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Operator: Good morning, everyone, and thank you for participating in today's conference call discuss Jones Soda financial results for the third quarter ended September 30, 2025. Before we begin, let me remind everyone that the company's safe harbor disclaimer. Certain portions of our comments today will concern future expectations, plans, prospects of the company that constitute forward-looking statements for the purpose of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Forward-looking statements include all statements containing verbs such as aims, anticipates, estimates, expects, believes, intends, plans, predicts, will, may, continue, projects or targets and negatives of these words and similar words or expressions. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those indicated by the forward-looking statements. Factors that could affect our results include, among others, those that are discussed under the heading Risk Factors in our most recently filed reports with the SEC, including our annual report on Form 10-K, our quarterly reports on Form 10-Q and our current report on Form 8-K. In addition, this call includes discussions of certain non-GAAP financial measures, including adjusted EBITDA, most directly comparable GAAP measures, reconciliations for non-GAAP measures and are available in the earnings release and other documents posted on the company's website under Investor Relations. A telco replay will be available after the call through December 1, 2025, and a webcast replay of today's webinar will also be available for 1 year via the link provided in today's press release as well as on our company's website. Now I would like to turn the call over to Jones Sodas, CEO, Scott Harvey. Thank you. Sir, you may begin. Scott Harvey: Thanks, Jerry. Good morning, everyone, and thank you for joining our third quarter 2025 earnings call. As you recall, the first half of this year, we primarily focused on disciplined cash management and strengthening our supply chain. These initiatives have proven highly effective for Jones, we reduced our selling, general and administrative expenses, rightsized our portfolio and completed the divestiture of our Marijuana assets, of which position the company with a stronger financial foundation. In the third quarter, we built on these operational gains and achieve further meaningful improvements. We consolidated myJones in the e-commerce under a single fulfillment partner, reducing costs and increasing efficiencies. We centralized warehousing and logistics, optimizing freight routes and enabling multi-SKU load pairing. And lastly, we improved forecasting and inventory management, supported by supplier renegotiations and a shift to just-in-time inventory model. The improvements made through the first 3 quarters of 2025 has strengthened operational efficiencies and position the company to scale effectively as order volumes are expected to increase. Under prior management, Jones faced challenges in maintaining margins during periods of heightened demand and as many of the operational efficiencies limited scalability. By addressing these issues in myself and Brian's first years of management, the company is now equipped to handle higher order volumes without the drag of significant rising cost. These enhancements create a stronger foundation for sustained top line growth while preserving margins. Furthermore, making these fixes has allowed us to shift our focus towards growth. This quarter, we expanded our Club and DSD distribution network to increase reach and volume in our core soda business. We achieved record D2C channel performance through our Bethesda partnership, and we broadened our Zero Sugar portfolio, meeting growing consumer demand. These initiatives support our overarching goal of driving sustainable growth across the 3 key categories of core, modern and adult beverages. Our strategy is to pursue controlled and disciplined expansion with each one of these categories. One of our biggest takeaways from this quarter is the success from our strategic partner and socially rooted marketing campaigns. Initiatives like Crayola and Bethesda were huge excesses, leading to record-breaking D2C sales. Today, consumers engage with brands as a form of personal expression, not just consumption, social currency is beginning to increasingly define category leadership. Collaborations roots in culture, virality and nostalgia have proven more effective than typical product innovations. Products designed with visibility, collectibility and community interaction are the products that we see the most success in the future, and Jones is strategically aligned with this shift. We see this alignment exemplified by the success of our launches like fallout and Crayola. This reflects our team's ability to anticipate consumer demand and deliver products that truly resonate. Looking ahead, we expect to continue similar launches in the quarters ahead. One of these upcoming rocket bottle launch is forthcoming in this quarter. The iconic rocket bottle from the follow-up series goes on sales in Q4, followed by additional flavor launches in 2026, is expected to become a collector-driven product supporting premium pricing and recurring demand. Before passing the phone over to Brian to cover our third quarter financial results, I wanted to cover 2 recent developments. The first major factor is the recent U.S. government ruling tied to new hemp regulations affecting HD9 products. This language was passed last week and was folded into the legislation for reopening the government with no debate. We are closely tracking evolving interpretations of the law and validating all effective dates, including that, the provision is set to take effect 1 year from the Bill signing, and we expect clear interpretation within the next 60 days to understand precisely how these changes may be applied. Until the final guidance is issued, it remains business-as-usual for our operations, including producing high-quality products, our fans consistently seek out and rely on. This period also allows us to work closely with other organizations to advocate for responsible science-based regulation across the industry. At the same time, we're prepared to activate our contingency plan immediately should the regulatory environment require it. While the situation is disappointing, we remain confident in the long-term strength and potential growth of our adult beverage category. The second development I want to highlight is the anticipated growth within our Core Soda segment in the fourth quarter. Through our strategic partnerships with Bethesda and the Fallout series and targeted marketing initiatives, we have secured a substantial volume of purchase orders scheduled to ship throughout this month and into December. When combined with strong performance across other channels, this is expected to generate more than $8 million in fourth quarter revenue. This achievement underscores our team's ability to identify and execute new growth opportunities. As we continue to deliver on similar orders, we not only strengthen our financial profile, but begin to develop credibility and build brand equity in the industry. Establishing this credibility in growing the brand is so important to our long-term mission as it opens up the door for opportunities that were unattainable before. This is a huge win for Jones, and we expect to build upon this momentum in the coming quarters. With that, I'd like to pass the call over to Brian to talk more about our third quarter financials. Brian? Brian Meadows: Thank you, Scott, and good morning, everyone. Net revenue in the third quarter increased 15% to $4.5 million compared to $3.9 million in the year ago period. The increase in revenue was primarily driven by sustained growth in our HD9, direct-to-consumer and fountain products. Scott mentioned, we expect to see increased net revenue in the fourth quarter, driven by higher volumes in our core soda category into 2026 for our very successful fallout related product lines, that includes Sunset Sarsaparilla and the exclusive Fallout Vault-Tec packs through our Club Channel. As we stated in our news release, our fourth quarter gross sales guidance is $8 million, driven by these Fallout products. Gross profit increased by approximately $0.6 million or 76.7% to approximately $1.3 million compared to $0.7 million last year. Gross margin as a percentage of net revenue increased significantly to 28.9% from 18.8% in the prior quarter or an incremental 10.1 percentage points. The major improvements to gross margin were driven by lower trade spend, lower product costs as well as lower freight and warehousing charges. As mentioned last quarter, our team issued RFIs for our freight lanes to further optimize transportation. We've continued to rationalize our warehousing to reduce costs, resulting increase in gross margin reflects these initiatives, along with ongoing efforts to lower COGS. The company continues to look for opportunities to decrease the cost of goods sold with it's co-mans, co-manufacturers and our warehouse and providers. Total operating expenses decreased approximately 20% to $2.7 million in the third quarter compared to $3.4 million in the year ago period. Additionally, G&A costs declined by 8 percentage points to the share of revenue year-over-year, and we remain focused on identifying further cost reduction opportunities. What's important here is the cost cutting, Scott and I implemented early in the year is sustainable. We are looking to now focus on growing the top line and continue to make improvements to the gross profit margins. As our top line growth is expected to accelerate in the quarters ahead, our volumes will increase and that means we'll have opportunities to negotiate lower co-manufacturing fees, ingredient and packaging purchase costs. We'll also continue to focus to hold down SG&A costs to get to a lower percentage of net sales in the coming quarters. Net loss for the quarter was $1.4 million or negative $0.01 per share compared to a net loss of $2.6 million or $0.02 per share. The improvement in net income was driven by a combination of higher gross margin and lower operating expenses. Adjusted EBITDA improved 65% compared to prior year to negative $0.9 million compared to a negative $2.2 million in the previous period. Lastly, I wanted to touch briefly on our balance sheet as of September 30, 2025, the company had approximately $0.2 million in cash and $0.6 million in working capital. Early on in my tenure as CFO, I made the decision to move to a different line of credit facility. This is an extremely important move for Jones as it increased our credit facilities from $2 million on a small base of assets to borrow against to $5 million on a larger base of assets to borrow against. Scott and I needed some time to ride the Jones ship and the extra room and -- the credit line has just done just that. We have reduced costs significantly and cut the EBITDA loss down by over $2 million for the 9 months. Credit facility is also financially supported the buildup of inventory for the sales forecast for Q4 of $8 million. We'd like to thank our partner, Two Shoes Capital for believing in the Jones leadership team to complete the turnaround in our business in 2025. I'd also like to highlight that with the change in HD9 legislation, Scott and I will carefully manage for this development to keep our inventory levels in HD9 as low as possible and continue to derisk our exposure in the coming months. Scott highlighted previously, we see a number of market opportunities for Jones in its core business with the success of the follow-up products in Club, DSD and the direct-to-consumer channels. Additionally, we plan to focus on the untapped opportunities Spiked Jones to build the alternative adult segment, and lastly, look to drive volume for the modern soda category in 2026. With all this momentum in the fourth quarter, I extend to see this growth take shape while continuing to focus on operational discipline. Scott, over to you for the final remarks. Scott Harvey: Thanks, Brian. The future of Jones remained in driving growth across our key focus areas, which are core Soda, modern and our adult beverage. Within our core soda, we continue to expand and grow our distribution partners while launching exciting and socially relevant initiatives. In modern soda, we're excited about the growth we see in our marquee products, Pop Jones and Fiesta and remain bullish about the functional beverage category as a whole. As we continue to sign new distribution partners for these products, we are excited to further align offerings with consumers' behavior and preferences. In the adult beverages, although we expect HD9 to be a smaller part of the category due to U.S. regulation, we are excited about Spiked Jones sits, and we will continue to look for ways to increase our market share in the adult beverage category. To wrap up, Q3 was a great quarter for Jones Soda. We continue to make significant operational improvements that have strengthened our business model and position us for success. Additionally, we're beginning to see some momentum across the brand in our sales channel, supporting by meaningful orders that will help elevate the company, drive revenue and create more opportunities ahead. This is an exciting time for Jones, and we look forward to building this progress and delivering sustained top line growth, increased profitability and long-term value creation for our shareholders. Before moving to Q&A, I want to take a moment to thank our team. Their resilience, passion and belief in what we're building have been the backbone of this turnaround. I'm equally grateful to our partners and our customers for their continued commitment and support. With that, we'll wrap up the call by addressing some of the questions that have been submitted via the live webcast. Scott Harvey: First question, Brian, it's probably a great question for you to take. Can you provide cash holding guidance given the large amount of accounts payable on the balance sheet? Brian Meadows: As I mentioned earlier, we have a $5 million credit facility that we utilize as we need to draw it to build up inventory. So we expect to have adequate cash resources to roll out our Q4 sales plan and into 2026. Scott, back to you. . Scott Harvey: Great. Thanks, Brian. Second question, it's great that Jones is being innovative with new product development, is there any thought about broadening the distribution footprint through independent DSD network in new markets and making investments in chain account teams to help distribution and authorization of new products? Great question. Yes, I mean, the independents are who we're targeting as well as we're still going after some of the larger distribution networks that are out there. We find that they're great partners with us. They believe in the brand. They're willing to go back and reinvest in the brand as well in order to put the products on to the shelves. When you start taking a look at independent chains, independent account teams. Again, it's just -- it's additional dollars that we'd add on to the -- on to SG&A lines. It's something that we are talking about internally whether or not we focused it on a specific region of the country and see how well it does within there to see the growth that we get out of there, but it's definitely something that we are actually taking a look at internally and continue to have those ongoing conversations about. Third question. Brian, is probably one for you. Where do things stand with the S-1 filing, any potential uplift to J-BEV fundraising efforts than anything material come out of the gateway conference? Brian Meadows: Start with the Gateway Conference. You'll see Scott and I attending these type of events as become available and makes sense for Jones to attend. We thought it was a good use of our time to meet potential new investors who are familiar with the brand from a consumer perspective, but not as familiar with it as a public company. So we think we made some good connections there with potential investors, and you'll see us out there in the future. In terms of the S-1 filing is paused at this stage. We're focused on delivering a great fourth quarter for Jones shareholders, and we will revisit sometime in '26. Scott Harvey: Great. Next question for Pop Jones and Fiesta, have store counts increase held steady or decreased and how well is the sell-through this quarter? Yes. So we've actually expanded our Pop Jones this quarter. We actually were able to get into a few different convenience and -- not convenient stores, but other channels for growth in there. We picked up about 4.3% on Jones year-over-year on Pop Jones moving through there. We were able to get into [indiscernible], which we saw a 96% lift Pop Jones. So it is moving through there. Again, the field is super, super competitive in there within the whole modern soda category. But again, I think the brand differentiator is our flavor profile that we're able to bring in to the consumers as we start to roll out there as well. On the next question, on the last earnings call, it is anticipated -- you anticipate Q3 revenue will exceed Q1 and Q2. What didn't materialize that may have caused that shortfall. Brian? Brian Meadows: The area that I could think, Scott, would be HD9 came in later than expected, and that was due to some co-man issues that were being resolved during the quarter. But I think will -- as you heard from our sales guidance in Q4, that is going to be significantly higher than last year's Q4 numbers. Scott Harvey: Great. Was the Southeast Costco test for core Jones Soda to successful, what were the sellout rate did you observe? It didn't meet the threshold of what Costco was looking for. They have a specific threshold. As I would say, it didn't perform poorly, but it did not achieve that threshold. And I attribute a couple of things to that is that we were into the Southeast, brand is not a lot of notoriety in the Southeast. But in some cases and had some great sell-through in some of the clubs, but not so much in some of the other ones that we were able to get through. How do we feel about that going forward? We're still optimistic. And again, we'll be able to share some more thoughts as we continue through our next conference call. But we've gone back and we're still pitching Costco on a few different ideas. And of course, one rotation through there that may not be successful does not bought you out from getting in there again. So again, more to come on that, some stuff that you'll hear forthcoming. But that initial rotation, yes, it wasn't -- did not meet the threshold that they were actually looking for. Brian Meadows: I just add some question, so there was a news release that we put out in October. I'd like to drive attention to on our success with the fallout exclusive Vault-Tec pack that we ran through the Costco Northeast region. That one exceeded the sell-through hurdle, Scott, right? And we are -- as the news release indicated, we're working around the clock to deliver additional products. So as Scott mentioned, just because one particular region, one product didn't work, there are other opportunities that we're exceeding -- we're selling with Costco. Scott Harvey: With Costco. Brian Meadows: Yes. That rotation that we did for them up in the Northeast was very unique. I mean it caused a bunch of fury online as to where you're able to find the product. We've seen it up on eBay. So I mean, it actually was a huge success, and we were very excited about that opportunity as was Costco just based upon the sell-through rights that they achieved. Scott Harvey: Next question. You recently hired a new CMO. What strategic and creative shifts do you expect this to bring. I think what Eric brings to us is the ability to be able to look at our current channels that we want to continue to focus on. We keep talking about the same thing, whether it's core, modern or adult, and really try to understand the consumer base that's within each one of those categories. So Eric's job will be is how do we communicate and we look at it from like this perspective, like I call it the 3Es really. For each of those categories, we want to understand how do we educate our consumers, how do we entertain them and how we engage them. And that's part of the pillars that Eric will be able to run after. One, it's identifying who those consumers in there, whether we think that they are or not, we need to validate that through data, figure out how do we go back and connect with them via social media or in-store displays or TPRs that we may do. So it's really about -- what he will bring to this is really that strategic vision as to -- how do we get the brand out there, how the brand gets notarized in notoriety. And as we mentioned, even with the Fallout Vault-Tec that we did with Costco and some of the others and some of the D2C stuff that we do, it's about building brand impressions, meaning getting that Jones name out in front of people where it becomes a household name where people begin to recognize it when they walk down their aisle. So his job will be is to strategically put us in place on how do we execute the 3Es and then how do we connect with our consumers to drive value and incrementality of each one of those categories. And then staying on top of flavors and profiles and brands and what do we need to change within our categories or add when new flavors are on the horizon, how do we adapt to stay relevant within our existing channels that we run after. So great question. Next question was previous leadership proposed a refreshed brand direction in modernizing Jones, look, while keeping key classic elements. Does Jones company plan to continue evolving the brand to remain culturally relevant to avoid a appearing outdated on the shelf. And I think quick response to this would be, yes, I mean there's -- I think it's a yes and no question. One, because one people recognize is for pictures that are on the bottles, right? So that brings back nostalgia. It brings back relevancy. It gives us the opportunity to be able to connect with our customers from them submitting in -- submitting in pictures that could potentially be on the bottles as well. But then you look on the flip of that when you looked at the Pop Jones and the Spike Jones that they're a little bit different. They don't have the pictures on there. couple of reasons for those could be the fact that, hey, when we do long production months and changing them out, maybe less frequently. But again, Eric, who's joined as the CMO is taking a look at those of how one stay relevant but don't lose who we are going forward. So I think that there's a combination of both and we have to find that medium in between as to how do we stay relevant with today's look and feel by not also raising our 30-year heritage of the brand that made Jones, which is, "Hey, I'm putting my -- somebody's photo up on one of our bottles. If we're able to come up with a way that we're able to define it as we continually talk about internally is that, we have to have a label strategy and a flavor strategy. If we're able to figure out how do we -- how we bring those pictures in and get them on the cans and rotate them more quickly, it's definitely something that we will continue to look at on an ongoing basis. Next one is sort of ties into the same one. Why did Jones steer away from including customer photos on top Jones and the Fiesta Jones. I'd literally just -- I just touched into that. And again, it's about quantity of production runs, cost of production runs, how do the pictures portray onto a can versus a printed paper label. So again, it's something that we're looking at and Eric is spending some time on how do we bring that to life, if possible. Because, yes, it does -- it is meaningful for people to see that on there and it really relates back to who we are. Next question, previously mentioned discussions with Walmart. Has that conversation advance? And what is the opportunity or has that opportunity been paused for now? Great question. We did have that meeting with them. There were 30 different brands that did the presentation to the Walmart buyer, which included all the better-for-you carbonated beverage. What Walmart came back with is that, hey, they were looking for strong regional retailers that are delivering sales in there, and we were able to point out that through some of the existing chains that we're in, how well that our performance did. They talked about a potential test to be able to roll that out, and they had great feedback on the 5 flavors that we have produced for them. Where is it today? Well, unfortunately, the buyer that we were speaking to has moved on. So now we are a bit in that -- a pause as they onboard that new buyer. And once they're in there, then we'll continue to get up in front of them and follow up as far as where we were within that queue of that potential product launch that we have there. If HD9 gets shut downs, can Jones repurpose the 800-plus coolers that have been deployed to pivot to Spiked Jones? Absolutely. Yes. So as a matter of fact, I was just at the National Association, the Convenience Store Operators convention a couple of weeks ago, and we had the coolers on site. The good news about the coolers is that they're not HD9 branded, they're Jones branded. So there other than some window claims that are on there, they can definitely be repurposed, not only for modern or spiked or core. So they can be reutilized and those are internal conversations that we are talking about as well. Brian Meadows: Sorry, I was just going to add, a number of our distributors carry multiple Jones products as well. So we wouldn't have to redeploy in those cases. Scott Harvey: Yes. Great. Thanks, Brian. What about Pop Jones, no mention of this. I did touch on Pop Jones. And just as an example, we launched Pop Jones in this past quarter, all 5 SKUs into Meijer, Jewel, Fiesta Foods as well. So there is movement on there. We are going back and taking a look to try to see how we improve the economics on that product as well to get us more competitive that's in there and whether or not that again, it's looking at the ingredients. We're not going to play with flavor because people love flavor, but we will look at trying to improve the COGS to get us to a better value proposition in order for us to be able to compete with, like I said, at Costco or at Walmart with those 30 different other manufacturers that are out there that are competing for that same space. Last question would be exactly why was the fundraise and uplist pause. Brian, can you add any additional color to that? Brian Meadows: Yes. I would say the following. First of all, Scott and I are, as you can see from our dialogue today, I'm pretty excited about the fourth quarter. We think -- and I use the word to complete the turnaround this year. We think we're going to be a better spot if we -- the Board wanted to raise additional capital once we complete the year and demonstrate what Jones has accomplished in 2025. Secondly, the NASDAQ, for example, has increased its uplift capital raise requirements to $15 million from the original $5 million. So these are the 2 reasons. But again, we've got the credit facility to help finance the increase in inventory that we need to do for the fourth quarter. So we're in good shape, and we are excited to complete the year, Scott. Scott Harvey: Yes. Great. Next question. A year ago, we were hearing about exciting growth with Jones Fountain. You mentioned Fountain as being part of the profitability. What is happening with this. Well, we actually launched a segment into a particular customer so far. And there is great excitement around that as well as that we've got some big things that we're working on within the convenience channel of open heads within some of those convenience channels to be able to launch fountain. And with great excitement. And it can either be carbonated or noncarbonated products. So again, the teams are working diligently on that to be able to see if that's another way for us to edge our way into space and unoccupied heads within some of the convenience stores that were in there. So more to come on that one, but it is something that the team is exploring as we go through. Next question, how often can you capitalize on Fallout opportunities do similar opportunities in the future? Fallout series is that we have a 3-year commitment with Bethesda, based who represents Fallout. So we still -- we're only in year 1 of year 3. So we will continue to capitalize as much as we can with Fallout. The question is, is there other opportunities? And the answer is absolutely yes. And we are going down those exploratory issues now with some really exciting potentials coming forward. We looked at Crayola. We did Crayola this year, too. So you look for us probably doing something again for the for the back-to-school coming up in next year with the Crayola as well. And the teams are actively out there talking to other potentials, which are getting us excited in there because we have the flexibility to be able to adjust, adapt and create. And again, going along those same lines about educating people about our brand and entertaining them and engaging them. So I really see that is an ongoing opportunity for us to be able to engage in these licensed properties opportunities for us on an ongoing basis, whether it's in a store and a club or on our D2C side or on their D2C site as well. So I think that there's great optimistic outlook on those abilities for us to be able to partner with these licensed properties on an ongoing basis. Brian Meadows: Scott, could I get you to maybe talk about one other thing. We talked about Fallout, the amount of the viral nature of how explosive that went in social media and how it brought people's attention to the Jones brand again and all that attention. I think you used the words that would have cost an awful spot in terms of formal advertising. They get the Jones name out there like that. I wonder if you could touch on that and then how that has elevated the Jones brand again to the other potential partners that have noticed and taken notice of the whole phenomenon. Scott Harvey: Yes. Great question. So yes, I mean, we -- when Fallout -- when we rolled Fallout out, we did put some allocate dollars behind how are we going to market this to be able to drive some social media buzz around this. So there is 2 ways that we were actually able to accomplish this. One was that direct investment in there about going out and paying to engage consumers to look at our post and paying for that. And what we saw was a minimal investment drove millions of impressions of the posts that we were able to put out there. We worked with specific influencers that were in the Fallout space. So hey, we went and engaged one of them. We pay them a fee. They did it post and that post just through their following, just explode it. What that did for the brand as it brought us back to relevancy is, hey, it's a Jones product, partnering with Fallout was able -- were able to drive these impressions all across. Each one of these -- and again, if you follow us on Instagram, you've seen a lot of posts over the weekend where we were in Vegas out in the desert where the Fallout series in a saloon where it all actually takes place and it's in the actual series itself. We had a booth. We were engaging with consumers. We debuted the rocket bottle that we're going to sell here in we actually had a picture of the rocket bottle in the stars, the star of the show stand behind the bar, and that just exploded as well. So all of that is, again, it's helping the fallout series itself, but it's also about helping the brand itself by one, building impressions of us getting that name Jones out in front of consumers where they go, Fallout and Jones. And it will drive consumers to us. And we did see this when we rolled out the Sunset Sarsaparilla on our website. Astronomical amount of sales. Again, it was associated with a follow-up, but we're able to capitalize on those benefits of selling our product and getting our name out in front of consumers on a go-forward basis. Brian, I don't know if I missed any part of the question that you had. Brian Meadows: The only -- and I know you can't name names, but we certainly saw other interested brands come forward as a result, I think, of Fallout, yes. Scott Harvey: Yes. Yes. Two different things. One is that we've had other licensed properties contact us already as to, hey, saw what you did there? Could you probably help it out with that? And we've had some really exciting conversations over the last week about that. So more on that. but not only on that side, but it also came from our customers. We've had customers that we've gone to approach before that didn't -- weren't really interested in Jones but came back to us since we've done this follow-up and saying, "Hey, how can you help us with something like that on a go-forward basis where before they wouldn't entertain a conversation with us. Now we're actually getting inbound phone calls from potential either big box clubs or such that are interested in how do we help them develop products for them to be able to draw consumers into their space as well. Great. Those are all the questions that were submitted today. And hopefully, we were able to answer your questions and again, provide you some insight and how things that Brian and I are working on. We'd like to thank everyone again for taking the time to listen today. Again, I'd welcome further questions or we'd be happy to take one-on-one calls later this week or in the next again, and please direct any inquiries to jsda@gateway-grp.com. I'd be happy to address accordingly. And again, if I don't speak to you soon, I look forward to addressing you all again when we report our full year and fourth quarter results in March. Again, thanks again, everyone, have a great day. And operator, back to you. Operator: Thank you. Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: Welcome to ABN AMRO's Q3 2025 Analyst and Investor Call. Please note, this call is being recorded. [Operator Instructions]. I will now hand the call over to speakers. Please go ahead. Marguerite Bérard-Andrieu: Good morning, and welcome to ABN AMRO's Q3 results presentation. I'm joined today by our CFO, Ferdinand Vaandrager; and our CRO, Serena Fioravanti. After our presentation, we will hold a Q&A session to address all your questions. Let me begin with the highlights of the third quarter on Slide 2 before moving to the announcement of our intention to acquire NIBC. The third quarter was another solid quarter for ABN AMRO. Net profit reached EUR 617 million with a return on equity of 9.5%. The inclusion of HAL contributed EUR 26 million to our results across all products we managed to grow this quarter. Our mortgage portfolio increased by EUR 2.1 billion and corporate loans grew by the same amount. Net new assets increased by EUR 4.3 billion. Cost discipline remains a priority with FTEs declining by 700 in Q3 and by almost 1,000 year-to-date, excluding HAL. Credit quality remained strong with EUR 49 million in net impairment releases reflecting recoveries and improved macroeconomic variables. Our CET1 ratio stands at 14.8%, and we finalized the EUR 250 million share buyback in September. We will review our capital position in Q4 to assess the potential for further capital returns. Now turning to our other announcement of the day. I'm very pleased to announce that we have reached an agreement to acquire NIBC. This acquisition is fully aligned with our strategy and presents a unique opportunity to reinforce our leading position in the Dutch retail market, and accelerate our personal and business banking strategy. NIBC is a well-run, primarily Dutch-focused entrepreneurial bank with a strong specialization in mortgage lending and savings products. It serves around 500,000 retail clients and around 175 corporate clients with a high-quality portfolio mortgage and very low arrears. NIBC will add around EUR 28 billion of mortgages, significantly increasing our scale in these markets, further cementing our leading position in the Dutch mortgage market. Around half of the mortgage portfolio will be off balance as NIBC has an attractive originate-to-manage franchise with long-dated mortgages. The acquisition also brings an attractive savings platform, serving 300,000 clients across the Netherlands, Germany and Belgium. The savings offer an interesting cross-sell opportunity with our investment platform, BUX. Given NIBC's domestic focus and the overlap of service providers, there is substantial potential for cost synergies with limited execution risk. This transaction is expected to deliver return on invested capital of around 18%, 1-8, and will improve our group's financial profile. The capital impact of approximately 70 basis points is anticipated at closing. The acquisition is, of course, subject to regulatory approvals and is expected to be completed during the second half of 2026. We look forward to welcoming NIBC's clients and colleagues and to the opportunities this acquisition will bring to us all. Now turning to our third quarter results. I will start with the Dutch economy. While the Dutch economy continues to perform well, supported by a strong fiscal position and low unemployment, the housing market remains robust, with pricing still rising, though at a lower pace than in the first half of the year. Employment continued to rise and is at a record high. The debt-to-GDP ratio of the Netherlands remains very healthy -- and that's a French person telling you that, it is significantly lower than other European countries. The Dutch elections results have been announced and coalition talks have begun. Ideally, the quick and stable formation process will allow the new government to start addressing important national issues, for example, the housing shortage or the nitrogen issue. Given this economic context on the next slide, I will discuss our results. We again showed a quarter with strong mortgage production growth, thanks to a robust housing market. Our mortgage portfolio grew by EUR 2.1 billion in Q3 with our market share in new production rising to 19%. We made some important amendments to our mortgage terms. We now automatically adjust risk premium after repayments, reviewing it monthly instead of only at the end of the fixed rate period. This led our mortgage products obtaining the top rating in the intermediary market, which accounts for nearly 75% of new volume. We observed an immediate increase in new volumes following this. Today, we also announced the rationalization of our mortgage brand line-up. Going forward, we will focus on our core labels, namely ABN AMRO and Florius and we will discontinue the Moneyou brand. This allows us to focus investments in our core labels, in technology and innovation to further improve our services. Moving to corporate loans, further organic growth and the inclusion of HAL resulted in EUR 2.1 billion loan growth this quarter. Loan growth was partially offset by the wind-down of asset-based finance. This quarter, we sold our U.K. lease portfolio. Moving to deposits. HAL added close to EUR 11 billion of client deposits. Within Wealth Management, we also have provided targeted offerings starting in Q2, which have resulted in net new assets of over EUR 4 billion this quarter. Given this positive developments in our lending and deposit franchises, let's now look more closely how these have supported our net interest income. Our net interest income increased to EUR 1.5 billion. HAL's inclusion contributed positively to NII by around EUR 34 million. The inflow of NHG mortgages and the adjustments we made in the mortgage terms I just mentioned before, led to slightly lower margins. However, the strong growth in our mortgage book offset this. Deposit margins declined partly related to targeted offerings within Wealth Management at reduced margins. Treasury results increased during Q3. However, the increase was a bit lower than initially expected. Based on last quarter's forward rates, the inflection point of replicating portfolio yield was expected at the beginning of next year. However, current interest rates have brought this timing forward this quarter, bringing the decline in the replicating yield to a standstill. In the coming quarters, we expect the deposit margins will start to become a tailwind. Looking ahead to next quarter and assuming a modest increase in treasury NII and stable deposit margins, we expect full year NII of at least EUR 6.3 billion, including HAL. Now turning to fees. Looking at our third quarter fee income, the fee contribution from HAL becomes evident, increasing overall fee income by around 10%. These excluding HAL, continued to increase, with fee income for the third quarter, reaching its highest level in the past 2 years. Personal and Business Banking fees increased mainly from higher seasonal payment transactions. Wealth Management fees was primarily thanks to higher advisory and mandated business volumes. Other income is volatile by nature and ended at EUR 28 million for Q3. The decline was caused by a number of factors, all having a negative impact on other income this quarter. Specifically, we booked lower equity participation results, lower other income within treasury and a negative fair value correction of past bookings related to some mortgages. Now moving to our operating expenses. We have further reduced expenses as we worked on rightsizing our cost base. This quarter, FTE showed a significant reduction of 700, half of which related to contractors in Group Functions. Since the beginning of the year, the number of contractors have declined by 1,100. To a limited extent, we onboarded external for their skills, which explains the small increase in internal FTEs over the same period. The Dutch Collective Labor Agreement increased wages by 3.75% on the 1st of July, leading to an increase this quarter in personnel expenses. Thanks to our ongoing cost discipline, our underlying cost base declined this quarter. At the beginning of the year, we projected our underlying costs excluding HAL to be between EUR 5.3 billion and EUR 5.4 billion, and we are confident now of ending at the lower end of this guidance. Including HAL, this now translates to a full year cost guidance between EUR 5.4 billion to EUR 5.5 billion. Now turning to our credit quality, which again remained very solid. Prudent risk management supports our strong financial results. We recorded impairment releases of EUR 49 million this quarter, mainly related to recoveries in corporate loans and improved macroeconomic variables. We saw some inflow into stage 3 for specific individual files, although, this was lower compared to the last few quarters and fully offset by releases. The total Stage 3 ratio decreased slightly to 2% and our coverage ratio was broadly stable for each of our lending projects. Given the impairments year-to-date, the cost of risk for 2025 will likely end around 0 for the full year. Now moving on to our capital position on the next slide. Our CET1 ratio remains stable at 14.8%, well above the regulatory requirements of 11.2%. The impact of the consolidation of HAL was offset by the quarterly contribution of our net profit. The total impact of HAL on our CET1 ratio as of Q3 is 40 basis points, 7 basis points of impact were already taken in Q2. The formal move of certain loan portfolios to the standardized approach had no impact on our capital ratio, while RWAs increased by EUR 1.6 billion. This was offset by lower capital deductions in our CET1 capital. During Q3, data quality improvements were realized around EUR 1 billion of RWA reductions, mainly from data improvements on real estate collateral. Further progress on data remediation is anticipated, for example, related to the SME support factor, which may result in further reductions in Q4. Looking ahead, as I mentioned, NIBC will impact our capital ratio by around 70 basis points at closing, expected in the course of next year. Our capital position remains robust, and our capital generation is strong. In Q4, we will review our capital outlook and incorporate all the relevant capital and RWA developments. Now to summarize our third quarter results. For 2025, we expect net interest income of at least EUR 6.3 billion and costs between EUR 5.4 billion and EUR 5.5 billion, both including HAL. We are delivering on our cost discipline, improving our data quality and sourcing and are delivering profitable growth in mortgages and deposits. The seamless integration of HAL and closing the acquisition of NIBC are important strategic milestones as we build scale in our core markets. Looking ahead, we are excited to invite you to our Capital Markets Day in just 2 weeks' time. There we will present our updated strategy and financial targets with a sharp focus on rightsizing our cost base, optimizing our capital allocation and unlocking profitable growth opportunities. We look forward to sharing our vision for the future and the next chapter in our journey with you. With that, I would like to ask the operator to open the call for Q&A. Thank you. Operator: [Operator Instructions] The next question comes from Giulia Miotto from Morgan Stanley. Giulia Miotto: I'll start with a question on NIBC. Why do you think that the execution risk here is low? Like, can you give us any, I don't know, qualitative comment on, for example, do you have the same systems or -- anything that can give us confidence on essentially achieving this quite significant synergies? That would be my first comment. And then secondly, I wanted to ask on the costs. The quarter was very good. Was a beat versus consensus expectations, excluding the one-off, the EUR 55 million. However, the exit rate is actually quite high. If I take the mid-range, if I take basically EUR 5.450 billion and then I remove the EUR 3.9 billion that you've done so far, underlying would be EUR 1.55 billion for Q4, which is more than what I would expect. And then it's quite a high run rate for '26. So how should we think about the exit rate and yes, on the cost side? Marguerite Bérard-Andrieu: Thank you very much for your questions. I will start with your first question on NIBC, and Ferdi will take your question on costs. So on NIBC, bear in mind that this is an asset we know very well. We operate in the same market, in the same businesses, mortgages, savings. So this is an asset we know very well indeed. And you're right, we have evident synergies. I'm going to give you just one. We use, for instance, for mortgages, the same service provider Stater. So this is an evident synergy just to flag this one. It is too early to share all the details, of course, of the target operating model. Bear in mind that the transaction will be only closed in the second half of 2026. But we are indeed confident that this is below execution risk transaction for us. Now Ferdi to the cost this quarter and looking forward? Ferdinand Vaandrager: Yes, Giulia, I think the most important message on cost is that underlying our costs are going down, evidenced by the FTE reductions year-to-date. And this offsets the more than offset the CLA increase. As Marguerite said already earlier, we will end at the low end of the guidance range, excluding Hauck Aufhäuser Lampe, but if you add the cost of Hauck Aufhäuser Lampe, we will add in the range of EUR 5.3 billion EUR 5.4 billion. If you look at the exit rate in Q4, we always have some prudency in our guidance, specifically for Q4 because, as usual, you can always expect some seasonal cost increases. Last year, that was around 4%. So that's what you need to take into account if you look at the exit rate in the guidance. Giulia Miotto: Okay. But so just to clarify on the Q4 costs. So it will probably be higher than an exit rate for '26. It sounds like because there is some in Q4... Ferdinand Vaandrager: There can always be, Giulia, that is the question underlying, we expect the cost trend to continue as we've seen in the previous quarters. But normally, there is some prudency of the seasonal cost increase you can see in Q4. Giulia Miotto: Understood. Ferdinand Vaandrager: The guidance is fairly clear between the EUR 5.4 billion and EUR 5.5 billion, including the cost of Hauck Aufhäuser Lampe. Operator: The next question comes from the Namita Samtani from Barclays. Namita Samtani: The first one on the NIBC deal, thanks to the EUR 100 million of first run rate cost synergies in 2029. But when you speak about further upside from revenue synergies what are you referring to? Are these funding synergies? And do you have a sense of quantum? And also the legal merger of ABN AMRO Hypotheken Groep into ABN AMRO. Is that included in the deal maths that you've given today? And my second question, on the replicating portfolio, is it still EUR 165 billion in size? And how should we think about the long end part of the replicating portfolio? Is it more mechanical, for example, just a very simple 5-year swap rolling mathematically or in fairly even tranches? It's just that replicating portfolio slide on Page 16, it confuses me a bit. And I can't understand when year-on-year, I'm going to see a benefit from the hedge. Is it in 2027? So any color there helpful. Marguerite Bérard-Andrieu: Thank you very much. I will take your question on NIBC, and Ferdi will take your question on the replicating portfolio. So yes, we see this transaction on NIBC as very accretive indeed because there are synergies in costs as well as in revenues. Just to give you a few highlights, we are adding 500,000 new retail clients to the ABN AMRO Group. These are clients that have -- that are mass affluent clients. So they fit very well our group. We think that we can bring more products and services to these clients. We also see, as I briefly mentioned an opportunity in using BUX to serve these clients. Bear in mind that NIBC have clients, of course, primarily in the Netherlands, but also in Belgium and Germany. So BUX can really help with that. And yes, in terms of synergies, there are also funding synergies, both on the revenue side as well, I would say, on the cost side, just to hint at a few of the positives we see in the transactions. Ferdinand Vaandrager: Yes, maybe come back and to add to that Marguerite. Indeed, we're prudent in our assessment. So the EUR 100 million is the post tax cost synergies. Of course, there can be some funding synergies. For example, we can over time, refinance the debt securities at the lower rates and also potential reduced LCR targets. But also on the other hand, you might also see some dis-synergies from deposit churn. So overall, if you look at the synergies, it's negligible in our assumption on the revenue and the funding synergy side. If your question on the replicating portfolio, yes, I can confirm the size is still around EUR 165 billion. As you have seen some terming in, that means that it has increased somewhat over the past 2 quarters, and it's also still there around 40% to 45% of the replicating portfolio reprices within 1 year, and the overall duration is around 3 years. If you look at the sensitivity slide in the presentation. It's now an update on a quarterly basis. So the starting point is slightly different from the previous quarters. And there, you can see that we have seen the inflection point already on the income side. But if you purely look at the sensitivity, it does not take into account any changes in volume, and it does not take into account any cost changes, i.e., changes in deposit pricing. So you should just look at as a sensitivity on the replicating income as an 'as is' situation. Marguerite Bérard-Andrieu: And forgive me because I realized I forgot to answer your question on the legal merger and of course, yes the transaction with NIBC is subject to all regulatory approvals. And that, of course, includes the legal merger. Let's say, we do not anticipate difficulties on that front. Operator: The next question comes from Tarik El Mejjad from BofA. Tarik El Mejjad: Just another question on NIBC and one on cost base. I mean I guess you share with us more detailed math on the deal with the synergy expected with some time frame because, I mean, clearly, usually, at least on my M&A model, I mean revenue synergies is not something I would push too much. And on the cost sounds quite punchy here, but I mean, Marguerite, you gave some indications of what kind of synergies. But yes, if you can share with us would be helpful. I mean this is very important for your capital allocation, I guess. And my question is what's next? Because I was more expecting a deal on the Wealth Management to be honest. And in