultra 2025 featured a futuristic performance-driven design on the same technology platform as the NXT Ultra equipped with automotive-graded millimeter-wave radar and dual-channel ABS setting a new safety benchmark for the segment. Together, those Ultra models contribute 8% of total Q3 sales, effectively serving high-end demand during this regulatory transition. Electric motorcycles are more prevalent in the lower-tier cities, Tier 3 and below due to a more relaxed regulations. This segment has historically been underserved in our portfolio and the channel footprint, making it a key growth priority for us. As highlighted in the previous earnings calls, expanding presence in lower-tier cities is a core strategy reflected in our store expansion and strengthened product line. In Q2, we completed a full N-Series motorcycle portfolio covering mainstream price points from entry-level NS at RMB 3,000 above and NL at RMB 4,000 and NXL at RMB 6,000 to the performance oriented NX just under RMB 10,000. Starting Q3, we extended the strategy to the F-Series, broadened the price band and enhanced the performance to value offerings. Now despite Q3 being a channel stocking period focused on electric bicycles, our enhanced motorcycle portfolio supported a healthy 14% revenue contribution from motorcycle sales. We expect this share to increase in the coming quarters. A key milestone in Q3 was the successful launch of FX Windstorm version on September 28. Known for its sharp distinctive styling that resonates strongly with Gen Z riders, the FX Windstorm reinforced F-Series' positioning as a performance powerhouse. Priced at RMB 4,799, it targets the RMB 4,000 segments at its first high-speed motorcycle for the young riders, equipped with 3,000 mass motor reinforced frame and a full-size TFT display and 4% disc brakes. It delivered performance comparable to model price above RMB 10,000, including mile 80-kilometer power top speed and 0 to 50 kilometer power in 4.7 seconds. The FX Windstorm was instant success with 14,000 units sold in the first 5 hours and generated RMB 68 million in GMV and ranked #1 on Douyin, Tmall, JD.com and Kuaishou in GMV and popularity. This success validates our strategic expansion into the electric motorcycles and create strong momentum for upcoming launches such as FS targeting the entry-level users. Now alongside the high-end electric bicycle motorcycles, we dedicated significant R&D resources to the new standard compliant electric bicycles. The updated regulation requires substantial redesigns from the limit usage of plastics to form factors. We now plan a full rollout of compliant products beginning in late November and extending through Q1 2026. The portfolio will include the renewed and new series offerings and also introduce new series designed to reach product consumer segments, including products optimized for female riders. Beyond the new product development, we continue to invest in core technologies, including the smart riding system, powertrain innovation and R&D platformization to enhance efficiency and capabilities. Our smart riding under AI efforts focus on 3 areas: expanding the foundational safety technologies such as ABS and millimeter-wave radar, developing assisted riding features for premium models such as the 2-way throttle and [indiscernible] Assist and building intelligent ecosystem to broader third-party integrations. Through partnership with Apple and Oracle with other industry leaders, we expand the cross-device connectivity, including the off-bike safety alert and Apple Wallet T access, enhancing overall user experience. In the powertrain system, we advanced several next-generation initiatives through a deeper motor controller R&D and the close collaboration with our battery partners. Our efforts focus on 2 key objectives: delivering higher peak current output for stronger acceleration and a fine-tune overall system efficiency to extend lower riding range under the diverse conditions. The NXT FX Ultra and FX Windstorm are the strong example of this R&D achievement. The enhanced powertrain architecture enables 0 to 25 kilometer power acceleration in just 1.92 seconds, setting a new benchmark for urban performance. For the FX Windstorm, the upgraded 3 kilowatts high-efficiency motor and optimized controller delivered top speed of 80 kilometer per hour while maintaining stable power delivery, improved thermal performance and consistent power output even during the extended high-speed riding. Those advancements not only elevate writings performance, but also form a foundation for the new generation of new powertrain platform that will scale across future product lines. Now lastly, our product-based R&D strategy continues to deliver a meaningful operational benefit. In Q3, it accelerated product iteration, strengthened manufacturing consistency and increased economy of scale. The improvement supported smooth delivery of 450,000 units, surpassing our previous peak by roughly about 20%, while enhancing margins through shared components and module design cross product lines. Now in Q3, we continued elevating the new brand and deepen engagement with our core audiences, particularly in premium consumers and Gen Z riders, our approach integrated lifestyle campaign, product launches and target digital engagement to strengthen brand equity and drive conversion. We acted on a series of youth-focused lifestyle campaigns, the Summer Ride and Splash campaign embedded new into the outdoor leisure experience such as lake diving and quick hiking across major cities generated 130 million impressions across online and offline channels. Following the FX Windstorm launch, we hosted large-scale test ride events in Chengdu and Chongqing engaged riders in real mountain environment. This created authentic word of mouth within the key user segment to provide valuable feedback. Our launch event continued to highlight news technology leadership. The June 17, Du Ultra flagship launch generated about 20,000 units sold in 5 hours with GMV exceeding RMB 228 million. The FX Windstorm launch delivered 14,000 units sold in 5 hours and 93% positive ratings, resonating strong with the Gen Z and delivery riders. Now strength in both offline and online channels as of Q3 Niu surpassed 4,500 stores nationwide with 238 net new stores added in Q3 and 800 year-to-date. Nearly half of new stores were in the lower-tier cities, supporting deeper market penetration. Our digital ecosystem also scaled rapidly. Niu now managed 9 official flagship accounts supported by 1,062 dealers operated accounts. In Q3, the network generated 30,000-plus live streams, 69,000 content pieces and [indiscernible] million impressions. The online sales representing close to 70% of our total work. We also expanded on to a new e-commerce platform Meituan, piloted with 10% stores generating RMB 40 million to RMB 50 million in monthly sales. We plan to expand store coverage and motorcycles next. On Kuaishou local services, over 2,200 stores have joined and FX Windstorm ABS launched ranked #2 nationally, reinforce our brand resonance among Gen Z riders in the lower-tier market. Now turning to our overseas market. Q3 unfolded as expected transitional quarter as we continue to optimize operation and preparing for our next growth cycle. The overseas sales volume reached 14,000 units with decline in micromobility, offset by encouraging progress in electric motorcycle. Despite Q3 being a seasonal low for European 2-wheeler demand, our electric motorcycle sales reached approximately 2,500 units, up 160% year-over-year. The self-operated sales accounted for 76% of total. We further accelerate our self-operated dealer network expansion. Dealers in those direct distributor regions grow from 120 at the start of the year to 289 in Q3, exceeding our initial target of 250. This reflects the strong brand recognition, product competitiveness and the growing retailer confidence in direct distribution model. With channel foundations now established, we will shift from capability building towards product rollout and deeper channel market penetration. The product lineup unveiled at EICMA position us strongly for multiyear growth. At EICMA, the largest 2-wheeler show in Milan, we showcased our international product road map, expanding from smart e-scooters to broader electric mobility portfolios. Highlights included 2026 NQi X-series with Google Map integration, featuring 125-kilometer per hour NQiX 1000 launching Q3 2026, the all-new FQiX Series for working commuters in L1e and L3e version for Q3 2026, the expanded XQi Series, including the 110-kilometer per hour XQi 500 Street version for second half of 2026. And lastly, the Concept 06, forward-looking 155-kilometer per hour platform featuring AI assisted intelligence, advanced safety. The new NQi 500 was awarded Top Award 2025 by German leading motorcycle media outlet 1000 PS, a strong validation of our product excellence. Our micromobility volume reached to 11,900 units, down 77% year-over-year, reflecting market headwinds in the U.S., Europe and Asia. Europe saw intensified price competition, while the U.S. shifted towards a lower price model due to tariff dynamics. In Q3, we intentionally reduced promotion and shipment to avoid overstocking and protect margin during a period of pricing pressure and supply chain transition. Given the current inventory levels in Europe and the U.S., we expect the structural adjustment to continue for the next couple of quarters. Now look ahead, we'll continue executing our strategy of driving fast growth in the China market and scaling our international electric 2-wheeler business while strategically adjusting the micromobility operation. We expect China to remain our primary growth driver of strong execution across the first 3 quarters. We break out product each quarter, demonstrating our capability in product definition, channel activation and brand influence. However, we expect some uncertainty and softening in Q4 this year due to the timing of the new standard implementation. The retailers are preloading inventory in Q3, shifting some demand from Q4. And a new standard compliant product will ramp up from late November through Q1 2026, shifting part of the Q4 demand into Q1 2026. Combined, those factors will likely result in a relative flat year-over-year volume in Q4. We expect growth to reaccelerate in Q1 2026 as the regulatory transition completed and the market stabilized. The fourth new standard electric bicycle lineup, along with 300 to 400 new stores additions in Q4 will support a strong momentum into 2026. Now turning into the overseas market. For electric 2-wheelers, we expect strong year-over-year growth in Q4, supported by ongoing expansion of direct distribution network. The new product introduced at EICMA will fuel the multiyear growth starting in 2026. In micromobility, we will continue prioritizing profitability or skills in Q4, reducing promotions that focus on clearing existing inventories. This will lead to a lower Q4 volume. We expect the adjustment to conclude in first half of 2026 with margin return to the normal level second half of 2026. Now with that, let me turn the call to Fion. Wenjuan Zhou: Thank you, Yan, and hello, everyone. Please note that our press release contains all the figures and comparisons you need, and we have also uploaded cell format figures to our IR website for your easy reference. As I review our financial results, I'm referring to the third quarter figures unless I say otherwise. And all mandatory figures are in RMB if not specified. As Yan just mentioned, our total sales volume for the third quarter was 466,000 units, up 49% compared to the same period of last year. Among this, 451,000 units sold in China and the remaining 14,000 units overseas. Nearly 50% of our sales volume in China came from our top 3 models this quarter and the number of franchise stores in China was 4,542 at the end of third quarter. Total revenue for the third quarter amounted to RMB 1.69 billion, an increase of RMB 670 million or 65% compared to the same period of last year, and the result came in slightly ahead of our guidance, primarily due to the robust sales volume growth in China during the peak season in third quarter. China revenues were RMB 1.62 billion, increased at 84% year-over-year and accounting for 95% of total revenues. Of this, the scooter revenue were RMB 1.48 billion, and this growth was primarily driven by a 74% increase in sales volume and coupled with a higher ASP. China scooter ASP was RMB 3,283, representing a nearly 7% year-over-year growth and remaining largely stable compared to the previous quarter. And this growth was primarily driven by a favorable shift in our product mix. In Q3, our top seller NT with a retail price range from RMB 3,699 to RMB 4,599 continue to perform well. In the meantime, complemented by a strong contribution from the new products like the [NLT] and NXT range from RMB 3,899 to RMB 6,299. Collectively, these 3 top sellers accounted for nearly 50% of our total sales volume this quarter. Overseas revenue was RMB 77 million, representing 5% of total revenue. Scooter revenues, including electric motorcycles and mopeds, kick scooters and e-bikes amounted to RMB 67 million, down from RMB 130 million in the same period of last year, and this decline was driven by decreases in sales volume and ASP of kick scooters. Overseas scooter ASP increased 90% year-over-year and 41% quarter-over-quarter to RMB 4,648 and driven by a greater proportion of revenue coming from the higher-priced electronic motorcycles and mopads. Revenue from accessories, spare parts and services were RMB 145 million, representing 8.6% of total revenue and a 51% increase compared to the same period of last year due to the increase in spare parts sales in China. Gross margin this quarter -- gross profit this quarter exceeded RMB 370 million, marking a significant improvement compared to RMB 142 million during the same period of last year and RMB 252 million last quarter. The gross margin was 21.8%, 8 ppt higher than the same period of last year and 1.7 ppt higher than the previous quarter, marking our best quarterly gross margin performance this year. And this improvement was driven by the ongoing cost reduction initiatives and the economy of scale from higher sales volume in China market. Operating expenses for the third quarter were RMB 297 million, increase of 48% compared to the same period of last year and the OpEx ratio down to 17.5% dropped from 19.6% in the same period of last year and 21.1% in the previous quarter. Selling and marketing expenses rose by RMB 87 million year-over-year to RMB 215 million, primarily driven by higher spending on marketing and online promotion campaigns in China. Selling and marketing expenses representing 12.7% of revenue compared to 12.5% in the same period of last year and down from 16.1% last quarter. R&D expenses increased by RMB 13 million year-over-year to RMB 43 million, primarily due to the higher staff costs and share-based compensation. R&D expenses representing 2.6% of revenue compared to 3% in the same period of last year and down from 3.5% last quarter. G&A expenses decreased by RMB 4 million year-over-year to RMB 39 million, mainly due to the improved cash collection from account receivable, which resulted in the reversal of bad debt provisions and G&A expenses representing 2.3% of revenue, down significantly from 4.2% in the same period of last year, while up from 1.5% last quarter as the company benefited largely from foreign currency exchange gains in the previous quarter. The net income was RMB 82 million with a net margin of 4.8% on the GAAP accounting compared to a net loss of RMB 41 million for the same period of last year and net income of RMB 5.9 million for last quarter. The non-GAAP net income was RMB 88 million. And turning to our balance sheet and cash flow. We ended the quarter with RMB 1.8 billion versus RMB 1.1 billion last year-end in cash, restricted cash, term deposits and short-term investments. And our operating cash inflow amounted to RMB 433 million. The CapEx amounted to RMB 73 million, reflecting an increase of RMB 32 million compared to the same period of last year. And this can be attributed primarily to an increase in the opening of new stores and modules cost in China. And now let's turn to guidance. We expect the fourth quarter revenue to be in the range of RMB 737 million to RMB 901 million, representing a year-over-year change of minus 10% to plus 10%. And please be aware that this outlook is based on the information available as of the date and reflects the company's current and preliminary expectations, which is subject to change due to uncertainties relating to various factors. And with that, we'll now open the call for any questions that you may have for us. Operator, please go ahead. Operator: [Operator Instructions] Seeing no more questions in the queue, let me turn the call back to Mr. Li for closing remarks. Yan Li: Thank you, operator, and thank you all for participating on today's call and for your support. We appreciate your interest and look forward to reporting to you again next quarter on our progress. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