Bloomberg, you mentioned that this is it in terms of deals to be announced. So is this now back to focus on restructuring the bank and costs? Or should we expect more potentially destructive deals to come? So that's number one. And number two, on just maybe a question for Ferdinand. On the cost guidance, EUR 5.4 billion, EUR 5.5 billion, is that excluding incidentals or it's all-in reported guidance? Marguerite Bérard-Andrieu: Thank you. Thank you very much for your questions. A couple of things. Yes, this deal is highly accretive. The 18% return on invested capital, we are very confident is achievable. And indeed, what we primarily factored, I mean why we factored in this model was primarily cost synergies. So if there are revenue synergies on top of it, it is an upside. But I agree with you, this is not a primary thing that we looked at in this deal. And looking forward, we will be sharing yes, more details on the target operating model, but that will come in due course. Just to clarify the answer I gave to Bloomberg. This was more an answer on saying, well, we're not going to call every morning to announce to announce a new M&A deal. So it's just that -- I think the question I got from Sarah there was like, is there something else coming out at the CMD? So no, in the next 2 weeks, don't expect any other announcement from us. And as far as our strategy is concerned, organic and inorganic, we will share everything in 2 weeks when you come to our Capital Markets Day. Ferdinand Vaandrager: Yes. Tarik, to come back to your question on the guidance. Initially, the guidance was equal to last year. We expect to end up at the lower end of that range. Hauck Aufhäuser Lampe adds between the EUR 130 million and EUR 140 million. So this translates in the updated guidance. And clearly, the updated guidance is excluding the incidentals as announced today. Operator: The next question comes from Benoit Petrarque from Kepler Cheuvreux. Benoit Petrarque: So just to come back on NIBC, sorry for that. Just again, the strategic rationale. Because it sounds like a very financially attractive deal and it seems that from a strategic point of view, that was the main reason behind this deal. I was also a bit expecting a bit more other type of deals, let's say. And maybe I missed it, but do you see kind of any franchise value in NIBC or you see just purely 100% as a financial attractive deal with 10% accretion by '29. Just wanted to clarify that because I also see a very low fee base at NIBC. And I was also expecting a bit more fee business as target. And I was also wondering if you could provide some timing on the EUR 140 million pretax synergies, whether we'll start to see some positive effect from that in '27 or that will be more back-end loaded? And just second question on NII. So your guidance of more than EUR 6.3 billion implies roughly EUR 50 million quarter-on-quarter on NII in Q4. And I was just wondering if you could provide the moving parts, deposit margin, lending margin, treasury income. What will drive this improvement in the fourth quarter? Marguerite Bérard-Andrieu: Thank you very much for your questions. So on NIBC, it is indeed both, a financially sound deal, an accretive deal and also a strategic deal. I think it's a good -- it's a good way of proving how we look at M&A. M&A strategy will always be disciplined and we will only pursue it if we find it shareholder accretive. It will be -- this is one of our criterion. You see it with this deal and the 18% of return on invested capital that it brings to the bank. This being said, we see a natural strategic fit with NIBC. It brings us scale in our domestic market in mortgages and in savings. The NIBC brand is a very good brand in the Netherlands. This is a brand that has been existing for 80 years. It has an entrepreneurial flavor. It appeals to the client base that's also slightly different from the clients we already have at ABN AMRO. So it is a great way for us to keep growing and strengthen our position in our domestic market. To your question of -- yes -- to full -- when we see the full benefit of the synergies we mentioned, we express it as 2029 just because as I said, we do expect the closing of the transaction to only happen in the second half of 2026. So we do expect a full benefit of the synergies to be there in 2029. But it does not all happen in the last year, of course. Ferdinand Vaandrager: Yes. And Benoit, maybe on your NII. Arguably you could say NII for this quarter is slightly lower, but I want to reiterate here that is mainly by our own decision. So it was a targeted wealth management campaign. And there, you see a very good NNA growth of almost EUR 4.3 billion. So now it's key that we start transferring that in valuable assets. Number two is an acceleration in the ABF wind down, specifically portfolio sale in the U.K., which is ahead of plan. And what Marguerite already said that is the implementation of what we call here [ARNA]. And that has clearly a positive impact on our position with the intermediaries. Also, if you look at our market share now up till 19%, so for Q4, we expect a modest improvement in the treasury results, as well as stable deposit margins. And if you look at the update on the sensitivity slide, what we discussed earlier, the inflection point of the replicating portfolio is already reached this quarter or, I should say, a start of Q4. So that brings the decline in the replicating yields to a standstill. But if you look at the sensitivity, the tailwinds will be very limited initially and will be more pronounced in the second half of next year. Operator: The next question comes from Benjamin Goy from Deutsche Bank. Benjamin Goy: Two questions, please. So first, on NIBC, again, which over the last 6, 7 years, has built up a significant off-balance sheet mortgage book. Just wondering your thoughts on that part of the business because you very much rely on balance sheet growth? And then secondly, you also call it a low execution risk. I'm just wondering, when you look at capital return going forward, do you basically take your current capital ratio minus 70%? Or would you include a buffer given the uncertainties and execution risk? Marguerite Bérard-Andrieu: Thank you very much. So on the -- on your question of the originate-to-manage portfolio that NIBC has and that represents roughly half its portfolio. We see, it as actually an interesting and value-added opportunity for ABN AMRO because it's not something we were doing already, and we see opportunities with that. So we welcome that addition in our business model. And I confirm that we've been thoroughly assessing the CET1 impact of these transactions that amounts to 70 basis points. And this takes into account a very prudent approach to the transaction, including all form of day 1 provisioning and so on that may be needed. So I would say, so it's a fully loaded 70 basis points. Operator: The next question comes from Chris Hallam from Goldman Sachs International. Chris Hallam: Just a couple of follow-ups. So first, just on funding synergies. Ferdi, I think you said those have been negligible, i.e. not particularly incremental to the 18%, but I'm just wondering how that works given their funding mix, which is much less skewed to deposit funding than your own and their own deposit funding cost, which is higher than yours. So just is this a reason why either you wouldn't fully change the funding mix or why you would expect to see a very high level of deposit attrition? And then second, I acknowledge we've got the CMD coming up very soon. But just looking specifically into 2026, as you're going through the year-end budgeting process, what are the key items you're focused on for the cost side of the business? Are there any specific items or challenges for ABN AMRO that we should consider for 2026 in particular? Both for ABN I guess, on the one side, but also for the industry more broadly? Marguerite Bérard-Andrieu: Ferdi, I will let you take this. Ferdinand Vaandrager: Yes, Chris, I'll start with the first one. So absolutely, there is a potential. But again, the argument here that we try to be prudent and specifically look at cost synergies. Of course, there can be some revenue synergies, but also the funding synergies here. It's too early to start communicating on the potential here, and some of the funding synergies, arguably will be further out also beyond the indicated 2029. But for sure, this provides potential on top of the indicated cost synergies. Marguerite Bérard-Andrieu: And on your question. Well, '26 happens to be the first year of our strategic plans. So I promise we will share everything on '26 as well as for the following years at our CMD in 2 weeks. This being said, I believe in discipline and I believe in saying what we do and doing what we say. We've been very clear from the beginning that rightsizing our cost base, steering on capital and pursuing profitable growth are all 3 like motives. And so 2026 will look like that. Operator: The next question comes from Farquhar Murray from Autonomous. Farquhar Murray: Just 2 questions, if I may. Firstly, more broadly on M&A. You now have kind of 2 integrations with HAL and NIBC. Do you think there's sufficient management room kind of bandwidth for another deal in the near term? And then maybe coming back a little bit to HAL actually, as an integration given it's come on board post closing. I just wondered if you could give us an update on how that business is performing as compared to the original expectations of that acquisition. In particular, I'm thinking about the cost synergy target of EUR 60 million there? Marguerite Bérard-Andrieu: Thank you very much. So I'll take your first question on bandwidth, and I will let Ferdi comment on the HAL integration. I think that was your second question. So do we have the bandwidth? Yes, we do. We are moving at pace. We have a very strong management team. I'm very happy with our Executive Board. And basically, Choy, who is in charge of Wealth is very much involved in the integration of HAL and making it a success. We have colleagues that have been very much involved in the due diligence regarding NIBC, and who will be, in due time, fully ready also to be there for the integration. So we're very confident that we have all it takes to make this integration a success. With M&A, you don't necessarily plan in advance, but we will know how to be opportunistic, if needs be, as I said, always with discipline and only if it's shareholder accretive. Ferdinand Vaandrager: Yes. Maybe just on Hauck Aufhäuser Lampe, as indicated earlier, cost synergies, year 3, EUR 60 million. Also, if we look at the first quarter after consolidation, we're confident that we're going to reach that. So no unexpected surprises in here. We've also said that we need around one-off cost of around EUR 90 million, 1/3 integration cost and 2/3 restructuring cost. We booked so far this year around EUR 8 million in integration costs. The integration is fully on track. So the legal merger between HAL AG and ABN AMRO is to be completed by the end of 2026, and that will really simplify the further integration. So the bottom line is here over results, of the results what we see now is in line with expectations, and we're very confident we're going to reach the EUR 60 million run rate synergies in year 3, which is 2028. Operator: The next question comes from Delphine Lee from JPMorgan. Delphine Lee: My first question is just going back to NIBC and just your thoughts about M&A in general. I mean just wanted to understand kind of what areas of priorities you would have? Would it -- I mean, because is the intention in the long run to continue to strengthen the position in the Netherlands? Or would it mean more to kind of diversify a little bit away from your mortgage book through private banking or corporate banking? Just trying to understand a little bit kind of where your focus is M&A-wise? And my second question is just in terms of excess capital and the usage, and how you allocate capital more generally speaking, is the intention over the long run to sort of manage it to kind of increase the payout? Do you still think there is room with the transaction further down the line? Just trying to think about how you manage your capital with buybacks and what we should expect? Marguerite Bérard-Andrieu: Thank you very much. You are anticipating on what we are going to share in 2 weeks. I will only reiterate that, we only consider M&A when it is disciplined, when it is shareholder-accretive. We think that adding scale in our home market is a smart, strategic move, and back to how acquisition that the bank recently completed and Ferdi was commenting on. This is also a strong strategic fit for us as we grow in wealth in Northwestern Europe, which is part of our strategy. But we will describe all of this at our CMD. In terms of our capital position and our capital usage. Again, this will be the topic of CMD in 2 weeks. But basically, in a nutshell, we will continue to optimize our RWA both in data and from steering more to come on that. The outcome of our capital assessment will be communicated with our Q4 results, including potential capital distributions. But we have a strong balance sheet and a strong capital position. And I think, yes, the rest will come. Bear with us for 2 more weeks. Operator: The next question comes from Juan Pablo Lopez Cobo from Santander. Juan Lopez Cobo: First one is regarding NIBC. Probably I missed some of the KPIs, but you mentioned that the deal is highly accretive. Regarding EPS accretion, if we assume, let's say, EUR 100 million net income coming from NIBC and the EUR 100 million synergies lower post tax. Is it fair to assume an EPS accretion of around 7% to 8%. Does it sound reasonable for you? That's my first question. My second question is regarding the deposits campaign. If you could share some color on this deposit campaign? Volume can we assume around EUR 3 billion, cost probably around 2% or slightly above 2%. And maybe duration, if I got you right, I don't know if we can assume the NII impact in this Q coming from the deposit campaign could be something around EUR 15 million, EUR 20 million. So it will be interesting to know to listen the duration and what percentage of these deposits you think will stay in the bank? Marguerite Bérard-Andrieu: Thank you. Thank you very much. I will let Ferdi answer both your questions. Maybe just a clarification because I'm not sure that we fully agreed on the figure. But when we mentioned cost synergies, it's EUR 100 million post tax. So basically, pretax, it's higher, just to clarify that point. Ferdi, I'll let you go into the EPS accretion. Ferdinand Vaandrager: No. I think if you look at the underlying, how you come to your calculation, fully synergized a profit of around EUR 200 million, indeed, you would come in 2029 to around 7% EPS accretion. And then again, if you look at the overall deposits, yes, we assume some outflow, but we expect it to be limited from the overall deposit campaign. And the most important part of the targeted deposit campaign is increased our net new assets. It had an impact on our on overall margins, but now it should really translate into valuable assets. So that is a transfer into either discretely portfolio management either in advisory or private markets. Marguerite Bérard-Andrieu: But usually, what we observe is that it takes usually 6 months for bankers to actually transform into more valuable assets. Operator: [Operator Instructions] The next question comes from Anke Reingen from RBC. Anke Reingen: It's just 2 number questions, please. Firstly, on the other income, that was quite big this quarter. And I just wonder, is it sort of like a run rate? I mean, a number of banks talked about NII and other income of their value result, like mix effect. Should we see that the Q3 other income could be a run rate going forward? And then on the deposit costs, is there sort of like a change in trend where in the past, we were talking about cuts and savings rates. We're now talking about some selective campaigns on higher deposits with a benefit to volume? Would you say the trend has changed here? Marguerite Bérard-Andrieu: Thanks. Ferdi, on these 2 questions. Ferdinand Vaandrager: No, let me start on other income. It was low this quarter at EUR 28 million. So also quarterly-on-quarter significantly down. And we explained that the main impact here is number one, equity participation. You're always dependent when the revaluation is done. And in Q2, we had a successful exit of the portfolio. ALM results is always volatile. And in this quarter, it always depends on your economic hedges and hedging effectiveness. But the main driver this quarter was lower fair value revaluations on the IFRS 17 and it was specifically related to one-off correction of past bookings in the March fiscal, and that impact was roughly EUR 30 million. So if you look for the coming years, other income is volatile by nature. It also includes XVAs, ALM results and private equity revaluations. But overall, excluding incidentals in the past years, it was around EUR 450 million. And if you would also exclude volatile items around the EUR 400 million. Then if you look at changes on pricing. No, the deposit campaign was very targeted at Wealth Management. So we really target the specific client group. And as said earlier already, we are willing to do that at very low margins because there, we see the opportunity to transfer that in valuable assets. So it's absolutely not a change broader how you should look at our prices. Operator: The next question comes from Jason Kalamboussis from ING. Jason Kalamboussis: I'm coming back to what Tarik mentioned. While the deal is good value for money strategically and from a higher level, it looks like it distracts to what I thought was a clearer focus on wealth management. So if you have any additional thoughts, welcome there. So moving on to wealth. Could you please provide the split year-to-date of the inflows in custody and the rest? And is it something that we could see provided on a quarterly basis? The second thing is on HAL. What are the -- how does the AUMs that you brought in split again into -- can you split out the custody and cash elements, if possible? And my third question is, is the reasonable assumption to -- when I'm looking at your AUM to assume that most of the custody and cash assets above 75% are in the Netherlands, that will be very useful. Marguerite Bérard-Andrieu: Thank you very much. I'll take your first question, and we'll let Ferdi answer the 2 others. In terms of strategy, we believe that it is a perfect strategic fit to actually keep growing and at scale in our home markets. We have the platform for that. We already have 5 million clients in the Netherlands, NIBC adds, roughly 500,000 new retail clients. We do believe in scale and in using our platform, both in mortgages and savings in the Netherlands. This being said, we also do believe that wealth management is an extremely good business of ABN AMRO. I mean we have a strong #1 position in the Netherlands with the market shares of the 35%. We have now a strong #3 position in Germany. We also are present in France and to lesser extent in Belgium. So we will share our strategy for 3 businesses at our CMD. But indeed, we do like very much the wealth management business. Ferdi on the 2 other questions? Ferdinand Vaandrager: Yes, Jason, number one is the split between custody. Overall, you should see that there's the difference between core net new assets and total net new assets of core net new assets. So overall, core and net new assets we had a very strong quarter. As discussed earlier, mainly reflecting the cash inflow from targeted offerings and indeed, the majority of this was wealth management in the Netherlands. Total NNA plus EUR 4.3 billion. So the custody is included in here for this quarter was plus EUR 1 billion more or less. If you look at the total custody within Wealth Management of course that was also a question, I think that is around the EUR 50 billion today. Then I also think, but I didn't hear you that well this, client asset inclusion of Hauck Aufhäuser Lampe. So in total, this was around EUR 26 billion and the split there was around EUR 23 billion in securities and EUR 4 billion in cash. The majority of that inclusion is in securities. Jason Kalamboussis: That's very useful. Just a quick follow-up. I mean, on the NIBC deal, what I'm a bit surprised is that the fee element is quite small. So you have less than 10% that's coming in fees. So that was a bit the sense of my question that, yes, I understand the scale. And also it's a good deal financially. But on the other hand, I would have thought that your focus would have been towards increasing the fee side within your income, whereas this goes a bit the other way. But again, If you have any comments, that would be great. Marguerite Bérard-Andrieu: I understand your question. As I said, it adds scale, which is, I think, a very positive strategic move, and it's also financially very accretive. So we saw it as 2 very good reasons to pursue this acquisition. Ferdinand Vaandrager: Yes, maybe to add there, it's also had the addition of the savings account to the BUX platform, that might provide at least investment propositions there where we are absolutely focusing on transferring NII into fees. Operator: There are no more questions at this time. I will now hand the word back to the speakers for any closing remarks. Marguerite Bérard-Andrieu: Well, I thank you very much all for your questions this morning, and we look forward to welcoming you at our Capital Markets Day on November 25. And for the time on, goodbye. And thanks again. Have a great day.
Operator: Ladies and gentlemen, welcome to Luckin Coffee's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Now I'd like to turn the call over to Ms. Nancy Song, Head of Investor Relations for Luckin Coffee. Nancy, please go ahead. Nancy Song: Thank you, and hello, everyone. Welcome to Luckin Coffee's Third Quarter 2025 Earnings Conference Call. We announced our financial results earlier today before the U.S. market opened. The earnings release is now available on our IR website and via Newswire services. Today, you will hear from Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee, who will share a strategic overview of our business. Following that, Ms. An Jing, our CFO, will discuss our financial results in greater detail. Afterwards, we will open up the call for questions. During today's call, we will be making some forward-looking statements regarding future events and expectations. Any statements that are not historical facts including, but not limited to statements about our beliefs and expectations are forward-looking statements. These statements involve inherent risks and uncertainties. Further information regarding these and other risks is included in our filings with the SEC. In addition, for non-GAAP measures discussed today, the reconciliation information related to those measures can be found in our earnings press release. During today's call, Dr. Guo will speak in Chinese, and his comments will be translated into English. Now I'd like to turn the call over to Dr. Guo Jinyi, Co-Founder and CEO of Luckin Coffee. Dr. Guo, please go ahead. Jinyi Guo: [Interpreted] Hello, everyone. Welcome to today's earnings conference call. Thank you for your continuous interest in and support of Luckin Coffee. In the third quarter, our scale-driven strategy continued to yield strong results as we capitalized on the rapid expansion of China's freshly-brewed beverage market. Our revenue continued its solid momentum increasing by 50% year-over-year to around RMB 15.3 billion, while same-store sales growth in our self-operated stores further improved to 14.4%. During the quarter, as food delivery platforms intensified their subsidy campaigns, we saw the shift in volume share toward delivery continued at the current stage. Despite this temporary challenge, we maintained healthy profitability, achieving an operating profit of around RMB 1.8 billion. More importantly, in response to the rising demand in China coffee market, we accelerated our network expansion to strengthen store coverage and proactively secure whitespace locations for future growth. As of the third quarter end, our total store count surpassed 29,000, enabling us to effectively meet robust consumer demand. Our scale advantage drove record high new customer acquisition of 42 million, supporting a milestone achievement of over 100 million average monthly transaction customers. This scaled growth across both store front and the customer base have expanded Luckin's competitive edge and market share, placing us on a stronger footing for long-term sustainable growth. I will now share an update on our operations, and our CFO, An Jing, will present the financials later. This quarter, powered by Luckin's strong digital capabilities, we continue to enhance our core strengths across people, products and places, scaling our business at a faster pace and strengthening our market leadership. On the store front, we maintained industry-leading store growth, continuing to strengthen our presence across high-quality locations in high-tier cities while penetrating lower-tier markets. As a result, our store network continued to expand rapidly. By the end of the third quarter, Luckin's total store count reached 29,214, maintaining leadership in China's coffee market with growing customer reach and enhanced fulfillment capability. Domestically, we achieved 2,979 net openings, bringing our total store count in China to 29,096, including 18,809 self-operated stores and 10,287 partnership stores, which has now surpassed the 10,000 stores milestone as well. As coffee drinking habits continue to take hold and the consumer demand grow strongly, China's coffee market still offers much room for growth. Leveraging Luckin's strong brand influence and data-driven site selection capabilities, we can systematically and swiftly identify customer demand, enabling us to open high-quality stores efficiently and in convenient locations that closely align with customer demand. In the foreseeable future, we will maintain a competitive pace of expansion to fully capture the structural opportunities in China's coffee market. Internationally, we had 29 net openings this quarter, bringing our total overseas store count to 118, including 68 self-operated stores in Singapore, 5 self-operated stores in the U.S. and 45 franchise stores in Malaysia. As our first overseas market, Singapore has been steadily improving its performance and initially built a mature and efficient localized operating infrastructure. This has demonstrated the early signs that our digital business model is adaptable and replicable across diverse markets and set an impactful benchmark for our future expansion across the Asia Pacific region. Meanwhile, our U.S. business remains in the early stages of exploration with performance across various areas broadly in line with our expectations and overall consumer feedback being positive. We will continue to take a disciplined and steady approach, accumulating local market impact and enhancing our localized operational capabilities to lay the foundation for longer -- long-term sustainable growth. On the product front, we launched nearly 30 new freshly-brewed beverages and several snack items in the third quarter, continuously driving coffee innovation and shaping market trends. We also diversified our summer lineup with a wider selection of non-coffee options to enrich customer experience. In September, we partnered with our long-time brand ambassador, Tang Wei, to launch the Luckin drink from origin campaign, promoting a healthy lifestyle through high-quality locally-sourced ingredients and reinforcing our brand concept from the origin to you. For example, we launched Guanxi Honey Pomelo Latte, featuring famous Guanxi Honey Pomelo from Fujian province. We also selected Aksu apples from Xinjiang to upgrade our popular Apple C Americano and to launch our new Aksu Apple Latte. These products expanded our flavored coffee portfolio and received encouraging customer feedback. In addition, our Little Butter series surpassed 200 million cumulative cups sold in its first year on the market, underscoring our strong product innovation capabilities and ability to set category trends, which continues to strengthen Luckin's brand leadership. On the non-coffee side, leveraging our fresh coconut sourcing advantage. We introduced the popular Mango Pomelo Sago which sold over 12 million cups during the National Day Holiday, once again demonstrating our broad customer base and a strong market appeal. On the customer side, we remain aligned with diversified and use-driven consumption trends, capturing market buzz and evolving customer preferences through engaging an emotionally relevant market campaign. With these initiatives, we achieved impressive results in customer acquisition, engagement and purchase frequency during the quarter. For example, we partnered with a wide range of popular IPs such as hit movies, blockbuster games and classic animated series, effectively reaching a broader audience, strengthening brand influence and stimulating customer demand. Building on these efforts, we added over 42 million new transacting customers in the third quarter and achieved an average of over 110 million monthly transacting customers, both record highs. By quarter end, our cumulative transacting customer base surpassed 420 million, further strengthening our ability to cultivate a high-frequency loyal customer cohort, a key driver of our long-term high-quality growth. In addition, we remain committed to our sustainability strategy being a force for a brighter future and continue to fulfill our corporate social responsibility through charitable initiatives that support communities across our upstream supply chain. To mark Luckin Coffee's 8th anniversary, we partnered with the China Red Cross Foundation, Hao Fund, to launch the philanthropy campus health initiative, building multiple philanthropy heath centers in schools across Yunnan and Xinjiang. This program enhances campus health care infrastructure in coffee regions and other key sourcing regions, helping safeguard the healthy development of local youth. Moreover, as part of our ongoing focus on children's health in key origin region. We have sponsored the Angel Journey project for two consecutive years, funding screening and treatment for local children with congenital heart disease. Moving forward, we will continue to deepen our engagement in origin communities, giving back to society through charitable efforts to build a brighter future together. This year, built by food delivery platform subsidy campaigns, China's coffee industry has seen accelerated growth with consumer demand demonstrating strong elasticity. These trends further validate the enormous potential of China's coffee market. Amid this complex environment, we have remained focused on our established growth strategy, adjusting our operations dynamically to seize emerging opportunities. As a result, we achieved faster business growth and the market share gains in the third quarter, effectively meeting our strategic goals. At the same time, as temperature have dropped and the freshly-brewed beverage industry has entered its seasonal slowdown, we have observed food delivery platforms rapidly scaling back their subsidies, which are expected to become more targeted and refined going forward. In addition, international green coffee bean prices have remained elevated this year with no signs of moderation at the moment. These factors will introduce new dynamics and create headwinds for the industry and pose challenges to our fourth quarter or even next year's business development. In this evolving landscape, we will focus more on our long-term growth trajectory. We believe our continued strategic focus and enhanced operational excellence will enable us to weather short-term fluctuation and navigate various external environment. We will continue to strengthen our product and brand innovation, offering high-quality, affordable and convenient products that better meet diverse customer needs and support store performance. We will also leverage Luckin's robust digital capabilities and deep customer insights to enhance retention and repeat purchases, fully unlocking long-term consumption potential. Finally, we would like to extend our sincere gratitude to our customers, partners and investors for their continued trust and support of Luckin as well as to our 170,000 Luckin team members who stand with us through their dedication and hard work. Together, we will continue building a world-class coffee brand and making Luckin a part of everyone's daily life. As we move forward, we remain committed to long-term value creation for our customers, partners and shareholders. With that, I will now turn the call over to An Jing to go through our financial results in detail. Jing An: Thank you, Jinyi. Good day, everyone. Thank you for joining today's call. We delivered another strong quarter, underscoring our sustained momentum and competitive strength. With a continued focus on scale and operational excellence, we achieved record high in both customer acquisition and monthly transacting customers. This achievement further strengthened the foundation for our future store performance and long-term growth. Let's now look at our financial performance in detail. In the third quarter, total net revenues increased by 50% year-over-year to RMB 15.3 billion, primarily driven by a 48% year-over-year increase in GMV to RMB 17.3 billion. This accelerated growth reflected a strong performance across both self-operated and partnership stores, supported by our record monthly transacting customer count and the expanded store network to better market -- to better meet rising demand. Revenues in self-operated stores increased by 47% year-over-year to RMB 11.5 billion, mainly driven by stronger sales performance in our self-operated stores. Breaking down our product sales into three streams. Net revenues from freshly brewed drinks were RMB 10.6 billion, representing about 70% of the total net revenues. Net revenues from other products were RMB 622 million or roughly 4% of total net revenues. Net revenues from others were RMB 233 million or about 1% of total net revenues. Looking at product sales from the perspective of company-owned stores, revenue from self-operated stores increased by 48% year-over-year to RMB 11.1 billion. Same-store sales growth reached 14.4% for this quarter, driven by increased cost of sales and ASP, reflecting the shift in volume mix towards delivery. Store level operating profit grew 10% year-over-year to RMB 1.9 billion with self-operated store level operating margin of 17.5%. Revenues from partnership stores increased by 62% year-over-year to RMB 3.8 billion, accounting for 25% of total net revenues. This impressive growth was primarily driven by higher material sales, profit sharing from strong partnership store performance and increased delivery service fees resulting from a greater delivery volumes. Cost of materials as a percentage of total net revenues decreased to 36% from 39% in the same period of 2024, mainly due to our enhanced discipline supply chain advantages. In absolute terms, cost of materials increased by 41% year-over-year to RMB 5.5 billion, in line with our business expansion. Store rental and other operating costs as a percentage of the total net revenues decreased to 20% from 22% in the same period of 2024, mainly driven by improved operational efficiency and scale benefit from increased cup sales. In absolute terms, this cost increased by 36% year-over-year to RMB 3.1 billion, reflecting higher payroll costs tied to cup sales growth and increased rental costs from ongoing stock expansion. Delivery expenses increased by 211% year-over-year to RMB 2.9 billion due to a significant increase in delivery orders from food delivery platforms. As a result, delivery expenses as a percentage to total net revenues sharply rose to 19% from 9% in the same period of 2024. However, on an order basis, delivery expenses decreased year-over-year, reflecting improved efficiency at scale. Sales and marketing expenses as a percentage of the total net revenue decreased to 5% from 6% in the same period of 2024, mainly driven by enhanced operating efficiency and the leverage from accelerated revenue growth. In absolute terms, sales and marketing expenses increased by 28% year-over-year to RMB 751 million, mainly due to higher commission fees paid to food delivery platforms as a result of rising delivery volumes. General and administrative expenses as a percentage of total net revenue decreased to 5% from 6% in the same period of 2024, mainly driven by enhanced operating efficiency and leverage from accelerated revenue growth. In absolute terms, G&A expenses increased by 25% year-over-year to RMB 793 million, primarily due to increase in payroll expenses and share-based compensation, as well as greater investments in research and development. As a result, our GAAP operating profit increased by 13% year-over-year to RMB 1.8 billion. Operating margin was 11.6% compared to 15.5% in the prior year period, mainly impacted by a significant increase in delivery expenses. On s Non-GAAP basis, operating profit increased by 15% year-over-year to RMB 1.9 billion, with operating margin at 12.6%. Net profit was at RMB 1.28 billion with a net margin of 8.4% compared to RMB 1.31 billion and 12.9% in the prior year period, mainly due to a higher effective tax rate. On a non-GAAP basis, net profit was RMB 1.4 billion with a net margin at 9.3%. Finally, turning to our balance sheet and cash flow items. Our net operating cash inflow was around RMB 2.1 billion in the third quarter of 2025. As of September 30, 2025, we had RMB 9.3 billion in cash, including cash and cash equivalents, restricted cash, term deposits and short-term investments, compared to RMB 5.9 billion as of December 31, 2024. Our robust cash generation ability and a strong cash reserve enable us to flexibly adapt our business expansion pace to different market conditions letting us fully capitalize on emerging opportunities. In close, our solid third quarter results reaffirm our market leadership and the business resilience. We are particularly engaged by -- encouraged by the potential of our growing customer base, especially as we continue to expand loyal cohorts. This gives us greater confidence in capturing the vast opportunities in China's coffee market despite evolving external dynamics, while maintaining disciplined cost management and operational efficiency. With that, we will open the call for questions. Operator, please go ahead. Operator: [Operator Instructions] The first question comes from Ethan Wang with CLSA. Yushen Wang: [Foreign Language] So in terms of the delivery subsidy, we understand that it definitely helps our revenue to grow very strongly in this quarter and the last quarter as well, but it also has an impact -- a negative impact on our margin. I think CEO mentioned that going to fourth quarter the subsidy -- the external subsidy has faded a bit, but I'm just wondering, is it because of seasonal effect or there are some structural changes behind and going to next year, should we worry about the high base effect? Jinyi Guo: [Interpreted] Ethan, I will answer your question. So regarding the potential impact of the subsidy situation, we think it's important to see this issue through the nature of our coffee business. And also, we need to evaluate within the context of the broader industry trends as well as our own operational capabilities. So first, coffee is inherently a location-based and store-driven consumer products. So this means pickup will remain the primary consumption format over the long term, but delivery will serve us more as a supplemental channel at certain stages of -- as the market evolves. So there are two reasons for this. One is delivery fulfillment costs are disproportionately high compared to China's mainstream price range of fresh-brewed coffee. So delivery is highly sensitive to per cup pricing and its unit economics are less favorable. So the second is longer delivery times can compromise the immediacy and the coffee taste experience that consumers expect, so which makes it a less ideal consumption model. And our Luckin's pickup-oriented store format actually allows us to densely open stores across nearly all of the consumption scenarios. It makes us -- keep us as close to customers as possible. So this is actually the core advantage of Luckin and underpins our long-term growth. So we believe the coffee business will naturally return to a pickup-oriented model over time. Although this transition period will take a longer time to happen. Yes. So this year's large-scale subsidies have driven a significant surge in the overall order volumes on food delivery platforms. So next year, these platforms are expected to adopt a more refined and online-driven operational strategies and the promotion intensity likely to taper gradually as well. So under such an ROI-driven approach, platforms will likely prioritize partnerships with brands who demonstrate high order density, strong fulfillment efficiency and effective subsidy conversion. So with our extensive store network, efficient operations at the storefront, and our reliable fulfillment in structure, I believe Luckin remains a preferred partner for food delivery platforms. So at the same time, we also see that food delivery platforms, they offered substantial subsidies in the early stages of their campaigns which objectively fueled a sharp increase in our order volumes and the customer base, creating a relatively high comparison base. As platforms, they have already scaled back their subsidies and will shift towards a more refined approach next year. The industry's overall growth trajectory will differ from this year and our same-store sales growth next year will also face challenges and pressure. And as I mentioned earlier, in this evolving landscape, we believe that the only focusing on long-term development is the key to navigating external changes. This means we continuously strengthen our product and the brand competitiveness, unlock customers' consumption potential, which we see this as a core key driver of our long-term sustainable growth. Thank you, this is my answer to the question. Operator: Our next question comes from Sijie Lin of CICC. Sijie Lin: [Foreign Language] My question is about long-term development strategy. We have constantly faced and may continue to face external environmental changes, such as competitive landscape and delivery platform subsidies. So how will we balance different targets, including scale, same-store sales growth and profit? Jinyi Guo: [Interpreted] Thank you for your question. This is a very good question and it's always on top of our mind. We need to take a much longer-term perspective when evaluating the relationship among scale, same-store growth and our profitability. So considering the current stage of China's coffee industry and Luckin's own development trajectory. So China's coffee market is still in its early stages of development, and remains in a high-growth phase with vast market opportunities and the potential. So for us, it's very crucial to capture this historic opportunity and maximize the long-term benefits from these structural trends. So in particular, this year's -- the food delivery platform subsidies have further accelerated industry consolidation as well as increased market concentration. So as these subsidies gradually phase out, this trend is expected to continue as well. And against this backdrop, our strategic focus will remain on growth and market share. And we continue to -- we will continue to steadily expand our store footprint, building a high-quality and efficient store network to meet growing customer demand and pave the way for our long-term growth. So regarding the same-store growth, we'd like to emphasize that since the financial issue in 2020, maintaining a high store quality has always been the top priority in our expansion. So on one hand, new stores can leverage our mature operational framework to quickly ramp up and improve their performance. And on the other hand, we continue to improve customer loyalty and repeat purchases through continuous product innovation and brand innovation, driving steady and sustainable store performance. And as I mentioned earlier, taking into account the factors above, our same-store sales growth metric in the fourth quarter and even next year will face some short-term fluctuations and pressure. However, from a long-term perspective, more convenient store fulfillment and improved customer reach play a very positive and important role in fostering coffee drinking habits as well as naturally increasing consumption frequency among customers. So this, in turn, can provide market momentum for our continued improvement of our store performance over time. So regarding margins, in the short term, the notable higher mix of our delivery orders has put some pressure on our margins fully reflected in the decline of our third quarter operating margin compared to the previous quarter and the positive impact of our improved operational efficiency was actually completed -- completely offset by the significantly higher delivery expenses as a percentage of total revenues quarter-over-quarter. But we view this as a temporary and expected impact, reflecting both the current stage of industry development and our strategic execution process. And at the same time, as I mentioned earlier, international green coffee bean prices have remained elevated with no signs of moderation, which could also pose some challenges to our coffee bean cost next year, which can also affect margins. And in this environment, we will continue to optimize cost structures through refined operations, leveraging our digital capabilities to further enhance operational efficiency and strengthen our supply chain management. And as we scale, we will strive to maintain a healthy and sustainable profit profile. So based on above, in conclusion, business growth and market share expansion remains our strategic priorities at this stage. We will continue to ensure our store quality while driving product and brand innovation amid our robust expansion. And during this period of rapid growth, even if same-store performance showed some fluctuations, the overall trajectory remains within our expectations. And at the same time, we will strive to maintain healthy and sustainable profit levels and remain confident in our long-term profitability potential. Thank you. Operator: Our next question comes from Huayi Li with [indiscernible] Securities. Unknown Analyst: [Foreign Language] I'd like to ask about the company's capital market strategy. At Xiamen Entrepreneurs Day entrepreneurs conference a few days ago, Dr. Guo mentioned the company's intention to pursue a relisting on a major U.S. exchange. Could management please share an update on the current status of this initiative? Jinyi Guo: [Interpreted] Thank you for your questions. Luckin is headquartered in Xiamen, where we received holistic and tremendous support since our inception, especially after the financial issue in 2020, with Xiamen's continued support and the guidance, Luckin has consistently delivered a strong performance and achieved a successful turnaround. So regarding this question, as we mentioned before, we remain committed to the U.S. capital market, though we currently have no specific time line or schedule for us listing on the mainboard. Our top priority at current stage remains focusing on our strategy execution and business development. So offering our customers exceptional products and services, we aim to fully capture the long-term growth opportunities in China's coffee market and expand our market share, creating sustainable long-term value for our shareholders. Thank you. Operator: Due to time constraints, no further questions will be taken at this time. This concludes the question-and-answer session. I'd like to turn the call back to the management team for any closing remarks. Nancy Song: Thank you, everyone, for joining our call today. If you have any further questions, please feel free to contact our IR team. This concludes today's call. We look forward to speaking with you again next quarter. Thank you. Jinyi Guo: Thank you. [Foreign Language] Jing An: Thank you. Operator: The conference has ended. You may disconnect your line. Thank you. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to SUNAtion Energy Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] I would now like to turn the conference over to Devin Sullivan, Managing Director of Equity Group. You may begin. Devin Sullivan: Thank you, Bella. Thank you, everyone, for joining us today for SUNAtion's 2025 Third Quarter Financial Results Conference Call. Our speakers for today are Scott Maskin, Chief Executive Officer; and James Brennan, Chief Financial Officer. Mr. Maskin will open with prepared remarks followed by a question-and-answer session. Before we get started, I'd like to remind everyone that prospects of SUNAtion Energy are subject to uncertainties and risks. Remarks on today's call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Act of 1934. The company intends that such forward-looking statements be subject to the safe harbor provisions provided by the foregoing sections. These forward-looking statements are based largely on the expectations or forecasts of future events can be affected by inaccurate assumptions and are subject to various business risks and known and unknown uncertainties, a number of which are beyond the control of management. Therefore, actual results could differ materially from the forward-looking statements contained during this call. The company cannot predict or determine after the fact what factors would cause actual results to differ materially from those indicated by the forward-looking statements or other statements. Participants should consider statements that include the words believes, expects, anticipates, intends, estimates, plans, projects, should or other expressions that are predictions of or indicate future events or trends to be uncertain and forward-looking. We caution investors not to place undue reliance upon any such forward-looking statements. The company does not undertake to publicly update or revise forward-looking statements, whether because of new information, future events or otherwise. Additional information respecting factors that could materially affect the company and its operations are contained in the company's filings with the SEC, including its Form 10-K and in subsequent filings, which can be found on the SEC's website at www.sec.gov. With that, I'd now like to turn the call over to Scott Maskin, CEO of SUNAtion Energy. Scott, please go ahead. Scott Maskin: Thank you, Devin, and good morning, everybody. Happy Monday. Thank you all for joining me today. This is a call that I've truly been looking forward to for quite some time. Since Jim and I took the helm of SUNAtion about 18 months ago, it felt at times like steering through unpredictable conditions, keeping steady, staying focused and making sure everyone on the team understood where we were headed and why. Now I won't tell you things have calmed down. They absolutely have not. As we look ahead to 2026, there's still a lot of movement in the industry and uncertainty. But the difference is that we're no longer reacting, we're leading. We've got structure, direction and a team that's completely aligned on the mission. And this quarter represents a turning point. For the first time in a long while, our results, our work reflect the impact of our hard work, the discipline and the cultural rebuilding that's taken place inside this organization. If I had to sum up Q3 in one phrase, it's this. We delivered it on our promises. Sales rose, costs came down, margins improved and profitability strengthened. Our capital structure is squeaky clean, and our balance sheet is the strongest it's been in years. That didn't happen by chance. It took tough calls, long hours and people who refused to give up, but it proves what happens when we stay focused and we execute. While many in our industry have struggled to find direction, SUNAtion has moved forward, stronger, leaner and ready for what's next. Those of us who've been in solar for a while know the ride never really smooths out. The One Big Beautiful Bill and the upcoming sunset of Section 25D have created new challenges and new opportunities, and our team is handled both with focus and professionalism. The rush to complete residential installations before the end of 2025 has been intense, and our teams in New York and Hawaii have been extraordinary and really stepped up to the plate. These are 2 of the most expensive energy markets in the country, and our people have helped homeowners take control of both their power and their costs. Residential sales in those markets were up 54% year-over-year in Q3. I want to say that again. Residential sales in those markets were up 54% year-over-year in Q3. And we expect that momentum to continue right through the year-end. At the same time, we're not focused on this surge. We're preparing for what comes after. We've been developing new financing options and lease-to-own programs that will carry us not just in 2026, but far beyond, tried and true approaches that have been part of SUNAtion's success story for more than 2 decades. On the commercial side, we're continuing to see steady demand from institutions and municipalities across Long Island and downstate New York. High energy costs and the longer runway for federal tax credits have supported a solid project pipeline, and we're executing efficiently. Our advantage continues to be our diversification in our people, our markets and our services. And it's what gives us balance and stability moving forward. We stand unique by offering residential solar and storage, commercial solar, roofing and our ever-growing expanding service division. We intend to expand into the energy-efficient HVAC market and stand-alone roofing, while we've doubled down on our service and O&M side, helping both our long-term customers and those left without support when their original installers disappeared. We're also evaluating strategic M&A opportunities that make sense, ones that bring scale, efficiency or exposure to fast-growing sectors like AI, crypto and data centers. These are reshaping how power is used, and we're positioning SUNAtion to play a meaningful role in the future. Through all of this, one thing hasn't changed. We stay calm, focused and deliberate. Running a business much like happening a ship isn't about avoiding rough conditions. It's about knowing your course, trusting you crew and making steady progress no matter what's ahead. Every day, I'm driven by 3 things: our team who show up with great purpose, our customers who trust us to deliver on the promise of solar and of course, our shareholders whose patients and confidence were determined to reward. SUNAtion is stronger than it's been in a long time. We understand the challenges ahead, but we also see tremendous opportunity in front of us. We've built a company that can adapt, grow and lead through whatever comes next. And I'll close with this. God willing, the market will begin to acknowledge and reward our efforts, our resilience and the results that this incredible team has delivered for you in Q3. Thank you all for your time and trust and your continued confidence in SUNAtion. With that, I'll turn it over to our COO, CFO and my steady co-captain, Jim Brennan, who will take us through the numbers. Jim? James Brennan: Thank you, Scott, and good morning, everyone. I appreciate you joining us today and especially those on the West Coast that are joining us at 6:00 a.m. We are joined today by Kristin Hlavka, SUNAtion's Chief Accounting Officer and Corporate Treasurer; as well as Mitch Sommer, SUNAtion's Corporate Controller. We filed our 10-Q on November 7 and issued our earnings release on Monday, November 10. As we reflect on our performance for the third quarter, I am pleased to report that the actions that we have taken have delivered significant improvements throughout the business as we promised. We ended the third quarter in the strongest financial position in recent history through in-depth planning, disciplined execution and sharp focus on operational efficiencies by the regional leadership teams in both New York and Hawaii. We strengthened our balance sheet, expanded our margins and improved profitability. These much improved results our direct outcome of the hard work of the entire team and the commitment to deliver value to our shareholders in the midst of a rapidly evolving market environment. We are on track to report strong results in the current fourth quarter and have reiterated our 2025 full year financial guidance for higher total sales and a return to positive adjusted EBITDA as compared to full year 2024. On to the review of our Q3 2025 results. Total Q3 sales rose by 29% to $19 million from $14.7 million last year. Sales at SUNAtion in New York and Hawaii rose by 22% and 47%, respectively, with residential sales rising 54% and service sales increasing by 72%. This was driven by an accelerated pace of system installations prior to the expiration of the federal tax credits on December 31, 2025. Although commercial sales declined by $1.7 million, we expect continued stability in this sector as businesses and institutions such as churches and schools continue to take advantage of the longer runway that the One Big Beautiful Bill has offered. Inherently, the commercial sector is more complex and nuanced than residential. So these projects tend to take more time to develop and install. On a consolidated basis, overall kilowatts installed on residential projects increased by 52% in the third quarter of 2025. Revenue per installation increased by 25%. Consolidated gross margins improved to $7.2 million or 38% of sales from gross margin of $5.2 million or 35.6% of sales driven by higher residential margins. SUNAtion New York's gross margin improved to 40.7% from 37.9%, while Hawaii's gross margin increased to 32.1% from 29.5%. We continue to effectively manage costs throughout our organization, while total operating expenses rose $7.5 million from $6.8 million as a percentage of sales, the total operating expenses declined to 39.3% from 46.5%, and we expect the total operating expenses in 2025 to be lower than 2024. Interest expense in the third quarter of 2025 declined to $143,000 from a whopping $812,000 last year, reflecting the continuing benefits of paying off the expense of debt earlier this year. We continue to expect our annual interest expense to decline by approximately $2 million for 2025 as compared to 2024. We operated just below breakeven for the quarter with a net loss of approximately $393,000, which is a $2.9 million improvement from a net loss of $3.3 million in last year's third quarter. Taking all of this into account, Q3 adjusted EBITDA improved to a positive $898,000 from an adjusted EBITDA loss of $1 million in last year's third quarter. With respect to the balance sheet, cash and cash equivalents rose to $5.4 million on September 30, which is our largest or highest cash level since 2022. Our total debt decreased by over $11 million, falling to $7.9 million compared to $19.1 million at the end of 2024. This total debt included an earn-out consideration of $1 million. Other areas of improvement this year through September 30 include accounts payable improved $7.3 million from $8 million on December 31, 2024. Current liabilities improved to $19.0 million from $27.2 million on December 31, 2024. And lastly, shareholders' equity improved to $21.7 million from $8.5 million on December 31, 2024. Based on these Q3 results, solar projects pipeline and general business environment, we are reiterating our guidance for 2025 as follows: Total sales are expected to rise to between $65 million and $70 million, a projected increase of 14% or 23% from total sales of $56.9 million in 2024. Adjusted EBITDA is expected to improve to between $500,000 and $700,000 from an adjusted EBITDA loss in 2024. Before turning things back to Scott, I want to again thank the entire SUNAtion team, both in Hawaii and New York for their hard work and dedication. This process has not been easy. Over the past 6 months, our financial health has improved dramatically. Sales are up, costs are down, profits are higher and our financial position is strong. It's no secret that our industry is in a state of transition and that the challenges we all face are significant, but that's okay. We are embracing these challenges as an opportunity to redefine SUNAtion as a whole and the value we can deliver to our shareholders. The global demand for energy is accelerating, and SUNAtion has over 2 decades of experience in delivering clean, sustainable solar energy. As we look ahead to 2026, we will continue to address these opportunities from a renewed and we believe, sustainable position of financial strength. We are optimistic about our future and look forward to keeping you apprised of any news and progress. I want to thank you for your time, and we'll now turn things back to the most handsomest guy in solar, Scott Maskin. Scott Maskin: Thanks, Jim. We're taking calls now, guys. All right. Fire away. Operator: [Operator Instructions] Your first question comes from the line of Julien Dumoulin-Smith with Jefferies. Hannah Velásquez: Hannah Velásquez on for Julien. I had a quick question or rather, yes, just an update on 25D expiration. Curious to see what you all are seeing out there in the market in terms of any pull-forward effect? And then also any reactions to the advent or I suppose the introduction of this new concept prepaid lease plus loan bundle. I think you alluded to it on your call. But any additional detail you can provide there in terms of if it's viable as a replacement of 25D and if you would consider pursuing it? Scott Maskin: Sure. Thanks for the time today. So listen, 25D has certainly -- the sunset of that tax credit certainly has a meaningful impact especially in markets like New York and Hawaii with high cost of kilowatt hour. We've traditionally been loan markets. We have done some leasing. And there's been a lot of different tools that are out there. So what I would say is that we're driving to the end of the year, pull forward, yes, there's a ton of people that sat on the fence for a long time, they got off the fence. And they're just -- I mean, there's a lot of angry else out there that were on the fence for too long, and we just simply could not get them installed. I mean my teams in both states are running 6 days a week plus to get this work done. That being said, I believe that there are some significant advances in a lot of different financing tools other than just traditional leasing and loans. So I think a lot is going to evolve as more information comes out on FIAC. When I look at our markets, we could still make a d*** fine financial model for a loan and for owning it. So I don't think it's going to slow things. I think that we're in the in a trough right now of people that rush to move forward and then when they could and they're in pause mode. And then what's going to happen is we'll figure out ways to get them back on the fence through some of these other tools. I think they're all going to be viable. I think that people that are coming out with new and unique financing options are really making sure that their eyes are dotted and their Ts are crossed on the tax side of it. And that's been -- I'd say that's been slower than the anticipated process. Did that answer your question? Hannah Velásquez: Yes, that was perfect. And then maybe just as a follow-up there. So we're hearing with 25D expiring, you're having new entrants, I suppose, in the competitive market, maybe more so on the TPO side. But can you just double-click in terms of what you're seeing out there? Are you seeing new TPOs enter trying to take advantage of the shift towards the leasing market? I know Tesla also joined the space. And so just what are you seeing from a competitive perspective? Scott Maskin: When you mentioned the T word, never count Elon Musk out for anything. He's got the bag -- the sheet that he can upend this entire industry on a moment's notice. But I think that as somebody who's been involved for 20-some-odd years, I have seen so many players, financial players kind of circle and circle and they take advantage of opportunities when they're there and then some get smacked down and then they reinvent themselves and they come back. I mean this all boils down to capital and available capital and available tax equity, right? So my understanding in the market, raising capital in solar is difficult right now. It doesn't mean that it's nonexistent, but I think that there's going to be a little bit of a lull. People still want solar, but the players, they -- some of them rename themselves, some of them retreat and then come back. I mean, I'm mindful of how SunPower -- and I'll say that SunPower exited bankrupt and now they're coming back in as a player. So -- and acquiring companies and stuff. I look at some other companies that were in the LMI market that just couldn't get the capital and imploded, right? So it's just like a big -- it's kind of a big vortex, a big circle. But ultimately, everybody comes back to the top, the same players that are involved in the space are the same players that keep rising. They may rename themselves. And listen, we're going to go back. Again, all that needs to happen as the cost of energy continues to rise, it makes every decision even easier and more palatable. James Brennan: I would add to that, that some of the newer tools that are becoming available based on some of the financial wizards in this market, prepaid leases, synthetic cash, you name it, there's a lot of buzzwords circulating around. But I love it. As long as we have the ability to deliver to these customers some sort of approach that works for them, even though the recent stupidity in Washington got at 100% wrong, we are pivoting to continue to survive. There are -- as Scott mentioned, there are companies in the industry that won't. The reality is New York and Hawaii are not alone with expensive power. Some of the target acquisition markets that we're looking at have even more expensive power than Long Island, which is hard to believe. But those folks are predicting higher revenue this year than -- next year than 2025 because their math continues to work in a purchase to own market even in the absence of the 30% federal ITC. Hannah Velásquez: Okay. And if I could just have one more follow-up question. On that point, maybe on a consolidated basis, how are you thinking about market growth in 2026? I mean you hear the consultants all over the place, right, talking about a 10% decline, best-case scenario and then up to a 20% to 30% decline all in just given 25D expiring. And as like a secondary question there, what's the latest you're hearing on FIAC? James Brennan: So the first part of your question was about 2026 guidance, and I'm not prepared to give that today. We do predict a lower-than-normal Q1, although as I say those words, I was recently pleasantly surprised from the New York team that they've already booked nearly 100 deals for January, which was surprising given the new set of circumstances that we're dealing with. And -- but by the way, that's the normal cycle of our business. Q1 and Q2 are always low in both New York and Hawaii for different reasons. And then Q3 and Q4, just like this year in 2025, Q3 and Q4 were cranking so much so that we're having trouble keeping up with all the work. And so I suspect that a very similar model will follow in 2026 as well. And Scott, do you want to... Scott Maskin: Yes. Just on FIAC, it's still happening, right? Every day, there's a change. Every day somebody is coming out with different -- securing different equipment, different ABLs and stuff like that. I don't think that anybody can securely say this is where it's going to be on January 1. It's just the guidance is just -- it's too fuzzy. I think that we will adapt. We will find products and cash is king also. Those with strong balance sheets are going to be able to get equipment and others are going to implode. And I just want to touch on what Jim said. I have often and the thesis of SUNAtion has always been a regional company. When the analysts say 10% decline, 40% decline, 50%, it's really unfair because you look at some -- you look at California, who's just a gut punch after gut punch. But last year, they blew it out of the door, right? Like with the exit of NEM 3. But North Carolina is growing. Massachusetts is growing. So it's hyper-regional markets and hyper-regional. I've always said we're very -- we're exposed by utilities and state politics. So find me a state that is really pro-energy, find me a state that's going to see a growth of data centers and AI. And I'll show you a state that it's going to grow revenue base because of cost of power is going to be so high. Operator: At this time, I would like to turn the call back over to Devin Sullivan. Devin Sullivan: Thank you, Bella. We do have a couple of questions from SUNAtion stakeholders that I'd like to ask on their behalf. And the first one to the management team is, what is your long-term vision for SUNAtion following the passage of the One Big Beautiful Bill Act? Scott Maskin: Thanks, Devin. And to whoever that shareholder is, thank you. I think harping on the diversification of SUNAtion as one of our strengths, maybe it's our greatest strength. For my shareholders and for our company, we see a rush to the end of the year. We're figuring out a lot of things for 2026 and moving forward. But we see the commercial industry really growing. We see the service industry growing. Residential is going to figure itself out. We've been through these cycles before. So I'm not too -- there's a lot of confidence. Sometimes things like this are also a good gut check. Where can we be better? Where can we be more efficient? And take advantage of that thing. And that's not just with OpEx. That's not just with employees and stuff like that. I mean over time, you kind of float and you look at your software stack and you look at all kinds of things that you spend money on as you're growing, growing and growing. And sometimes it's a good exercise to retool and reshape the company so that you can come back. It's almost like going into the corner of a price line so that you can come out punching after somebody flashes water on you. So I'm not concerned, overly concerned about '26 and '27 because we're in a good spot for it. We have a lot of different revenue streams. There's a lot of different opportunities out there to add revenue to the company, to the listing, to SUNAtion as a whole that may be in the energy field, maybe not, right? So those are the things that give me a lot of confidence moving forward into 2026 and 2027. And at 62 years old, I need those pearls to keep me going. James Brennan: Devin, I would add to that answer that just for clarification, revenue diversification has been our strength for a long time. The companies that we've seen that have failed over time are ones that have a single source of revenue, and you can name them off the top of your head, I'm sure. In our case, we went out of our way to have 6 or 7, hopefully, even more sources of revenue. So we have a residential revenue stream, commercial service, roofing. We actually do electrical work for some of our solar customers. We have community solar. And in the future, hopefully, if the moons align, we'll add HVAC and some high-efficiency HVAC tools that and so on. So that -- because as Scott mentioned, we'll see in the future a time where another part of our revenue stream slows down. That's fine. That's part of the cycle that we all live through, but we'll have a backfill from other revenue streams. Just like in 2025, the commercial team had lower-than-expected revenue. But I doubt that will be the discussion in 2026 because there's a ton of work that those folks are cranking through right now. Devin Sullivan: And actually, Jim, that's a good segue into our final question is, can you -- how would you describe the market for commercial in 2026? Scott Maskin: Yes. So I'll start with that one. I see that we've -- in New York, we positioned ourselves very well with national developers. We've always taken the approach that it's great to originate your own work. But I make money when trucks roll. Our shareholders win when trucks roll and money comes in. So I don't really care who sells the job, but we're really good at executing on those things. Because of that diversification with the national developers, we're seeing a big inrush in schools, institutional type things. And we're really, really well suited to execute on that kind of stuff. I'm not saying that traditional rooftop solar on an industrial building is going to go away. But we have a very strong pipeline, and that's going to be a major focus for us moving forward because, listen, that's kind of where the sweet spot is in the industry right now also at least until through 2027. So that's -- there's nothing d*** the torpedo's is full speed ahead on that kind of stuff. James Brennan: Devin, I would just add to that, that because we do a lot of work for these large national developers, and we do a pretty d*** good job at delivering on those projects, we are now getting asked or actually, we've been throughout the year being asked to do work in other states. So we historically have had an acquisition view on growth into new markets. But this is an organic view just simply because the commercial team does a good job of delivering. And then the next thing you know that national developer wants us to go into a different state because they have another project. And so that will definitely be some growth into next year that we'll see on the commercial side. Devin Sullivan: Thank you, both. That is our final question. So I'll turn things back over to Scott for closing comments. Scott Maskin: Well, thanks for everybody that spent a beautiful sunny Monday morning with us. Customers are happy. They're making money today because the sun is out in New York and soon Hawaii. I want to wish everybody a happy holiday season. Let's not forget what's important as we move forward, revenue and shareholders and business is important, but family first, and that's how we treat our business. So I wanted to thank everybody time and the confidence. And man, am I looking forward to that end of year report, okay? So thanks, Devin. Thanks, team. Operator: All right, ladies and gentlemen, that concludes today's conference call. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
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: Hello, and welcome to the Air Industries Group Third Quarter 2025 Earnings Conference Call. [Operator Instructions]. This call may contain forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended, including statements regarding, among other things, the company's business strategy and growth strategy. Expressions which identify forward-looking statements speak only as of the date the statement is made. These forward-looking statements are based largely on our company's expectations and are subject to a number of risks and uncertainties, some of which are beyond our control and cannot be predicted or quantified. Future developments and actual results could differ materially from those set forth and contemplated by or underlying the forward-looking statements. In light of these risks and uncertainties there can be no assurance that the forward-looking information will prove to be accurate. This call does not constitute an offer to purchase any securities nor a solicitation of a proxy, consent, authorization or agent designation with respect to a meeting of the company's shareholders. At this time, I would like to turn the call over to Lou Melluzzo, President and CEO. Please go ahead, sir. Luciano Melluzzo: Thank you, Donna. Good morning. Before we begin, I'd like to note that given the level of detail in our press release and Form 10-Q, we'll keep our prepared remarks brief. We will, of course, take a few questions at the end if anybody has them. Now on to the numbers. But before I turn the call over to Scott, I do want to let you know that on our consolidated balance sheet, we are reflecting all of our credit facility and subordinated debt as current. Our credit facility matures at the end of December of 2025, and our related party subordinated notes mature on July 1, 2026. At this time, I can't comment further other than to say that the company is actively engaged in a constructive discussion with all lenders regarding potential refinancing or extension of these obligations. I encourage you to refer to our Form 10-Q for more details on the status of these notes and related disclosures. With that, I'll turn the call over to Scott for the numbers. Scott? Scott Glassman: Thank you, Lou, and good morning, everyone. Our results for the third quarter of 2025 showed a meaningful improvement compared to both the first 2 quarters of this year and the third quarter of 2024. Net sales for the 3 months ended September 30, 2025, were $10.3 million. Gross profit was $2.3 million or 22.3% of sales. This is a strong improvement, reflecting the benefits of our cost reduction initiatives earlier this year. Our operating income came in at $316,000, our net loss for the quarter was just $44,000 or $0.01 per share compared to a loss of $404,000 in Q3 of 2024. Adjusted EBITDA for the 9 months ended September 30 was $2.7 million, up nearly 5% from the prior year. Let me touch briefly on the balance sheet. Our total debt has increased by approximately $2.4 million. Inventories increased by $5.6 million, reflecting our investment in work in process inventory and materials to support future deliveries. Accounts receivable has decreased by $2.1 million and accounts payable has increased by approximately $2 million. With that, I will turn the call back over to Lou. Luciano Melluzzo: Thanks, Scott. As you heard, our third quarter performance showed measurable improvements in profitability and operational discipline. While we remain focused on completing our ongoing lender discussions and finalizing the right capital structure for the future, we are confident in the strength of our core business. We continue to benefit from strong backlog levels and a healthy demand from both existing and new customers. Our focus remains squarely on execution, cost control and driving shareholder value. We look forward to a strong finish to fiscal 2025 and continued momentum into 2026. Thank you for your time and support. Donna, with that, I would like to open the line to questions and answers, if you may. Operator: [Operator Instructions] Mr. Melluzzo, we're showing no questions in queue at this time. I would like to turn the floor back over to you for closing comments. Luciano Melluzzo: Thank you, Donna. Thank you all for taking the time to be on the call today and for your continued interest in Air Industries Group. We look forward to updating you on the progress of our ongoing operations on the next call. Thank you all for joining. Donna, you may end the call. Operator: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines at this time, and enjoy the rest of your day.
Operator: Hello, everyone. My name is Sophie, and I will be your conference operator today. At this time, I would like to welcome everyone to Meren's Third Quarter 2025 Results Presentation. [Operator Instructions]. This event is being recorded, and the recording will be available for playback on the company's website. I will now pass the meeting on to Mr. Shahin Amini, Meren's Head of Investor Relations. Please go ahead, Mr. Amini. Shahin Amini: Thank you, operator. Hello, everyone, and thank you for joining us for Meren's Third Quarter 2025 Results Presentation. I am joined today by Roger Tucker, our President and Chief Executive Officer; Aldo Perracini, our Chief Financial Officer; Oliver Quinn, our Chief Commercial and Operating Officer. We will begin with prepared remarks and then open the floor for questions. Before we start, I would like to remind everyone that this presentation contains forward-looking statements. These are based on current assumptions and expectations and involve risks and uncertainties that may cause actual results to differ materially. You can find a full discussion of these risks in our regulatory filings that are available in SEDAR+ and on our website. Also, all dollar amounts in this presentation on U.S. dollars unless otherwise stated. With that, I will now hand over to Roger. Roger, we are ready for you. Please go ahead. Roger Tucker: I am pleased to present another strong quarter with continuing delivery on shareholder returns and delivery. The completion of the prime amalgamation marked a step change for Meren, and we have now honored our enhanced dividend policy with the declaration of the fourth quarterly distribution of $25 million, taking the total payout for 2025 to $100 million. So together with our share buybacks year-to-date, we have delivered meaningful shareholder capital returns of approximately $109 million. We have also materially reduced our outstanding RBL debt amount to underpin a stronger, more agile company that is built to deliver long-term returns and withstand market volatility. These deliverables reiterate the quality of production assets in Nigeria and the company's financial strength and our disciplined capital management. Maintaining a strong balance sheet continues to be one of our top priorities. Overall, it's been a resilient quarter and we've delivered on we set out to do, reinforcing our financial position and our commitment to creating long-term value for our shareholders. I'm also pleased to report that we have completed the integration of Prime and the combined organization is working very well and seamlessly under the Meren banner. I will now hand over for Aldo to give a more detailed commentary on the quarter's performance. Aldo Perracini: Thanks, Roger. Now turning to our production performance. In the third quarter, we delivered production of 31,100 barrels of oil equivalent per day on a working interest basis and 35,600 barrels per day on an entitlement basis. This brings us to a working interest of 31,800 barrels of oil equivalent per day and 36,300 barrels of oil equivalent on an entitlement basis for the first 9 months of the year, both of which sit within our 2025 guidance, which remains unchanged from the second quarter. Performance remained steady quarter-on-quarter, supported by strong contributions from the newly commissioned Egina wells and a successful well intervention on an Akpo well. These gains helped offset temporary impacts on plant and maintenance activity. With the Akpo and Egina drilling campaign now on pause, work is focused on integrating for the seismic and well data to define and mature the next set of infield targets. Turning on to the next slide. In the third quarter, Meren completed 3 oil liftings for around 3 million barrels at a realized all-in sales price of $70.8 per barrel. Year-to-date, we have completed 9 liftings of around 9 million barrels at an average owing sales price of $74.9 per barrel, which compares favorably to the Dated Brent at an average of $70.9 per barrel. We have 3 cargoes scheduled for the first quarter of 2025. Two of these are hedged at $64.6 per barrel with 1 cargo unhedged that will be sold at spot. For 2026, we have hedged 2.6 million barrels of oil at an average Dated Brent of $62.4 per barrel. The sales achieved in the first 9 months, combined with our hedging strategy for the remainder of the year, creates a prudent balance between risk management and market exposure, reducing volatility risk while preserving potential upside. This approach ensures we remain well positioned to generate solid cash flows through to the end of the year regardless of market fluctuations. Moving on to the financials. For Q3, we delivered an EBITDAX of $120 million, bringing total EBITDAX year-to-date to $368 million. Cash flow from operations before working capital came in at $66 million for the quarter with reported CapEx of $22 million, largely driven by the web intervention in Akpo. Free cash flow before debt service and shareholder distributions was $126 million. Overall, for the first 9 months, free cash flow before debt service and shareholder return stands at $229 million. We are on track to meet our management guidance as revised in Q2, and our full year guidance ranges are unchanged. Let's now turn to cash flows for the period. We closed the quarter with a cash balance of about $177 million compared to an opening balance of $267 million at the end of Q2. We achieved about $66 million in cash flow from operations before working capital adjustments and interest and had positive working capital movement of $81 million, most of which about $63 million was due to trade receivables driven by the timing of cargo liftings and receipt of sale proceeds between the second and the third quarters. Our major cash outlays were RBL repayments, dealing distributions and capital expenditures. In line with our approach to disciplined balance sheet management we proactively paid down our RPO balance by $18 million, bringing our total debt to $360 million. This has been paid down further post quarter, which I will touch on shortly. In line with our new payout policy, we made our third dividend payment of $25 million, bringing dividend distributions to $75 million year-to-date. And as Roger had mentioned, we are pleased to have announced our fourth dividend distribution of $25 million to be paid next month. Through disciplined cash management, we have materially reduced our debt interest expenses strengthen the balance sheet and establish a solid platform for sustainable growth and value creation. Moving on to the next slide. Deleveraging the business has been a priority for us since assuming Primes are beyond facility following the amalgamation. The balance was $750 million at completion. We have looked to approach this proactively and in a disciplined manner. At the end of Q3, our RBL balance stood at $360 million, reflecting $390 million in repayments since taking this facility on, contributing towards a meaningful reduction in interest costs. Post quarter, we paid down $430 million, bringing total repayments to $420 million year-to-date. At the end of the quarter, we had a net debt of $183 million and a net debt-to-EBITDA ratio of 0.4x, well below our onetime ceiling for the year, demonstrating our strong credit profile. We will continue to optimize our capital allocation strategy, strengthening Meren's financial profile and positioning us to deliver value for shareholders. I will now hand over to Oliver to take you through our business outlook. Oliver Quinn: Thanks, Aldo. Turning to Slide 10 on Nigeria. Following the break in the Akpo and Egina drilling campaign in Q3, work is underway to restart the campaign. The current drilling break has provided time to fully interpret the latest 4D seismic data and identify several future infill drilling opportunities. Operationally, progress is being made to secure a deepwater rig to drill the Akpo Far East nearfield prospect, followed by further development wells on both Akpo and Egina in late 2026. Akpo Far East is an infrastructure-led exploration opportunity with an unrisked best estimate of greater than 150 million barrels of gross oil equivalent. If successful, it will deliver a short-cycle, high-return investment, leveraging existing Akpo facilities and potentially adding significant near-term production and reserves. Turning to the Preowei development. Project optimization work continues with recent seismic data indicating an increase in recoverable resources and likely better connectivity in the reservoir that may lead to a reduction in the development well count. This optimization exercise is continuing and will conclude through 2026. At Agbami, interpretation of recent 4D seismic is ongoing alongside rig and long lead item contracting in preparation for a 2027 infill drilling campaign. In addition to the infill drilling an appraisal well is planned on the Ikija discovery, which in a success case will be tied back to the Agbami FPSO. Let's move to Slide 11 for an update on Namibia. Joint Venture continues to advance the Venus development, which remains on track for FID next year with first oil expected in 2030. The environmental and social impact assessment is continuing to progress, which is a key step towards regulatory approvals. The plan outlined includes 40 subsea wells tied back to an FPSO with a peak capacity of 160,000 barrels of oil per day and once online, Venus could produce for more than 20 years, generating significant and sustained cash flow for Meren. As we get closer to the final investment decision, there will be scope for us to report contingent resources and ultimately reserves as part of our annual Canadian NI 51-101 reporting process. On the exploration side, work continues to plan for drilling on several remaining prospects with Olympe remaining the key target and testing a different geological concept from Marula and with a significant potential resource base. And importantly, we retained full exposure to these high-impact opportunities with no upfront cost as all exploration and development spending is carried through to first commercial production. Moving to Slide 12 and staying in the Orange Basin. Let's turn to South Africa and Block 3B/4B. In September last year, we received an environmental authorization to drill up to 5 exploration wells. And whilst progress is being made to move through the legislative appeals process, this has now been temporarily suspended pending a Supreme Court judgment in relation to Block 5, 6 and 7. Despite this pause, the operator continues to prepare for drilling with the Nayla prospect remaining the likely first target and with sufficient potential in a success case to support stand-alone development. To remind you and important to note, the transaction completed with TotalEnergies and QatarEnergy last year will cover Meren's costs for 1 to 2 exploration wells, so there will be no demand on our capital as drilling commences. In summary, across the Orange Basin, we maintain a leading independent E&P position with exposure to multiple near-term development and exploration opportunities and all without any near-term capital requirements. Now turning to Equatorial Guinea on Slide 13. Meren holds 2 licenses offering differing opportunities. In board, Block EG-31 offers a compelling low-risk appraisal opportunity that could unlock a low CapEx, short-cycle brownfield LNG project with a cost of supply competitive with U.S. gas exports. The block lives and shallow water, close to the existing onshore EG LNG facility and contains several further gas prone prospects in areas where historic wells have proven the presence of gas. The second position, Block EG-18 is a deepwater exploration opportunity with billion barrel scale oil potential. Recent seismic reprocessing and technical evaluation has unlocked a large Cretaceous age basin floor fan system with several stacked prospects identified within the same play that has been actively pursued by several majors across the border in São Tomé. A farm-down process for both positions has attracted strong interest, and we are actively engaged in discussions with potential partners for both blocks with the aim of reaching a conclusion on the farm-out process by the end of this year. With the right partnerships in place, drilling activity could take place in late 2026 or 2027. I will now pass you back to Roger for his concluding comments. Roger Tucker: Thank you, Oliver. It's been a solid quarter for the company. We ended the period with a strong liquidity position and net debt to EBITDA of 0.4x and we have significantly reduced debt to optimize interest expenses, underscoring both the strength of our balance sheet and our disciplined approach to cash management. I'm pleased to have announced our fourth quarterly dividend, which will see the completion of our $100 million dividend plan, a clear reflection of our ongoing commitment to shareholders. Looking ahead, we see meaningful value across our portfolio with excellent catalysts in the pipeline, each providing strong long-term growth potential. Thank you. And with that, let's move to the Q&A. Operator: [Operator Instructions]. Our first question comes from Jeff Robertson with Water Tower Research. Jeffrey Robertson: However, can you give some insight into the production profile in 2026 in fields in Nigeria? And what you anticipate the lifting schedule might be for the first couple of quarters of the year? Roger Tucker: Yes. Jeff, thanks for the question. So as we go in to '26, we've got activity commencing again in the fields. We've got 3 wells, if you like, 3 infill well activities, Akpo and Egina. Now we've got an Akpo Far East exploration well, which is important and likely in the Ikija well over on Agbami, which is appraisal. So I think the key thing is on those wells, they'll be back end of the year. So we don't expect to see a meaningful production impact from them until early 2017. So they're important, but they're late in the year. So where that takes is we'll see some natural decline through the year. And I think we're currently working through the final work program and budget with the operators in the next couple of weeks here, but we do anticipate kind of seeing decline into the kind of high 20s in terms of production at working interest level before, again, that picking up again as we come through the end of the year and into '27. I think on the second part, the lifting schedule, I think we're anticipating around 10 cargoes it's a pretty evenly spaced throughout the year. I think you'll note this year, we've lifted all our cargoes for the calendar year as of November, so we don't have any in December. And then I think our next cargo is coming in 2 cargoes, I think in Q1 next year. Aldo Perracini: And just to remind everyone, we'll do our full year management guidance for 2026, early next year, potentially in sort of late January or February. So we'll have more detail on the outlook for the 2026 for our business. Jeffrey Robertson: And is it correct to think that the Akpo Far East prospect is -- if that's a success that can be handled by the existing field infrastructure without any significant capital upgrades? Roger Tucker: Yes, that's right. So it's kind of super interesting. It's only just single-digit kilometers east of Akpo in the facility. It's a large kind of target that could, for a first phase, come on within 18 months, 2 years tied back to the Akpo facility. So it's very reachable. The timing has really been around age and availability over Akpo. That's now with Akpo's natural decline there's time and space, if you like, could come together. And so yes, that will be tied back very, very quickly. Operator: Next question comes from David Round with Stifel. David Round: A couple for me guys. The break from drilling in Q3, are you able to elaborate how that break has helped improve your thinking around future targets? And then also just I guess, more generally, are you noticing any different approaches between the different operators you've got in Nigeria? And then the second one, separately, just on EG as a clarification. Are you looking at farming down those blocks individually or together? Aldo Perracini: Yes. David, thanks for the question. So look, a good point, you take a step back on actually on Egina and Akpo, which is where the drilling break occurred this year. So again, we said this a lot, but kind of world-class fields kind of textbook petroleum engineering with 4D seismic over them. So that allows us to shoot surveys at regular intervals, of course. And in those fields, in particular, we can see fluid movement, we can see oil, water, gas, and that allows us to kind of really hone in on the infill targets. So specific to the question, we took a drilling break in Q3. We've had new 4D come in over the deals and the reason then to have that break and go back kind of Q3 next year drilling has been to allow that new data to be incorporated. It looks very positive from us. So I think we'll see the 2 -- well, 2 targets on Egina, and one on Akpo, again, Q3, Q4 next year, and then we'd anticipate running into '27 that there'll be some more follow-on drilling on the back of that data. So yes, it's been useful. I mean there is obviously a short-term impact at these middle-age fields from not drilling, but I think it allows us to come back with a more focused kind of target campaign. Just to move to the EG question. So the simple answer is we see them as separate processes. Now they have run kind of on a time line in very close parallel almost on top of each other. So look, there are parties that are interested in both. There are parties that are interested in one or the other and again, we touched on it in the presentation, but they're very different in nature. So EG-31 is kind of gas brownfield LNG tie back through existing facilities, et cetera, 18 in the outboard multibillion barrel kind of oil target, so a kind of material kind of catalyst if that comes in. So yes, very different opportunities, and therefore, we run a parallel but separate process, if you like. David Round: Okay. Very clear. Just in terms of the operator's approach in Nigeria, any differences there? Or are they kind of getting on with things in a similar kind of fashion? Aldo Perracini: Yes. Look, good question. I didn't mean to skip over it. Yes, I think they're both very active, which from an operator perspective is what you look for, right? I mean the fields, as we know, they're heading to midlife, they're in that kind of natural decline. What they need is a bit of care and activity. And I think on both -- from both operators, that's what we're seeing. So we didn't talk about Agbami so much, but the plan is to come back. Chevron will drill kind of 6 infill production injector wells in 2027. So it's a pretty big campaign given the age of the field and kind of speaks to, a, their activity as an operator, which is very positive; and b, the nature of the resource base. I think Egina and Akpo, again, slightly different. We're seeing the same infield activity focus from TotalEnergies. There's lots of opportunities there to mature, but there's a wider set of tieback and kind of organic growth opportunities around those FPSOs as well. So we're seeing, obviously, the Preowei which is ongoing. But there are several other discovered resources within the license that we see TotalEnergies is taking quite an active view on at the moment. So yes, look, I think we're comfortable that they're both engaged and active, which again is a nonoperator, really important to see that. Operator: There are no further questions at this -- there are no further questions at this time. I will now hand back over to Shahin Amini to read through your written questions. Shahin Amini: Thank you very much, operator. We've got a number of questions submitted over the Q&A facility and a couple of questions who were e-mailed to us earlier today. So I'm actually going to start with an e-mail question from one of our long-standing shareholders in Sweden. And I'm going to put to Aldo, what are your expectations in the common quarters for further reductions in net debt? Aldo Perracini: Okay. Thank you, Shahin. In relation to debt reduction and the leverage in the balance sheet, I think we have done focus -- we focus a lot throughout 2025. You have seen the amount of reduction we did with the existing RBL as is natural in this kind of instruments, as we progress towards the maturity of the facility we get compressed by the loan life cover ratio, and therefore, we have to continue to make payments or we continue to have a reduction in our borrowing base, and that will continue to happen throughout 2026. So in terms of what we plan for the next year compared to 2025, I think the main difference is that we have already started the process to refinance our existing facility. And so far, we have been getting strong indications from the banking syndicate. And if we're able to achieve that target, which we expect for the beginning of 2026. We then should be in a position to keep our borrowing base higher for a longer period of time, which will give us additional liquidity for whatever reason. So organic growth, inorganic growth and et cetera. So that's the plan in relation to that as we get into 2026. Shahin Amini: Thank you, Aldo, and the same investor, a couple of follow-on questions. I'm actually going to address this myself because these questions are kind of detailed about our 2026 estimates and outlook. As I mentioned earlier, we will give a more detail -- well, we will give a detailed management guidance next year. And Oliver, I think it's fair to say that right now, the team are very busy with the JV partners in sort of setting the Board program on budgets for next year, correct? So there's still some what we need to get through before we ready to give the share management guidance. Oliver Quinn: That's right. We'll play that out through the end of the year. And as you said early next year, there will be a clear forward plan on production forward vision on that production. Shahin Amini: Okay. Very good. And going back to Aldo. This is a long-standing point of debate base. And that's -- the question is that as you're lowering net debt in 2026, what is your expectations or what is your outlook for one in terms of capital allocation and shareholder returns? Can you sustain the dividend? Aldo Perracini: Okay. Good question, and we get that question a lot. I think the sense in terms of capital allocation, again, the focus in 2025 was to reduce the RBL as we were not utilizing the whole liquidity we have available under that facility. And then we achieved significant interest expense reduction throughout the year, which I think it's an important way to generate equity value for our shareholders. Now when we look forward, I think we all -- the way we look through capital allocation and distributions, we look at mainly 4 things. First, we look at the short term or the cash generation coming from the Nigerian agent assets and then how short-term production behaves, that's the first bit. The second bit would be in relation to organic growth through the existing portfolio. As you know, in Nigeria, we fund organic growth with existing cash flow from operations. And outside of Nigeria, we fund organic growth through the carry arrangements which we have put in place with partners, for example, in Namibia with TotalEnergies' true impact. The third part that we look, we then look at the debt obligations. Again, as I mentioned, we would continue to have a reduction in the borrowing base through 2026. So to address that, we have restarted the refinancing exercise, which will give us additional liquidity to go through that. And then the fourth part, which is a little bit of our control or a lot of our control is the oil price movements, right? I think we are looking at oil price forecast for 2026, which are very -- and most of them on the bearish side, which we see also reflected on the forward curve. So we're going to take -- we're going to be very, very careful when we look at additional distributions in 2026 or elsewhere as we prepare for a year where we expect to have a lot of cash flow volatility given the oil price. So that's the mechanism. Those are the -- that's the process that we go through when evaluating dividend distribution. So when we go through all of that, as of this moment, we don't foresee any surprises into 2026. But again, keeping an eye on oil price, which should be the major variance. Shahin Amini: Thank you, Aldo. And there's a couple of questions on M&A. As always, we can't go into detail. So -- but perhaps from a more philosophical and high-level point of view, Roger, perhaps you want to -- first, how does Meren see M&A opportunities in the market and 2 specific jurisdictions have been mentioned, but 1 continent, South America and Nigeria in 2 different questions. How do we view opportunities? Roger Tucker: Thanks, Shahin. So we are looking at a whole series of opportunities. But as I've said before and as Oliver has said, we're in no rush. We have a balance sheet, which allows us the opportunity to wait and find the right opportunity. I think in the short term, it is likely if we do anything, it is likely to be within West Africa and we are reviewing a series of opportunities there. But all I can say at the moment is that we are in -- have the luxurious position of being able to wait until we find the exact right opportunity. So no rush. We are reviewing very, very carefully, and it will -- whatever we do will fit with our investment criteria. Shahin Amini: Thank you. That's really -- I don't have any other questions that we haven't already answered from the webcast. So I'm going to hand back to the operator to bring this presentation to a conclusion. Operator: This concludes today's call. Thank you very much for joining. You may now disconnect.