Operator: Good day and welcome to the VerifyMe Third Quarter 2025 Financial Results Conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jennifer Cola, CFO. Please go ahead. Jennifer Cola: Good morning, everyone, and thank you for joining us today for our Third Quarter 2025 Earnings Call Presentation. On the call today, I'm joined by Adam Stedham, CEO and President, who will give an operations and strategic update, and I will provide a financial update. Following our management presentation, we will have a Q&A session. I'd like you to bring your attention to the note on forward-looking statements on Slide 3. Today's presentation and the answers to questions include forward-looking statements. It should be understood that actual results could materially differ from those projected due to a number of factors, including those described under the forward-looking statements and risk factors captions in the company's annual report on Form 10-K and quarterly reports on Form 10-Q. I will now turn the call over to Adam Stedham to discuss the company strategy. Adam Stedham: Thank you, Jen. I'm pleased with the success of our operating model combined with our sales and marketing plans in the third quarter. I do realize the third quarter revenue was down due to previously announced contract losses and changes associated with the transition from our previous Proactive shipping partner. That statement is a common theme in our last several earnings calls, and I think it's good for us to review the past year to put our enthusiasm about the future into context. During Q1 of 2025, the company's revenue was down versus the previous year, and our gross margin was 33%. The revenue and gross margin were significantly impacted by the insourcing decision of our previous exclusive shipping partner. During the second quarter of 2025, PeriShip revenue decreased approximately 14% versus the second quarter the previous year, and the major contributing factor was the previously announced customer losses from 2024. However, the gross margin had improved to 35% in the second quarter versus 33% in the first quarter. During the third quarter of the year, revenue was down only approximately 7% from the prior year because of our sales and marketing efforts. Although these efforts were successful, they have only partially offset the previously announced contract changes and changes by our previous shipping partner. Our gross margin continues to improve, our operating costs continue to reduce, and our adjusted EBITDA has improved. We are in the midst of a transition to our new Proactive shipping partner. We anticipate this will have a material impact on Q4 2025 and Q1 2026 revenues, and at this point, we're not in a position to provide guidance for 2026, but we do expect to provide that guidance during our next earnings call. We believe our new shipping partner relationship positions the company in a far better position long term, but we need a bit more time to define the opportunity and provide appropriate guidance. I look forward to calls in which we can report that our efforts are providing quarterly growth rather than only offsetting the impact of changes related to our shipping partner. As for our balance sheet, we continue to have plenty of cash to fund our organic and strategic growth strategies. We've received our first quarterly interest payment from our short-term note with Zen Credit in November and continue to believe this deployment of capital is very positive for shareholders. At this point, I'll turn the call over to Jen, our CFO, for more specific financial details of the third quarter. Jennifer Cola: Thank you, Adam. Our third quarter revenue was $5.0 million versus the prior year of $5.4 million, a decrease of $0.4 million. This decrease was primarily due to $0.8 million of previously disclosed discontinued services with two Proactive customers, partially offset by increased revenues from new and existing customers within our Precision Logistics segment. Gross profit increased by $0.2 million to $2.1 million in Q3 2025 compared to $1.9 million in Q3 2024. As a percentage of revenue, gross margin increased to 41% in Q3 2025 from 35% in Q3 2024. This increase was primarily attributable to improvements in negotiated rates with a primary supplier during Q2 2025, which was reflected during the full third quarter of 2025. This is our third consecutive quarter of improved gross profit. While we expect Q4 2025 and Q1 2026 revenue to decrease compared to prior year as a result of transitioning our Proactive services to a new shipping supplier, we expect our gross margin as a percentage of revenue to remain consistent with our current performance. As previously disclosed, in September 2025, we were notified by our primary Proactive shipping supplier that it would no longer provide shipping services in support of our Proactive services. As a result, we accelerated our efforts to implement services with an additional supplier, and we completed an analysis of the goodwill and intangible assets associated with our PeriShip business. Based on our analysis, we determined an impairment had occurred and recognized a one-time non-cash impairment expense of $3.9 million during Q3 2025. This compares to a one-time non-cash impairment expense of $1.9 million related to our Authentication business in Q3 2024. This $3.9 million impairment charge includes a reduction in carrying value of certain goodwill and intangible assets in our PeriShip business, as well as the accelerated amortization of certain supplier-specific technology development projects that will no longer be utilized. Excluding this impairment, our operating expenses were $1.7 million in Q3 2025 compared to $2.5 million in Q3 2024. This decrease in operating expense is primarily related to the divestiture of our Trust Codes business during December 2024 and cost-cutting measures in our Precision Logistics segment. Our net loss for the quarter, including the $3.9 million one-time non-cash impairment expense, was $3.4 million, or a net loss of $0.26 per diluted share in Q3 2025, compared to a net loss of $2.9 million, or $0.23 per diluted share in Q3 2024. Excluding impairment, our operating income for the quarter was $0.5 million in Q3 2025 compared to an operating loss of $0.2 million in Q3 2024. Our adjusted EBITDA improved to $0.8 million in Q3 2025 compared to $0.2 million in Q3 2024 as a result of our continued efforts to improve gross margins, reduce operating expenses, and develop operational efficiencies. On the last slide is our balance sheet as of September 30, 2025. Our cash balance as of September 30, 2025, was $4.0 million. On August 8, we entered into a $2.0 million short-term promissory note in exchange for regular interest payments at an improved interest rate. We received our first quarterly interest payment in November. Also, as previously described, we recognized an impairment of goodwill and intangible assets of $3.9 million. During Q3 2025, we generated $0.2 million of cash from operations compared to $0 in Q3 2024. We expect to use a portion of our available cash to fund our operations in Q4 2025 as we continue to transition customers from our previous Proactive shipping provider to our new Proactive shipping provider, but we expect to remain cash flow positive for the full year of 2025. We also continue to have $1 million available under our line of credit, and we have no borrowings outstanding. With that, I'd like to turn the call back over to Adam. Adam Stedham: Thank you, Jen. So we've covered several items during the call, and I'd like to summarize our situation prior to opening the call for questions and answers. The company has a strong balance sheet with no bank debt. We have deployed some of our capital to improve the rate of return, and we feel confident we have the ability to pursue both an organic and strategic growth strategy. We're in the middle of a transition from our previous Proactive shipping partner to our new Proactive shipping partner. We believe the new relationship provides a substantially better platform for sustained organic growth over the long term. We anticipate experiencing a transitional revenue impact associated with the effort and the timing of customer transitions, but the company continues to believe we will be cash flow positive in both 2025 and 2026. At this point, we'll open the call up for questions and answers. Operator: [Operator Instructions] Our first question comes from Michael with Barrington Research. Please go ahead. Michael Petusky: I was wondering if you guys would be willing to sort of size up the Proactive business that sort of came to completion at the end of September. I mean, how much did that contribute to the third quarter revenue, if you wouldn't mind? Adam Stedham: I'm not sure I completely understand what you're asking, but are you saying what was the.... Michael Petusky: What was the revenue contribution? Yes, what was the revenue contribution of the Proactive business that's no longer, going forward, no longer going to be part of the mix? Adam Stedham: No, so we don't have that in a way that we can present it for guidance. The reason is, this isn't a cliff type of conversation. It's a sliding scale. If I said what percentage of the customers have signed up one day or today, that wouldn't be a proper assessment of how many had signed up on November 1 versus how many will have signed up on October 1 or December 1. We continue to transition customers on an ongoing basis. I will say that we had approximately 7-10 days of shipping time in the third quarter that were negatively impacted by the transition. If you go back and look at the date of our discontinuing of our previous shipping partner relationship, that happened towards the end of the third quarter of the -- third month of the quarter, around September 24. Michael Petusky: Okay. So Adam, I just want to make sure I'm, I guess, processing this correctly. Are you essentially saying, "Hey, we expect to transition all the customers that were associated with the business that came to an end at the end of September or towards the end of September onto the new shipping partner?" Adam Stedham: No, we can't say that we expected to transition all of our customers. Some of our customers will never transition over to the new partner, and we have other customers that the new partner has brought that are going to come through that. There is going to be some offset. The challenge we face right now is a timing conversation. The peak season -- if you look at the overall shipping industry, the overall shipping industry is capacity-constrained during the peak season, Christmas shipping season. There are a percentage of customers that we have who are concerned about shipping or changing right before the peak season. We're doing everything we can to help them transition, to get over those concerns. Many of them have gotten over those concerns. Some are still having and have ongoing conversations. Others are saying, "We want to stay with you and we'll switch, but we're going to do it after the Christmas shipping season." Right now, it's a very dynamic situation, and we're in the midst of all those changes, so it's very difficult for us to predict what will happen in Q4 and Q1. We do believe that the loyalty we have with our customer base has been very positive. The feelings of our ability to transition everyone over or transition a meaningful percentage over and then have other customers come on board from the assistance of our new shipping partner, we feel very good about that. Over nine months, over the next three to six months, it's really a dynamic situation, and we're not in a position to give guidance on that. Michael Petusky: Adam, just from a modeling perspective for your investors, for analysts, I mean, would you guys be willing to share what the revenue contribution last year's Q4 from the FedEx business that left on September 24, what that revenue contribution was in last year's Q4? I really think, honestly, for investors, for analysts, I think that's an important piece. Adam Stedham: All of our Proactive customers went through FedEx last year. None of our Proactive customers are going through FedEx this year. They are transitioning to our new shipping partner. Are you saying exactly what percentage of customers are currently shipping with us now that were not shipping with us in Q4 last year? That is not a number that we have or we are prepared to give. Keep in mind, we have added customers since Q4 of last year, so there has been a turnover. It is not really a comparison that we can do. Michael Petusky: Right. No, no. Adam, I understand that. All I'm interested in, and I suspect more people than just me are interested in this, is the revenue contribution from that business in Q4 of last year. I mean, is that a figure you guys can share or no? Adam Stedham: Are you asking what percentage of our Q4 revenue last year was Proactive? Michael Petusky: Yes, connected to the business that ended on September 24, yes. Adam Stedham: Keep in mind, let's revisit what Proactive is. We have a shipping partner relationship with a major shipping partner. We have contracts with all of those companies ourselves. They do not end through that ship; they do not flow through that shipping partner. The premium flows through that shipping partner. That's not impacted by what we're doing. The Proactive, all of these customers that we have our contracts with ourselves, who historically are used to processes and systems to where their packages ship with our previous partner, now have the opportunity to shift and ship with our current partner. It's not as if our shipping partner canceled these contracts. The contracts were with the companies. The question is, are they willing to move their shipping over to our new partner? The percentage of that is not something we can accurately predict for Q4. That is why we're saying we can model more effectively during our next earnings call, but we can't accurately predict it for this quarter. It's a dynamic situation right now. That is where we're at. Michael Petusky: In terms of the cash on the balance sheet and the fact that you guys are generating some positive cash flow, I mean, where are you in the process in terms of potential M&A? Are there assets where there are actually discussions happening, or is that more likely to happen after sort of you get a little farther down the road with the new shipping partner and get farther into the next year? Adam Stedham: No, no. The timing of any of these things is very difficult, if not impossible, to predict. There have been significant ongoing conversations. I mean, you'll see some elevated legal costs. You'll see some elevated costs in the business that reflect meaningful ongoing conversations related to those types of activities. Michael Petusky: Are there any hurdles for those assets that you're considering in terms of cash flows or profitability, or is every case a little different? Or are there certain things that you will not sort of bend on in terms of what you're looking for in a potential acquisition? Adam Stedham: If it was a bolt-on acquisition, it has to be virtually immediately accretive due to synergies. Otherwise, I wouldn't do it. If it's a transformative acquisition, which I think would be desirable given the subscale nature of the company, something more transformative would be desirable to help address our subscale size. Then it's more difficult to model that out. It really ties to what's the overall value of the transformation as a whole. Michael Petusky: Okay, great. Last one real quick for Jen, and I'll let other people ask questions. In terms of that OPEX improvement, which to me seems great, how much of that, approximately $800,000, was associated with Trust Codes, and how much it was just sort of pure you guys doing a better job in terms of your managing the OPEX? Jennifer Cola: Sorry, just pulling up my file here. So we had about $500,000 of operating expense associated with Trust Codes in Q3 of 2024. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Adam Stedham, CEO, for any closing remarks. Adam Stedham: Thank you. I appreciate everybody joining the call today. Once again, we are in a transition. It's just been a really positive experience working with our new shipping partner. The commitment that our partner has to the small- and medium-sized customer and to the customer that requires a cold chain strategy is very deep and very strong. We are very pleased that we fit into that committed strategy they have. We think that positions us very well long-term. We are in the midst of a transition from our previous Proactive shipping partner. That relationship was a couple of decades old. Those transitions always have a couple of bumps, and we're working through those diligently. We do feel that our sales and operating model has consistently, quarter over quarter, been able to provide new customers, organic growth in terms of new customers, frequently or typically offset by reductions due to changes that were outside of our control. They have continued to, quarter over quarter, provide additional gross margin percentage and reduced operating costs and improved efficiencies. We feel that the underlying business is moving in the right direction, and our partnership relationship has substantially moved in the right direction. We look forward to our next call when we'll update everyone on the transition and where we are and give specific guidance for 2026. Thank you. Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.
Bianca Fersini Mastelloni: Okay. Good afternoon or good morning to everyone, and welcome to El.En.'s Third Q 2025 Financial Results Conference Call. Today's call will be recorded, and there will be an opportunity for questions at the end of the call. With me on the call, Andrea Cangioli, El.En.'s CEO; and Enrico Romagnoli, El.En.'s Chief Financial Officer and Investor Relations Manager. Before we begin, please note that there are management remarks during the conference call regarding future expectations, plans, prospects and forward-looking statements. Certain statements in this call, including those addressing to the company beliefs, plans, objectives, estimates or expectations of possible future results or events are forward-looking statements. Forward-looking statements involve known or unknown risks, including general economic and business condition in the industry in assumptions of -- in which we operate. These statements may be affected if our assumptions turn out to be inaccurate. Consequently, no forward-looking statements can be guaranteed and actual future results, performance or achievements may vary materially from those expressed or implied by such forward-looking statements. The company undertakes no obligation to update the content or the forward-looking statements to reflect events or circumstances that may arise after the date hereof. At the end of the presentation, if you need to ask a question, please book your question on the chat of Bianca Fersini Mastelloni raise your virtual hand you will have the floor in order of request. But at this time, I want to give the floor to Andrea Cangioli. Please