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.]
Operator: Good morning, and welcome to the Alliance Laundry Third Quarter 2025 Earnings Conference Call. With us today are Mike Schoeb, Chief Executive Officer; Dean Nolden, Chief Financial Officer; and Bob Calver, Vice President of Investor Relations. [Operator Instructions] With that, it is my pleasure to turn the program over to Mr. Calver, Vice President of Investor Relations. Mr. Calver, please go ahead. Robert Calver: Thank you, operator, and good morning, everyone. Welcome to Alliance Laundry Systems Third Quarter 2025 Earnings Call. I'm joined today by Mike Schoeb, CEO; and Dean Nolden, CFO. Along with today's call, you can find our earnings press release and earnings presentation on our website at ir.alliancelaundry.com. A replay of this call will also be made available on our website. As a reminder, today's earnings release, presentation and statements made during this call include forward-looking statements under federal securities laws. These statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations and projections. Such risks and uncertainties include the factors set forth in the earnings release and in our filings with the Securities and Exchange Commission, including in the Risk Factors section of the prospectus from our initial public offering dated October 9, 2025. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. Additionally, during today's call, we will discuss certain non-GAAP financial measures outlined in further detail at the beginning of our earnings presentation. We believe that these measures are important indicators of our operations as they exclude items that may not be indicative of our results from ongoing business operations. A reconciliation of these measures to the most directly comparable GAAP measure can be found in our earnings release, in our 8-K filed with the SEC and in the appendix to the slide presentation. Non-GAAP financial measures should be considered in addition to and not as a substitute for GAAP measures. I'll now turn the call over to Mike. Michael Schoeb: Thanks, Bob, and thank you all for joining. It's a pleasure to speak with you today on the company's first earnings call as a publicly traded company. Before I begin, I'd like to express my thanks and appreciation to the Alliance team, our end customers and distribution partners as well as our advisers and the investors who made this milestone possible. I'd also like to thank the research analysts who spend time getting to know our business, our culture, our products and our team. We look forward to continued dialogue, and we're excited about the future as we continue to expand our business and deliver what we believe are the highest quality machines and services available in the industry and create long-term value for our shareholders. For this first call as a public company, I will start with an overview of Alliance, the markets we serve and our differentiated strategy. We will then dive in our results. So starting with Slide 4, there are 4 things I believe you should consider for any investment, and this is my core message on today's call. So question number one, is the industry vibrant, growing and attractive? In a record of close to double-digit growth over the last decade would suggest it is, as Laundry is not a fab or a fashion, but it is essential to everyday life. Additionally, the industry has a unique characteristic of providing downside protection in difficult times. But this is what we saw during COVID where laundromats were deemed essential by governments almost worldwide and stay open versus most retail locations, which were shuttered and many that closed for good. The world is increasingly volatile. And every time there's a dip in the economy or bad news on the TV, those of us on the executive team look at each other and say, thank god for Laundry. That protection is combined with growth. We see in both emerging markets where the vended end market is in its early days as well as in mature markets where aging products need constant replacement and in the renewal happening in laundromats, where many of the old tired inventory is being replaced by clean, safe and friendly stores. According to market research in the U.S. alone, there are over 20,000 of these retail locations and is estimated to be a $6 billion market, serving essential need in communities across the country. The next question is industry structure and what are the market leaders -- or excuse me, who are the market leaders and do they have a sustainable advantage? Our scale versus the competitive set and our financial profile, give us the ability to invest at a higher level and simply do what others cannot afford to do. So I believe our advantage is both clear and sustainable. And the next question is, do you have a team that can execute with consistency and take advantage of the gift that we had provided to be a market leader in an incredible industry? Our long-term history of compelling performance through economic cycles would suggest we've got a very capable team. And the final question is, are there systemic tailwinds that provide an opportunity for the company to continue to put points on the board and grow profitably. For us, we see these tailwinds as being in their early innings and they are integral to our go-forward strategy, which I will touch on shortly. So as against this backdrop, Alliance is at the center of a resilient, essential industry defined by steady replacement demand, consistent aftermarket needs and stable growth across all macro cycles. On Slide 5, we are the #1 pure-play commercial laundry manufacturer in the world, more than twice the size of our next largest competitor. We are a true global business, serving customers in 150 countries, and we hold roughly 40% market share in North America. Our strong market leadership and financial results are built on a compelling value proposition for commercial laundry customers who are incredibly sophisticated and focused on total cost of ownership or TCO. Our offering is defined by a relentless focus on quality, reliability and durability, an industry-leading distribution network, comprehensive wraparound services and a commitment to excellence. Every day is laundry day. And it is essential for modern life as we know it today. Our large installed base means people around the world interact with our products millions of times a day. Our products get used hard every day in demanding applications are mechanical in nature, so they have a finite life with a steady replacement driven and predictable demand. We produce and deliver product via 5 prominent brands, including our Speed Queen brand, which was recognized by Consumer Reports as the most reliable appliance brand in the U.S. for 6 consecutive years. We have a strong financial profile with a revenue CAGR of about 10% from 2010 to 2024, a best-in-class adjusted EBITDA margin above 25% and strong free cash flows. Throughout our history as a private company, we have invested in our business to support durable growth, which significantly strengthened operations, enhanced capacity drove our innovation pipeline and created long-term potential. Alliance operates in a broad diversified set of end markets, geographies and product categories, which helps us drive execution and deliver long-term growth. In terms of revenue mix, about 3/4 of our sales come from North America, where we have balance across our 3 end markets. Now switching briefly to Slide 6 you will see the primary end markets we serve. And on-premise, we deliver best-in-class systems for hundreds of mission-critical applications that require tailored products, expertise and an extensive highly trained field service organization. This includes health care, hospitality and veterinary clinics as well as bespoke systems for industrial and commercial customers. If you are running one of these businesses, and your laundry equipment goes down, it is not a good day. So think about managing a hotel with several hundred rooms that require thousands of pounds of fresh clean linens every day. Normally, there is little redundancy of equipment in on-premise laundry room. So if a unit fails, you do not have a [indiscernible] of a room, and you do not have a business. That example can be taken across all these verticals in our vended end market, applications take payment of some type which is increasingly digital in nature. We equipped both retail store laundromats worldwide as well as communal laundry systems for apartments, condominiums, dormitories and other multi-housing facilities. Finally, our commercial in-home end market brings differentiated commercial quality washers and dryers into residential settings, offering the same durability, long life and performance trusted by our commercial customers. Consumers around the world are increasingly frustrated by competitive offerings, which are built for initial costs versus low total cost of ownership. On Slide 7, we illustrate our long history of performance through all economic cycles. Looking all the way back to 2006, Alliance has generated a steady cadence of growth as we've continued to scale our business, serve more customers across more markets and expand our capabilities and customer offerings. We look forward to building on the strong momentum and driving consistent growth long into the future as we execute on our strategy. Now on Slide 8, to touch briefly on additional investment highlights, which are both attractive and meaningful. First, as a pure play who only does laundry, we understand what our customers demand, and that is a compelling value based on low total cost of ownership. Price is always important. But what we hear most often is, please, do not cheapen the product, do not cut corners and do not sacrifice quality. Customers know it's a smart decision to buy a better product that lasts longer, is more reliable and cleans extremely well. We have a proven ability to create the highest quality products by leveraging our engineering expertise and rigorous testing and quality controls that ensure long-lasting durability and reliability. We have unmatched scale that is very difficult to replicate in this highly specialized and fragmented industry. Our premier aftermarket services and comprehensive wraparound capabilities are extremely important to support long-lived assets, and they provide us opportunities to win more market share. We also benefited from a robust global manufacturing and engineering footprint, a diversified go-to-market strategy and a well-established reputation of innovation and commercial laundry expertise. These attributes aren't just individual advantages, they are highly complementary and allow Alliance to generate significant recurring revenue streams, protect margin and create long-term value for our shareholders. On Slide 9, we are advancing a clear growth strategy focused on driving long-term sustainable performance. We start with our core strength, producing high-quality, reliable commercial laundry systems that drive repeat business and market share gains. When you provide strong value price is a byproduct and it is embedded in our go-to-market strategy. In on-premise laundry, we're serving a stable, heavily replacement-driven market while delivering leading TCO across many, many niche applications. Alliance has also established a leading position supporting the evolution of laundromats. Laundromat demand is driven by both existing store owners, retooling their stores with more efficient and technologically sophisticated products as well as new investors attracted to the fundamentals of the industry. It is recession resistant. It is an essential need. It has low labor requirements as it is primarily self-service by customers and low shrink, particularly as payment systems become more digital. Our products and services help commercially focused operators succeed backed by our wraparound services and digital platform. Digital and IoT connected equipment is a requirement for multisite and multistate operators. In North America, we're meeting rising demand for commercial quality products in the home, maintaining attractive margins and delivering the reliability customers expect from professional grade equipment. Internationally, we see significant vended market opportunities in underpenetrated regions leveraging our first-mover advantage to play a pivotal role in market development. Alliance is also committed to staying at the forefront of innovation to continue introducing industry-leading features that accelerate replacement cycles and increase digital penetration to drive recurring revenue. And as the only manufacturer in the industry with footprints in Asia, the U.S. and Europe, our local-for-local manufacturing strategy helps to insulate us significantly from tariffs as most of what we source, manufacture and sell stays in the respective region. We remain disciplined on operational improvements, including cost down initiatives, where we are extremely careful as well as plant and supply chain optimization. We are confident in our ability to successfully execute these strategic priorities and strengthen our market position. And I'd also like on Slide 10, to share some recent business highlights. As I mentioned, innovation is core to Alliance's DNA and a key long-term growth driver. We recently attended the Clean Show Conference, North America's largest exposition in our industry and exhibited new technologies. We launched a 25-pound stack -- or excuse me, 55-pound stack tumbler, the industry's largest, which allows for faster dry times, and we believe increased revenue. We also launched Scan-Pay-Wash, a cashless payment technology for laundromats that does not require an app download. This is the first for the industry and has been extremely well received. We also began shipping our Stax-X product, a good example of our local-for-local manufacturing and product development strategy as it was developed in Thailand for customers in that region. Stax-X was built for high throughput and the limited square footage available in small retail locations, and it offers full commercial grade washing and drying power in a space-efficient vertically stacked configuration. On the operational side, we acquired Metropolitan Laundry Machinery Sales in New York, deepening our coverage in a dense, high opportunity urban market and further enhancing our aftermarket and service capabilities. In October, we deployed over $500 million in IPO proceeds to pay down debt following our listing resulting in an IPO adjusted net leverage ratio of roughly 3.1x at quarter end. Dean will discuss our successful efforts and further strengthening our balance sheet and financial flexibility shortly. We look forward to building on the strong momentum we've achieved as we continue to focus on disciplined execution of our strategy. Dean will now go through our consolidated and segment performance. Dean Nolden: Thanks, Mike. Turning to Slide 11 and our financial performance. We provided our results for the 3 and 9 months ended September 30, 2025. I'll touch on the results for both periods, but focus mostly most of my remarks on the third quarter financial performance. We delivered strong results on a consolidated basis. We drove revenue of $438 million, up 14% year-over-year and year-to-date revenue of $1.27 billion, also up 14%. Growth this quarter was driven by solid volume gains and modest low to mid-single-digit price increases implemented to offset higher input costs, which were primarily tariff related. Volume growth was broad-based across all of our end markets in both of our reportable segments of North America and international, supported by the strength of our brands, the durability of our value proposition and the product and geographical diversification of our business. Year-to-date gross margin expanded by 70 basis points over last year, driven by higher volumes, manufacturing efficiencies and modest pricing actions. This performance reflects our core strategy of profitable growth, which is built on the superior total cost of ownership we offer to customers. Adjusted EBITDA was $111 million in Q3 and $330 million year-to-date, representing growth of 16% and 13%, respectively. For the quarter, adjusted EBITDA margin was 25.3%, up 40 basis points year-over-year and year-to-date margin was 25.9%, down modestly by 30 basis points due to investments we are making in products and systems as well as public company support costs. Net income for the quarter of $33 million was up from a loss of $6 million in the prior year. Third quarter adjusted net income was $48 million, up 47% versus the prior year quarter and year-to-date adjusted net income was $136 million, an increase of 9%. These results reflect strong top and bottom line performance with profitability amplified by a significant reduction in interest expense. This reduction was driven by our successful debt repricing to SOFR plus 2.25%. We also strengthened our balance sheet through a voluntary debt repayment of $135 million made in the third quarter, and we are benefiting from lower variable interest rates year-to-date. Subsequent to the end of the third quarter, with an additional term loan paydown of $525 million post IPO. Our IPO adjusted net leverage came in at 3.1x. We now begin our life as a public company with a stronger balance sheet and we'll continue to prioritize deleveraging to earnings growth and cash generation. Turning to Slide 12. At the regional level, our North America business continued to deliver strong results, driven by favorable end market fundamentals as we leveraged our scale, strong market position and manufacturing strategies. North America revenue in Q3 was $331 million, an increase of 14%, with our performance driven by robust growth across all 3 end markets. Volume and modest price increases accounted for approximately 2/3 and 1/3 of this increase, respectively. Year-to-date revenue was $952 million, up 16% year-over-year. Q3 adjusted EBITDA in North America grew to $95 million or 13% year-over-year, and our adjusted EBITDA margin of 29% was flat versus prior year, with results driven by increased volume and realization of manufacturing efficiencies, offset by investments in future growth initiatives. We experienced $3.5 million of tariff impact in the third quarter which was mostly offset by implemented pricing actions. Year-to-date adjusted EBITDA grew to $273 million or 14%. We continue to see strong demand from our vended customers in mature markets, coming from both our existing customer base through fleet refreshes as well as new entrants who are looking to access the attractive and resilient commercial laundry space. In the on-premise market, we also experienced strengthening demand, largely driven by the replacement cycle. We believe there are still significant opportunities ahead as new builds continue to come online and customers replace existing equipment with more efficient systems before their end of life. Finally, demand in our commercial in-home end market remained high as customers prioritize the durability, reliability and long life of our products. Turning to Slide 13. Our international business also contributed meaningfully to overall results this quarter. International revenue was $107 million, an increase of 12% with growth balanced across mature and developing markets. Volume, modest pricing and favorable foreign exchange movements each accounted for approximately 1/3 of the increase. International revenue was $322 million year-to-date, up 10% compared to the same period last year. International adjusted EBITDA rose to $26 million or 9% year-over-year, reflecting strong top line momentum, partially offset by product and customer mix. International adjusted EBITDA margins declined modestly in Q3 compared to the prior year-end. Adjusted EBITDA was $91 million year-to-date, a 15% increase compared to the same period last year. As you look across our international regions, our mature European markets and developing APAC and LATAM markets posted double-digit growth in the quarter. In Europe, our Speed Queen licensed store model continued to gain momentum and sales remained strong across our direct offices in France, Italy and Spain. APAC saw steady demand in Australia and New Zealand, along with our continued leadership in key markets like Thailand and expanding growth in newer markets like Indonesia, the Philippines and Vietnam. Latin America delivered improved results with robust growth in vended, more than offsetting a challenging prior year comparison in on-premise laundry. Our performance was underpinned by successfully completing major projects in Mexico, and proactive customer and portfolio optimization initiatives in Brazil. In the Middle East and Africa, we are navigating changes in project time lines in our largest market of Saudi Arabia, while capturing new opportunities with early laundromat adoption in select African markets. The underlying fundamentals of our international business remains strong, and we view it as a key to our consolidated sustainable profitable growth going forward. Turning to Slide 14 and our balance sheet. We significantly strengthened our leverage profile, enhancing our ability to continue to drive long-term value creation. As you can see on this slide, we first reduced our leverage organically by approximately 3/4 of a turn through September 30. We then used proceeds from our IPO in October to further reduce our IPO adjusted leverage to 3.1x. At the same time, we have favorably priced -- we have a favorably priced term loan post our repricings described earlier, and we have additional opportunity to further tighten our interest rate spread on our term loan in the future by another 25 basis points, as a result of our significant deleveraging supported by one non-trading upgrades by both major rating agencies. We are on our way towards that goal. As in October, we received a 1-notch credit rating upgrade from S&P to B+ with a positive outlook and an outlook upgrade from Moody's to positive, retaining for the time being, our B2 corporate rating. As a result of all these positive actions we've already taken, we will benefit from approximately $46 million in annualized interest savings at today's debt levels and we have increased our flexibility through the elimination of any mandatory principal payment requirements through the remaining life of our term loan facility. Turning to Slide 15. As we begin our next chapter as a public company, we will execute on a capital allocation strategy designed to maximize long-term shareholder value. Our primary focus will continue to be on deleveraging. With our strong free cash flow profile, we believe we will continue the trend of 0.5 turn to 1 full turn organic deleveraging per year. We will continue to invest in areas to improve our operations and products, launch new products, further expand our capacity and the value we provide to existing customers and ultimately win market share. We expect to continue these investments while maintaining our capital-efficient business model, with a focus on innovation and with CapEx spending targeting approximately 3% of net revenue. We will maintain a very disciplined approach to M&A. Our strategy is based on selectively pursuing opportunities that supplement our strong organic growth with accretive and value-creating acquisitions that expand our platform and capabilities. And finally, we will maintain flexibility to return capital to shareholders in the future when appropriate through share repurchases in the near term and considering a dividend policy over the longer term. In summary, we're very pleased with our financial performance in Q3 and the continued momentum in our business and our end markets. We currently intend to provide annual guidance beginning in 2026 when we report our Q4 results, but appreciate that you want to know how 2025 will end. We expect our Q4 growth versus prior year will moderate from year-to-date run rate to the mid-single-digit revenue growth, but 2025 will be an incredible year and mark our second consecutive year of low double-digit top and bottom line growth. In addition, we expect to incur a onetime noncash charge of approximately $16 million in the fourth quarter related to divesting of stock compensation resulting from our IPO, which we intend to add back for purposes of our adjusted net income and adjusted EBITDA metrics. Now I'll turn the call back to Mike. Michael Schoeb: Thanks, Dean. And let me end where I started, commercial laundry is an incredible, vibrant and growing industry in which we have earned a privileged position as a clear market leader with significant structural advantages. We have long demonstrated an ability to deliver a best-in-class financial profile, strong margins and solid growth and there are systemic tailwinds that we believe will propel continued profitable growth. In closing, I'm incredibly proud of our employees around the world, their dedication and expertise make these results possible. I'd also like to thank our distributors, partners and new shareholders for your continued confidence and support. With that, let's open the line for questions. Operator: [Operator Instructions] Our first question comes from Andrew Obin with Bank of America. Andrew Obin: Congratulations. Can we start -- many of your competitors are importing their product into the U.S. How have they responded to the incremental sections to 232 tariffs? What's the industry environment? Michael Schoeb: Yes, Andrew, this is Mike. We have seen one small Asian competitor increase price. I think for the full year, they've taken 16.5%, something like that. Outside of that, we have actually not seen anything so far. Again, we expect that to happen. I think as we talked about really pushing into 2026, but so far, really no activity of note. Andrew Obin: Interesting. And maybe you acquired a New York distributor in the quarter. Can you talk about the strategic and financial benefits from acquiring distributors? Michael Schoeb: Yes. So Andrew, this is the 16th acquisition we've done. We're vertically integrating in the United States. We are focused on more dense urban markets, not that we haven't been opportunistic at times, but we're really looking for markets that matter, management teams that we can back where we see opportunity for outsized growth. So we like it. It allows us to get much closer to the customer. And we will continue to do it. And we will be a partner when we see those opportunities and when that distributor principle is interested in speaking to us, we're always there for them. Operator: Our next question comes from Tomo Sano with JPMorgan. Tomohiko Sano: Congratulations from my side as well. So you achieved double-digit growth on the revenue. And how are you managing supply chain challenges and inventory levels, especially given ongoing global disruptions? And have you seen any improvement or new risks in logistics or components sourcing? Michael Schoeb: Yes. So I'll say on the supply side, we've really seen nothing, Tomo, that is meaningful. There are always blips and always unexpected surprises, but nothing that we don't carry enough inventory for or don't have alternate sources of supply. So we feel really good about it. We see no signs that there's going to be any change in that status. But we're ready. And as you know, we've got a very, very capable sourcing team that's out there. Tomohiko Sano: Follow-up on digitalization and service revenues. What progress have you made in expanding digital solutions and service-based revenue, such as Laundry IQ and SaaS offerings? How do you see the contributions of these business evolving, please? Michael Schoeb: Yes. So Tomo, we're focused on the long term. So we do generate revenue. I would say it's minimal at the moment. We're more focused on the analytics, the information that comes back to us as we get these connected machines. As you know, we've got several hundred thousand that are out there. I can't speak to our most recent launch of the Scan-Pay-Wash, already in the 90 days or so, it's been out there, there have been over 90,000 transactions. So all of these things are additive. All of them are meaningful. All of them are putting us into a position of continued strength, but we are early days. And again, we're more focused on the power and the information and the data that it allows us to capture to be able to get the true predictive analytics that really complement, again, that best-in-class product that's out there in the field. Operator: Our next question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is talking a bit about the consumer. Can you give us some more color on what you're seeing in the CIH segment of the business, especially given the headwinds and some of the slowdown that we've been hearing as it relates to housing and then just overall consumer activity within R&R and other elements of their spend? Michael Schoeb: Yes. So Susan, I would say, one is we have a very, very unique product. It is a commercial true professional grade product. So one is, it's a highly differentiated product, but also highly differentiated strategy where our go-to-market is through independent shops and demand is extraordinary. We see no change in that. And again, we've got -- if you wanted to order a product today, you'd be waiting in order to get delivery. So no change in status on that. Susan Maklari: Okay. That's good to hear. And then maybe turning to the balance sheet. Can you talk about the path to further deleverage as well as any other priorities for uses of cash as it relates to perhaps shareholder returns and other strategic initiatives? Dean Nolden: Yes, Susan. First, we're very proud of what we've done year-to-date in terms of our deleveraging, as you've seen in our presentation in our prepared remarks, so significantly improved our balance sheet through the first 3 quarters and as a result of the IPO. Our main priority, as we've communicated we'll continue to be deleveraging through our strong free cash flow through both EBITDA growth and cash generation. And because of that strong free cash flow profile, we have the flexibility to push on multiple levers of capital allocation to continue to invest in CapEx, R&D, new products and capacity and productivity. We're not giving any forward guidance on what we intend to do further from a use of cash perspective. But given that cash flow profile, we have the flexibility to return capital to shareholders through potential share repurchases in the medium term and then to consider dividends over the long term. Operator: Our next question comes from Mike Halloran with Baird. Michael Halloran: Congrats on the launch. First question here. Maybe some thoughts on the trajectory into the fourth quarter. I know Dean comments were towards the mid-single-digit growth rate in the fourth quarter. That is a decel from earlier this year, not terribly surprising based on conversations before, but maybe help understand the dynamic for why the growth is tracking where it is and how we should think about sequential dynamics as we move to the fourth quarter? Michael Schoeb: Yes. So Mike, remember, this is 2 years of consecutive double-digit growth. The industry grows around a 5% sort of CAGR. So it's really just reverting to a more normalized growth rate, number one. And number two, it's always about prior year comps. The fourth quarter is the strongest quarter of the year for us. So really a combination of that -- those 2 items. But no change in demand, no change in customer sentiment, no change in anything that we see in the market. And as you know, we're very, very active in the field, always sensing, always touching, always trying to understand the signals, and we see no change. Michael Halloran: And then follow-up is just maybe a similar conversation on the margins with a particular emphasis on how the international margins track as we move into the fourth quarter? Moving pieces behind how the international margins track 1H to 3Q? And just kind of calibrating where those should be both in the fourth quarter and as we exit the year, what the appropriate baseline is? Michael Schoeb: Yes. So maybe I'll just touch on it and make sure that Dean, if I don't cover it clearly. So in the quarter, obviously, we had customer mix. Obviously, larger customers have a little bit bigger discounts and then we had the launch of some new products, particularly the Stax-X where we wanted to field the early adoption of that product. So that's sort of a temporary launch period. As you know, one of the characteristics about us that is unique is our margin parity between the U.S. and international markets is awfully close. So we don't see any change in that. Again, sometimes there will be blips one way or the other, as you know, emerging markets can sometimes be a little more volatile. So we flashed to that in the Middle East. But again, no change, and we feel really good about it. And those factories in Thailand and in the Czech Republic, where the bulk of what they are selling are extremely well positioned from a cost perspective. So we see no change. Dean Nolden: And Mike, I would just add on a longer-term view than just the quarter, you can see that year-to-date international revenue grew 10% and EBITDA grew 15%. And we enjoyed over 100 basis point improvement in adjusted EBITDA margin in international closing that parity gap with North America. So we're very proud of the year-to-date results we've achieved in international. Operator: Our next question comes from Chris Snyder with Morgan Stanley. Christopher Snyder: I believe earlier you referenced that the competitors have yet to push incremental price on the back of 232, at least broadly speaking. Did you guys push incremental price in Q3? It seems like the price in the quarter was about 4%. So I'm just trying to figure out if there's like a step-up in Q4 if you get the full realization of that? Dean Nolden: Yes. We did -- thank you, Chris. We did announce price increases in Q3. And there are some smaller ones that take place in Q4. So we've had various price increases as the year has progressed, so we will continue to see benefit from those on an annualized or full quarter run rate going forward. So our price increases were meant to offset our cost increases primarily related to tariffs. And so we'll continue to see that benefit into Q4 and going forward. Christopher Snyder: I appreciate that. And I guess to follow up, it feels like the guide is implying almost no volumes in Q4. It feels like price alone could maybe be mid-singles. So I guess, is there a conservatism in that? I understand it's been a long period of really strong growth for you guys, but it does seem like a pretty sharp falloff in volumes. And I think maybe the bigger question is like what does that mean for volumes in '26? Dean Nolden: Good. We're -- Chris, thanks. We're looking forward to giving you 2026 guidance when we release our Q4 results. So we're very bullish on our industry, as Mike alluded to in his prepared remarks. And this return to a normalized run rate in Q4 is our current expectation, given where we sit in the quarter, middle of the quarter and our visibility to our customer demand and our factory production. I'll turn it over to Mike. Michael Schoeb: Yes. And look, I will say again, no change in signals. We are, by nature, somewhat conservative, right? We try to under promise and over deliver. I'm not setting expectations there at all. I'm just telling you that is our culture. But no change in signal, no change in demand. I'll repeat what I said earlier, it's a tough Q4 comp. The industry is still vibrant. It is growing. We do not see changes in terms of that. And as we give you guidance on '26, we look forward to confirming that outlook. Operator: Our next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Congratulations. Maybe to start with and not to put too fine a line on sort of Q4, but are there any sort of nuances that we should be mindful of between North America and international, as you think about sort of what happens in Q4? Michael Schoeb: Not really. I mean it's -- I'm trying to think through your question because it's a good one. But nothing significant that I can tell you, we, again, would expect to change. Again, emerging markets sometimes get lumpy. So that happens. We've seen a little bit of that in our Middle East Africa business, which is less than 3% of revenue. So sometimes that happens, but I -- and it can vary from quarter-to-quarter, but the core the markets that really matter for us that are -- and hopefully, I'm not offending any of our customers in these other regions. But given our revenue percentage, right, it's really U.S., Europe and Asia for the most part. That's how I'd answer that. Ketan Mamtora: Got it. No, that's helpful. And then maybe one for Dean. As you think about deleveraging, where do you think sort of you want to get to in terms of a kind of more normalized level? Dean Nolden: Yes. Thanks for the question. And I think we'll be prepared to discuss that as we give guidance in first quarter of next year for 2026 and beyond. But I would emphasize, I guess, in what we said that this business has a very strong free cash flows and deleveraging will continue to be our #1 priority, and you've seen that in our balance sheet through the end of September. And we've historically deleveraged a half to a full turn per year organically, and we will continue to do that. So while we continue to invest in the business for growth, new product productivity, et cetera. So we have multiple levers at our disposal, and we'll continue to manage those and look forward to managing those to return value to our shareholders over the long term, but look forward to giving that guidance early next year. Operator: Our next question comes from Kyle Menges with Citigroup. Unknown Analyst: This is Randy on for Kyle. I guess just on the margin side, outside of volume and price, what are some of the other margin drivers we should be thinking about in 2026? I mean it'd be right to get some more color on the cost down and manufacturing efficiency initiatives that you guys have in place, and how we should be thinking about that contributing to margin going forward? Michael Schoeb: Yes. So maybe I can start and then Dean, you can add a little more color. So mix -- and if you -- maybe I'll refer you back to sort of Slide 9 when we talk about it, but mix is a really important part of our margin. And so the larger capacity product, right, more engineering content, less competitive pressure and just more value, frankly, that gets offered to the users of those larger products. So mix is a big part. That's meaningful. On the cost down side, look, there's always opportunity, but as we have stressed continually, quality is really the one thing that our customers care about. They talk to us about it all the time. So we do have cost down. There are opportunities. We've been pretty good at it. But we're very methodical, very careful, very slow because you have dynamic engineering and a product that is bouncing around, particularly in terms of a washer and there are always unexpected things that happen. You can't always get it certainly on a computer-aided design certainly in our laboratories, which we have extensive ones across the world. So we do a lot of field testing. And again, we're very, very cautious, but it's there. It's meaningful. We'll continue to do it. Incremental volumes are meaningful in terms of the contribution that they get to us. And then there is a lot of opportunity in these factories to optimize efficiency and those teams are working on them very diligently day after day. And it's a combination really of all those things. Unknown Analyst: Got it. That's helpful. And then just maybe a quick one on capital allocation. I mean, I know that your near-term priority is to you continue to deliver. But can you kind of frame what the M&A pipeline looks for you guys? It would be great to get some color on maybe the size of the acquisitions you've done in the past? And maybe some areas of your portfolio where you could continue to target, whether that might be more on the distribution side, the tax side or any other potential gaps you'd like to fill? Michael Schoeb: Yes. So maybe I'll start off. So you should think of us as very capable in terms of doing M&A. As we said, we've done 16 in the U.S. They are mainly smaller tuck-in businesses is part of the strategy, but it is not something that we need to have. So we're capable of growing at quite attractive rates and quite attractive margins. When we see opportunity, we will enter conversations. We have some of those ongoing, I'm not in a position to comment on them. And then we're always looking again on the manufacturing side, but there's not really anything that would be close or anything that we would be overly excited about, and let me emphasize that we need at the moment to continue to grow as we have in the past. Operator: And our final question comes from Damian Karas with UBS. Damian Karas: Congratulations on the IPO and your third quarter results. I have a follow-up question on price. You talked about some additional actions that you are taking in the fourth quarter. How much pricing benefit that maybe didn't flow through P&L this year, would you expect to carry over into 2026? And just kind of a hypothetical, if we were to see tariffs ease as a result of ongoing trade negotiations, would you expect that half of lower prices at all? Michael Schoeb: Yes. Go ahead, Dean. Dean Nolden: First, I would say, from a carryover perspective, again, I apologize, and we're looking forward to giving guidance in the first quarter for 2026, but we had various price increases throughout the year, some in the second quarter, some in the third and then some in the fourth. So you will see some benefit next year from carryover pricing actions into next year from a price and profitability standpoint. So now I'll turn it over to Mike. Michael Schoeb: And then from a price give back, we don't have a history of doing that. But we're always, as I stated earlier, sensing, talking, seeing -- and I think one of the strengths is -- for us is we are very nimble. We are very quick. If we sense anything, you will see us act. But there's not a history of doing that, and I wouldn't expect that to change. Damian Karas: Okay. That's helpful. And you talked a little bit earlier about in North America, some of that strength in the market is new entrants emerging. Curious if you have a sense for what proportion of this emerging customer base you're winning? Is that keeping up with your installed base share of the market? Or is that maybe an opportunity where you're outgrowing? Michael Schoeb: Yes. Good question. So if you think about the newer entrant coming in, is they're really looking to scale up faster. They are looking for a multisite or as I stated in my earlier comments, oftentimes, it's multistate. So what you must have to do that is you need a full digital suite to allow that operator to understand what's happening to be able to maximize revenue to be able to manage their costs and really get the intelligence. And as a matter of fact, we call our digital platform insights because it gives the operator insights on how to be more effective, how to be more efficient and when they adopt those technologies, the financial performance of those stores improves. So we think our value proposition is very strong. but particularly for the newer entrant, again, looking to scale, we believe we have, by far, the most comprehensive digital solution in the marketplace, and we are continuing to invest in that. We see a lot of opportunity for continued value. And so you'll see us strengthen that offering. Operator: This concludes today's question-and-answer session. I would now like to turn the call back over to Mike Schoeb for any additional or closing remarks. Michael Schoeb: Okay. Well, thank you very much. That concludes our meeting. I really, really appreciate everybody joining. Thank you for the questions, and we look forward to updating you on the next quarter. Thanks again. Operator: Thank you. That concludes today's third quarter 2025 Alliance Laundry Earnings Conference Call. You may now disconnect your lines at this time, and have a wonderful day.
Operator: Good day, and thank you for standing by. Welcome to H World Quarter 3, 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn the call over to your first speaker today, Mr. Jason Chen. Thank you. Please go ahead. Jason Chen: Thank you. Good morning, and good evening, everyone. Thanks for joining us today. Welcome to H World Group 2025 Third Quarter Earnings Conference Call. Joining us today is our Founder and Chairman, Mr. Ji Qi; our CEO, Mr. Jin Hui; our CFO, Ms. Chen Hui; and our CSO, Ms. He Jihong. Following their prepared remarks, management will be available to answer your questions. Before we continue, please note that the discussion today will include forward-looking statements made under the safe harbor provision of the United States Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in our public filings with the SEC. H World Group does not undertake any obligations to update any forward-looking statements, except as required under applicable laws. On the call today, we will also mention adjusted financial measures during the discussion of our performance. Reconciliations of those measures to comparable GAAP information can be found in our earnings release that was distributed earlier today. As a reminder, this conference call is being recorded. The webcast of this conference call as well as supplementary slide presentation is available at ir.hworld.com. With that, now I will hand over the call to our CEO, Mr. Jin Hui, to discuss our business performance in the third quarter of 2025. Mr. Jin, please. Hui Jin: [Interpreted] I believe many of you have noticed that 2 weeks ago, on the occasion of H World's 20th anniversary, we successfully held a partner conference being 20 years young forging ahead. Therefore, before diving into our third quarter performance review, I'd like to take a few minutes to once again share some of our thoughts on the long-term outlook of China's hotel industry and us. In summary, we believe H World has great long-term growth potential by deeply rooted in China market. Currently, we can observe that while the industry supply is relatively ample, high-quality supply is in noticeable shortage. Compared to the mature U.S. market, China still has low hotel trend penetration and the industry remains fragmented. As a unified large singular market similar to the U.S. but with an even larger population base, the increase in churn ratio and the phase-out of low-quality supply will inevitably become a long-term trend. More importantly, the demand for travel is gradually shifting from discretionary demand to necessity for Chinese consumers nowadays. China has the best infrastructure worldwide with extensive high-speed rail and highway network coverage. This has made traveling much easier and more convenient, facilitating the penetration of accommodation needs from major cities to country-level markets. Additionally, Chinese consumers are beginning to redefine consumption concepts and oriental aesthetics. We can see a substantial increase in the consumer desire in seeking sales pressure, which further drives the growth of experiential consumption such as tourism, exhibitions, concerts, and sports events. Apparently, the current supply quality in China's hotel industry is unable to fully meet consumers' increasingly upgraded and diversified demand. Therefore, supply side reform will be the main theme of the future industry development and this will undoubtedly bring tremendous growth opportunities for domestic branded hotels like us. As the leading players in China's hotel industry, we will continue deepening our roots in the China market, pursuing high-quality growth and delivering service excellence with a brand-led approach to reduce industry with centering on high quality and efficiency. We are full of confidence in the future development of China's hotel industry. After sharing our perspectives on the long-term outlook, now let's turn to our third quarter performance. We are pleased to see early signs of improvement in the overall market condition. On the demand side, data from railway, aviation and the number of tourists indicate that the domestic travel demand continuously to grow steadily with the increasing demand for travel being particularly evident during the National Day and mid-autumn festival holiday period. On the supply side, third-party data shows that the sequential supply growth has stabilized and the year-over-year growth rate has moderated. However, we still need more time to see if this trend is sustainable. We are glad to report that H World delivered good results across several key metrics in the quarter. In the third quarter, we achieved a year-over-year increase in ADR while maintaining a relatively stable occupancy rate driven by refined revenue management initiatives, including optimizing pricing strategies across flagship hotel, newly opened hotel and a mature hotel as well as refining promotional strategies and enhancing incentive programs. As a result, our RevPAR stayed largely stable compared to the same period last year. Breaking through in new cities and regions and further penetrating in the lower-tier cities, we achieved another quarter of high-quality network expansion driven by a 17.3% year-over-year increase in the number of rooms in operation. Our group hotel GMV grew by 17.5% year-over-year to RMB 30.6 billion. Meanwhile, along with our network expansion and the continuous enhancement of H Rewards membership program, our membership base exceeded 300 million by the end of third quarter, up 17.3% year-over-year and ranking #1 globally. In addition, room nights sold to the members rose 19.7% compared to the same period of last year, exceeding RMB 66 million and accounting for 74% of the total room nights sold, which is also a leading position in worldwide. More importantly, our monetized and franchised business delivered strong growth in its hotel network revenue as well as profit. Our third quarter group M&F revenue rose 27.2% year-over-year to RMB 3.3 billion, and the group M&F gross operating profit increased by 28.6% year-over-year to RMB 2.2 billion, contributing over 70% of the group's total gross operating profit. In terms of hotel network expansion, we remain steadfast in executing our strategic focus on economy and middle scale segments to serve the mass market. This strategic positioning aligns precisely with the current consumer behavior of seeking value for money products and services and can further demonstrate our competitive advantages. By continuously upgrading our core products and enhancing our excellent service with a customer-centric principle, we are enhancing the quality of our hotel portfolio and strengthening our brand positioning to achieve long-term sustainable growth. The new version of HanTing along with our middle-scale brands, Ji Hotel and Orange Hotel, will serve as the key growth engines for our expansion in the lower-tier cities and provides strong foundation for achieving our strategic goal of 20,000 hotels in 2,000 cities. At the same time, H World has also made rapid breakthrough in the upper-midscale segment. At the end of third quarter, our number of upper-midscale hotels in operation and in pipeline exceeded 1,600, up 25.3% year-over-year. More importantly, to meet the growing consumer demand for quality living or oriental aesthetics and unique experiences, we recently launched a brand-new upper mid-scale brand, Ji Icons during our 20th anniversary. The introduction of Ji Icon further enriched our upper-midscale brand portfolio and help us to achieve comprehensive coverage from oriental to Western brands and from selected service to lifestyle hotel offerings. Ji Icon's brand embodies a combination of subtle understated and elegant oriental aesthetic, enabling a value lift from accommodation functionality to a holistic lifestyle experience. The success of Ji Hotels has demonstrated Chinese consumers' ethnicity for oriental aesthetics and culture. We are confident that building upon Ji Hotels Foundation, Ji Icon will further deepen the expression of oriental aesthetics and the culture element. Moreover, our group's strong supply chain and modular construction capability as well as our global leading membership and direct sales capability will effectively support our Ji Icons to reach low construction cost, high operational efficiency, and high product quality. We believe Ji Icons will become one of the big driving force to support our penetration in the upper-midscale segment and has the potential to become another world-class brand after HanTing, Ji Hotel, and Orange brand. We remain focusing on strengthening our direct sales capabilities through H Rewards membership program. Our membership program and direct sales capability are vital to our sustainable long-term business growth. Our membership base has been growing as we expand our hotel network and entering into more cities. By the end of third quarter, H Rewards membership exceeded 300 million and the room nights sold to the members grew 19.7% year-over-year with enlarging portion of contribution to the total room nights sold. Going forward, we will further enhance our membership benefits, expand loyalty points usage scenarios, and explore cross-industry partnership to strengthen member engagement and enhance direct sales capability. This concludes the business update for H World's Third Quarter 2025. Now I will hand over the call to our CFO, Ms. Chen Hui, to present the group's financial performance for the quarter. Hui Chen: Thank you, Jin Hui. Good evening, and good morning, everyone. Let me walk you through our third quarter financial overview. During the quarter, our group revenue grew 8.1% year-over-year to RMB 7 billion and Legacy-Huazhu revenue grew 10.8% year-over-year to RMB 5.7 billion, both surpassed the high end of our previous guidance. It was mainly driven by better-than-expected RevPAR performance as well as hotel network expansion. Group adjusted EBITDA rose by 18.9% year-over-year to RMB 2.5 billion, with margin improved by 3.3 percentage points year-over-year to 36.1%. The faster adjusted EBITDA growth and margin expansion were mainly contributed to further enlarged profit contribution from our asset-light business. Cost savings from Legacy-DH, partially on the absence of RMB 81 million restructuring costs incurred in the third quarter last year as well as cost optimization efforts from Legacy-Huazhu. Looking into our asset-light manachised and franchised franchise business. In the third quarter, powered by our high-quality asset-light network expansion and better-than-expected RevPAR performance. Our manachised and franchised business revenue recorded a robust 27.2% year-over-year growth to RMB 3.3 billion. More importantly, manachised and franchised business gross operating profit rose by 28.6% year-over-year to RMB 2.2 billion with a margin of 68% in the third quarter. As a result, gross operating profit contribution from our manachised and franchised business further enlarged to 70% in the third quarter, up 11.1 percentage points year-over-year. Moving to our cash flow and liquidity position. In the third quarter, we generated RMB 1.7 billion operating cash flow. And at the quarter end, the group had RMB 13.3 billion cash and cash equivalents and RMB 6.6 billion net cash on the balance sheet. Lastly, on our guidance for the fourth quarter of 2025, we expect our group revenue to grow 2% to 6% compared to the same quarter last year and 3% to 7% if excluding DH. The manachised and franchised revenue in the fourth quarter of 2025 is expected to grow in the range of 17% to 21% compared to the fourth quarter last year. With that, we are ready to take your questions. Operator, please open the line for Q&A. Operator: The first question comes from the line of Dan Chee of Morgan Stanley. Dan Chee: My question is about RevPAR and demand trend. Firstly, on the company's fourth quarter China revenue guidance of 3% to 4% year-on-year growth, what's the implied RevPAR assumption? Can the management share any 2026 outlook for us, especially after seeing third quarter RevPAR decline turns almost flat, especially on the new experiential demand Mr. Jin mentioned versus the original business demand weakness. So which one is driving the RevPAR stabilization? Hui Jin: [Interpreted] So as many of you may notice that in the third quarter, our RevPAR is a bit stabilized. On a year-over-year basis, it's kind of flat. It's not further declining compared to last 2 quarters. And of course, we observed several trends during the quarter. In terms of the demand, obviously, the demand was mainly driven by the leisure travel demand, especially from the tourism activities starting from summer holiday to September and of course, the beginning of the October National Day and mid-autumn festival as well. But on the supply side, as I mentioned before, on a year-over-year basis from the third-party data, we saw the supply growth actually moderated, so it was not growing as fast as before. So it's becoming a bit moderated, so which brings some of the benefits to the RevPAR stabilization. But more importantly, for us, S1 has been putting a lot of efforts over the last 6 months in terms to further enhance our, for example, the revenue management, as I mentioned in my prepared remarks, in terms of setting a new pricing strategy among different tiers of hotels like flagship new hotels and mature hotels. And therefore, I think -- but looking to the fourth quarter, because we are entering into the low season, there is still some of the uncertainties, so as of now, based on our revenue guidance, it implies our fourth quarter RevPAR, which is somewhere around flattish to slightly positive for the fourth quarter. In terms of business demand and leisure demand, of course, there are still some of the macro uncertainties. So to be very frank, the business demand is not that strong yet. But on the other hand, for the leisure demand, it was continuously growing. As I mentioned previously, for the Chinese consumers nowadays, the leisure traveling demand has become -- gradually becoming a necessity instead of discretional demand and especially for some emerging new demand such as concerts, marathon, sports events, and inbound traveler as well. So the leisure remained very strong. In terms of the outlook for the next year, we think it's a bit too early. It still takes time to see whether the stabilization in terms of the RevPAR and the supply-demand equivalent is sustainable. So we will give more color for our fourth quarter earnings. Thank you. Operator: Our next question comes from the line of Sijie Lin of CICC. Sijie Lin: My question is about RevPAR breakdown. If we look at ADR and OCC, we see that ADR performed better recently. So trying to understand the reason behind this and the sustainability. Also, if we look at the gap between blended RevPAR and same-hotel RevPAR, the gap remained at similar level with last few quarters. So is there any chance that the gap narrows in the future? And what measures need to be taken? Hui Jin: [Interpreted] In terms of the ADR, of course, for 2025, the improvement of RevPAR has been a very key task for our top management team. And of course, they have been putting a lot of efforts on that. So in terms of ADR, as I mentioned earlier, so we have doing a lot of works on further enhancing our revenue management capability, especially on the pricing for different layer of the hotel and different products. And of course, on the front line, we give a lot of various incentives to our salespeople to further motivate them to do a lot of sales activities. However, apart from these things we have been doing over the 6 months -- over the last 6 months, actually, the ADR increase in the third quarter is a result from our continuous efforts on the product upgrades, the quality improvements as well as our service excellence because we have been doing these things for many, many years and continuously doing so, and we have more and more recommendations from our customers. So that's why in certain areas or in certain regions, our products and service is definitely in a leading position, which gave us some of the pricing power, which led us to achieve a better ADR for the third quarter. And in terms of the like-for-like hotel or mature hotels, the gap, we are glad to see the year-over-year decline was narrowed significantly in the third quarter. On one hand, we -- in terms of the pricing, we use a lot of different layer for pricing the different products. Over the last 1.5 years, we opened a lot of high-quality hotels, new hotels in some of Tier 1, Tier 2 cities, which is creating some of the cannibalization to the existing hotels. But through different pricing -- in different pricing strategy for different products, I think we are seeing some of the improvements for our mature hotels. And fourth -- and more importantly, we keep doing a lot of existing hotels upgrades to further improve the hotel quality itself in order to rise -- improve the RevPAR as a whole. Operator: The next question will come from the line of Lydia Ling of Citi. Lydia Ling: Lydia from Citi. So I have a question regarding the brand, especially for the newly launched upper-midscale brand, Ji Icons. So could you actually share some -- your plans for this brand and such as your store opening plan and also the store economics like the CapEx and the payback period? And how actually your advantage versus like the current other leading upper-midscale brand in the market? And how is the feedback from the franchisees so far? Hui Jin: [Interpreted] Okay. So in terms of the Ji Icons brand, so obviously, the launch of Ji Icons brand has shown a very strong determination for H World to break through and development in the upper-midscale segment with multi-brand strategy. This trend is very clear. And secondly, based on the current culture confidence or Chinese culture confidence and also the preference from the Chinese consumers on our oriental culture or oriental service as well as oriental lifestyle that also basically support the launch of the Ji Icons brand. And as I said before, Ji Icons is going to definitely become one of the core brands in our upper-midscale segment. And we hope this brand can be the best brand or the best hotel that Chinese customers will like the most. So in terms of the UE, in terms of the CapEx you asked, we hope we can share more information after the first hotels opened. Thank you. Operator: Our next question comes from Simon Cheung of Goldman Sachs. Simon Cheung: The question is related to the hotel opening. In the third quarter, they've done very well in terms of hotel opening over 700. And I think in the first 9 months, they opened more than 2,000 hotels. That's on track or even exceeded the 2,300 hotel that they have targeted for the full year. Wondering whether there's any update for that and in particular, also on the new signing as well. And then on the related questions, given the focus and the strong momentum that they have seen in the upscale segments -- upper-midscale segments where they achieved 1,600 hotels secure. And we have seen similarly HanTing, they've done like 5,000 and that Ji Hotel done 4,000. Wondering whether they have any targets for the uppermid-scale in the longer run. Hui Jin: [Interpreted] Benefiting from faster new signings in 2023 and 2024 post COVID as well as further improvements in terms of our supply chain capability, which resulted improvements in conversion ratio from the pipeline to new openings. So we achieved a quite good new openings for the first 9 months, which is slightly more than 2,000. So therefore, for the full year, we could possibly open a bit more than 2,300 hotels as what we guided previously. But again, so we emphasized several times over the last several quarters' earnings call. In terms of the new signings and openings, we will focus more on quality expansion instead only looking for scale. So that the never changed. So we're going to continuously implementing this strategy for high-quality sustainable growth. In terms of the upper-mid segment, as I said, we have reached 1,600 in both pipeline and the operations, which also achieved a pretty rapid growth. But however, if you look into a longer term, for example, 2030, we're going to still focus on the mass market with the economy and the middle scale. So in terms of the proportion, economy and middle scale going to still contribute the majority. But in terms of the growth rate, we hope our upper mid segment could grow the fastest in the industry and become the leading players in China market by 2030. Operator: Our next question comes from Ronald Leung of Bank of America. Ronald Leung: Let me translate my questions in English. So I have two questions. My first question is about cost and margins outlook. The company has achieved very decent margin expansion in the past 2 quarters. Could management share with us the latest outlook on cost control and also margins? My second question is about the membership program. So the overall membership has grown decently to over 300 million by the end of 3Q '25. Could management share an update on the strategy on how to further enhance memberships loyalty and also marketing strategies to improve the conversion rates? Hui Jin: [Interpreted] Okay. So in terms of our members, so definitely, direct sales and membership is one of our core strategy. We are glad to see in terms of the member base as well as the room nights sold to our members continuously to grow. But we think that's still not enough. So that's why we have been doing quite a lot of jobs over the past several months. First of all, we introduced a price guarantee program, which is going to ensure our members to get the best price and service as also the unique experiences at the hotel. And secondly, we're also trying to fulfill more diversified demand from the leisure travelers and some of the emerging demand, for example, as I mentioned earlier, like sports events, like inbound travelers. So basically, the H Rewards membership program is gradually shifting from only business travelers to fulfill more diversified demand. And thirdly, we are also enhancing our capability to receive more business clients and corporate clients to further enhance our exposures. And lastly, we have been experimenting a lot of cross-industry cooperation with a lot of top-tier vertical players trying to enhance members' experiences and improve their engagement. Operator: Our last question comes from... Jihong He: [Foreign Language] Operator: Sorry, please go, continue. Jihong He: [Interpreted] Okay. Let me do the translation. So overall, the adjusted EBITDA margin improvement was mainly because of our asset-light strategy. So obviously, the M&F has higher margin compared to leased and owned. In terms of the cost control, in terms of the hotel operating costs, by leveraging our strong supply chain capability, we continuously to reduce the cost per room night sold. And for our leased and owned hotels, we're continuously seeking for more rental reduction, just trying to improve the profitability level of our leased and owned hotels. And on SG&A perspective, we're continuously optimizing our mid and back office and headquarter, just trying to control the cost. In terms of sales and marketing, we will based on ROI and do some of necessary investments on, for example, the hotel brand membership as well as the user -- new user acquisition. So as mentioned by Jin Hui, so we have been systematically improved our capability to improve our revenue management so as in the cost control side. So we are also doing a systematic capability improvement. Thank you. Operator: Thank you. We have come to the end of the question-and-answer session. That concludes the conference call for today. Thank you for your participation. You may now disconnect your lines. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]
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.
Operator: Good day, and thank you for standing by. Welcome to the Third Quarter 2025 Legence Earnings Conference Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Son Vann. Please go ahead. Son Vann: Thank you, Daniel, and good morning, everyone. Welcome to Legence Third Quarter 2025 Earnings Call. With me today are Jeff Sprau, our Chief Executive Officer; Stephen Butz, Chief Financial Officer; and Steve Hansen, Chief Operating Officer. This morning, we issued 2 press releases, one covering our third quarter results and the other on our pending acquisition of the Bowers Group. There are also separate slide presentations that accompany each release. All materials can be found on the Investor Relations section of our company's website, wearelegence.com. Before we begin, I want to remind you that comments made during this call contain certain forward-looking statements and are subject to risks and uncertainties, including those identified in our risk factors contained in our SEC filings. Our actual results could differ materially, and we undertake no obligation to update any such forward-looking statements. During this call, we will refer to certain non-GAAP financial measures, which should not be considered in isolation from or as a substitute for measures prepared in accordance with generally accepted accounting principles. Please refer to our quarterly earnings presentation for reconciliations of these non-GAAP measures to the most directly comparable GAAP measures. With that, let me turn the call over to Jeff. Jeffrey Sprau: Thank you, Son, and thanks, everyone, for joining today's inaugural quarterly earnings call as a public company. First off, I want to thank everyone involved with our successful IPO and express my gratitude to our new shareholders that have put their trust in Legence. Today, we'll discuss our record third quarter performance as well as our announcement to acquire the Bowers Group. One of the premier mechanical contractors in the Northern Virginia, D.C. area. Now for some on this call who may not be familiar with Legence, I want to give a brief overview of who we are. Legence is a leading provider of engineering, installation and maintenance services for mission-critical systems in buildings. We offer the full suite of building services from engineering and consulting to the implementation and maintenance of these complex systems. In essence, we are a design builder with national scale. This is a key differentiator. Most companies in our industry are either an engineering firm or a company that focuses solely on installation. We're different in that we provide both capabilities on a national scale. We focus on mission-critical, technically demanding MEP or mechanical electrical and plumbing systems. For mechanical, think HVAC. Electrical is self-explanatory. On plumbing, this also includes high-purity process piping, which is critical to the semiconductor, biotech, pharma and food and beverage industries and now extremely important to data centers as they transition to liquid-to-chip cooling systems. Another differentiator is the markets we serve. We skew towards high-growth industries, specifically data centers and technology and life science and health care, which accounts for over half of our revenue mix. We also service more stable target-rich markets such as education, state and local government, mixed-use and a few other industries. By serving a diverse mix of customers, we're able to transfer technical knowledge between end markets. Take, for example, our success with data centers. We leveraged our decades-long expertise in the semiconductor space and applied those same concepts to our direct liquid-to-chip cooling systems for the data centers that are being built today. This knowledge sharing is critical to our ability to evolve with ever-changing technical demand of our customers and our end market diversification positions us well for long-term success. Turning now to our financial results, which Stephen will discuss in detail. From my perspective and with gratitude to our amazing employees, we had an incredible record-setting quarter with year-over-year revenue growth of 26% EBITDA growth of 39% and backlog growth of 29%. Even more impressive is that this growth is all organic. EBITDA margins improved by over 100 basis points, driven by strong project execution, particularly with our fabrication work. Our book-to-bill ratio, which is a good indicator of our outlook, was also very strong at 1.5x. In this morning's press release, we also provided our initial guidance for revenue and adjusted EBITDA through 2026. Stephen will talk more on our guidance. This outlook reflects the strong momentum in our business, driven by the solid growth in our backlog. Shifting to our announcement that we've entered into a definitive agreement to acquire Bowers. We're really excited about this agreement to acquire one of the premier mechanical contractors in the Northern Virginia, D.C. metro area with over 40 years of expertise in mechanical and plumbing solutions for complex building systems. This region is well known as data center alley, where the largest installed base of data center capacity in the world resides. And Bowers is one of the leading mechanical contractors for the data center and high-performance computing market. Their strong reputation for safe operations and operational excellence aligns perfectly with our values. The integration of our teams will foster collaboration and knowledge sharing, enabling us to drive growth and ultimately deliver value for our clients and our shareholders. Now this transaction is compelling for a number of reasons. With Bowers, we are adding at scale, high-quality mechanical capabilities in the Northern Virginia region, complementing our existing electrical capabilities in the area. Bowers is one of the most well-regarded mechanical contractors in the region, and we have firsthand knowledge of their expertise from the many projects that we've partnered on. Bowers has some 1,700 employees, most of whom are highly skilled unionized crafts people. Similar to Legence, Bowers has a strong commitment to training, development and retention of top talent. Their leadership consists of seasoned veterans having an average of over 20 years' experience at Bowers. I've gotten to know the leadership better over the past few months, and I couldn't be more impressed by both their knowledge and experience. We both share a common desire to deliver at the highest level and capitalize on the extraordinary growth opportunities in front of us. Their leadership team is staying on board with Legence, adding to our deep bench. As previously discussed, the Northern Virginia, D.C. area has the most data center capacity globally, and Bowers has been at the center of this build-out since its first data center project for Amazon way back in 1999. The outlook for new construction of data center capacity remains strong in the region. In addition, the retrofit market is a significant area of opportunity given the massive and aging installed base of data centers. Roughly 1/4 of Bowers' data center revenues are from retrofit projects. Bowers also brings over 370,000 square feet of fabrication capacity strategically located in the D.C. area. Bowers has historically used this capacity for their internal project delivery needs. We now have the opportunity to utilize this capacity to serve customers along the East Coast, Southeast and Midwest as demand for modular fabrication and liquid-to-chip solutions continues to grow, especially from data center customers. I'm also very excited about the tremendous cross-selling potential that comes with ours. As previously discussed, their mechanical expertise is a great complement to our existing electrical solution capabilities in this key Mid-Atlantic region. Gaining access to their extensive fabrication resources creates an opportunity to serve a broader range of customers in different regions. Furthermore, by offering our engineering and consulting solutions to their client base, we see exciting opportunities to drive revenue growth for both organizations. Outside of Bowers, on October 1, we closed on 2 attractive tuck-in acquisitions, one on the engineering side and the other on the installation side. AZPE is an Arizona-based engineering firm with customers in the data center and manufacturing space, among others. Legence has partnered with them on several projects previously, and we know them well. IMD is a Colorado-based mechanical contractor, primarily serving the health care, manufacturing and education end markets in the Mountain West region. This is a good geography for technically demanding buildings where we've been looking to expand for some time. It also gives us another strategic and centrally located area to potentially expand our fabrication capacity. Both companies also have interesting cross-sell potential with our existing brands and are a great cultural fit. With that, let me turn the call over to Stephen to discuss our quarterly results and provide more transaction details on Bowers. Stephen Butz: Thank you, Jeff, and good morning, everyone. I also want to echo Jeff's appreciation for everyone's efforts in making the IPO such a success as well as preparing the company for this initial reporting cycle as a public company. For the remainder of the call, I'll begin with a review of third quarter 2025 results in comparison to third quarter of 2024. Following my review of our historical results, I'll make some brief comments about our current outlook, discuss our balance sheet and the improvements we've made to our leverage and close out with additional commentary on the Bowers acquisition before opening up to Q&A. Please note that we posted separate presentations pertaining to our quarterly results as well as information on Bowers on our IR website. During the third quarter of 2025, we generated revenue of $708 million, an increase of $147 million or 26% from the year ago quarter. 100% of this increase was organic, with both segments generating solid growth. Breaking down revenue growth at the segment level, starting with Engineering and Consulting. Segment revenue increased by 9.5% to $212 million. Both service lines grew from prior year levels. Engineering and Design Services increased by 11.3%, driven by strong growth in Life Sciences and Healthcare as well as state and local government end markets. Program and project management services grew by 7.6% from higher demand, primarily with hospitality and entertainment clients, driven by work at NBC Studios, one of our newer clients. Moving to Installation and Maintenance. Segment revenue of $496 million increased by an extremely robust 35% versus the year ago quarter. Again, this growth was entirely organic. Installation and fabrication services accounted for the majority of the segment growth, increasing by 41%. Much of the increase was in the data center and technology market, both with installation work and fabrication of liquid-to-chip cooling systems for data centers in Northern Virginia, Arizona, Iowa, Ohio and Georgia. This service line also saw strong growth in life sciences and health care market as we're working on several large hospital installation jobs and a large fabrication project for a pharmaceutical client. Maintenance and services also grew at a healthy rate of 12.3%, mainly from our data centers and technology and life sciences and health care clients with the growth skewed towards service break fix activity versus preventative maintenance. Consolidated gross profit for the third quarter 2025 increased by 25% to $148 million. Consolidated gross margin slipped by a very modest 20 basis points to 20.9%, mainly due to the overall revenue mix shift toward the Installation and Maintenance segment, which carries a lower gross margin profile than our Engineering and Consulting segment. This was partially offset by higher Installation and Maintenance segment margins. Delving further into margins at the segment level. Third quarter 2025 Engineering and Consulting gross margins of 31.7% declined from year ago margins of 33%, driven by a slightly higher percentage of subcontractor expenses and a lower margin in our engineering and design service line. This was partially offset by a modest revenue mix shift toward the engineering and design service line, which carries a higher margin than program and project management. For the Installation and Maintenance segment, gross margin improved by 140 basis points during the third quarter versus the year ago levels to 16.3%. The Installation and Fabrication service line margins benefited from exceptional project execution, particularly with our fabrication work for data center and technology clients. Turning to SG&A expense. Third quarter 2025 SG&A totaled $85.9 million compared to $67.2 million in the year ago quarter. Included in the third quarter 2025 SG&A is approximately $14.7 million of stock-based compensation. While we incurred $18.6 million in stock-based compensation in total during the quarter, $4 million is recorded in cost of sales. The overwhelming majority of the stock-based compensation, in fact, $18.1 million of the $18.6 million is related to our legacy profit interest that are marked to market each quarter and will ultimately be paid for by Legence Parent 1 and 2 and will never be borne by Legence Corp. So while this is recorded as an expense on Legence Corp.'s consolidated results as the compensation will ultimately go to our employees, Legence Corp. Class A shareholders do not bear the burden of this expense. The remainder of the increase in SG&A was primarily driven by higher professional fees related to our IPO. When backing out the same adjustments that impact SG&A on our non-GAAP adjusted EBITDA schedule, adjusted SG&A for the quarter of $66.7 million increased by 11% from $59.9 million in the year ago quarter and declined to 9.4% of revenue from 10.7% in the year ago quarter. That gets us to adjusted EBITDA for the third quarter of $88.8 million, an increase of 39% from prior year levels. Adjusted EBITDA margin for the third quarter of 2025 was 12.5%, approximately 110 basis points higher than year ago levels as we were able to contain adjusted SG&A growth to a slower rate than our overall revenue growth. Depreciation and amortization totaled $27.5 million in the third quarter, down $1.2 million from the year ago quarter with the decline primarily stemming from the runoff of contract backlog and intangible assets from prior acquisitions. Interest expense of $28.2 million for the third quarter increased by $4.5 million from a year ago, primarily due to the higher average debt balance than the year ago period, though it does include about 0.5 month of lower interest costs as a result of our debt repayment with the IPO proceeds. Turning to income tax. Our third quarter 2025 tax provision was $4.1 million. Because pretax income at the consolidated level was fairly close to breakeven for the quarter, this makes for a quarterly effective tax rate that isn't overly meaningful. We may have a similar dynamic in the fourth quarter. Looking ahead to 2026, the effective tax rate is likely to be more in line with our state and federal statutory rate of approximately 30%. Cash taxes for 2026 are estimated to be in the mid-$20 million range. This is before any payment related to the tax receivable agreement, or TRA, which likely won't have any payment requirement until late 2027 at the earliest and only if tax savings are actually realized. Switching gears to backlog. At the end of the third quarter, our consolidated backlog and awards totaled $3.1 billion, up sharply by 29% from the year ago levels, and our consolidated book-to-bill ratio was a very robust 1.5x for the quarter, certainly another highlight. This book-to-bill was particularly strong given our record revenue in the third quarter. Total backlog came mainly -- growth came mainly in the Installation and Maintenance segment, which grew by 46% to $2.2 billion. Engineering and Consulting backlog grew modestly, though I should point out that third quarters are usually a seasonally high period for the Engineering and Consulting revenue. Not surprisingly, the data center and technology end market was the key driver in backlog and awards growth, but we also saw some healthy gains in life sciences and health care as well as state and local government clients. Turning now to our guidance. As you saw in our earnings release, we are establishing fourth quarter 2025 and full year 2026 guidance for consolidated revenue and adjusted EBITDA. This guidance is for standalone Legence and excludes the impact of our pending acquisition of Bowers. For the fourth quarter, we expect stand-alone revenue of between $600 million and $630 million and adjusted EBITDA of between $60 million and $65 million. This compares to fourth quarter 2024 revenue of $548 million and adjusted EBITDA of $57 million. Our fourth quarter guidance reflects the seasonality we typically experience during this time of year. For the full year 2026, we expect to generate stand-alone revenue of between $2.65 billion and $2.85 billion and adjusted EBITDA of between $295 million and $315 million. Our 2026 guidance reflects the strong growth that we've experienced in backlog, but also a general trend of elongation in that backlog and awards on the I&M side. Growth in 2026 revenue will likely be a bit more skewed to the Installation and Maintenance segment following the trend in backlog growth. Just a few other housekeeping items to help with your modeling. Interest expense for the fourth quarter is expected to be in the $15 million range, with full year 2026 in the low to mid-$50 million range. Depreciation and amortization for the fourth quarter is expected to be in the mid- to high $20 million range, with full year '26 D&A in the low $100 million range. In terms of CapEx, fourth quarter is expected to approximate $20 million with the full year 2026 estimated to total in the low to mid-$50 million range. Approximately 2/3 of the 2026 CapEx forecast is for expansion, part of which is related to spending previously planned for 2025. but that has slipped into 2026. Now moving to our balance sheet, liquidity position and leverage. As previously disclosed, we utilized our net IPO proceeds of $780 million entirely for debt reduction, which reduced our total gross debt outstanding by nearly 50% to $836 million at the end of September. Strong operating results, coupled with improvements in working capital, led to our cash balance increasing to $176 million at the end of September, up from $98 million at the end of June. Liquidity at quarter end also included approximately $85 million of availability under our revolving credit facility. In late October, we successfully amended our term loan and revolving credit facilities. For the term loan, we extended maturities by 3 years to December 2031 and reduced our interest rate by 25 basis points, which will save us approximately $2 million in annual interest expense based on current debt levels. For the revolver, we extended maturities by 4 years to September 2030, increased the commitment amount from $90 million to $200 million and aligned pricing to match the term loan. Given the debt reduction, strong cash position and improved operating results, our net leverage ratio declined meaningfully at the end of the third quarter to 2.4x compared to 6.2x at the end of June and 3x pro forma for the IPO, which we believe demonstrates our ability to quickly delever. Now I'd like to make a few comments on Bowers. Bowers generated approximately $767 million of revenue and $72 million of EBITDA over the last 12 months ended September 30, 2025. For the full year 2026, we expect Bowers to generate revenue of between $825 million and $875 million and EBITDA of between $75 million and $85 million. Now please keep in mind that closing is expected sometime during the first quarter of 2026. So there may be a stub period of their financial results that won't be included as part of our results for 2026. Our base case expectation is that we close on February 1. This would imply incremental revenues of $725 million to $775 million and EBITDA of $67 million to $75 million for Legence, given the partial year impact. Our guidance for Bower's contribution is underpinned by their extremely strong backlog and awards, which totaled approximately $1.3 billion at the end of the third quarter and really provides attractive revenue visibility. Now moving on to the transaction consideration. The purchase price is approximately $475 million, consisting of $325 million in cash, $100 million of Legence common stock or approximately 2.55 million Class A shares and $50 million in deferred consideration to be paid at the end of 2026. The deferred payment can be in either cash or stock at our discretion. Legence will fund the cash portion of the purchase price through a combination of cash on hand, borrowings under our revolving credit facility and an anticipated $150 million upsizing to our term loan facility, which is supported by a firm commitment from our agent bank. Based on this funding approach, our pro forma net leverage at September 30 is just under 2.9x, and that's below the 3x at June 30, pro forma for the application of the IPO proceeds to repay debt. Given our outlook, supported by our growing backlog, we believe we can bring net leverage back down to where we ended the third quarter of just under 2.5x fairly quickly. Now on to the impact of Bowers to our business mix, starting with revenue. All of Bowers's activity will fall within our Installation and Maintenance segment. Approximately 86% of the revenues are generated from the installation and fabrication service line, with the remaining 14% in maintenance and service. While we still remain fairly balanced between our 2 segments, adding Bowers to our I&M segment shifts our gross profit mix to 60% I&M and 40% E&C from 52% to 48% on a stand-alone basis today. Looking at revenue by end market, approximately 70% of Bowers's revenue is derived from data center and technology clients. The other large end market is life sciences and health care, which accounts for 13% of the revenue mix. Adding Bowers further increases our presence in high-growth industries with mission-critical facilities. Our pro forma revenue contribution from data center and technology increases to 47% from 39% and Life Sciences and Healthcare will still comprise 17%. Education will remain a meaningful contributor to Legence at approximately 15% of pro forma revenue. In terms of revenue by building type, as you would imagine, their current position in data center markets, they skew a bit more toward new buildings at 57% of revenue. Adding Bowers would increase our revenue percentage from new buildings to over 40% from 36% at 9/30. Now I'd like to make a few brief remarks on the acquisitions of IMD and AZPE, which closed on October 1. Combined, we estimate these companies will generate a little over $20 million in revenue in full year 2025 and approximately $3 million to $4 million in EBITDA. So of course, our financial results will only include the fourth quarter impact. Total consideration of $22 million with 21% of this consisting of equity provides an attractive value proposition for our shareholders. In closing, our third quarter results were exceptionally strong, marked by robust organic growth in revenue and adjusted EBITDA. We believe these results demonstrate our operational efficiency, ability to capitalize on growth opportunities in key markets and to quickly delever, strengthening financial flexibility. The results and the robust growth in backlog and awards established a solid foundation for continued progress. Our pending acquisition of Bowers will add a significant lever of growth, immediate scale to our capabilities in the Northern Virginia and D.C. metro area, an area with the largest concentration of data center capacity in the world. It also brings a meaningful expansion of fabrication capacity, enabling us to better serve clients in the Midwest, East Coast and Southeast regions. The structure of our consideration for Bowers, together with our recent expansion -- extension on our term loan and upsize of our revolver underscores our commitment to maintain a strong balance sheet and preserve financial flexibility for continued growth. That concludes my prepared remarks. So we will now open the call for questions. Operator? Operator: [Operator Instructions]. Our first question comes from Adam Bubes with Goldman Sachs. Adam Bubes: Congrats on your first quarter. I think it's clear M&A will be a part of the growth strategy. And so just wondering if you could speak to what leverage you're comfortable with on sort of like a 2- to 3-year time horizon? And any way to size the pipeline of M&A opportunities you're actively working on? Stephen Butz: Yes, I'll take the first part of that. We came out at the IPO, as we mentioned, at 3x on a net basis, and we look to maintain the leverage ratio below that level going forward. And longer term, target something in the low 2x range. And you can see we can pretty -- we're pretty quickly able to get there. We're comfortable taking that back up to the high 2x range pro forma for Bowers. I think we'll work that back down again quickly. And it will ebb and flow a bit with acquisition opportunities, but we'll likely remain in that sort of range. Jeffrey Sprau: Yes. In terms of the pipeline, Adam, it's really a different story by segment. Certainly, in the E&C segment, which is a national business, full of a very fragmented market, I think we'll -- we have a very active pipeline, and we'll continue to pursue those acquisitions that probably trend more towards the tuck-in type. Certainly, we're interested in businesses where the employee base is really technically savvy in the markets that we play in, that has capacity and are in -- that bring with them a customer background that we may not possess in a given geography. Now on the I&M side, that is much more opportunistic. And as we've discussed previously, we really focus on those cities in the U.S. that have a high concentration of these high-growth industries. And so it's a bit harder to predict. Now to be fair, we'll be spending the next several months integrating Bowers into our organization. So I would not anticipate another Bowers level acquisition in the near term. But we're always on the lookout for those parts of the country that, again, have a high concentration of our customer base, where adding scale can have a meaningful impact on our results. Adam Bubes: Terrific. And then it looks like data center and technology growth accelerated pretty sharply sequentially. I think it was 23% growth last quarter, now up over 60%. What drove that sharp acceleration? Is that a particular project or 2? And what's the level of data center and technology growth embedded in 2026 outlook? Steve Hansen: Yes. I'll take the backlog growth. Really, it's multiple projects in different geographies, a mixture of installation work from a ground-up data center builds and modular construction technical cooling systems that we're shipping around the country, the increase in the need for that type of work and the technical nature of it is really driving some of that increased backlog we're seeing. And I'll hand it to Stephen on this. Stephen Butz: Yes. In terms of our forecast, the data center and technology end market has grown for Legence over the last several years at a 30% CAGR. And our outlook remains pretty consistent with that. We think that it's going to continue to grow at that rate for some time. And that's, of course, offset by us to a degree and baked into our guidance with other markets growing generally more in the single-digit range. Operator: [Operator Instructions]. Our next question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Congrats on the inaugural call here. And as you know, we're always focused on cash, so I wanted to kick things off on that front. And I wanted to focus on this working capital tailwind that you guys are talking about here from these contract liabilities. Can you walk us through what you're seeing in terms of further willingness from customers here to accept higher down payments? It's a fascinating trend. Obviously, the sector is evolving, and it seems like some of the negotiating trends are certainly heading in your direction as a tailwind. And then more to the point, is there negotiating power for you here to protect further project economics in other manners, right? Clearly, working capital is one manifestation of those terms. I'd love to hear. Stephen Butz: Yes. Great question, Julien. As we've talked about before, working capital management is something that the company really puts an increased focus of emphasis on this year and an area where we wanted to improve. And you can see that manifest itself in the third quarter results. Certainly, part of that is just faster collections as well as better management of the payables timing, and you can see that. But also, as you point out, negotiation of contract terms, contract liabilities, and we've seen some improvement there. Now of course, it varies by the service that we're providing and the end markets, as you know. And typically, when we're custom fabricating items, we tend to get more payments -- higher payments upfront than in other instances. And so I think that's driving that to a degree. Julien Dumoulin-Smith: Got it. And then my next one is just as a follow-up to the last question, if I can. How do you think about just where you are in the life cycle of M&A and acquisitions to continue to announce these kinds of transactions? I know that was never necessarily promised as part of the IPO process here, but how would you frame that conversation and set a cadence? In contrast to the conversation on leverage, just how would you set an expectation around where you are in conversations with folks? Jeffrey Sprau: Yes. I would say our pipeline of targets remains active and robust. And at any given time, we have several discussions ongoing. Like I mentioned previously, it's a little easier to sort of understand, I guess, velocity on the E&C side because those are going to be smaller tuck-in type acquisitions. So I would continue -- I would expect those to continue. It's just hard to pick or to peg rather the impact, as you saw last quarter, we had one E&C and I&M. And then again, on the I&M side, those generally, unless they're a tuck-in to a local geography, those are just bigger and harder to call. But I do know that we're going to be focusing like a laser in terms of making sure that everything goes smoothly with the Bowers integration. And so I would not expect anything of that magnitude along those lines in the near term. Operator: Our next question comes from Sabahat Khan with RBC. Sabahat Khan: Just following up on some of the commentary around the mix between the 2 markets. Obviously, this one is adding a bit more to the sort of the implementation side, the Bowers acquisition. How do you just think about the evolution of the revenue mix kind of 1, 2, 3 years out? Is there sort of a management perspective on getting it back to maybe what -- where you were sort of pre-IPO? Or is it where the opportunities show up, you'll just kind of follow where the market is headed? Just some perspective on how the overall end market mix within revenue and EBITDA could evolve over the next 2-, 3-year period? Stephen Butz: Yes. Good question. While we'd like to maintain a reasonable balance there, it is going to ebb and flow with M&A opportunities, also the growth in different end markets. And we do see a shift next year, certainly, as we discussed, more towards the I&M segment. As Jeff mentioned, on the M&A side, we tend to see more opportunities on the more fragmented engineering industry, right? And so over time, we'll probably tend to do more acquisitions on that side, which could bring it back closer toward a 50-50. But then again, if we have an opportunity to acquire really a leading I&M firm in a target market, that can swing it back the other direction to a degree as Bowers has. But we really like both segments and both businesses and the integration that we're driving there, the cross-selling opportunities. the revenue synergy as we bring these businesses into the fold. And