go, Andrea. Andrea Cangioli: Thank you very much, Bianca, for your introduction and for hosting us. And thank you to everybody for being with us in this call following the release of our financial report as of September 30, 2025. Enrico Romagnoli will be on this call with me, and I thank him for taking care of the details of our financial reporting that he will be sharing with you in a very short time. Our third quarter came out really strong, especially under the profitability profile, confirming the trend of this 2025, a brilliant performance in the medical sector and a softer one in the industrial business. The reported numbers say on the 9 months revenues were up 4.6% in medical and just shy of 2% in Industrial. And that consolidated EBIT was down 3.2% on the 9 months, but up 3.8% in the quarter, marking the EBIT recovery that hints and supports our guidance for this year-end. If we look a little deeper inside these numbers, we have grounds to be extremely pleased with the performance in the medical sector, also on the revenue line. In fact, this 2025 -- in this 2025, we're facing the inorganic effect of the exit of consolidation from March 1 of the Japanese subsidiary with us. Net of such effect, growth in medical would have been equal to 7.1% on the 9 months. Moreover, we're also facing the moving away of the historic and very significant customer Cynosure as our OEM contract for the supply of high-power alexandrite laser systems for hair removal is only formally in place after Cynosure merged with a South Korean company, Lutronic, that is now providing and that is going to provide to Cynosure such technology for their distribution net. By removing the negative effect of this circumstance and cumulatively with the removal of the without effect, sales growth would have exceeded 10% on the 9 months. This on the revenue side. The other pleasing news of this period is that the revenue increase is achieved with the increase of revenues in higher margins bearing sales segments and products with an overall beneficial effect to consolidated gross margins and overall profitability. Growth in system sales was mainly generated by systems for anti-aging treatments in which the innovative content of both the technology and the application is bearing higher margin on sales for us compared to the main and slowly declining revenue stream of the hair removal devices. I'm talking at first place of the Onda product. The revisiting of our flagship body contouring device, Onda based on the microwaves technology, a revisiting that expanded the intended use of the device to anti-aging face treatments. Based on this, Onda Pro is experiencing a second use with respect to the original launch of Onda with amazing acceptance also in the most advanced markets for innovation in the aesthetic application, namely the Far East markets like the Korean market, which are extremely developed and sophisticated in selecting the most innovative and effective devices. But as our group does not rely on the peak performance of single product devices, Onda Pro was not alone in driving revenues toward the anti-aging demand. I'll give you just a couple more examples of other successful products and related procedures. Nano and picosecond devices like the Discovery Pico by Quanta System and the TORO by DEKA are innovation leaders in the pigmented lesion, skin toning area that is traditionally prominent for treating the signs of aging facial skins. CO2 microablative procedure cool peel performed by DEKA's Tetra PRO is now the golden standard for facial rejuvenation and is encountering increasing worldwide success starting from the U.S. market. Another significant contribution to the performance was provided by the surgical business, especially in the urological application, which are the treatment of stones. [Foreign Language] so another significant contribution to the performance was provided by the surgical business, especially in the urological application, which are the treatment of stones and BPH, the benign hyperplasia of the prostate, a business that within the group is mainly pursued by the market leader, Quanta System, but also by Elexxion Surgical, the brand managed by our German sub, Asclepion. Revenue for laser systems in urology was up roughly 7.5% in the 9 months. The side business of consumable sterile optical fiber was also growing smoothly along with the increasing installed base and it now accounts for more than half of our post-sales revenues of the medical business. which means roughly EUR 10 million per quarter or 10% of the overall revenues of our medical business. Moreover, this piece of revenues is bearing gross margins that are in the upper segment of our products margin mix. And since operation expense in terms of sales and marketing and labor is less intensive than for system sales, the accretive impact on EBIT and EBIT margins is also significant as testified by the profitability of Quanta System that is the main factor in this business for us. In terms of expenses involved in this business, there is CapEx going on and coming up in Quanta System as Quanta System is starting the construction of a new larger semi-robotized clean room at Samarate facility dedicated to the production of sterile optical fibers to increase its production capacity for its medical devices. EBIT margin for the industrial division, I am providing you an -- excuse me, for the medical division, I'm providing you an unaudited figure is improving in 2024, 2025 on 2024 and was roughly 16.9% on the 9 months and around 19% in the third quarter. We were not able to achieve similar results for our industrial business. The only activity bearing margin similar to the medical business is the identification marking activity led by Lasit, which continues to perform well both in revenues and in profitability. The other businesses within our industrial world have not performed according to expectation, the expectation we had in our yearly planning, missing the revenue targets and therefore, lacking also in terms of profit generation. The most dimensionally significant business is the cutting business, which despite expectation and decent order bookings has been slowing down both in revenues and in profits in each quarter this year. Since order bookings came quite late in the year and delivery lead times for our sophisticated and often custom design systems are not easily compressible, as of September 30, we incurred in a major sales cutoff, meaning the inability to recognize revenues for several systems that had been physically delivered to customers but had not cleared the final testing procedure within the end of the month. To give you an idea of this adjustment, which, to a certain extent, physiologically always takes place at the end of each quarter, we're talking at the end of September of almost EUR 8 million versus less than EUR 1 million at the end of June. EUR 7 million worth 22% on the quarterly business revenue and 7% on the year-to-date revenues as of September. I am not stating that without this adjustment, everything would have been okay in this business segment as the market is very competitive, and we need a great effort to maintain our competitive position and win our sales. But of course, it would have looked different under several profiles. In fact, we are continuing to invest in what we feel is strategically meaningful for the market positioning of Cutlite in the sheet metal laser business, which can be summarized in 3 CapEx -- in 3 points that lead to CapEx or profit and loss outflows in 2025. The purchase of a plant to expand the versatile production capacity of Cutlite Penta that we closed in the first quarter of 2025. The P&L expenses involved in the launch of the European sales subsidiaries in order to get closer to the customers in the countries of Spain, Germany and Poland. The profit and loss expenses involved in the managing of Nexam, the company dedicated to automation system complementary to our laser cutting system, an addition to the product range that is highly strategical for the product offering, but that for the time being, is far from being EBIT accretive, though improving its EBIT result in the third quarter. For what concerns the other smaller businesses in the industrial world, the laser marking system for special application and for large surfaces provided by Ot-Las and also by the industrial division of El.En. very often in combined supplies with the mid-power CO2 laser sources in these businesses, the performance continued to be weak. We are identifying new application niches to recover in a year that has been hit by the negative cycle of the fashion world customers and also hit by the down trimming of the expectation in the motors for electrical vehicle segment. Cash generation has been outstanding in the quarter as we benefited from the onetime cash inflow stemming from the sale of the majority stake in Penta Laser Zhejiang, which on the net financial position was worth already factoring in the possible future price adjustments, roughly EUR 26.4 million. As I mentioned before, had we closed before, I mean, in previous conference calls we held, had we closed the deal 3 months earlier, the foreign exchange level with the Chinese yuan would have been much more favorable as it quickly deteriorated by 10% around and after the Liberation Day. Cash flows from operations amounted to roughly EUR 20 million, contributing to the EUR 47 million quarterly increase of the net financial position. Under this profile, it is worth to mention that the quarter highlighted a slight decrease in the overall net working capital and accounted for roughly EUR 3 million in capital expenditure that were offset in the effect on the net financial position by the release of EUR 3 million of long-term cash investment that cannot show up in the net financial position. By the way, the balance of such investments that are not accounted for within the net financial position since they are long-term assets was around EUR 11 million at the end of the third quarter of 2025. I give the floor to Enrico, and I will be back with more general remarks after his section. Enrico Romagnoli: Thank you, Andrea. Good morning, everybody. As usual, I'm going to comment the financials we released last week. As for the year-end and for the half yearly report, the quarterly report has been prepared in accordance with IFRS accounting standards, excluding the consolidation line-by-line of Chinese activities, both in 2025 and in 2024 due to the negotiation for the sale of the division in accordance with IFRS 5. The majority stake of the Chinese companies was sold on July 15. So since July 2025, Penta Laser Zhejiang is consolidated with the equity method for the residual stake of 19.3%. In the first 9 months 2025, the group recorded consolidated revenue for EUR 422 million, up 3.9% compared to the EUR 406 million and the medical sector up over 4.6% when the industrial up 1.9%. The gross margin was EUR 188.3 million, up 6.5% compared to the EUR 177 million of September 2024, with an impact on revenue of 44.6% improving the profitability of 1% compared with last year. It should be noted that in 2024, the group recorded proceeds for insurance and government reimbursement relating to the damages of the flood of November 2023 for an amount of EUR 1.9 million, 0.5% of the revenue. In 2025, Asclepion accounted EUR 1.3 million of R&D grants, 0.3 percentage point on the revenue. So excluding both of this nonrecurring income, the impact of gross margin on sales would have improved more than 1% in 2025, attributable to an improvement in the sales mix. Operating expenses increased in value and an impact on sales, mainly in G&A, R&D and IT costs and sales and marketing activities. Staff costs increased due to an increase in headcounts and in salaries. EBITDA positive at EUR 65.6 million. The result is in line with last year, even though the EBITDA margin in 2025 slightly decreased from 16.2% to 15.6%. Depreciation, amortization and provision amounted to EUR 10.6 million in 2025 compared to EUR 9 million in 2024. The main reason of the increase was the reversal of the provision for risk and charges in 2024 for EUR 1.6 million due to some legal disputes that were resolved more favorably than expected. Net of this amount, the overall cost aggregate is in line with the previous year. EBIT for the first 9 months was EUR 55 million compared to the EUR 56.9 million for the first 9 months of 2024. The margin on revenue was 13%, down from the 14% with a decrease over last year of 3.3%, having the delay registered on June. Financial Management recorded a loss of EUR 1.8 million. In the first 9 months, the interest income generated by liquidity was EUR 2.8 million, while the interest expenses on debt was EUR 1.3 million. Exchange rate difference has a strongly negative balance equal to EUR 2.4 million. But in addition, we have a onetime exchange rate loss recorded -- already recorded in Q1 for EUR 908,000 following the release of the currency conversion reserve resulting from the sale of the majority of with us. The contribution of associated company is negative for EUR 1 million, mainly due with us, minus EUR 0.5 million and Penta Laser Zhejiang, minus EUR 0.6 million. In other income last year was accounted the onetime income of EUR 5 million due to the write-off of liabilities related to the earn-out to pay to former minority Chinese shareholders in case of IPO of Penta Laser Zhejiang. So at the end, income before taxes showed a positive balance of EUR 52.2 million, lower than EUR 61.2 million at the end of September 2024. In the third quarter, as already mentioned by Andrea, the group had a strong performance and recording growth in both revenue and above all, operating profit, plus 3.8% versus Q3 2024 with a strong recovery compared to June when the delay in terms of EBIT compared to the first 6 months of 2024 was 7%. In the third quarter, the main segment that performed better than last year were aesthetic in medical sector and marking in the industrial sector. Looking into the cash flow, the group net financial position on September 2025 was positive for EUR 137 million, an increase by EUR 47.4 million in the third quarter from the EUR 90 million at the end of June 2025. In the 9 months, the increase was EUR 26.8 million, thanks to the cash flow generated by current activities and the proceeds received for the sale of the majority stake in Penta Laser Zhejiang for a net amount of EUR 26.4 million. The main reduction incurred in the period are dividend paid for EUR 19 million in Q2, CapEx for the 9 months of EUR 13 million, increase in net working capital of EUR 20 million. Furthermore, the group invested the liquidity in insurance policy, mid- long-term investment accounted in noncurrent assets. So we have additional liquidity of EUR 10.7 million on September 30. What concerns the revenue breakdown by business in the medical sector, system sales showed strong growth in all major segments. In the aesthetics segment, plus 4%, the very favorable trend for anti-aging and body contour application continued. Among surgical applications, plus 8%, urology, ENT and gynecology system continued to record significant growth in sales. Asa's performance in physiotherapy, plus 5% was also very satisfactory, thanks to the significant innovation in the range of products offered, a more effective coverage of international market, together with the relaunch of sales in Italy. Sales of consumable and aftersales service remained very satisfactory, driven by the sales of optical fiber for surgical application, more than 50% of the sale of the segment, which kept service revenue growth to 4% despite the loss for service contract revenue from the Japanese company with us, whose majority stake was sold in February 2025. In the industrial sector, the cutting segment, which no longer includes Chinese companies, maintained growth of 2%, thanks to the excellent sales result of the Brazilian subsidiaries, plus EUR 4 million of revenue in the first 9 months. Lasit also performed well in the market segment with the increased weight of its subsidiaries. In the Q3, we had a significant recovery in sales in the segment of large footwear marking application where Ot-Las operates. In the Laser sources segment, the slowdown was more evident and was primarily due to decline in revenues from system integrators for fashion application and electric motor windings. Sales for Industrial Service returned to show an increase of 6% as expected due to the progressive increase in the installed base. Geographically, the most positive note came from the Italian market with an extraordinary growth of 27% in medical. In the industrial sector, Italian turnover also recovered in the quarter, up 6% in the 9 months, thanks to the increased confidence among manufacturing market operators, supported by the return of tax policies to support investment. The performance in European market was very satisfactory, particularly in the German medical and professional aesthetics beauty sector and in the industrial sector, thanks to the progressive consolidation of the sales subsidiaries activities, particularly by Lasit. The negative sign appearing on sales in the rest of the world has different determinants depending on the sector. What concerns the medical, Andrea already mentioned the inorganic operation that affected the sector. The result is a good result because it was achieved net of the exit of Withus in February and the loss of the supplies to Cynosure due to the M&A that brought it closer to Lutronic. Net of this departure, turnover, therefore, increased significantly. The situation is completely different in the industrial sector, where our order intake in the American market, the most significant in the rest of the world was negatively impacted in the first month of the year by the image projected on the market by the potential acquisition by a Chinese entity. Andrea, please go ahead for what concern the guidance. Andrea Cangioli: Okay. In closing my prepared remarks, I would like to touch 3 more topics. The role of the industrial division, especially of the cutting division within the group, the use of our cash and finally, the 