so we're not certainly not going to shy away from attractive opportunities in either segment. Jeffrey Sprau: Yes. We have -- that's all true, Stephen. We have extreme conviction in being a life cycle provider. And to be able to do that, you have to have scale. You have to have scale on the implementation side and you have to have scale on the engineering of our professional services side. And so you're right. We don't have a goal. It's got to be 50-50 or 60-40 or 62-38, but we want to have national scale in both because we believe it's a differentiator. We believe it's better for the customer, and we believe there's tremendous cross-sell capability that are great tailwinds, further tailwinds for our future growth. Sabahat Khan: Great. And then maybe just as a follow-up, a bit more on the margin side, I guess, similar to the mix question. And obviously, on a mix or from a mix perspective, this transaction probably a bit diluted. But I guess this was immediate scale that the market probably wasn't expecting. So can you maybe just talk about the operating leverage benefits from adding this much revenue? And then second part, maybe just some of the synergies opportunities that you might realize from Bowers over the next 1, 2 years, both revenue and cost. Stephen Butz: Sure. The -- on the -- I'll start with the synergy side. There are puts and takes on the cost synergy side. Typically, when we're acquiring the smaller private business, even though this is a little bit bigger than the others, but we're typically going to focus on increasing the focus on cybersecurity, improving the strengthening finance and HR compliance in those areas. And so typically an area where we'll spend a bit more, at least in those early years. And then, of course, there are some other cost synergies, but they tend to offset. And so really, the revenue synergy is what's driven more value uplift in our acquisition strategy historically. And that's really what we see with Bowers as well. Now over the longer term, we do expect to get more benefit as we drive integration in these businesses and get some -- so as we get into 2027, 2028, we expect to see a little bit more economies of scale, but you just don't see that in the short term. Operator: Our next question comes from Brian Brophy with Stifel. Brian Brophy: Congrats on the very nice start here. Just had a question on installation gross margins. It looks like they were a little bit higher than what folks were expecting. And certainly, they were higher than a year ago. You touched on strong execution in the release. But just curious, any more color on what's driving the gross margins on the installation side. Was there anything more onetime in there like closeouts in the quarter? Or how should we be thinking about the sustainability of the margins we saw in the third quarter? Steve Hansen: Yes. I mean continued focus on operational excellence is part of our goal. I do think there was a mixture of some closeout timing as well as the mix on the manufacturing fabrication service line that is coming with a little bit higher margins. So we feel like we can continue to leverage that as we continue to even to Stephen's point, in the future, take some operating leverage to help to expand margins on that side of the business. Operator: Our next question comes from Michael Dudas with Vertical Research Partners. Michael Dudas: Maybe for Stephen or Jeff, as you look at the backlog, which is a very strong growth and you put out your 2026 guidance, maybe you could share a little bit about what visibility you typically have 6 to 12 months out in the current backlog and the conversion rates to revenue the following year. And there's been any change in the end market? Obviously, data center has been helpful, but any other areas that as you look into 2026, may be a bit more additive to the maybe potential backlog growth or the mix of revenues that you put forth? Stephen Butz: Yes. We probably have a little higher visibility into 2026 than we have in past years at this point in the year. And so our forecast is a little bit more skewed toward projects that are in backlog versus what we refer to internally as like go get jobs that we're going to secure during the year. Today, I would estimate of our $3.1 billion in backlog that just a little bit less than $2 billion. So $1.8 billion to $1.9 billion of that will burn in 2026. Of course, a good portion will burn in the fourth quarter as well. And then some extends into 2027 and 2028. But today, have a little bit higher visibility into the next year than we historically have. And certainly more visibility into 2027 than we would have had in past years. And what was the other part of your question? Steve Hansen: Different markets... Stephen Butz: Yes. Again, tremendous growth in the data center and technology space. We've also had some nice wins in the pharmaceutical side, life sciences. Education is still going to remain a key contributor, but... Jeffrey Sprau: And I think we remain bullish on onshoring and reshoring from a manufacturing perspective, be it biotech, be it semiconductor. And then the fact that energy efficiency is a major -- has a major impact on our clients' operating expenses. And to the extent that we can go into a building of any type and reduce their energy consumption by 10%, 20%, 30%, 40%, I would expect that to continue to be a meaningful component of our -- both our backlog as well as our opportunity pipeline. Operator: Our next question comes from Greg Lewis with BTIG. Gregory Lewis: I had a first one around next year's guidance. As we look at, I guess, trying to back in an applied margin, any kind of color you can give us around what's driving that incremental expansion and then where you potentially see opportunities for upside around that guidance? Stephen Butz: Sure. I think there's always mix shifts by service line and end market that are going to be a big driver in our forecast. And so we see within installation and -- Installation and Maintenance, we do see within the Installation and Fabrication service line, selling more of our higher-margin services. While we are going to be working on the typical large installation jobs, we're also now fabricating modules that we can ship to rural areas of the country where we won't be working on the full installation or the full scope, but we tend to generate a higher margin on those sort of custom fabricated projects. And so that's increasing in proportion to that overall service line. And so that could drive some margin accretion in the installation and maintenance space. Now somewhat offsetting that is a mix shift, as we talked about toward that segment, which is lower margin than our Engineering and Consulting segment. And so all that's sort of baked into our expectations for next year. Gregory Lewis: Okay. But for overall, do we see any -- I mean, as pricing, it seems like all these -- some of your business lines are starting to gain momentum. How -- it seems like there should be an opportunity to push pricing maybe in the technology, maybe in the life sciences. Is that kind of -- is that? Steve Hansen: Yes. I think I mean we're always looking for opportunity to push pricing. We do have a very technical customer base that is savvy on price and they push back. So we are a long play with our clients. If you kind of look at the tenure of our clients and long decades-long relationships. We've built that through the years of trust and not overreaching on pricing. So -- but we will always push. We want to walk that fine line of not losing that client relationship. Operator: Our next question comes from Oliver Davies with Rothschild & Co. Redburn. Oliver Davies: Two from me. So firstly, you mentioned that some of the fabrication CapEx had slipped to 2026. So can you provide an update there and the demand you're seeing for fabrication alongside the kind of incremental growth you assume in 2026? And then secondly, I mean, obviously, the sort of more traditional end markets continue to be soft. So is there anything sequentially to call out there or any signs of improving backdrop that you're seeing? Steve Hansen: Yes. I'll start with the CapEx slip. We're continuing to build out several hundred square feet of facilities in operation. And though we're using the square footage, we've got the leases tied down and we're in those buildings, just permit issues with local entities have kind of pushed us back on that build. And so it's really the tooling side that's pushed on the CapEx. And we do see continued opportunities not only in the data center market for modular construction, but in our life science and pharma industry as well as semiconductor, we're seeing those opportunities and taking advantage. Jeffrey Sprau: And I'd say on the additional markets, probably the biotech life sciences space has been soft for the last couple of years. We're seeing some of our leading indicators would be the amount of proposals that we have submitted to clients or have been requested by clients, that is starting to tick up as lab space and R&D and office space gets absorbed. So we expect that to continue that upward trend over the next several quarters. Operator: Our next question comes from Craig Irwin with ROTH MKM. Craig Irwin: So I was hoping you could maybe give us a little bit more color on the cross-selling opportunity through the Bowers Group. You have strong E&C capabilities in the region. Is this something that you think could come together relatively quickly? How long would it take for you to get back to the regular mix from the rest of the business of roughly 25% overlap in there? Any color you could offer to help us unpack the synergies on the cross-selling there? Steve Hansen: Yes. We're excited about the opportunity with Bowers. In that region, as you know, we also have electrical capabilities. We have E&C capabilities in that region. So really our full suite of offerings. It's not overnight. We've got to go and chase down those client bases where we can offer that full package and get them on board, but it is going to be a focus as we integrate and Jeff touched on it several times, we've really got to -- we're going to bite off that integration and get them in the mix and then really work hard on how we can go approach the market and push that. So high on our target list, I'd love to give you a time line, but... Jeffrey Sprau: Well, and I'd piggyback on that, Steve. We have a nice head start in that both companies know each other and have known each other for decades. And so there are relationships and most importantly, trust that already exist. And that is a nice head start to sort of springload some results. Stephen Butz: And I'll just pile on to that while our integration plan, obviously, there's a lot of granular tasks that we're looking to accomplish. Part of that also is high level and going in and educating the employees at Target on all the different services that Legion can bring to bear. And so we will do and we'll undertake that fairly early on. But as Steve mentioned, it still takes some time for that to bear fruit. Craig Irwin: Understood. Then I wanted to follow up with a question on the fabrication expansion. So you did mention the adjustment on the tooling CapEx as you build out increased capacity into '26. Does Bowers bring anything substantially different that maybe changes the urgency or necessity of some of the investments that you're making? Are there new capabilities that were not in existence on the Legence side? And how important is this expansion that you're working on for improved capture and increased share of business with several of these Tier 1 customers that you're pursuing? Steve Hansen: Yes. Bowers brings a lot to the table. They bring both 370,000 square feet plus of fabrication capability. New capabilities, really, we have shared capabilities. They bring the same thing to the table. They've got a high background in process piping as well as hydronics and everything else that tie to this. And it allows us to leverage that geography, right? Currently, most of our fabrication is done in the West and Southwest of the country. And now we have an East Coast presence where we can go to our clients and expand that footprint and reduce cost and shipping and different things like that, that will give us synergies. So we still -- it's still important for us to build out that other square footage that we're already on because it is important for us to drive capacity and be able to show our clients that we can take that workload, so -- which is supported by our backlog. Operator: Our next question comes from Derek Soderberg with Cantor Fitzgerald. Derek Soderberg: Can you quantify any impact from larger job size in the third quarter results? And when you look at backlog, can you just talk about the trend you're seeing in job size, which end markets are influencing that at all? And then I've got a quick follow-up. Stephen Butz: Yes. I can't quantify the impact specifically from large jobs. So what I'll say is we have -- as we pointed out over time, we are seeing an increasing proportion of our revenue coming from larger jobs. That said, our average job size is probably still skewed a bit lower than some of the other public peers as we do a lot of maintenance and service, a lot of quick hitting small jobs, a lot of retrofits as opposed to new construction. Though the growth in the data center and technology end market, which tends to be more new facilities today at larger job sizes, that is having an impact. And that impact drove some of the growth in the quarter, certainly, was driven by that end market, new buildings, new jobs. So yes, we think that's going to continue. So over time, we're bullish about the retrofit market for data centers. There's a lot of data centers that are probably getting long in the tooth. And so we think that at some point, there's going to be a shift in focus toward renovation of those types of facilities. Steve Hansen: Well, and I'd add on the health care, semiconductor markets, life science markets, these larger projects, those are projects that will stay and continue once they're done and do recurring revenue work there that is on a smaller scale. Derek Soderberg: Got it. That's helpful. And then as my follow-up, it sounds like there might be some upside to 2026 with some of the synergies. But just to clarify, to what extent was any sort of synergy embedded in the full year '26 guidance? Or were they really just a continuation of the stand-alone businesses? Stephen Butz: Yes. Again, we don't see cost synergy in the short run. So over 2026, we'd expect the cost synergies to be offset by some incremental costs as we talked about. And revenue synergies, we're typically not going to model that in because it does take some time, as Steve mentioned, for that to bear fruit. Though we have historically generated a significant uplift over time from cross-selling. Operator: And we do have time for one more question. Our final question comes from Miguel Marques with Bernstein. Miguel Marques: Stepping in for Chad Dillard. First question for me just is your I&M margins were obviously up to 16.3% this quarter. You guys mentioned better project execution. But is there any additional color you guys can offer on like what levers you pulled exactly? And if at all, how much of this was driven by like better favorable end market mix or size of projects? Stephen Butz: Yes, a little bit of all of the above. I mean it definitely just, as we mentioned, exceptional project execution, late-stage projects that become visible that we're going to generate a higher margin on those jobs as well as favorable closeouts. And in terms of the top line, we also had some equipment purchases and things of that nature that were more expected to come in, in the fourth quarter that actually came in, in the third. So that provides a little benefit to the quarter as well. But that's all baked into our fourth quarter guidance. Miguel Marques: Understood. And then just second on Bowers. It obviously appears as though modular capacity played a big factor in your guys' interest. I think you guys are at 500,000 square feet today, scaling up pretty soon. Bowers is just under you guys. But for one, I guess, how much of a role did this play in your thinking and expanding on that? Could you offer any color on how big the modular business is for you today? How fast is it growing? And I guess what Bowers can add to that? Jeffrey Sprau: Yes. On the Bowers front, it's interesting. We started talking to Bowers back way back in 2020, so over 5 years ago. And we were always really interested in them based on their history, based on their culture, based on their end markets. I would tell you that we didn't know exactly what their footprint was from a fabrication perspective until we got into diligence. And that was a nice sort of frosting on the cake, so to speak, as opposed to being the initial driver. And I'll throw it to Steve or Stephen in terms of the size of our fab business in general. Stephen Butz: Yes. And we don't disclose that separately. It's part of our installation and fabrication service line. But if you were to look at where are we just doing fabrication only, it's in the low to mid-teens percentage of revenue of that overall service line, where previously a year ago, it would have been in the single digit percentages. So it's growing nicely. Operator: This concludes the question-and-answer session. I would now like to turn it back to Son Vann for closing remarks. Son Vann: Thank you, everyone, for attending our call. A recording will be available on our website in a few hours. We look forward to updating you again on our next earnings call. Thanks again, and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Robin Martin: Hi, everyone, and thanks for joining this Valeura Energy webcast where we'll talk about our Q3 2025 results. We're recording the event today, November 17, 2025, and we'll make a replay available on our website and on our YouTube channel within the next day or so. My name is Robin Martin, I'm the Vice President of Investor Relations and Communications for Valeura. Joining me on this call are Dr. Sean Guest, our CEO; Yacine Ben-Meriem, our CFO; and Dr. Greg Kulawski, our COO. Running order for today's event, we will start with some prepared remarks tied to slides that you should see on your screen now. They're also available on our website, and then we'll proceed into a Q&A session. I'll guide us through that part of the call. [Operator Instructions] Before we get going, I will just draw your attention to our disclaimers and advisory slide and ask that you pay in particular attention to the forward-looking statements disclaimers here. So with that, I will hand the floor over to Sean. Go ahead, please. W. Guest: Hi, Robin, thank you very much. And thank you, everyone, for joining us here today. If you could just go to the next slide, Robin. So I'll start to kind of give a bit of an intro on how we look back at the previous quarter and really actually what's gone on in the past couple of years and then also looking forward. Greg will then talk to you about he Wassana project and some of our recent execution and then Yacine will summarize some of the financial highlights before I kind of bring it back and really talk about what we've seen recently in performance, share price and what we kind of see going forward in the company. So starting with it, if we look at growth. Now one of the things we announced this year was we did a large-scale farming with PTTEP, the national oil company of Thailand. In addition to that, what we've seen is we kicked off earlier this year the Wassana oilfield full field development, and those are 2 projects that are really focused on the sustainability and the long-term growth of the company in Thailand. And we're very excited about both of those, and I'll go into a little more detail on them. Financially, the good news is you would have seen in the press release that actually compared to a year ago or compared to last quarter, really, all of our operating financial metrics are up, which is very pleasing to us, especially with strong margins even at the current oil prices. And that's allowed that balance sheet to also continue to strengthen, which improves really our ability to fund opportunities and to look at other M&A opportunities. Now when you look at execution within the company, we reiterated a couple of months ago our guidance is intact. We did point at that time, too, that we expected the production to be at the lower end of guidance. However, if you've seen in the current release that the current production with the drilling that we've done has actually increased out a lot. So that production so far in November is actually higher than any of the quarterly averages we had in 2025 to date. And importantly, a lot of this is coming from our Nong Yao field, which is most profitable. Now we've also seen that OpEx is heading towards the lower end of our guidance, which, therefore, we're really delivering on that cost per barrel basis. And the final thing just to emphasize is, as we've taken over these assets, we've actually been able to, year-on-year, reduce the emissions intensity from the assets, and that's continuing this year. We could be targeting as much as a 30% decrease in emission intensity since we took over from a year ago. Just before I hit the last 2 points, I really want to point out that those first bits really point to what we see as an extremely successful country entry into Thailand. We managed to get a couple of good deals, but then we've built on that with execution of assets, delivering on the production, delivering on the reserve growth. And finally, as we pointed to there, the longer-term growth opportunities that we're seeing with the farm-in and the redevelopment of PTTEP that aren't just looking at 5 years, but are looking at 5, 10, 15 years or more. And then as we look forward, well, we did sign 2 deals in Q3, the PTTEP deal that we -- that I'll talk about in more detail. But also, we signed a deal to farm someone in at our Turkish acreage, which, while it is not a focus for us now is still a very high-value opportunity, and I'll talk just a bit about that at the end. But what I can tell you, and we talk about this quite a bit, but we remain very focused on transformational opportunities. There's a good suite that we now see coming to market, and we're actually very involved in those now. And then finally, the last one on value. Well, while we've come up a lot since a year ago, the recent kind of downturn with oil price and then the decrease that we've seen, actually, we see it as a very good time to look to buy into the company because even though share price has been coming down, the business has been delivering. Okay. Next slide, please, Robin. So I'm just going to talk about the PTTEP farm-in before I hand over to Greg. Now we announced this back in July where we'd actually farmed in with PTTEP who are the national oil company and the largest oil and gas producer in Thailand. Now this has significantly increased our acreage position and set us up very well for the future. But one of the questions we've got since really doing this deal was, why did PTTEP want Valeura to farm-in? They obviously are very large companies, significant production and cash flow and can have a capital budget going forward in kind of the tens of billions. But what really their CEO has said and what we're seeing continually being reiterated is they believe they're the natural gas operator in Thailand, and with the work that they've seen us do and our operations, they believe we're the natural oil operator here. And they see that, that combination together is a way of maximizing the value and the way forward on these blocks. So we'll earn a 40% interest in there. And what we like is it's bringing diversity. It's bringing gas opportunities to us, but it's also bringing this opportunity to have medium and longer-term growth through these blocks that can really step aside into the future. The other important thing to note is that these blocks really abut right up against the major producing gas fields in Thailand as well as some of our oil assets. And these type of tiebacks are really the highest economic returns you can look at in our industry. All of the main producing facilities, the pipelines, those are all in place and you're just tying back into those. So your CapEx per barrel, your OpEx per barrel tends to be extremely good and very high returns. Again, on the entry cost, we really came in for pretty well like [ ground ] floor. But the important thing I want to note, too, is that while the deal is not closed, and we do expect it to close immediately or in the near term, I did meet with PTTEP and the regulator last week and all the paperwork, everything is progressing. But while we're still waiting for that to close, both teams are already working together, both commercially and technically on driving forward the work in this block. So that in 2025, we've already seen all of the committed seismic data acquired, approximately 1,200 square kilometers as well as we've seen 4 exploration wells drilled with discoveries in those. And the important thing with that is there's existing discoveries already here, and the team is already working on the development planning to try and look for some FIDs in 2026 to take these forward. Next slide, Robin. And I really wanted to zoom in a bit on the G3 block and the more southern block because this is one that really emphasizes those immediate development opportunities, particularly in the gas, but I'll also speak to the oil opportunities that we see that can be tied back to our field. So when you look at the block immediately to the east of our block is actually the Bongkot Gas Field, and it runs all along the boundary there. And that field is producing just under 1 Bcf a day. So extremely large, a lot of gas coming out of there. Now in the middle, there is an existing 3D seismic area with a number of discoveries. And this is where a new discovery has already actually happened this year. And that's where the team are starting to work on progressing this towards an FID in '26, whether it's for 1 new gas platform or 2, but there's that opportunity here of proven gas immediately next to a producing gas field. So the team we have put in place -- they actually filed the production area application and work is going ahead on the technical work and commercial work to progress this in 2026. And and we really hope to have much more technical details on this as we head into early next year. But that's really the immediate work that can come, and therefore, we can see an exploration block going from exploration to cash flow within a few years. There is new seismic being acquired in the south, over more gas discoveries down there, which could follow at a later date. But then when you look up around our Nong Yao field, which is in the north, our most profitable oil field, we've identified an oil fairway that we think exists from the Nong Yao field up to an undeveloped field called Ubon in the north. Now while new seismic has now been acquired over that, and we expect to next year work to process that, work that into a suite of drilling prospects, the team already have 3D seismic from our block that extends in there and we have a suite of opportunities immediately to the east of the Nong Yao field. First, there's a number of prospects that actually are drillable from the Nong Yao-A platform could be immediately tied in once you drill those. And then the other one that's even very interesting is we have just to the north of that, we have identified on the 3D, a very good exploration prospect that could be tied back to the platform to even increase production. So it's just reiterating with this block that what we see is immediate tieback opportunities of very high value, but then you can continue to explore and develop these, add in more platforms and really get it what we might call a string of pearls here. And that exists for both the oil and the gas. So again, very exciting opportunity for us, and we really hope to be able to speak more on this quantitatively once you get this closed and progressed to FID in 2026. So at that time, I'll hand over to Greg to talk a bit about the Wassana development. Grzegorz Kulawski: Thank you, Sean, and hello, everyone. So let me continue with the growth updates. And really, I want to talk a little bit more about the Wassana field, which is our key organic growth opportunity in the operated assets. This is a project where we have taken an FID in May of this year on redevelopment, which involves installing a new central processing facility over the main part of the field, which you see marked in the red circle on the right. And so this central project has got very strong economics as we have shared before. And we'll see production out into 2043. And this production, just from the main field, is reflected in the reserves in the Wassana field, which now stands at post FID at 20.5 million barrels 2P. But the development concept also envisages satellite times, and we already have provisions in the design to be able to do so with risers in the main facility. So we've got these 2 areas with resources in the north and in the south of this license. Now in the north, we already have sufficient volume of resources and sufficient level of appraisal to really start satellite development. In the south, we've got some contingent resources already discovered, but we also see further upside potential with prospective resources. And that's why we are planning some exploration journey to capture those upsides in the south. And I guess what's important is that because this is a field which is operated by us and 100% owned by Valeura, it means that we've got quite a lot of optionality on the driving the optimum timing for FID and then bringing those North and South satellites onstream. If we go then to the next one, Robin, please? So just a brief update on project delivery, which is going very well. We are well on track for first oil in Q2 of 2027. And we've got now very high confidence on being able to deliver this project on or below budget. The main EPC contract is fixed price and is proceeding very well with other variations. All of the main equipment orders has now also been issued. And so there is relatively small amount that -- of scope that can be priced and the cost variation. So again, very, very high confidence on delivering the budget. And overall, we are, in aggregate, about 35% complete on this project. So going really well. If we then switch to the next slide, Robin. And moving on to the ongoing well delivery and production delivery, the most notable area of rig activity in Q3 has been our drilling campaign in Nong Yao field, which has gone really well. So we have finished the quarter at just under 12,000 barrels per day, equity production, having brought successfully a number of wells in the campaign. So we drilled 10 wells in total on Nong Yao in the quarter. Since then, the rig has moved across to the Jasmine fields where we are drilling now, and we have actually brought the drill some wells onstream in Jasmine. And so as a result of all of the activity, November to date, we are at 24,500, or maybe a little bit higher, barrels per day production. So going very well, and that's why we have reconfirmed our overall production guidance for the year, which will be coming within the guidance, albeit slightly towards the lower end. Now I think with that, let me hand over, Yacine, to you. Yacine Ben-Meriem: Thank you very much. Hi, everyone. Thank you for joining us today. As Sean mentioned earlier on in his opening, this is one quarter where effectively, from a financial operational metrics or perspective, everything seems to be on the green side. So allow me first to walk you some of the key highlights. And as usual, we'll start from an operational perspective, where we are seeing quite a good momentum, be it on the production side or even the cost side. So starting with the production, as you can see on the screen in front of you, we recorded around just shy of 23,000 barrels a day equivalent day in Q3. That's up 3% versus the same quarter in 2024 and 7% versus the last quarter. This uplift in production is predominantly driven by Nong Yao, the campaign -- the infill campaign drilling that we did this quarter in Nong Yao. And as a reminder for everyone, Nong Yao is our biggest and most profitable field. Not only did we see improvement as well in the production, but also importantly, in the lifting was, as you can see, it's up 14% and 22%, double-digit versus last quarter and the same quarter last year. This is just a reflection of better optimization and scheduling really of the lifting. And it allows us as well to kind of eat into some of the inventory, which is something that we keep track on. Although as a reminder, production and lifting do tend to move. Sometimes there is a gap between the two. Now moving on to the real -- in terms of pricing environment. Obviously, we are in a price environment that is quite different from the same period last year where oil price, Brent and our realized spreads were really hovering around the $80. For this quarter, we had a realized price of $72.1 which is significantly, which is up compared to last quarter of $67.9. I think what I'd like to draw your attention really here is the premium that we get to -- for our crude compared to historical numbers. And what we've been really pleased this quarter is that really that expansion in our premium versus Brent, whereas in the last quarter, we recorded just shy of $1. In this quarter, we recorded $2.5. Now talking now -- moving on to the cost. And I think this is one of those graphs that we really like to look at internally. And it just gives you an indication as to how our cost control kind of translate into financials ultimately. So this quarter, as Sean mentioned I think, earlier on, our OpEx per barrel have come down quite significantly, not just from last quarter, but the same quarter last year. So now we are just at $24.8. This is really a reflection of an ongoing effort throughout the organization in terms of trying to chip out cost at any pocket, and be it on a temporary basis or more structural in nature, based on ongoing exercise that we keep doing across the organization. So how does this translate in terms of financials? Robin next slide, please? So with higher production, improvement in prices and better control, as you can see, we've seen a significant improvement in terms of our financials, be it on the EBITDAX level or most importantly for us, I guess, adjusted cash flow from operations. I think notwithstanding the increase itself, I think what we're really quite pleased where there's really the margins, the improvement in margins. So looking at the EBITDAX, that's more than 400 bps point increase and more than 100 bps point increase compared to the last period. And on adjusted cash flow from operation, I think this is really where the numbers comes into play where you see an improvement in margins from 35% -- and it's a continuous improvement quarter-to-quarter where we go from 36% last year to 39% this year and now we just shy of that 50%. So for every dollar that we sent -- that we received, effectively, we're generating $0.5 from our cash flow from operations, which we then can spend on CapEx and importantly, strengthen the balance sheet and effectively for M&A ultimately. And how does this translate in terms of cash? So as you can see, our cash positions have -- both cash position and adjusted net working capital have almost doubled compared to last year. That's a 60%, and it's almost a 70% improvement from last year. And as we continue with generating cash from the business, considering it's a highly cash generative, we can see this balance increasing and giving us that solid fortress balance sheet that will enable us to not only invest in our business, but also to seek highly accretive and transformational deals, as Sean mentioned earlier on. Next slide, please, Robin. So how did we end up with the cash flow from operations? I think the key point I'd like to highlight here is that during this quarter, we've had some -- we recorded some SRBs, and that's really related to Thai III regimes. And as far as the corporate tax, this is really related to the -- some subsidiaries that are outside of Thailand. But within Thailand, we haven't recorded any PITA, as you might imagine, because of the tax consolidation that we've done. Next slide, please, Robin. So as I mentioned, with the strong cash flow from operation, we are able to invest in our business, first and foremost. And as you can see, during this quarter, we invested around $52 million, of which close to $16 million was within the Wassana redevelopment that Greg was alluding to earlier on, was talking about earlier on. On top of that, we did some spend a little bit on exploration, but this is really studies, no drilling at all. And we also recorded $3 million in other income and interest. Now with the change in working capital, our Performa for this quarter would have been $252 million. However, we've also spent money on NCIB and also putting the deposit for G1 and G3 during the -- when we signed the deal. And also, we've paid some small corporate tax payment again due to outside subsidiary, outside of Thailand and Singapore. So we end up with a quarter again with $248 million. Again, it's all about strengthening the balance sheet and allowing us to deploy that capital as we go forward. And I guess with that, I'll hand back to Sean. W. Guest: Okay. Thanks, Yacine. I just want to really reiterate and emphasize again how we look at capital allocation in the company. And the first thing with the assets that we acquired, so the 4 key assets. We talked about maintaining those net 20,000 to 25,000 barrel a day out to the 2030s. You can see the projects like Wassana and that, that we've been undertaking that are really pushing that out and extending that. We're also looking at exploration spend. Now again, we'll discuss more as we get into next year on how G1 and G3 funding come in there. But it's a good time to really emphasize that the gas developments are significantly less expensive than the oil or the cost for platforms that are much less. But that's really our first really event. We're looking for maintaining the production from the assets to deliver that cash flow as we then look to expand into other areas. After that, it really is value accretive M&A. We still see an extremely good environment out here in the region with the number of deals that are starting to come to the market to very few operators and really, there's quite a shallow buyer's pool. We've made those points before and we've talked to people about this. But I can honestly say that we are seeing a change now and that we're actually very actively involved in some transformational activities, which we hope we'll be able to talk about more as we get into Q1 next year. But the other point to really emphasize is we've said, the promise we made in '24 when it came to returns was if we, as a company, went through 2024 and we're getting to the latter half of the year, and we were building cash and we were not seeing the opportunities in the near term, we would put in place some sort of share buyback or return to shareholders. If you put that in place, we've had that in place during the past year, and we've actually reduced the share count in a mild amount as well as taking out a number of dilutives. But the thing we've said to people and say, we asked this, this year is that as we go through 2025, as long as we are still delivering the cash flow, and we have a very strong balance sheet capable of M&A, if we got to the latter half of the year, then we would also look for ways to return more of that money. Well, with the deals we currently see, we do not expect to see that we would be doing any large return money to shareholders. There's a line of sight on some good opportunities that we're very actively involved in. And that remains our primary focus is delivering growth. Okay. Next slide, Robin. And I just want to really look back as we come near the end here, the past year. Now obviously, when you compare share price back to a year ago, we're still up over 50% in that time, which is great. But the disappointing thing is that we've seen the slide in recent months. So we had good strong delivery as we really got up to that PTTEP farm-in, which jumped this up. But since that time, yes, there's been some pressure on the oil price, but in actual fact, our assets have still been delivering. This is a period where we've delivered on the production growth, and which we've delivered on the free cash flow as well as if you look at other news, like being ranked the #1 growing company in Canada. And I'd like to keep emphasizing, that's not in the energy industry, that's across all industries, and we announced that Turkey joint venture farm-in where we'll see some activity there to try and realize some of that loose tie-up side. So to us, this has been a bit of a frustrating time as I'm sure it has been for some of our shareholders, but we continue to deliver on execution, and we hope that in the end that's the right thing that we continue to see the share price turn there. So in many ways, it opens up a good buying opportunity, especially as we start to look at the coming months, where we see some catalysts could be coming in new business. I think people are really looking for us to be able to close that G1/G3 deal. We see no risk in that at all, but we do appreciate that until those are solidified that the market can sometimes be nervous about them. And then as we get into the first half of the year, start to really quantify a bit about going towards an FID on those gas developments. And as we've had for the past couple of years, we expect a good reserve number when we actually release those numbers in February. So a good suite of opportunities even before you consider that we actually have some activity going on in Turkey at this time. So just before I move off that, maybe just a time to talk a bit about that Turkey farm, that Turkey farm-in. Now we heavily changed our shareholder base. There will be a lot of people actually who are shareholders now who aren't really aware of what happened there. To summarize it quite a bit, there is a significant amount of gas in deep in the Turkey unconventional gas, very tight. We've identified through the drilling, through 3D seismic, there's tens of TCF there. But during the work we did with our previous partner, we had not demonstrated a commercial flow. Even though we've done 12 separate flows, we've flowed wells for up to 3 months. So the gas will flow from the ground. But recently, now we've had a new partner come in, who's going to look at retesting the well. And based on that, we'll actually go forward to look and drill a well. And the partner we have is extremely good partner. We've dealt with them before as a partner. They're extremely well-funded private company. They are the most active company in fracking and flowing in Turkey, and they're also very well connected and been working in Turkey for years. So what we're trying to say to our shareholders is, look, we are not putting our capital into that at this time. It's not taking the focus of your management team. But we have a blue sky opportunity there that while it still has risk on it, if we're able to prove commercial flow of gas from that opportunity, it's a very big upside for our shareholders. So still a lot of risk on that, but it's nice to see some work progressing there that could open that up. So finally, just reiterating, as we move to the next slide, Robin, we see actually it is a good time to come in based on the recent slide in share price. Again, we trade very well relative to our peers. We're -- really, we have a lot of upside potential still available to us, both from our NAV as well as our analyst consensus. So again, a good time to buy in. So Robin, just the last slide. So just reiterating again, we really see that we've done the country entry into Thailand. We have a solid business unit there that's now delivering not only on the execution of the assets they have, but also looking at growth. We do see other opportunities within Thailand, but I can also tell you that the executive, we're very much focused now on looking at how we can take what we've done in Thailand, that successful opportunity, that growth that we've got there and look at where do we apply that next, where is that next transformational deal. And that's what's ongoing at this point in time. So again, a good quarter, a good growth we've seen relative to last year and to the previous quarter, and we look forward to carrying that on to the year-end. So with that, I'll hand over to Robin for the Q&A period, and thank everyone for joining us. Robin Martin: Thanks very much, Sean. [Operator Instructions] So while we wait for more of those to come in, we do have a couple of typed questions here. First, on reserves. You mentioned we should expect a good reserves report at the end of the year. Can you give us a directional expectation for what that actually means at year-end 2025? Grzegorz Kulawski: Well, look, so I think we have talked previously about the process by which whenever we drill new development wells, we typically also target appraisal targets within these campaigns. We've done it this year just as we did in previous years. Some of it has been in Nong Yao, some of it has been in other fields. I mean, again, I would be probably careful with the hazarding numbers before we conclude all of the audits, especially given the movement in the prices. But I would say that, again, we've had on the operational side some additional volumes. And of course, we've had the significant additions from Wassana FID, which you already are aware of. Robin Martin: Thanks for that, Greg. We've got a live question now from David Round. W. Guest: Yes, David, just a reminder that -- yes, there you go. David Round: Got it. Yes, sort of. First question, just you've gone back to drill at Jasmine. I'm just wondering, does that program differ much from the one at the start of the year? Should we be thinking about kind of similar outcomes in terms of things like production? And I think in the past, I think you've talked about potential constraints bringing on new wells. Is that a problem at Jasmine at all? Grzegorz Kulawski: Well, so I think we are planning these campaigns in a way that optimizing both the capture of the subsurface resource and the targets that we continue to see in the future well inventory as well as the capacity and slot availability in the production facility to be able to bring them into production, right? So I think -- I mean we've been drilling kind of year-round cycling through all of our fields. So we have had that campaign, as we said earlier in the year. In Jasmine, we are now back. I would say it's actually going very well in Jasmine so far, that's part of the production we've been seeing in November. So yes, I would say it's so far so good in the Jasmine campaign. David Round: Okay. And you talked about cycling there. I suppose, obviously, Nong Yao has been great. As you -- as we kind of think about the next sort of set of drilling post Jasmine, I mean will you be ready to go back to Nong Yao once the Jasmine program finishes? Or would you be willing to go back and drill up Manora or should we be thinking maybe that's the time for a pause in the program? Grzegorz Kulawski: Yes. So for next year, I mean I guess we will provide a more precise guidance early in the year for the annual plan. But in short, yes, we will be looking to go to Manora for probably a shorter campaign after Jasmine, and thereafter, we will be back in Nong Yao again with a significant campaign there. David Round: Okay, Greg. And sorry, a quick final one, just on Wassana, while I've got you. Given the softer commodity prices we've seen recently, are you seeing anything positive in terms of reduction in rig rates? And I understand you haven't locked those in yet, correct me if I'm wrong. If you haven't, at what point might you look to lock those costs in? Grzegorz Kulawski: Yes. It's a good observation, David. We have seen softening in the rig market. At the moment, the rig we have is committed through to August of next year. And so we are actively now going to be looking at the market to try and capture the opportunity associated with this softening rig rates. Robin Martin: Very good. We'll move over to a typed question now. With PTTEP being the operator of the new licenses, G1 and G3, and their focus being primarily on gas, will Valeura still get a fair opportunity to pursue oil-focused drilling on these blocks, for example, the Nong Yao Northeast extension? W. Guest: Yes, very, very much so. And the first thing, just to emphasize with PTTEP is, when it comes to the gas development and exploration, we are extremely happy to have them as the operator. They are doing -- they're installing new platforms and drilling continuously. It was 11 rigs out there. So they really are the lowest cost operator you have around here. And we noticed that when we took the trip out to the Wassana yard that's building the Wassana platform last week, there is a suite of PTTEP gas platforms sitting there, half constructed, fully constructed, all ready to go. They are installing these things continually. So it's like a conveyor belt that they're doing there. So that's really the way that you get the highest efficiency in both your contracting and delivery. So very pleased for them to be our operator in the gas. Now on the oil, like we emphasized, they're looking for us to do -- to bring the oil opportunities here and work it out. We're kind of sharing the load there on the work. But what I can tell you is with the work that we've done even around Nong Yao, there's a lot of enthusiasm for their management is to bring that forward, show those opportunities, show that we can accelerate it. While the volumes are smaller for them, there's still very good economic opportunities that are development of Thailand's assets, which are very much in line with what PTTEP, as the NOC is trying to achieve. And the other thing is the agreements we have with them also allow that if they look at an oil opportunity and say, look at that's too small for us to consider, we still have the ability to move forward on those. Robin Martin: Thanks for that, Sean. While we're on G1, G3, another couple of questions. What's the typical size of a platform for gas development in that area in production, Mboed. W. Guest: Yes, the average was about 10 million BOEs. Grzegorz Kulawski: Yes. So about the, say, 60 million would be kind of a discrete additional one of these tie-in development. Yes, so that's the 10,000 BOE per day equivalent in that range. W. Guest: Yes. So they will vary depending on also how many wells you have on them, but kind of that range of 30, 60, that sort of range where you start lower and work it up. But yes, that's kind of the size of production that you're looking for. But then again, the thing to emphasize to people, and again, I'll bring it back to our visit to the yard last week is that this is one of the most active areas in the world for the installation of these platforms. Like we were talking with the yard last week and saying, where in the world do you have these facilities being built? And the only thing we could really come up with was around Saudi Arabia and the drilling that they're doing offshore. It's this continual number of platforms being installed. So I can tell you that PTTEP doesn't look at it and say, well, we're going to install 2 platforms here. They look at it, we're going to install 2, and then when are the next 2 and when are the next 2. How do we get these things daisy-chain together? And that's how you really build up the volume of production and you build up that longer-term future for the company. Robin Martin: Very good. Yacine, you've been resting your voice. So let's move to a tax-related question. Could you please remind us of the origin of the tax consolidation or the -- I suspect the question means, the tax loss carryforwards? And also, what's your expectation for when Valeura will need to start paying taxes? Yacine Ben-Meriem: Okay. So in terms of history, so when we did the deal with KrisEnergy, KrisEnergy's piece came with tax losses around USD 400 million. And when we did the acquisitions with Mubadala, which was cash-generative portfolio, we put them together. And by putting them together, we have access to the $400 million of tax losses. Now worth highlighting that these tax losses are ring-fenced on the Thai III regime. So they apply effectively to Wassana, Nong Yao and Manora. Jasmine is outside this scope, so Jasmine, we will pay taxes on it. And to your second question, Robin, honestly, all question of what oil price are you assuming. I think at the softer oil price like we see today, we're probably going to be talking -- I think what we think is around like 2 -- so around 3 years till we consume all of these taxes, tax losses. However, at a higher oil price, obviously, that period -- that window will get shorter. Robin Martin: Okay, very good. While we're talking about cash payments, just switching back to G1/G3, and the question is, what do you anticipate would be your cash payment for G1/G3 at the time of FID? So I'm assuming this question means anticipated 40% of the total spend up to that point, what would that cash outlay look like for us? W. Guest: Yes. We don't have the final numbers on that now. We're still working them up. But to give an idea like we see the platform is probably about 1/3 the cost, 1/4 to 1/3 the cost of our oil platform on Wassana. And then again, remembering that we're at a 40% level of those, right? So again, the Wassana redevelopment, the whole new field there, that is a central processing platform, oil development, high-power requirements, those are quite expensive. Gas tieback platforms tend to be quite cheap. So yes, we're working about 1/4 to 1/3 of the cost, but we'll have details on that again once we have the numbers next year, early next year. Robin Martin: Okay. Very good. [Operator Instructions] I've got one more question here. On M&A, it appears the majors are returning to Southeast Asia, at least a little bit in Indonesia and Malaysia perhaps. What does this mean for competition in the region? W. Guest: Yes, very good question because it's a good observation. It is happening. We saw a lot of the retreat companies, particularly someone like [ Total ] who are really almost completely left production in Asia. And now they've come back with a vengeance into Malaysia. But what I can say is the assets that those guys are looking for are extremely different to the ones that we are. And we still see the cases of -- if you're doing 50,000 barrels a day, that sort of level, it is not material for these guys. They need to be looking at gas and they need to be looking at big gas. That's what's drawing them back into the region, not modest levels of oil production. You can see when Chevron closed their deal to acquire Hess, almost immediately, they sold some of Hess' acreage in the joint development area, and we continue to watch to see what else will come now that Chevron have that deal closed. Robin Martin: Okay. Very good. We have no further questions that have come in. I'll remind the audience that if anything does come to mind in the interim, feel free to reach out to us at any time. Our website and contact details are all available on the slide in front of you -- pardon me, available on our website. So please do feel free to reach out. We're happy to take questions at any time. So with that, I'll hand over to you, Sean, to wrap up. W. Guest: Yes. And from my side, I'll just say I'd really like to thank everyone for joining us here again today, for following the company and your support as we move forward. We still see going into '26, it's going to be an exciting time with lots of new catalysts coming. So thank you very much. Robin Martin: Thanks, everyone. That concludes our call for today.