2025 guidance. As the performance of the industrial division markedly of the cutting division is weaker than the one of the rest of the group, I would like to share with you the strategy short term and midterm of the group with respect of this business area. We are very proud of the results and the dimensions achieved by our cutting business unit, but we are also aware -- but we are also aware that its business, especially after the CO2 laser sources have been ruled out of cutting by the fiber laser sources technology is not fully consistent anymore with the other businesses of the group. There is no market correlation and the technological correlation is very limited as well. Therefore, we are convinced that the Cutlite's Penta organization, people and business would benefit of strategically cooperating with organizations that are more consistent to Cutlite's business. Along this path, we moved towards a transaction that would have placed Cutlite within a larger organization, developing a specific growth strategy for Cutlite. I'm talking of the sale -- potential sales to the Chinese end. But when we were faced by the material risk under the new organization, that one of the most promising businesses of Cutlite, the U.S. business, was bearing the risk of being completely jeopardized, we decided that for protecting the organization itself, we would have not sold Cynosure -- Cutlite anymore. So the short-term strategy now that Cutlite is still within our consolidation perimeter is to manage the potential of Cutlite and to continue to invest in what we feel is needed for Cutlite to flourish. The longer-term strategy is to resume and pursue the design of finding a strategic partnership for Cutlite a partnership that would enhance its peculiarities, capabilities and potential, giving the best opportunity to Cutlite's organization to continue to flourish or better to improve its opportunities and chances to flourish on its market that are quite competitive. What is evident from our reporting is the amount of investment involved in supporting Cutlite's strategy. What we can additionally tell you about the larger picture isn't much at all for the moment, but we will update you as soon as we will have something meaningful to report. For what concerns the businesses of Lasit, Ot-Las and industrial division of the mother company, El.En., we are planning to continue to pursue such businesses within the group. Now the quite wide cash position we are holding today, which is beyond the ordinary operational needs of our companies, also considering potential expensive investment activities like the one I mentioned for the fiber optical -- sterile optical fibres manufacturing plant. As usual, capital expenditure and operational needs for our operations are first in the list for us as we believe that interesting growth rates can be achieved by further improving the operational performance of our own business units. In order to enhance our growth rate, especially in terms of profits, we are investigating a set of small M&A opportunities that could be accretive to the development of the business units involved, especially in the medical sector but also in the industrial sector, as we mentioned before. We could be closing soon one or more small deals across -- along this path. More complex deals that could fall under the label of transformational are now being more closely considered, though there is nothing for the time being to report about. The Board of Directors has not yet resolved about any onetime cash distribution to the shareholders in any form. Therefore, I'm not in the position to elaborate any comment about. Finally, the guidance. I can keep it simple here. We are targeting and planning to beat 2024, both in the revenues and in EBIT. As you know, we are on schedule for the revenue target. We are just a little bit behind for what concerns the EBIT target, but we are recovering and confident to be able to hit the EUR 23 million figure in EBIT in the fourth quarter of 2025. Thank you for your patience, and I believe we are ready for your questions. Bianca Fersini Mastelloni: Andrea, the first question in our list comes from Giovanni Selvetti of Berenberg. Giovanni Selvetti: Can you hear me well? Andrea Cangioli: Yes. Giovanni Selvetti: Well, I had two, but then let's just say that the final remarks added a few extra questions, but maybe I'll jump in the queue and ask more after. These are two regarding the medical division. The first one is on Asclepion that based on the press release seems to be doing much better in Q3. And as far as I remember, Asclepion was also mainly involved in hair removal, which was the area that was struggling the most. So I was wondering what's changed exactly also because if I can remember, in the first half, the cost of personnel was going up also in relation to Asclepion. The second one is about Quanta. If I look at your press release, you're saying that now optical fibers account for more than 50% of medical services. So if we assume, let's just say, a figure around 35%, that is, let's just say, more than 50%. If we had to double this capacity, do you see already demand to fill it? Or how much should we think before the excess capacity gets filled? And maybe the last one is on the Lasit, let's just say, part of the business that, again, based on what you're saying, we are talking about margins based on what the press release say strongly above last year. So I was wondering what kind of margins Lasit is now running at? Andrea Cangioli: Okay. So starting from Asclepion. Yes, there was a recovery. Yes, the recovery was also tied to a better performance in the hair removal in the third quarter. So I mean, this is a good line considering the hair removal segment. And yes, the impact of the cost of staff in Asclepion is quite significant. It was increasing a lot in the second -- in the first half. Since the result for the third half was extremely good in terms of revenues. Now the difference of the impact of staff cost between Asclepion and the rest of the group is smaller. Most important and what actually made turnaround in the quarter, the business of Asclepion is the increase in revenue, which is due to aesthetics, but also to its surgical line, which is performing very, very well. Quanta System and Fibers, we -- as of today, we do not feel we are limited or materially limited in the deliveries of fibers by our production capacity. But we feel that given the rhythm of new installation and of the absorption by the market of our optical fibers, we needed to expand the capacity in order not to incur in a sales limitation due to capacity in the future. So we are progressively increasing the volumes, and we are placing this very large investment in order to improve the production capacity, but we don't have an impellent need. It's, I mean, a strategic programming that will allow us to continue to increase the stream of revenue over the time smoothly. Finally, your third question was about Lasit. Lasit actually is improving. It's not improving its sales volume over the 9 months, especially due to a slow behavior of the Italian market, while we are doing very well, especially in Europe, where the subsidiary that Lasit set up on the territory are now starting to be really accretive to the business. I recall we have subsidiaries in Poland, the oldest one, in Spain, Germany, U.K. and France, the last one. So we have 5 subsidiaries. And quarter after quarter, they are becoming accretive to revenues and especially to profitability. In terms of profitability, we had an EBIT margin just shy of 8% after the first 9 months of 2024. After the first 9 months of 2025, we are exceeding 11% as EBIT margins. Those are unaudited financial results referring to the consolidated financial results of Lasit and its subsidiaries. Giovanni Selvetti: I'll jump in the queue and then I have some questions. Bianca Fersini Mastelloni: The second question comes from Andrea Bonfa of Banca Akros. Andrea Bonfa: I hope you can hear me. Very quickly, I mean, connecting to your last statement on M&A, potential M&A. So if I understood correctly, transformational deal are -- might be considered but unlikely for the time being, but some bolt-on acquisitions are definitely more possible. Is that possible for you to comment on which sector niches, technologies are you looking for? Andrea Cangioli: No. Andrea Bonfa: Or in which geographies eventually? Andrea Cangioli: I'm sorry, I said all I can say. Andrea Bonfa: Okay. Okay. Andrea Cangioli: It's nothing -- the answer wouldn't change. I mean we are -- we have several things on our pipeline related, as I said, both to medical and to industrial and they are both on the European territory and in the rest of the world. But I mean, in answering by this means, I don't -- I cannot give you any more detail. It wouldn't be fair. I can only tell you that we are examining several situations. Andrea Bonfa: Okay. And if I may, as far as the industrial business is concerned, I mean, within now, let's say, the recent input that you just mentioned, is the U.S. still a potential important