Operator: Good day, and thank you for standing by. Welcome to the Q1 2026 Brady Corporation Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ann Thornton, CFO. Please go ahead. Ann Thornton: Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2026 First Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. We will begin our prepared remarks on Slide #3. Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2025 Form 10-K, which was filed with the SEC in September. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I'll now turn the call over to Brady's President and Chief Executive Officer, Russell Shaller. Russell? Russell Shaller: Thank you, Ann, and thanks, everyone, for joining us today. This morning, we released our fiscal 2026 first quarter financial results. We had a good start to the year with organic sales growth of 2.8% and adjusted earnings per share growth of 8%. Our Americas and Asia region reported strong organic sales growth of 4.7%, and our Europe and Australia region reported a significant improvement in adjusted segment profit of 15%. This was a direct result of the actions we took to streamline our cost structure in the region last year. Our team executed well, and we have started the year on a positive note. . Before we go into Brady's financial details, I want to talk a bit about our connected products. Brady has spent the last several years building out a marking and tracing solution that is uniquely easy to use for our customers. As an example is our fantastic new app called BradyScan, which is available in Android and Apple versions. It is an industrial barcode scanning app that consolidates the entire scanning workflow and communicate seamlessly with our printers. You can instantly generate scannable barcodes with both image to barcode and speech-to-barcode technology. A built-in security check monitors from malicious QR codes and error correction automatically repairs damaged QR codes, resulting in maximum readability. You can scan and input barcode values directly into Google sheet with no download or export required. And every barcode scan is automatically geotagged, allowing for complete traceability with location accuracy. Our goal with this app is to make barcode reading, barcode generation and barcode printing an entirely seamless experience for our users, making track and trace easier than ever before. With this software, our customers can use their phone to create barcodes, instantly send those barcodes to a Brady printer, print them on our high-performance adhesive labels and create a time and location stamp with our geolocator. This is one of the many steps we are taking to integrate our lasers, readers and printers into a single easy-to-use platform. Now I'll turn it over to Ann to provide more details on our financial results. Ann? Ann Thornton: Thank you, Russell. We had a good start to the year. Organic sales grew 2.8% in the quarter, which was led by our Americas and Asia region with organic growth of 4.7% in the quarter. We also reported strong growth in our adjusted pretax income as well as our adjusted diluted earnings per share in the quarter, while funding a significant increase in R&D. And we finished the quarter in a net cash position, which continues to give us the ability to invest in both organic opportunities and strategic acquisitions in the future. Slide #4 details our quarterly sales trends. Organic sales were up 2.8%. Acquisitions added 3.2%, and foreign currency translation increased sales by 1.5% for total sales growth of 7.5% in the quarter. Turning to Slide #5. This details our quarterly gross margin trending. Our gross profit margin was 51.5% this quarter compared to 50.3% in the first quarter of last year. In last year's first quarter, we closed on the acquisition of Gravotech, which requires purchase accounting adjustments to recognize the fair value of inventory acquired. These adjustments reduced last year's reported gross profit margin by 110 basis points in the quarter. So without this acquisition-related adjustment, gross profit margin was 51.4% last year. Our gross profit margin continues to be strong as we realize the benefits from our sales growth coming from our engineered products. Turning to Slide #6, you'll find our SG&A expense trending. SG&A was $117.6 million this quarter compared to $111.8 million in the first quarter of last year. As a percent of sales, SG&A was 29% compared to 29.7% last Q1. If you exclude amortization expense from each of the periods presented as well as other nonrecurring acquisition-related costs incurred in last year's first quarter, and SG&A was 27.7% of sales in the first quarter compared to 28.3% of sales in last year's first quarter, which is a decline of 60 basis points. We continue to invest in growth through acquisitions and to our sales -- or excuse me, through additions to our sales force as well as selected geographic expansion in Southeast Asia, which we're more than funding with efficiencies throughout our SG&A support functions. Slide #7 details the trending of our investments in research and development. We continue to increase our investment in R&D within both our organic business as well as our acquisitions from last year. R&D expense was $23.3 million or 5.7% of sales this quarter, which was an increase from $18.9 million or 5% of sales last year. We funded a 23% increase in R&D in the quarter and still grew the bottom line. We've proven over time that our best ROI comes from our engineered products. Russell just discussed our new app, BradyScan, and we have a very exciting lineup of products set to launch this year. Turning to Slide #8. This shows the trending of our pretax earnings. Pretax earnings on a GAAP basis increased 16.5% from $58.8 million to $68.5 million in the quarter. If you exclude amortization from both periods and exclude other acquisition-related charges we incurred in last year's Q1, pretax earnings increased to 7.6% from $68.6 million to $73.8 million. Slide #9 details the trending of our net earnings and EPS. Our net income increased 15.3% in the quarter from $46.8 million to $53.9 million. Excluding amortization from both periods as well as the other acquisition-related charges from last year, our net income increased 7.1% from $54.2 million to $58 million. GAAP diluted earnings per share was $1.13 compared to $0.97 per share last year. Excluding amortization from both periods and the acquisition-related charges from last year, our adjusted diluted earnings per share improved from $1.21 per share from $1.12 per share last year, which was an increase of 8%. We had another strong earnings quarter resulting from our organic sales growth and the cost reduction actions that we took last year in selected parts of our business. Slide #10 details our cash generation. Operating cash flow increased 42.5% to $33.4 million in the first quarter of this year compared to $23.4 million in the first quarter of last year. And free cash flow increased 38.8% to $22.4 million in Q1 of this year compared to $16.1 million in last year's Q1. We're constantly focused on making the best cash-based decisions throughout our organization, which gives us the ability to invest in our business and return funds to our shareholders through share buybacks and dividends. Turning to Slide #11, you'll find the impact that our historical cash generation has had on our balance sheet. As of October 31, we were in a net cash position of $66.8 million. Our approach to capital allocation is consistent, which is to fund organic sales growth and efficiency opportunities. This includes investing in new product development, sales generating resources, capability-enhancing CapEx and automation-focused CapEx. We have the ability to invest throughout the economic cycle so that we're always positioned to drive future sales growth and profit improvements. And we're focused on consistently increasing our dividends. In September, we announced our 40th consecutive year of annual dividend increases, which was an incredible milestone and is a streak that we're very proud of. From here, we're disciplined and opportunistic for both acquisitions and share buybacks. We're focused on identifying acquisitions with clear synergies to Brady, and we have the ability to fund our organic business, our dividend, M&A opportunities and share buybacks. We repurchased 55,000 shares for $4.1 million in the first quarter, which was an average price of $73.69 per share. Slide #12 outlines our fiscal 2026 guidance. We are increasing the bottom end of our full year fiscal 2026 previously announced adjusted diluted EPS guidance range from $4.85 per share to $5.15 per share to -- with the new range of $4.90 per share to $5.15 per share, so a $0.05 increase to the bottom end. Our GAAP EPS guidance range was updated to reflect acquisition-related amortization as well as to increase the bottom end also by $0.05, which we now expect to range from $4.57 per share to $4.82 per share. Our adjusted diluted EPS guidance range represents a range of growth of between 6.5% to 12% over 2025. We expect organic sales growth in the low single-digit percentages for the full year ending July 31, 2026. Other elements of our fiscal year 2026 guidance include an income tax rate of approximately 21%, depreciation and amortization expense of approximately $44 million and capital expenditures of approximately $40 million. Potential risks to our guidance, among others, include potential strengthening of the U.S. dollar, inflationary pressures that were unable to offset in a timely enough manner or an overall slowdown in economic activity. Now I'll turn it back over to Russell to cover our regional results and to provide some closing thoughts before Q&A. Russell? Russell Shaller: Thanks, Ann. Slide 13 details the financial results of our Americas and Asia region. Sales were $268.9 million this quarter, which were up 9.6% from Q1 last year. Organic sales growth was 4.7% and acquisitions added the remaining 4.9% of our growth. We saw growth in most of our major product lines with significant growth of nearly 19% in the Wire Identification product line. Wire ID has been leading our organic sales growth company-wide for the last 3 years, with data centers being a key end market. Our high-performance adhesive materials are ideal for the critical labeling requirements in data centers. Our Asia business performed well with total organic sales growth of 11.9%, which was led by our business in Japan. We saw growth throughout the region, including China, where we grew slightly by 0.8%, which means that our business outside of China combined for nearly 20% growth in the quarter. Asia also contributed a significant amount of growth in segment profit in the Americas and Asia region in the quarter, which was a result of both organic sales growth and the cost reduction actions that we took in China last year. Our reported segment profit in Americas and Asia region increased 9% to $59.9 million and segment profit as a percentage of sales was 22.3%. If you exclude the impact of amortization in both the current quarter and last year's Q1 as well as our other nonrecurring acquisition-related expenses last year, segment profit increased 6.3%. Similar to past years, we are increasing our investment in R&D, which is the driving factor of our organic sales growth, both now and in the future. We are experiencing a tariff headwind in the U.S. compared to last year's Q1. While we continue to take steps to reduce their impact, last quarter, we projected net incremental expense of between $8 million and $12 million for fiscal 2026. As of the end of Q1, we are now projecting full year impact to be at the low end of this range, so approximately $8 million. Slide 14 details the financial results of Europe and Australia region. Sales were $136.4 million this quarter. Organic sales declined 0.8% and foreign currency translation added 4.3% for total growth of 3.5% in the region this quarter. Both Europe and Australia continue to operate in challenging macro conditions for industrial manufacturers, yet we nearly returned to organic sales growth in the quarter. Sales declined in our People Identification and Safety and Facility Identification product lines, but we saw growth in our Wire ID products in the quarter. Organic sales in Europe declined 0.9% and increased slightly by 0.3% in Australia. Despite the 0.8% decline in organic sales, we reported a significant improvement in segment profit in the region. Our reported segment profit in Europe and Australia increased 42.8% in the quarter to $18.7 million, and segment profit as a percentage of sales was 13.7%. If you exclude the impact of amortization in both the current quarter and last year's Q1 as well as other nonrecurring acquisition-related expenses last year, segment profit increased 15% compared to the prior year. We took several actions last year to reduce our cost structure in both Europe and Australia, and we're seeing this payback in our profit results this year. We started the year with some solid momentum. We're growing organic sales mid-single digits in America and Asia, and we're nearly returned to growth in Europe and Australia. Even with the subdued global macroeconomic environment for industrial companies, I am super excited about the business we acquired and over the past year as well as fantastic technology that we are adding to our portfolio, such as the BradyScan app that I truly believe the addition of our direct part marking product line and the ease-of-use features we are adding throughout our product portfolio enables us to help our customers improve their productivity. With that, I'd like to turn it over for Q&A. Operator, would you please provide instructions to our listeners? Operator: [Operator Instructions] Our first question comes from Steve Ferazani with Sidoti. Steve Ferazani: I appreciate the detail on the call. Russell, I was a little bit surprised on the strength of the gross margin better than it was in the second half, sort of flat versus if you adjust the year ago quarter, but the year ago quarter didn't include tariff impacts. So I'm trying to figure out, one, is it getting better compared to 3 and 4Q because you're more effectively offsetting with price? Or was it just a particularly strong mix quarter? If you can help us out a little more detail on the gross margin? Russell Shaller: Yes. The biggest impact was both price and working on our supply chain and moving things around a little bit. As a truly global manufacturer, we do have some ability to move things around and to look at which companies -- countries, excuse me, we should be producing and sourcing from. So I think like any good manufacturer, you do what you can to offset macroeconomic effects, and that's basically what we're doing. I'm happy to say we were projecting $8 million to $12 million. I think through a lot of efforts from a lot of people at Brady, we're headed towards the very low end of that range. And that was also contributed to why we bumped the bottom end of our guidance up $0.05. Steve Ferazani: Got it. That's helpful. The higher R&D we've seen over the last couple of quarters, is this a more reasonable run rate? And is that primarily because of the acquisitions you've made? Or you just feel like there's better returns that can be made from some of these product investments? Russell Shaller: So certainly, the 5%, 7% or so that we're at right now is due to the acquisitions. And over time, probably the next couple of quarters, we'll decide if there's overlapping R&D efforts, there's probably some at the margin. I would consider 5.5%, give or take, kind of the situation we should be in for the next few quarters. So there will be a little bit of a streamlining of that effort, not really significant. We did have some onetime events in R&D. But as you point out or as I point out in the call, R&D continues to be the absolute best investment we can make organically. And I don't really have a per se target on where it should be, but we can say directionally 5.5% for the next year or so. Steve Ferazani: Okay. That's helpful. When you're thinking about the cost-out actions you took last year, did we see most of it this quarter, that the plant consolidation and some of the workforce reductions? Have we seen the full benefit? Or is there more to come? Russell Shaller: I would say there's probably 80% plus you've seen in Q1. There's still some more things that we're going to get. We certainly don't need to and won't take any additional restructuring charges. We have nothing anticipated at this point. But again, like everybody that's managing their company, we continue to look for ways to improve our efficiency and drive a little bit more to the bottom line. So I'm going to say 80% done, still a little bit more to go. Steve Ferazani: Excellent. And if I could just ask briefly on cash conversion. It was better than it was the year ago quarter. Typically, Q1 is your lowest, but are you expecting you can get cash conversion back closer to 100% this year? Or is that a little bit too much of a reach? Ann Thornton: That's a reasonable target, Steve. And good observation on your part that usually it is a little bit lower for us in Q1. That's just due to timing of annual incentive payments and things like that. But we're definitely pleased with the improvement in Q1. We expected that to come. Last year was a little bit more suppressed than we would typically see in Q1. A lot of that was due to timing and our cash conversion kind of normalized out a little bit more toward the end of the year. So that's a reasonable expectation to see that cash conversion level improve this year. Steve Ferazani: If the inventory line still seems pretty high, is that because of the acquisitions or the consolidation or a few things? Ann Thornton: A few things, honestly, there's a little bit due to the acquisitions, but they're not overly very large either. So we made some decisions a few years ago to stock more of our absolute highest running products. It's like that's a few years some changes in our supply chain. We did move production of several printer lines as planned quite a while ago in Asia that also requires higher. So a little bit of everything kind of around the edges that's causing that increase in inventory. And we're always looking for opportunities to work on those levels, but we would -- and we would expect it to probably not increase too terribly much from here and kind of normalize working capital to more of a neutral level. Russell Shaller: I would say, if I could add one more piece of color. A lot of the traditional Brady businesses, the signage and the identification products are very quick conversion cycle from the time we get an order to -- through manufacturing and selling it. And so you don't need to have as much inventory as, say, a laser or a reader, which is really a finished good. So all things equal, we absolutely will be in a higher inventory position than what traditional Brady would have been, not a lot higher because that's still a small percentage of our sales, but that is going to add a couple of points to our overall inventory. Operator: Our next question comes from Keith Housum with Northcoast Research. Keith Housum: Russell, I noticed your guide for the Australia and -- I'm sorry, Europe and Australia segment suggests perhaps low single-digit growth by year-end, but you guys had a slight decline this quarter. Anything that you're seeing out there that gives you further confidence that, that segment will be able to turn it around based on some of the challenges they have in the macro environment as we see today? Russell Shaller: Yes. So I'm basing this on what I read in a lot of economists that have said that the calendar year of 2026 is supposed to be better than the calendar year of 2025. Frankly, we really haven't seen much. It hasn't gotten any worse over the last several quarters, but we haven't seen what euphemistically are called green shoots. The services sector, which we don't participate in, seems to be doing a little bit better in Spain and some of the vacation countries. But if you look at core manufacturing in Germany, France and the U.K., just not seeing a lot of movement. Not getting worse, not getting better, but we -- if we're going to turn the corner, it's at least 1 or 2 quarters out from now. Keith Housum: Great. And in terms of BradyScan, first off, congratulations. I know it's been on your list of things to get done for a while now. Is it out now? And I guess, perhaps any color you can provide in terms of who you think the target audience will be for that? Is it your entire base? Or is there a certain segment? And then finally, how many of your products will be linked to or be able to benefit from BradyScan? Russell Shaller: Yes. So there's 2 parts to it. One is we're being, I think, good friends to the economy in general. So the BradyScan app has a consumer version that has no adware, no bloatware and isn't trying to take your data backhauling it to wherever. So that's a free version for 50 scans or so a month, which I think for most consumers is more than enough. The industrial version actually is going to form part of the backbone of our connected products. Right now, it works seamlessly with our printers and our readers, which I talked about. The next step will get it to engage directly with our lasers and our other marking technology. So it's -- I'm going to say we're about halfway through it. There's still a lot more software that needs to get done. But I love the first iteration. I think it's a very clean and easy-to-use app. Understanding it's really more tailored towards industrial users. We just kind of threw in the consumer users as a nice freebie for some of our customers and friends. But you're encouraged to download it. It's got an Apple version and it's got an Android version. And as of this weekend, it had just gone up, and we only had 5-star reviews. So there you go. Keith Housum: Congratulations. And then it's been a year since you add Gravotech. You guys added Mecco, hopefully I was saying that right, early this quarter. Any line of sight to revenue synergies coming from the -- I guess, both of the acquisitions and then just the progress you've made over the past year? Russell Shaller: Yes. So a couple of things. We've absolutely gone through a product road map and decided which businesses focusing on which end markets. With that said, I think they are working in a very tough environment, in fact, more than Brady as a whole because the core segment that we're looking for them to excel at is heavy industrial manufacturing, which is amongst the weakest segments currently out there. So the fact they're doing okay in what I think is a pretty awful environment is good. We really need that to turn around. One of their key customers is the automotive and automotive supply chain, not a great place right now, but it will come back. We're very confident. And we -- more importantly, we're confident in going after midsized manufacturers, which is really kind of the heart of Brady's business. So we feel good, very, very early. Brady makes long-term strategic bets. We have a core thesis that we believe everything is ultimately going to get marked in production. And this is -- ensures that we have that capability over the next 5 to 10 years. So still a work in progress. We feel good initially, but with a lot more to go. Keith Housum: Great. Appreciate that. And final question for me. Gross margins, another solid quarter for you guys, even with the tariff headwinds. I know you guys are hesitant to suggest that gross margins can be above that 50% range, but yet you guys have been able to deliver that with the challenges that you've had. And I know you also merging -- a lot of your growth coming from your emerging products. Any more thoughts about gross margins and where they perhaps can go going forward? Russell Shaller: Yes. So -- and I sound like I'm very repetitive on this because I answered it always the same way. Our engineered products, all things being equal, are probably 60-ish percent gross margin versus our more commodity products are 40-ish. So the more we have engineered products, the more our gross margin will expand. But we don't have a target because all of these products are delivering significant cash flow and return on invested capital. So yes, there's a little bit of help due to our portfolio as it slowly changes. Right now, of course, the offsetting effect has been some tariffs that hasn't helped by any stretch. But I do not have a target. We know we could push pricing higher to expand our gross margins at the expense of demand reduction. So we're really trying to spend most of our time getting more Brady products into more people's hands because even at our gross margins, the money flows through to the bottom line. So we need to keep pushing on growth more than margin expansion. Thank you. Operator: I'm showing no further questions at this time. I would now like to turn it back to Russell Shaller, CEO, for closing remarks. Russell Shaller: Thank you for your time today and for your questions. Brady is on a journey to help our customers have a safe and productive workplace. Our visual Safety and Facility Identification portfolio, combined with Brady's productivity solutions help our customers comply with a wide variety of regulations, including the upcoming GS1 standards and new European Union product labeling requirements. Even with a challenging tariff regime and a tough manufacturing macro environment, we are growing sales and increasing profitability. As always, we're keeping our focus on what we can control and continue to move forward with long term consistently in mind. Our increased investment in R&D is a direct reflection of our view on the long term as our engineered products have proven to be the primary driver of our growth. We pride ourselves on the diversity of our end markets and our R&D investment gives us the ability to engage with an ever broader set of customers. We do expect to continue to be impacted by incremental tariffs, but we believe that our global manufacturing presence and largely in-country manufacturing as well as our geographic diversification helps us to mitigate some of this effect. We're being creative and we're adapting quickly, and I'm very proud of the team and their tireless efforts in this changing environment. I'm optimistic for the rest of the year and the long term for Brady's ability to continue to deliver improved results for our shareholders. Thank you for your time this morning. Operator, you may disconnect the call. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to the Verrica Pharmaceuticals' Third Quarter 2025 Corporate Update Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I will now turn the call over to our host, Kevin Gardner of Lifesci Advisors. You may begin your conference. Kevin Gardner: Thank you, operator. Hello, everyone, and welcome to Verrica Pharmaceuticals Third Quarter 2025 Corporate Update Conference Call. With me on the line this morning are Jayson Rieger, President and Chief Executive Officer; Noah Rosenberg, Chief Medical Officer; John Kirby, Interim Chief Financial Officer; and David Zawitz, Chief Operating Officer. As a reminder, during today's call, management will make forward-looking statements. These forward-looking statements are based on the company's current expectations and involve inherent risks and uncertainties. Verrica's actual results and the timing of events could differ materially from those anticipated in such forward-looking statements. Please see Verrica's SEC filings for important risk factors. Verrica cautions you not to place undue reliance on forward-looking statements and undertakes no duty or obligation to update any forward-looking statements as a result of new information, future events or changes in expectations. In addition, during today's call, management will discuss certain non-GAAP financial measures. These non-GAAP financial measures are in addition to and not a substitute for or superior to measures of financial performance prepared in accordance with GAAP. There are a number of limitations related to the use of these non-GAAP financial measures compared to their closest GAAP equivalents. The earnings release that the company issued Friday includes GAAP to non-GAAP reconciliations for these measures and is also available on the Investor Relations section of Verrica's website. I'll now turn the call over to Verrica's President and CEO, Jayson Rieger. Jayson Rieger: Thank you, Kevin, and good morning, everyone. Thank you for joining us for our third quarter 2025 corporate update call. In the third quarter, Verrica achieved multiple commercial, corporate, scientific and regulatory milestones, providing a strong foundation for future growth in YCANTH as well as significant upside potential for our late-stage pipeline. Throughout the past year, we've advanced our clinical programs in two of the highest unmet needs in dermatology for future development. We are excited to embark on the first of these programs our global Phase III clinical program of YCANTH or VP-102 in common warts. This is with our Japanese development partner, Torii Pharmaceutical and is expected starting -- to be starting later this year with first patients targeted for dosing in December. Also, as I'll discuss in more detail later on in this call, we've received clear and positive feedback from the FDA about the Phase III development program for our oncology asset, VP-315, for basal cell carcinoma, the most common form of skin cancer. Even while advancing these two programs to Phase III readiness, we've reduced our spending by about half in the past year, while more than doubling dispensed units of our commercial product, YCANTH for molluscum contagiosum. I couldn't be more proud of our team's simultaneous achievement of these goals, and we are excited to see what's ahead for Verrica in 2025 and beyond. In the third quarter, we continue to see growth in the adoption of YCANTH by health care providers in the U.S., with quarter-over-quarter growth in dispensed applicator units of about 5%, compared to last year, dispensed applicator units increased to 37,642 for the 9 months ended September 30, 2025, a 120% increase over that same month in 2024. This year-over-year growth reflects the progress of our commercial strategy to expand distribution through the pharmacy channel and the concerted effort to expand beyond dermatology into pediatric and primary care offices. While the incremental growth in pull-through was softer in Q3 versus the prior quarter, we powered through seasonality and competitive headwinds to help providers treat more patients with what we view to be is the best-in-class therapy for molluscum. The growth and adoption of YCANTH for molluscum serves as the foundation for our strategy of establishing YCANTH as a valuable tool for treating multiple types of skin lesions as the same clinicians familiar with YCANTH will also be those who treat common warts if that is approved as an expanded indication. Through our amended agreement with Torii, we have received $18 million in cash milestones payments in 2025, of which $10 million was received in the third quarter upon the approval of YCANTH for molluscum in Japan. Torii continues to be an outstanding and highly collaborative partner to Verrica, and this additional non-dilutive capital has helped our cash position and supported our YCANTH activities in the United States. The financial arrangement for the global Phase III program in common warts, where by Verrica and Torii split the cost of the program with the first $40 million funded by Torii has unlocked the development of this key indication with first patient dosed in the United States expected by the end of the year. It's also important to note that Verrica retains exclusive global rights to YCANTH outside of Japan. The recent approval of YCANTH in Japan for molluscum is the first of what we hope to and expect will be multiple approvals across the major pharmaceutical markets, including the European Union. We recently received a significant regulatory milestone towards YCANTH approval for molluscum in the EU. Feedback from the European Medicines Agency on October 20 indicated that no further Phase III clinical studies would be needed to proceed with the filing of a Marketing Authorization Application for YCANTH as a treatment for molluscum, and we anticipate the filing could occur as early as the fourth quarter of 2026. The feedback was based on compelling efficacy from the well-controlled Phase III studies successfully conducted in both the United States and Japan. Europe represents a large and underserved market for patients who at present have no approved therapy for the treatment of molluscum as well as a large commercial expansion opportunity for Verrica. While we've been optimizing our cost structure and building the foundation for YCANTH as a best-in-class therapy for molluscum in common warts, our clinical teams have been developing VP-315, or ruxotemitide, our novel oncolytic peptide immunotherapy as one of the most exciting late-stage assets in oncology. We recently announced new data from our Phase II study evaluating VP-315 for basal cell carcinoma at the Society of Immunotherapy of Cancer, or SITC, at their 40th Annual Meeting. The presentation revealed supportive immunologic mechanistic data that helps explain why VP-315 shrinks treated basal cell carcinomas in many patients as evidenced by a 97% objective response rate and an 86% reduction in overall tumor size. We also observed a potential abscopal-like effect in non-treated lesions, which strongly suggests immune system engagement. We are also excited to announce that we reached alignment with the FDA on an efficient Phase III study design. We couldn't be more excited about VP-315 and its prospects to potentially become standard of care for the most common form of skin cancer. We believe the tremendous promise of these pipeline assets may present robust partnering opportunities to advance these programs through development and commercialization as well as bring in meaningful non-dilutive capital. and we are currently exploring these opportunities wherever they present themselves. I'd like to provide a more detailed update now on our commercial activities for YCANTH. During the third quarter, YCANTH dispensed applicator unit reached a total of 14,093, which represents approximately 5% sequential growth over the prior quarter. Not surprisingly, we experienced some seasonality in August. As in-office treatment, times of the year where there are generally fewer visits for doctors, largely driven, we believe, by scheduled vacations by both providers and patients and fewer sick child visits will have an impact on our volumes. I believe the seasonality did modestly impact our volumes in August. But as we enter the back-to-school season in September, we saw a return to the previous levels of pull-through which is consistent with the expected product utilization patterns for this indication and patient population. We also saw that momentum continue into the beginning of the fourth quarter. Turning to reimbursement. As noted on our last conference call, the substantial investments we have made in our commercial copay assistance program continues to give providers a consistent path for treating their patients with YCANTH. As a reminder, our copay assistance program allows all eligible patients with commercial insurance to pay just $25 per YCANTH treatment for up to two applicators, which provides physicians with comfort knowing that their patients will find affordable access to YCANTH. As previously indicated, our commitment to patient affordability and ease of access to YCANTH for health care providers had an incremental impact on our gross to net and by extension, revenue for the quarter. We view this investment as the best way to get YCANTH in the hands of providers to use as their frontline treatment for molluscum and to minimize concern for clinicians whether the prescription will be filled for their patients. One new development on the commercial front that we are excited to share is YCANTH Rx. Our new non-dispensing pharmacy that we expect to launch in the fourth quarter of 2025. YCANTH Rx will give prescribers a single place to write all YCANTH prescriptions and will assist with benefits investigations, processing any prior authorizations and enrollment in our copay program. Prescriptions written to YCANTH Rx will then be routed to a dispensing pharmacy in our pharmacy network that is contracted with the patient's insurance plan. We believe YCANTH Rx can improve speed to therapy for patients by navigating the prior authorization process with fewer delays. Prescribers will also enjoy this simplified, seamless experience that will reduce the paperwork burden on their offices and let them spend more time doing what they do best, treating patients. I'm also pleased to note that recent expansion of our sales force, which will continue into the next year. Our total sales force has risen to 45 sales reps this quarter, and we plan on increasing it to 50 in 2026. For the third consecutive quarter, YCANTH inventory remained at normalized levels with YCANTH applicator units shipped to distributors continuing to closely track underlying market demand of dispensed applicator units. I will now provide an update on our pipeline programs. Regarding our common warts program, as I mentioned earlier, we remain on track to enroll our first patient in the Phase III program in the U.S. in the fourth quarter. We provide updates on estimated timing of completion of the program and estimated availability of top line data as those items become clearer in the future. Moving to our novel oncolytic peptide, VP-315, which is being developed for basal cell carcinoma. As we have previously discussed, BCC is one of the most common skin cancer indications with over 3.6 million cases per year, representing a potential multibillion-dollar opportunity. As I mentioned, last week, we presented an oral presentation and a poster on VP-315 at the SITC 40th Annual Meeting. The new data presented at SITC underscores VP-315 potential to redefine how basal cell carcinoma is treated. We are particularly encouraged by the immunologic profile we're seeing with VP-315, which supports our view that this local short-term therapy not only destroys tumors directly but also stimulates a potent local immune response. The histological assessment in non-injected lesions suggests a potential abscopal-like effect. These data help explain the mechanism for the clinical safety and efficacy data previously reported and support the development of VP-315 as a potential non-surgical immunotherapy option for patients with BCC and further reinforces our confidence in VP-315's ability to address significant unmet need in dermatologic oncology. As this data release has prompted significant inquiries into the VP-315 program and the nature of our Phase III development plan, we are also pleased to share feedback with respect to our end of Phase II meeting with the FDA and our plans to advance the asset. In the meeting, the FDA confirmed alignment with our plans for the Phase III program to encompass two placebo-controlled Phase III studies with approximately 100 subjects each and a primary endpoint of complete clearance as assessed at week 14. Based on the FDA feedback, we expect these studies will be adequate to support an NDA filing with long-term follow-up studies to be conducted as post-approval commitment. We are extremely pleased with this collaborative and thoughtful discussion with the FDA, which provides us with an efficient path to making VP-315 available for patients with BCC. We are continuing our preparatory activities for the BCC program and are exploring new funding opportunities, which may include strategic non-dilutive partnerships for both the development as well as post-approval commercialization. As we finalize our preparation for Phase III with CROs and clinical site investigators, we will provide additional details on costs, timing and other key aspects of this exciting oncology program. As we approach the new year, we believe our company remains well positioned to realize strong organic growth as YCANTH continues to establish itself as the leading therapy for the treatment of molluscum. We are also excited about the value creation surrounding YCANTH's potential label expansion into common warts, the potential for expansion of YCANTH for molluscum around the world and the nearly universal positive feedback we are receiving for VP-315 for basal cell carcinoma. I'll now turn the call over to our Interim Chief Financial Officer, John Kirby. John Kirby: Thanks, Jayson. I'll now take a few minutes to summarize our financial results for the quarter ended September 30, 2025. For the third quarter of 2025, we reported total revenue of $14.3 million compared to total negative revenue of $1.8 million in the third quarter of 2024. Total revenue for the third quarter of 2025 primarily consisted of $10.7 million of Torii milestone and collaboration revenue and net YCANTH revenue of $3.6 million, compared to $84,000 in collaboration revenue from Torii and negative $1.9 million of net YCANTH revenue in the third quarter of 2024. Net YCANTH revenue in the third quarter of 2025 reflects shipments to our distribution partners, offset by standard gross to net adjustments, including actual or anticipated product returns, off-invoice discounts, distribution fees, rebates and copay assistant program expenses. Recall that in the third quarter of 2024, negative net YCANTH revenue was due to an increase in our returns reserve for estimated returns from certain distributors and no revenues from ex-factory sales. This year, as Jayson mentioned earlier, net YCANTH revenue represents orders from our distribution partners to meet demand from their customers. Gross product margins for the third quarter of 2025 were 79.1% and cost of product revenue was $0.8 million, including $0.4 million of obsolete inventory costs. Research and development expenses of $2.2 million in the third quarter of 2025, increased by $0.1 million when excluding the impact of stock-based compensation, which is in line with the third quarter of 2024. Selling, general and administrative expenses of $9.4 million in the third quarter of 2025 decrease compared to the third quarter of 2024 by $5.8 million, excluding the impact of stock-based compensation, driven primarily by the implementation of our more focused commercial strategy for YCANTH, including decreases in compensation, benefits and travel due to reduced sales force of $3.5 million, decreased commercial costs of $1.2 million and decreased marketing and sponsorship costs of $0.8 million. Before I discuss net income and net loss per share, I will note that on July 24, we effected a reverse stock split at a ratio of 1 for 10 shares of our common stock. As a result, every 10 shares of our issued and outstanding common stock were automatically combined into 1 share. The 2025 and 2024 per share amounts I will note reflect the impact of the reverse stock split. GAAP net loss was $0.2 million or $0.03 per share for the third quarter of 2025, compared to a GAAP net loss of $22.9 million or $4.88 per share for the third quarter of 2024. On a non-GAAP basis, which excludes stock-based compensation, non-cash interest expense and change in fair value of embedded derivatives, the third quarter of 2025 net income was $1.2 million or $0.13 per share, compared to a net loss of $20.2 million or $4.30 per share for the third quarter of 2024. And finally, as of September 30, 2025, Verrica had aggregate cash and cash equivalents of $21.1 million. As Jayson mentioned earlier, we received a total of $18 million in cash milestone payments from Torii during 2025. In consideration of the $10 million minimum liquidity covenant in our debt facility, on a GAAP basis, our cash balance as of September 30, 2025, funds operations into the late fourth quarter. We will continue to apply discretion in our uses of cash and explore opportunities to further bolster the strength of our balance sheet while still advancing our commercial and clinical development efforts. I'll now turn the call back over to Jayson for closing remarks. Jayson Rieger: Thanks, John. Since my appointment as CEO, just over 1 year ago, I'm incredibly proud to report that Verrica has plotted a course to build a foundation in our commercial stage asset, YCANTH and further advance our pipeline of potential products for two of the largest unmet needs in dermatology. The Verrica team is always focused on delivering best-in-class therapies, and I can say that with confidence that we are fully executing on this strategy, and doing so utilizing a highly efficient operating model that prioritizes growth while prudently allocating capital resources to the growth. We will enter 2026 with significant accomplishments across all facets of our business in 2025 that I believe will lay the foundation for continued growth and success. With that, we'd be happy to take any questions. Operator? Operator: [Operator Instructions] We'll take our first question from Stacy Ku with TD Cowen. Stacy Ku: And great to hear about the stepwise sales for expansion in YCANTH patient hub. But first, can you further speak to the YCANTH demand that you're seeing in Q4. And then second, maybe go into more detail on the competitive headwinds. What kind of detailing are you seeing? And what has been the prescriber feedback on Zelsuvmi and maybe the efficacy that you're seeing when it comes to the competitor. Jayson Rieger: Sure. Thanks, Stacy. Nice to talk to you again. In terms of Q4, as we indicated earlier, the momentum we saw rounding up September, we've seen continue into this quarter. In terms of the competitive landscape, we continue to view the largest competitor to the treatment of molluscum as being watch and wait, and converting doctor behavior from simply watch and wait or referral to actual treatment. The Zelsuvmi launch is, in our view, a positive for the marketplace as there's now shared voice talking about the need to treat and the ability to treat molluscum, and we're still excited about the prospects of YCANTH as being a best-in-class option for those patients with most patients seeing their disease addressed in as few as one to two treatment. Operator: Our next question comes from Dennis Ding with Jefferies. Yuchen Ding: I have two. Number one, just on the recent sales force expansion, I'm just curious when you expect productivity to fully ramp? And is 2026 sort of the right way to think about it? And then number two, on EU, I appreciate the guidance around filing in Q4 '26, but that's still in 12 months despite no additional clinical trials, et cetera, required. So just curious, why do you need the 12 months? And is that a situation where you could find a partner first before filing? Jayson Rieger: Sure. No problem. So in regards to your first question, sales productivity, yes, it typically takes a few months for any rep to be up to speed. So we would expect that many of our reps that we've hired recently to be hitting the ground running and being quite productive in the early part of next year. In terms of the EU, there are some mechanical things that relate to filing in the EU that require sequential steps in time. One of those, in particular, is around securing the pediatric waiver, even though our drug is already been completed in pediatric patients, we have to go through the process of securing that waiver in the EU, and that adds a few months to the beginning of the time line. We're doing everything we can to expedite the process, but there are a number of sequential steps in Europe that require you to go through step 1 before you go to step 2, and we're continuing to do all those things actually right now. And also in terms of your question about partnership. In terms of that general run rate, that would provide us to fund a commercial plan ourselves or work with a partner and give us sort of that time line to prepare for commercial launch. So we don't believe it's going to adversely impact the time line to commercial. Operator: We will move next with Serge Belanger with Needham & Company. John Todaro: This is John on for Serge today. So first on YCANTH Rx, I guess it's kind of getting ramped up in the next month or so. Curious what some of your feedback has been from KOLs that you've spoken to that kind of led you to instilling this mechanism and how it could start -- could kind of kick start further dispensed applicator growth moving forward? And then back on the expansion of the sales force, just curious if this -- the goal here is kind of an expansion in the breadth of your current call points or more so an increase in depth in prescribing from your current prescribers? Jayson Rieger: Sure. Thanks. So we're very excited about the YCANTH Rx. The feedback has been, in general, we've worked very hard over the past year to continue to simplify the process for clinicians and their patients. And we believe a single point of referral for writing these prescriptions to a non-dispensing pharmacy will make that continue to be easier for the clinicians. And make it easier for their patients. So there'll be one stop shop that has familiarity with the commercial payers, the contracts, the insurance for the patients and also to facilitate expeditious ways to get that fulfilled for the patients. And the general feedback we've seen so far is it's been very positive. But it's still at early stages, and we'll continue to explore and share details as that rolls out. In terms of the breadth and call point, I would say it's still a bit of both. The -- we're seeing greater demand. And given that we're expanding into both the pediatric primary care, in addition to our core business in dermatology, this allows our reps to spend more time calling on the existing customers, but also to expand in some of their call points and high-value opportunities in the commercial space. What we see, as I mentioned earlier, in terms of the largest competitor being doing nothing or watch and wait, this means there's lots of clinician targets out there for which there is no deciling of data, and we just need to engage with them through conferences, through trade shows and through social media and marketing efforts as well as simply knocking on the doors in the old-fashioned way. So we're excited about that opportunity. There's plenty of targets for our reps, and I think that we'll start to see that traction going into this year. Operator: [Operator Instructions] We'll move next with Brian Kemp with Brookline Capital Markets. Brian Kemp Dolliver: Can you hear me all right? Jayson Rieger: A little bit. Brian Kemp Dolliver: Okay. A couple of questions for me, how should we think about seasonality impact in Q4 sales? And another one is on YCANTH Rx. Do we have any benchmark from a similar pharmacy model and a similar kind of indication? And what kind of KPI will you be tracking to measure on YCANTH Rx success in the first 6 to 12 months? Jayson Rieger: Can you please repeat the first part of the first question. It was static, I didn't hear it. Brian Kemp Dolliver: All right. So my first question was, how should we think about seasonality impact in Q4 sales? Jayson Rieger: Okay. No problem. So in terms of Q4, we would expect some of the traditional slowdown you could see in November, December based on vacations and holiday times and sort of the calendar in general. But we expect that, that momentum will continue into the first part of next year for prescriptions, especially as we believe that molluscum is often a secondary diagnosis for patients. And as we get into cold and flu season, we expect there'll be more doctor visits and could be more diagnosis of molluscum going forward. In terms of the NDP, at this point, we're not giving any expectations or metrics at the moment, but you would expect that we would follow all the core metrics of time to fill, the number of scripts that are fulfilled, et cetera. And as we get more data on that, we'll continue to evolve and monitor that process. But those are the expectations of a typical NDP. Operator: And this will conclude our Q&A session. I will now turn the call back to CEO, Jayson Rieger. Jayson Rieger: Thank you, operator. I'd like to thank all of you for joining us this morning, and we look forward to providing updates on our progress in 2026. Have a nice day. Operator: Thank you. And this does conclude today's program. Thank you for your participation. You may disconnect at any time.