market or now with the duties and your, let's say, smaller size is less so. And the third one is on the U.S. duties. How is the trading environment in U.S. now with this new duties environment, if it's possible? Also in relative terms because, I mean, maybe there are other countries now less competitive than Europe. Andrea Cangioli: First of all, the U.S. market for our industrial cutting systems is still very interesting and still the main market -- international market for our systems. We have suffered, as Enrico said explicitly and as I confirm, the image that was projected during the negotiation with the YOFC for the sale of the company. And we spent quite a lot of time in convincing our U.S. customers that we were not becoming Chinese. And also after the deal that was going to have Cutlite Penta fall under Chinese control was canceled. Still, we have our hard time in discussing with our U.S. partners and I mean, partners because we have distribution partners and making them fully comfortable that we will be able to provide them on the midterm, a sound and price attractive and technologically attractive Italian-made product. This is -- by the way, they are visiting us on Wednesday in order to clarify again this situation because based on this, we have had some sort of fluctuation in order bookings from the United States, notwithstanding our efforts, which include a massive deployment of technical service people in order to serve at top quality with top quality our systems installed in the United States and also a strong investment in terms of fares. We participated to the FABTECH, which is one of the most expensive fairs that you can approach on the industrial systems market. And so after this long speech, I would say that, yes, the U.S. market, it's still an opportunity. It's still an important opportunity. And it's not an issue of duties. Duties are impacting us in the industrial sector, but it's not duties that today caused a slowdown in sales to the United States in the industrial business. For what concerns the duty question on the medical system, of course, duties are there. They are quite impacted. But we have seen increasing interest in the last months from our U.S. customers in our products. This speaks about the fact that even though each and every of our customers in the United States will try to negotiate a deal in order to have us participate to the "undue extra cost driven by duties. " They are still looking for us because we are able to provide them the innovative content of products that allows them to make margin, notwithstanding the extra cost. And so basically, in this moment, we are -- I mean, at least for the first 10 months of the year, we are very pleased with what we have done in terms of revenues and what we have done also in terms of order bookings. Then, of course, -- we will have to see how the hot seasons on the U.S. market, which is the month of December, will roll out for our distributors to have a final judgment on the total effect of duties on our U.S. business. But so far, we have -- we can notice an overall positive reaction of the U.S. market on the duty situation. Bianca Fersini Mastelloni: Next question comes from Carlo Maritano of Intermonte. Carlo Maritano: Can you hear me? Andrea Cangioli: Yes. Carlo Maritano: I just have a couple of questions. The first one is on the European performance in the industrial cutting business in the third quarter. I see that there is a decline compared to last year. I was wondering if it is related to the EUR 9 million of revenue that shifted from the third quarter to the fourth quarter. And the second one is again on the industrial business, in this case, on Italy. So recently, the government changed again the incentives related to [indiscernible]. So I was wondering if you expect any kind of impact on your clients from this change or if the order book remains healthy and that you do not expect any kind of disruption. Andrea Cangioli: Thank you for these two questions. About the first one, the decline in the European revenues in industrial, you see it in the third quarter. It's something which is, let's say, local. It's not related to the cutoff, which is mainly an Italian issue. It's mainly an Italian issue because we don't -- it's tied to the means of delivery we have in Italy. And what we could say, it has been driven by a softer activity in Europe and by the slower activity of the subsidiaries, we should be able to overcome the situation over the rest of the year. For what concern the Italian laws, the Italian, I mean, funding situation, I didn't want to go in this detail. But of course, we are examining the effects of the cutoff that the Italian government put on Industry 5.0, and this might have some effect. I'm not able to quantify. It shouldn't be determinant, but it could be material. The good news is that it looks like that the new law for 2026 could be interesting for the investors. And so we might suffer a marginal correction. I mean, we have an order book, a book of orders, but some of them may not convert in sales due to the change in the approach by the Italian government as the monies for Industry 5.0 is finished, but we should be supported, hopefully, without the hesitation that took place in 2025, also in 2026 for a certain level of investments. Bianca Fersini Mastelloni: Andrea, we have one more question from Emmanuel De Figueiredo. I will read for him for problem of connection. The question is, why was medical so strong in Italy versus other markets? Andrea Cangioli: Of course, this stands out. It stands out. And because we did extremely well and because I believe we performed exceptionally well in the distribution of DEKA Renaissance in Italy, which is going to hit a record target, a record amount. We also had some sales in the professional beauty that increased its volume smoothly, and we are still experiencing very, very strong demand. Why is this happening? I believe the team that we have in Italy now provides to our end customers an unparalleled level of services. We have, I believe, 8 product managers, which are traveling all the time around Italy if they are not stable in a region because, of course, the main regions have product specialists, which are always providing support to our customers. So we not only, as we mentioned before, limit our activity in providing the laser box to our customers, but we are providing continuous training. We are providing very, very -- I wouldn't say cheap, but affordable service in order for them to take the maximum benefit of the lasers that we have sold them. And so since they are happy, since they make money with our lasers, they come back and buy. This 2025 is going to be a record year for Italy. And this is the only explanation I have on this point. Bianca Fersini Mastelloni: Thank you, Andrea. We have one more question from Andrea Bonfa of Banca Akros. Andrea Bonfa: Andrea, very quickly, in the numbers that you provided at the beginning of the conference call, the like-for-like figure, 7.9% without Cynosure and more than 10% without -- sorry, 7.9% without the Japanese subsidiary and over 10% without Cynosure is related to the medical division only or to the group. Andrea Cangioli: Medical division. What I was saying is that we are hitting in stable situation, the 10% revenue increase target after 9 months. This was the message I wanted to -- for the medical business. This is the message I wanted to give with these comments. Bianca Fersini Mastelloni: And we have no more questions registered in this moment. I would like... Andrea Cangioli: Giovanni Selvetti has said he wanted to ask more questions. Maybe we answered already, but I don't know. He said he wanted to. Bianca Fersini Mastelloni: yes, Giovanni. Go on. Giovanni Selvetti: Part of it was already answered, yes. I mean let's just put it this way. I don't want to ask too much information on M&A, right, also because you cannot give much. But it was more about whether the companies are more, let's just say, technological company that will add technology or company with actual sales, right? It's more about whether you're investing in technology or in market share. But I'm not sure if you can answer that. So... Andrea Cangioli: It's -- we have everything in our basket. So in our potential basket, there's something of any flavor. So you've got both. I don't know what and if we will close. Again, don't have too wide expectation on this. We're talking of small transaction, but we have both technological and sales solutions and sales opportunities. Bianca Fersini Mastelloni: Then at this time, we have no more questions. I would like to ask once again, if there are any further questions from investors still connected. No more questions. Then ladies and gentlemen, the conference is now over. If you have any inquiries in the future, please do not hesitate to contact Enrico Romagnoli, who will be happy to assist you. Thank you for attending this conference, for your participation, and we hope to have you all again next time. Goodbye, everybody. Andrea Cangioli: Bye-bye. Thank you, Bianca. Thank you everyone.