Operator: Good day, and thank you for standing by. Welcome to Trip.com Group Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Michelle Qi, Senior IR Director. Please go ahead. Michelle Qi: Thank you. Thank you, all. Good morning, and welcome to Trip.com Group's Third Quarter of 2025 Earnings Conference Call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are 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 results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Trip.com Group's public filings with the Securities and Exchange Commission. Trip.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the third quarter of 2025 as well as outlook for the rest of the year. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please. James Liang: Thank you, Michelle, and thanks, everyone, for joining us on this call today. Travel is thriving and the travel spirit shows no signs of slowing down. In the third quarter, travel demand surged across markets, led by vibrant domestic travel in China and a steady rise in outbound journey. Travelers are exploring with confidence seeking authentic experiences in new horizons, a reflection of their enduring passion for discovery. This growing enthusiasm is mirrored in the performance of our AI-powered tools such as Trip.Planner, whose recent upgrade has fueled a 180% year-over-year surge in unique visits. Inbound travel continues to play a vital role in fostering international exchange, trade and innovation, generating meaningful economic and cultural benefits. Expanded visa-free entry policies and broader coverage of the 240-hour transit visa exemption have made it easier than ever to visit, bringing the goal of raising inbound travel revenue to 1% to 2% of GDP increasingly within reach. As part of our inbound initiative, Trip.com Group launched Taste of China, an immersive dining experience that allows international visitors to explore Chinese culture through its rich culinary tradition. We remain optimistic about the future of travel. By leveraging AI innovation and delivering world-class service, we continue to make travel easier, more personalized and more enjoyable for every traveler. With that, I will turn the call over to Jane for operational highlights. Jane Sun: Thank you, Jane. Good morning, everyone. As a quick overview, our net revenue in Q3 increased by 16% year-over-year, reflecting strong demand across segments during peak travel season. Travel consumption remained robust throughout the summer and the National Day holiday with both domestic and international travel markets showing healthy momentum. This performance underscores travelers' growing desire for diverse, immersive and high quality experiences. Outbound travel continued to post solid growth in Q3 with our outbound hotel and air bookings growing by close to 20% from last year and reaching about 140% of 2019 volume. Japan, South Korea and Southeast Asian destinations remain the most popular choices, supported by their proximity and visa convenience. At the same time, travelers' radius of exploration continued to expand as more people sought new adventures and richer cultural experiences. This trend was particularly evident during the Golden Week, which was 1 day longer than last year and sparked stronger demand for long-haul trip. During the holiday, outbound hotel and air bookings surged by around 30% year-over-over reflecting sustained travel enthusiasm. Europe stood out as a key growth region driven by increased flight capacity and travelers appetite for in-depth experiences. Bookings to Iceland and Norway more than doubled year-over-year. Spain, Italy and Germany also grew by approximately 70%. These trends show that travelers are increasingly willing to invest in high-quality travel experiences highlighting strong consumption power and continued confidence in outbound travel. Domestic travel also remained vibrant fueled by travelers' passion for new and immersive experiences. From cultural discovery to outdoor exploration, the growing diversity of travel demand continues to drive solid market growth. Major cities such as Beijing, Shanghai, Chengdu and Xi'an remained the top choices for their accessibility and offering. Remote regions, including [indiscernible] and Lhasa also grew by nearly 30% as more travelers ventured West to discover unspoiled landscape and rich heritage. At the same time smaller cities are emerging as new favorites for urban residents seeking peace and renewal. Their local charms and slower pace offer refreshing escape from everyday life. Inbound travel continues to connect the world, bringing travelers from across the globe to experience oriental culture, spark innovation and drive trade. The Asia Pacific region remains the largest source of inbound travelers, with Europe and the U.S. also seeing strong growth. In Q3, inbound travel bookings on our platform grew by over 100%, reflecting robust international demand. Building on the success of relay over tours in Beijing and Shanghai, we recently launched a free layover experience for travelers at Hong Kong International Airport. Transit travelers with 7 hours or more can book in advance on the Trip.com app or website or on-site at the airport to explore Hong Kong's highlights. For those seeking a deeper adventure, premium tours provide access to landmarks, such as Lantau Island and Victoria Peak. We are making it easier than ever for international visitors to plan, book and enjoy these experiences, aiming to become the go-to platform and trusted hub for travelers from around the world. On the international front, Trip.com Group continued to deliver strong performance. International bookings on our platform grew by around 60% year-over-year. The Asia Pacific region remains the largest contributor, rising over 50% in Q3. Across all regions, Mobile continues to be a key growth driver, now accounting for over 70% of total bookings. Travelers increasingly rely on our app for one stop on the go experience managing flights, hotels and tours seamlessly combined with high service standards and hassle-free bookings. We offer users great convenience and excellent value, fueling continued growth across markets. As travel demand expands across borders, it is also diversified across generation. With spending power 3x that of younger travelers, affluent and active seniors are eager to explore and spend on quality travel, reshaping the market from price competition towards a true value creation. In Q3 the number of Old Friends Club members and their total GMV rising over 70%. Trip.com Group is tailoring more products and services for this growing segment. We launched our first Old Friends Club flagship store in Shanghai to connect with senior travelers face-to-face and introduced themed trips designed around their interest. We also formed a dedicated service team of [ chief ] mom and dad officers friendly travel buddies who travel alongside the seniors, offering support and thoughtful care for their needs. Younger travelers are also shaping new trends in travel, seeking experiences that go beyond the ordinary. In Q3, revenue from this segment grew by triple digit propelled by the rising craze for concerts and live experiences. To meet the growing demand, Trip.com Group announced multiyear strategic partnerships with the world's leading live entertainment company. The collaboration allows fans to plan entertainment trip seamlessly combining exclusive presale access to shows with flights, hotels and curated local experiences to our platform, as entertainment becomes an increasingly powerful driver of travel, these partnerships help fans follow the artists they love while supporting regional tourism and enhancing destination appeal across Asia. We are also strengthening event booking capabilities through our partnership with Cityline Group, covering Hong Kong and Macau. Users can now effortlessly collect tickets via Cityline extensive self-service kiosk network by connecting online bookings with offline ticketing, the partnership delivers a smooth, hassle-free experience for travelers enjoying large-scale events. Trip.com Group remains deeply committed to nurturing the broader travel ecosystem and supporting local economic development by promoting travel products around concerts, festivals, and major sports events. We inspire more travelers to explore these destinations, driving overnight stays and spending and turning seasonal excitement into lasting economic impact for local communities. At the same time, we continue to tailor products and services to meet diverse traveler needs. For example, offering Muslim-friendly options, highlighting smart toilets for Japanese users and providing foreign currency exchange for inbound visitors. To further empower partners and elevate service standards across the industry, Trip.com Group is harnessing technology and AI to help the entire travel ecosystem move forward. Hotels can now overcome language barriers with our AI communication tools that respond to guest inquiries in real time. Our AI content generator and training tools also empower hoteliers to produce engaging content and sharpen their digital skills, helping them connect with international guests and with our updated hotel scoring and page ranking algorithms, we encourage hotels to focus on what truly matters, genuine service and lasting guest satisfaction instead of chasing ratings or ranking. Together, these efforts help partners stay competitive in a fast-changing landscape and create richer, smoother and more seamless travel experiences for travelers around the world. Travel is a fundamental part of the human experience, and we remain confident in the industry's long-term growth. We will continue to enhance our services and empower the broader ecosystem, driving sustainable growth across the travel industry and the wider economy. With that, I will now turn the call over to Cindy. Xiaofan Wang: Thanks, Jane. Good morning, everyone. For the third quarter of 2025, Trip.com Group reported a net revenue of RMB 18.3 billion, representing a 16% increase from the same period last year and a 24% increase from the previous quarter, reflecting robust travel demand throughout the summer and the Golden Week holiday. Accommodation reservation revenue for the third quarter was RMB 8.0 billion representing an 18% increase year-over-year and a 29% increase quarter-over-quarter. This was mainly driven by strong momentum in outbound and international hotel bookings along with sustained strength in domestic demand. Transportation ticketing revenue for the third quarter was RMB 6.3 billion, representing a 12% increase year-over-year and a 17% increase quarter-over-quarter. International air bookings showed robust growth with outbound air bookings continuing to outpace the market. Packaged tour revenue for the third quarter was RMB 1.6 billion, representing a 3% increase year-over-year and a 49% increase quarter-over-quarter, primarily driven by the expansion of our international offerings, our destination services delivered strong growth with international markets continuing to drive overall expansion. Corporate travel revenue for the third quarter was RMB 756 million representing a 15% increase year-over-year and a 9% increase quarter-over-quarter. This was driven by more companies adopting our managed corporate travel services. Excluding share-based compensation charges, adjusted product development expenses for the third quarter increased by 12% year-over-year. Adjusted G&A expenses for the third quarter increased by 6% year-over-year. These were mainly due to increase in personnel-related expenses. Adjusted sales and marketing expenses for the third quarter increased by 26% from the previous quarter and increased by 23% from the same period last year. The sequential increase was primarily driven by broader marketing investments with incremental spend allocated to our international expansion. Adjusted EBITDA was RMB 6.3 billion for the third quarter compared with RMB 5.7 billion in period last year and RMB 4.9 billion (sic) [ RMB 4.8 billion ] in the previous quarter. Diluted earnings per ordinary share and per ADS were RMB 28.61 or USD 4.02 million for the third quarter of 2025. Excluding share-based compensation charges, and fair value changes of equity securities investments and exchangeable senior notes, non-GAAP diluted earnings per ordinary share and per ADS were RMB 27.56 or USD 3.87 million for the third quarter. Diluted earnings per ordinary share and per ADS for the quarter were elevated primarily due to a onetime gain from the divestment of one of our overseas investments. As of September 30, 2025, the balance of cash and cash equivalents, restricted cash short-term investment, held-to-maturity time deposits and financial products was and RMB 107.7 billion or USD 15.1 billion. Looking ahead, we are confident in the continued strength of our business and future opportunities. Our disciplined approach to investment and execution will remain central as we focus on sustainable growth and long-term value creation. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Joyce Ju from Bank of America. Joyce Ju: James, Jane, Cindy and Michelle, congratulations on another strong quarter. AI is clearly top of the mind for the market and a key pillar of Trip.com's strategy. Can management please elaborate on where do you see AI heading on your platforms, specifically, how do you view the trajectory for AI agents? Do you see them going mainstream? James Liang: Thank you for the question. AI is a central pillar of Trip.com's strategy, and we are committed to unlocking its full potential for the travel industry. We believe we are at the forefront of this transformation. On the user side, we are shifting more touch points to AI-driven tools continuously iterating our AI plus content ecosystem. Our AI agent, TripGenie, is now used in over 200 countries and regions, with users growing over 200% year-over-year in the first half of 2025. We are also refining the balance between advanced AI search and conventional search to better serve user intent. For hotels, search results now evolve from standardized information to real-time recommendations tailored to individual preferences. On the operational side, AI helps detect issues and provide intelligent solutions for complex cases. This enhances employee productivity, improves customer service efficiency, increases satisfaction and conversion rates and can help reduce cancellations through smarter, more responsive service. Looking ahead, we see AI as a tremendous opportunity to make travel more accessible, reliable and enjoyable. Trip.com is committed to investing in AI to enhance every step of the traveler's journey. By combining cutting-edge technology with 26 years of travel expertise, we ensure seamless experiences that go beyond AI alone. We will continue to explore how AI can make every step of the traveler's journey better and enrich the travel experience. Ultimately, travel is about exploration and experience, and we are focused on delivering the best for our customers today and in the future. Operator: We will now take our next question from Alex Yao from JPMorgan. . Alex Yao: I would like to ask some of the near-term consumer behavior and also travel trends during national holiday and also mid-autumn festival. In addition, I think when the current geopolitical tension between Japan and China, can you talk about Japan's revenue contribution to our company and also the financial impact that you could expect over the next, let's say, couple of quarters? Jane Sun: Sure. I'd be happy to take this question, Alex. So first of all, for the National Holiday, combined with midterm holiday, we have seen very strong trend. The trend we call is 3Ls, which is long stay, long distance and long tail. Because it's a longer holiday, most people go long haul, which is the strength for Trip.com. And also because people are going so far away, we are able to promote many long-tail travel destinations for sophisticated travelers, and the stay is longer. So if you look at the industry, the domestic market posted a very healthy single-digit growth. Cross-border, it was even stronger. The international capacity recovered even further compared to previous quarter at around 88% pre-COVID level. If you look at our platform, our long-haul, long stay drives strong growth, both domestically and internationally. For outbound hotel and air bookings, it jumped to more than 30% year-over-year growth. And also for inbound travel, we surged by more than 100% year-over-year for Golden Week holidays. So we are very positive for these holiday seasons. Regarding Japan, I think as long as consumers have the buying power, they will travel to different travel destinations. What we've seen a couple of factors impacting traveler's behavior. First of all, the travel destination needs to be safe and welcoming. Secondly, the visa application needs to be eased. Thirdly, the direct flight also is a very important consideration for travelers. So over the years, we have seen -- if certain destination is impacted, travelers as long as they have time, they have money, they can choose different travel destinations to go to. So overall, on our platform, we haven't seen major impact so far, yes. Operator: We will now take our next question from Thomas Chong from Jefferies. Thomas Chong: And congratulations on a strong set of results. My question is about how have hotel and air ticket price trend recently? And what's the outlook for next year? Xiaofan Wang: In Q3, the year-on-year decline in hotel and air ticket prices narrowed to the low single digits. During the Golden Week, both domestic hotel and airfares trended higher, reflecting strong travel demand before easing sequentially after the holiday on the supply side, domestic hotel capacity continues to expand at a mid- to high single-digit pace year-over-year, which is likely to keep some pressure on room prices going forward. Internationally, flight capacity has now recovered to about 88% of 2019 levels. As a result, cross-border air ticket prices have softened compared with last year but remain above pre-pandemic levels while hotel prices have stayed largely stable. Operator: We will now take our next question from Yang Liu from Morgan Stanley. Yang Liu: Congratulations on the solid results first. I have one question that -- yes, could you please hear me? . Michelle Qi: Yes, we can. Yang Liu: My question is that could management share some insight on the recent consumer sentiment and more importantly, your early thoughts for the coming year? Jane Sun: So we have seen the travel industry remain very strong. People's desire to explore the world continues to grow across culture, reflecting travelers' design for good products. In terms of the leisure travel, it has stayed robust supported by extra holidays this year. Our platform, long-haul trips show strong momentum. Outbound hotel and flights rose over 30%, with Europe emerging as a key driving force. Domestically, travelers are also seeking deeper and more immersive experiences and explore less known destinations. Year-to-date, per capital spending on our platform remains in line with last year. For business travelers, it has remained stable. We continue to attract new corporate clients with average business travel spending on our platform has increased year-over-year, supported by Chinese companies expanding its global footprint. Looking forward in 2026 at Trip.com Group we view challenges as opportunities to strengthen our foundation. Our focus remains on enhancing our product, service and to better meet the evolving needs of our global travelers. For international business, our strategy at Trip.com has proven to be very effective driving rapid market share gain outside of domestic market in recent quarter. We will also continue to invest globally, particularly across Asia Pacific to accelerate our growth and expand our presence. Domestically, we are focusing on capturing more demand and providing excellent services to our customers. In particular, we tap into the great opportunity for inbound travel and silver generation and young travelers. We aim to deep the collaboration with our partners when we bring inbound customers to domestic market, it drives huge job opportunities. and also drives huge incremental opportunities for our hotel partners, flight partners, destination partners, rental cars, et cetera. So we are very positive for the growth in 2026. Operator: Our next question comes from John Choi from Daiwa. John Choi: Congratulations on another great quarter. Just quickly, with new strategies from your industry peers in the China market, what kind of impact could this have on your business going forward? Jane Sun: Sure. First of all, I think the travel market brings joy and happiness to people. Secondly, we invest heavily in our technology and AI, try to improve the efficiency for the whole industry, that will benefit all the players in the market. And thirdly, as you can see, we have a couple of offerings, which is very much liked by the consumers. First of all, we provide one-stop total solution. So when you make a reservation for flight, customers automatically will book a nice hotel with us, and we offer airport transfer. We also have a trusted list for destinations -- for attractions. And when you are traveling, if you run into any issues, for example, if a certain area has a tsunami or earthquake or if there is a war happened during your trip within 2 minutes, our team will reach out to the customers in the destination, making sure they are moved to the safe area. The very next day, if our customers choose to fly back to their home countries, we will make prioritized arrangement for our customers. So that capacity and ability to help the customers in destination, pre-trip, post-trip give the confidence for our consumers that when they travel with Trip.com, they have peace in mind. So we continuously improve our customer service level to make sure we offer the best product, best technology and best service to our customers. And we'll continuously do that. I think as long as we make the right investment in this area, our customers will trust our team for our service and product. We will continue to grow. Operator: Our next question comes from Wei Xiong from UBS. Wei Xiong: Sure. Congrats on a solid quarter. On the international side, it's encouraging to see Trip.com continue to maintain strong growth in the third quarter. So could management maybe share more on our international performance and any regional operational highlights? Jane Sun: Sure. In Q3, booking on Trip.com increased by around 60% year-over-year, with APAC growing more than 50%, demonstrating robust growth despite macroeconomic uncertainties. In particular, Asia Pacific remains our operational focus and the largest contributor for our international business growth. Through localizing our products and tailor our marketing strategy, our brand recognition and market presence continue to strengthen across key markets. Trip.com was named as the Best Online Travel Agency in Asia at 2025 Travel Weekly Asia Readers' Choice Award. We are now a leading OTA in several key markets. reflecting our growing and solid footprint. For the new markets, emerging markets such as Middle East and Europe also show encouraging momentum signaling expanding global opportunities. For inbound booking, we surged more than 100% year-over-year in Q3 by continuously innovating our offerings such as half-day tour [ at The Bund ] or at the Great Wall and Taste of China immersive dining experiences we reinforced our position as the pioneer in inbound travel market. So our international business will continue to grow, and we will make strong investment in this field. Operator: We will now take our next question from Brian Gong from Citi. Brian Gong: James, Jane, Cindy and Michelle, congratulations on a solid quarter. My question is regarding the inbound travel. You just mentioned, which is the fastest-growing segment for Trip.com. Could you provide updates on your inbound business and the key catalysts for the growth ahead? Jane Sun: Sure. When we surveyed the inbound customers, we got very positive feedback. People told us the country is very safe, particularly for women travelers. They can run, they can jog in the middle of the night, where they cannot do even in some major cities in their home countries. People are very friendly, very hospitable, the food is delicious, the history is very rich and the infrastructure is very new and effective. And on top of it, they find affordable luxury in inbound travel. By paying USD 100, USD 200, they can stay in a very nice 5-star hotel with excellent services. So that gives a very good foundation for us to build upon these preconditions. And also the free visa gave more than 60 countries, convenience for these people to come for inbound travel. And also the extension for in transit travel from 3 days to 10 days also make it easier for business travelers to come. So we see great opportunity to capitalize on these opportunities. And from our end, because our inventory in China is the most comprehensive one. And our service is also very good. And we offer multi-language services when a customer come in, we offer 24-hour service. if you call our call center within 30 seconds, a live person will answer the call to help them to solve the issues on the ground. And we remain very alert when they enter into the country. So all that combined together, which enable us to drive the volume for inbound travel very strongly, and we will continuously do so. By winning these inbound customers into the country. We also offer very good job opportunities for young people. We also bring new revenue opportunities for our hotel partners for our airline partners for the local tour operators for major travel destination partners and also for famous landmarks attractions. So overall, I think we bring happiness for the consumers who are traveling inbound. We also bring great job opportunities for young people as well as great opportunities for our partners for inbound travelers. So a very positive move in this field. Operator: [Operator Instructions] Our next question comes from Wei Fang from Mizuho. Wei Fang: James, Jane, Cindy and Michelle, congrats on the good numbers. I think I heard there were additional marketing spend allocated to the international business, right, in the quarter? I was wondering, can management give us some more updates on your Trip.com's marketing progress in the quarter? And what's your plan for the next quarter and beyond like 2026? Jane Sun: Sure. Our marketing strategy on Trip.com delivered solid results in Q3. The scalable nature of our business is not directly improving marketing efficiency in our key targeted markets. In Q3, our mega sale in major markets, such as Korea, Thailand, Malaysia reached historical heights for the quarter. Internally, we also empower our execution team to set ROI targets aligned with long-term growth objectives. This approach drives motivation and ensure disciplined control over the key levers of marketing efficiency. Looking ahead, upcoming global holidays will continue to execute our signature campaigns using a proven play book while staying agile to capitalize on the emerging market trends by combining these opportunities with our long-term strategy, we aim to accelerate revenue growth and strengthen our market position, including expanding our organic mobile use base. Operator: Our next question comes from Parash Jain from HSBC. Parash Jain: I have a question more on the recent dynamics in the global market and how they will impact your business. And the dynamics on 2 fronts. Firstly, on probably with your deeper penetration in the region, as you rightly mentioned, are you seeing intensifying competition with the global OTAs like Agoda? And my second question is, I mean, another trend we have noticed is where Google is pushing the paid search instead of SEOs, and does it impact your metasearch platform? Jane Sun: Sure. Thanks for your question. Asia Pacific market offers huge potential representing around 60% of world's total population and benefiting from a strong economic growth rate. The middle income population is rising very fast and the GDP growth in this region is the fastest compared to the rest of the world. The region combined rich -- very rich travel resources from majestic nature to vibrant cities with a fragmented market and relatively low online penetration, highlighting opportunities for consolidation and digital expansion. So we invest heavily to expand into this market. These market dynamics create a very favorable environment for online travel companies. We focus on delivering one-stop total solution for our customers, with localized product and exceptional customer service for APAC travelers worldwide. Our globalization strategy involves the insights from each market, driving significant growth in our presence by taking the dynamic and market-specific approach we are confident in our continuous growth trajectory. Thank you. Operator: Our next question comes from Simon Cheung from Goldman Sachs. Simon Cheung: James, Jane, Cindy and Michelle, I just have one quick question. So I think you touched on when you discussed about your packaged tour business. One of the segments that I'm interested in your destination service business and the so-called experience markets. Wondering whether you can share some thoughts about your long-term positioning and the opportunity over there, especially given -- reported there's some IPO going on in that segment? Jane Sun: Sure. Destination service business is quite small compared to the overall pie. We expect our group to deliver around [ RMB 5 billion ] in GMV for destination service which represents only 2% to 3% of our total GMV. We drive our volume and the growth is more than 130% Trip.com growth year-to-date, and the rising demand from the APAC is strong. We cover about 300,000 offering worldwide, and we continuously cover more and more products in our platform. For us, our strength is one stop travel platform covering activity, attraction, transportation to better match users' demand and enhance overall travel experience. Leverage our large APAC user base, along with the loyalty program and AI tool, we're deepening engagement and driving repeated booking. Over the next 3 to 5 years, our focus is broadening product covering and market share. So for us, the [indiscernible] destination service is free because our customers already make the air flight and hotel bookings. So we don't need to spend money to acquire these customers. So the acquisition of these customers is free. And on top of it, we don't intend to make any money for destination marketing because it's very small. It's mainly to enhance users experience and making sure our customers love our product, love our platform. So we intend to expand aggressively in this field aiming to increase the loyalty and customer satisfaction to better serve our customers on the flight hotel. So the one-stop ecosystem gives us the advantage from a traffic acquisition also take away the pressure for making profit for this very small segment. Operator: Our next question comes from Ellie Jiang from Macquarie. Ellie Jiang: Congrats on the solid print. I have a question on the cost side. The operating expenditure came in at slightly lower end of expectations during the third quarter. How should we think about the outlook for the coming quarter, fourth quarter as well as for 2026? Xiaofan Wang: We continue to manage our investments with discipline on sales and marketing side, we adjust spending based on each market's maturity and the characteristics of different channels. As a result, the overall expense mix may in line with business priorities. On the personnel front, as more markets grow rapidly, we are expanding our global presence while maintaining high standards for new hires to ensure strong marginal cost efficiency. The quarter-over-quarter increase in operating expenses mainly reflected seasonal factors in China. With the global holiday season approaching, we plan to step up marketing investments as planned. while the marketing ratio may rise sequentially, it will vary year-over-year depending on regional and channel mix. Over the longer term, we remain focused on improving efficiency by growing direct mobile traffic enhancing cross-selling and strengthening customer loyalty. Operator: We will now take our last question from the line of Qiuting Wang from CICC. Qiuting Wang: My question is about Trip.com's margin as our international business grows rapidly, how should we expand margin out of Trip.com next year and in the longer term? Xiaofan Wang: It is still too early to provide specific commentary on the margin outlook for 2026. In general, we view margin as a natural result of a dynamic business mix. and ongoing improvements in operating efficiency across each business segment. In the long run, we do not see any structural limitations to our profit margins, supported by our innovative strategies global expansion and forward-looking investments, our margins could be comparable to both of our international peers. Operator: We have now come to the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to Michelle for closing comments. Michelle Qi: Thank you. Thank you, everyone, for joining us today. You can find the transcript and webcast of today's call on investors.trip.com. We look forward to speaking with you on our fourth quarter of 2025 earnings call. Thank you, and have a good day. Jane Sun: Thank you very much. See you next quarter. . Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Good day, and thank you for standing by. Welcome to Trip.com Group Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to your first speaker today, Michelle Qi, Senior IR Director. Please go ahead. Michelle Qi: Thank you. Thank you, all. Good morning, and welcome to Trip.com Group's Third Quarter of 2025 Earnings Conference Call. Joining me today on the call are Mr. James Liang, Executive Chairman of the Board; Ms. Jane Sun, Chief Executive Officer; and Ms. Cindy Wang, Chief Financial Officer. During this call, we will discuss our future outlook and performance, which are 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 results may be materially different from the views expressed today. A number of potential risks and uncertainties are outlined in Trip.com Group's public filings with the Securities and Exchange Commission. Trip.com Group does not undertake any obligation to update any forward-looking statements, except as required under applicable law. James, Jane and Cindy will share our strategy and business updates, operating highlights and financial performance for the third quarter of 2025 as well as outlook for the rest of the year. After the prepared remarks, we will have a Q&A session. With that, I will turn the call over to James. James, please. James Liang: Thank you, Michelle, and thanks, everyone, for joining us on this call today. Travel is thriving and the travel spirit shows no signs of slowing down. In the third quarter, travel demand surged across markets, led by vibrant domestic travel in China and a steady rise in outbound journey. Travelers are exploring with confidence seeking authentic experiences in new horizons, a reflection of their enduring passion for discovery. This growing enthusiasm is mirrored in the performance of our AI-powered tools such as Trip.Planner, whose recent upgrade has fueled a 180% year-over-year surge in unique visits. Inbound travel continues to play a vital role in fostering international exchange, trade and innovation, generating meaningful economic and cultural benefits. Expanded visa-free entry policies and broader coverage of the 240-hour transit visa exemption have made it easier than ever to visit, bringing the goal of raising inbound travel revenue to 1% to 2% of GDP increasingly within reach. As part of our inbound initiative, Trip.com Group launched Taste of China, an immersive dining experience that allows international visitors to explore Chinese culture through its rich culinary tradition. We remain optimistic about the future of travel. By leveraging AI innovation and delivering world-class service, we continue to make travel easier, more personalized and more enjoyable for every traveler. With that, I will turn the call over to Jane for operational highlights. Jane Sun: Thank you, Jane. Good morning, everyone. As a quick overview, our net revenue in Q3 increased by 16% year-over-year, reflecting strong demand across segments during peak travel season. Travel consumption remained robust throughout the summer and the National Day holiday with both domestic and international travel markets showing healthy momentum. This performance underscores travelers' growing desire for diverse, immersive and high quality experiences. Outbound travel continued to post solid growth in Q3 with our outbound hotel and air bookings growing by close to 20% from last year and reaching about 140% of 2019 volume. Japan, South Korea and Southeast Asian destinations remain the most popular choices, supported by their proximity and visa convenience. At the same time, travelers' radius of exploration continued to expand as more people sought new adventures and richer cultural experiences. This trend was particularly evident during the Golden Week, which was 1 day longer than last year and sparked stronger demand for long-haul trip. During the holiday, outbound hotel and air bookings surged by around 30% year-over-over reflecting sustained travel enthusiasm. Europe stood out as a key growth region driven by increased flight capacity and travelers appetite for in-depth experiences. Bookings to Iceland and Norway more than doubled year-over-year. Spain, Italy and Germany also grew by approximately 70%. These trends show that travelers are increasingly willing to invest in high-quality travel experiences highlighting strong consumption power and continued confidence in outbound travel. Domestic travel also remained vibrant fueled by travelers' passion for new and immersive experiences. From cultural discovery to outdoor exploration, the growing diversity of travel demand continues to drive solid market growth. Major cities such as Beijing, Shanghai, Chengdu and Xi'an remained the top choices for their accessibility and offering. Remote regions, including [indiscernible] and Lhasa also grew by nearly 30% as more travelers ventured West to discover unspoiled landscape and rich heritage. At the same time smaller cities are emerging as new favorites for urban residents seeking peace and renewal. Their local charms and slower pace offer refreshing escape from everyday life. Inbound travel continues to connect the world, bringing travelers from across the globe to experience oriental culture, spark innovation and drive trade. The Asia Pacific region remains the largest source of inbound travelers, with Europe and the U.S. also seeing strong growth. In Q3, inbound travel bookings on our platform grew by over 100%, reflecting robust international demand. Building on the success of relay over tours in Beijing and Shanghai, we recently launched a free layover experience for travelers at Hong Kong International Airport. Transit travelers with 7 hours or more can book in advance on the Trip.com app or website or on-site at the airport to explore Hong Kong's highlights. For those seeking a deeper adventure, premium tours provide access to landmarks, such as Lantau Island and Victoria Peak. We are making it easier than ever for international visitors to plan, book and enjoy these experiences, aiming to become the go-to platform and trusted hub for travelers from around the world. On the international front, Trip.com Group continued to deliver strong performance. International bookings on our platform grew by around 60% year-over-year. The Asia Pacific region remains the largest contributor, rising over 50% in Q3. Across all regions, Mobile continues to be a key growth driver, now accounting for over 70% of total bookings. Travelers increasingly rely on our app for one stop on the go experience managing flights, hotels and tours seamlessly combined with high service standards and hassle-free bookings. We offer users great convenience and excellent value, fueling continued growth across markets. As travel demand expands across borders, it is also diversified across generation. With spending power 3x that of younger travelers, affluent and active seniors are eager to explore and spend on quality travel, reshaping the market from price competition towards a true value creation. In Q3 the number of Old Friends Club members and their total GMV rising over 70%. Trip.com Group is tailoring more products and services for this growing segment. We launched our first Old Friends Club flagship store in Shanghai to connect with senior travelers face-to-face and introduced themed trips designed around their interest. We also formed a dedicated service team of [ chief ] mom and dad officers friendly travel buddies who travel alongside the seniors, offering support and thoughtful care for their needs. Younger travelers are also shaping new trends in travel, seeking experiences that go beyond the ordinary. In Q3, revenue from this segment grew by triple digit propelled by the rising craze for concerts and live experiences. To meet the growing demand, Trip.com Group announced multiyear strategic partnerships with the world's leading live entertainment company. The collaboration allows fans to plan entertainment trip seamlessly combining exclusive presale access to shows with flights, hotels and curated local experiences to our platform, as entertainment becomes an increasingly powerful driver of travel, these partnerships help fans follow the artists they love while supporting regional tourism and enhancing destination appeal across Asia. We are also strengthening event booking capabilities through our partnership with Cityline Group, covering Hong Kong and Macau. Users can now effortlessly collect tickets via Cityline extensive self-service kiosk network by connecting online bookings with offline ticketing, the partnership delivers a smooth, hassle-free experience for travelers enjoying large-scale events. Trip.com Group remains deeply committed to nurturing the broader travel ecosystem and supporting local economic development by promoting travel products around concerts, festivals, and major sports events. We inspire more travelers to explore these destinations, driving overnight stays and spending and turning seasonal excitement into lasting economic impact for local communities. At the same time, we continue to tailor products and services to meet diverse traveler needs. For example, offering Muslim-friendly options, highlighting smart toilets for Japanese users and providing foreign currency exchange for inbound visitors. To further empower partners and elevate service standards across the industry, Trip.com Group is harnessing technology and AI to help the entire travel ecosystem move forward. Hotels can now overcome language barriers with our AI communication tools that respond to guest inquiries in real time. Our AI content generator and training tools also empower hoteliers to produce engaging content and sharpen their digital skills, helping them connect with international guests and with our updated hotel scoring and page ranking algorithms, we encourage hotels to focus on what truly matters, genuine service and lasting guest satisfaction instead of chasing ratings or ranking. Together, these efforts help partners stay competitive in a fast-changing landscape and create richer, smoother and more seamless travel experiences for travelers around the world. Travel is a fundamental part of the human experience, and we remain confident in the industry's long-term growth. We will continue to enhance our services and empower the broader ecosystem, driving sustainable growth across the travel industry and the wider economy. With that, I will now turn the call over to Cindy. Xiaofan Wang: Thanks, Jane. Good morning, everyone. For the third quarter of 2025, Trip.com Group reported a net revenue of RMB 18.3 billion, representing a 16% increase from the same period last year and a 24% increase from the previous quarter, reflecting robust travel demand throughout the summer and the Golden Week holiday. Accommodation reservation revenue for the third quarter was RMB 8.0 billion representing an 18% increase year-over-year and a 29% increase quarter-over-quarter. This was mainly driven by strong momentum in outbound and international hotel bookings along with sustained strength in domestic demand. Transportation ticketing revenue for the third quarter was RMB 6.3 billion, representing a 12% increase year-over-year and a 17% increase quarter-over-quarter. International air bookings showed robust growth with outbound air bookings continuing to outpace the market. Packaged tour revenue for the third quarter was RMB 1.6 billion, representing a 3% increase year-over-year and a 49% increase quarter-over-quarter, primarily driven by the expansion of our international offerings, our destination services delivered strong growth with international markets continuing to drive overall expansion. Corporate travel revenue for the third quarter was RMB 756 million representing a 15% increase year-over-year and a 9% increase quarter-over-quarter. This was driven by more companies adopting our managed corporate travel services. Excluding share-based compensation charges, adjusted product development expenses for the third quarter increased by 12% year-over-year. Adjusted G&A expenses for the third quarter increased by 6% year-over-year. These were mainly due to increase in personnel-related expenses. Adjusted sales and marketing expenses for the third quarter increased by 26% from the previous quarter and increased by 23% from the same period last year. The sequential increase was primarily driven by broader marketing investments with incremental spend allocated to our international expansion. Adjusted EBITDA was RMB 6.3 billion for the third quarter compared with RMB 5.7 billion in period last year and RMB 4.9 billion (sic) [ RMB 4.8 billion ] in the previous quarter. Diluted earnings per ordinary share and per ADS were RMB 28.61 or USD 4.02 million for the third quarter of 2025. Excluding share-based compensation charges, and fair value changes of equity securities investments and exchangeable senior notes, non-GAAP diluted earnings per ordinary share and per ADS were RMB 27.56 or USD 3.87 million for the third quarter. Diluted earnings per ordinary share and per ADS for the quarter were elevated primarily due to a onetime gain from the divestment of one of our overseas investments. As of September 30, 2025, the balance of cash and cash equivalents, restricted cash short-term investment, held-to-maturity time deposits and financial products was and RMB 107.7 billion or USD 15.1 billion. Looking ahead, we are confident in the continued strength of our business and future opportunities. Our disciplined approach to investment and execution will remain central as we focus on sustainable growth and long-term value creation. With that, operator, please open the line for questions. Operator: [Operator Instructions] Our first question comes from the line of Joyce Ju from Bank of America. Joyce Ju: James, Jane, Cindy and Michelle, congratulations on another strong quarter. AI is clearly top of the mind for the market and a key pillar of Trip.com's strategy. Can management please elaborate on where do you see AI heading on your platforms, specifically, how do you view the trajectory for AI agents? Do you see them going mainstream? James Liang: Thank you for the question. AI is a central pillar of Trip.com's strategy, and we are committed to unlocking its full potential for the travel industry. We believe we are at the forefront of this transformation. On the user side, we are shifting more touch points to AI-driven tools continuously iterating our AI plus content ecosystem. Our AI agent, TripGenie, is now used in over 200 countries and regions, with users growing over 200% year-over-year in the first half of 2025. We are also refining the balance between advanced AI search and conventional search to better serve user intent. For hotels, search results now evolve from standardized information to real-time recommendations tailored to individual preferences. On the operational side, AI helps detect issues and provide intelligent solutions for complex cases. This enhances employee productivity, improves customer service efficiency, increases satisfaction and conversion rates and can help reduce cancellations through smarter, more responsive service. Looking ahead, we see AI as a tremendous opportunity to make travel more accessible, reliable and enjoyable. Trip.com is committed to investing in AI to enhance every step of the traveler's journey. By combining cutting-edge technology with 26 years of travel expertise, we ensure seamless experiences that go beyond AI alone. We will continue to explore how AI can make every step of the traveler's journey better and enrich the travel experience. Ultimately, travel is about exploration and experience, and we are focused on delivering the best for our customers today and in the future. Operator: We will now take our next question from Alex Yao from JPMorgan. . Alex Yao: I would like to ask some of the near-term consumer behavior and also travel trends during national holiday and also mid-autumn festival. In addition, I think when the current geopolitical tension between Japan and China, can you talk about Japan's revenue contribution to our company and also the financial impact that you could expect over the next, let's say, couple of quarters? Jane Sun: Sure. I'd be happy to take this question, Alex. So first of all, for the National Holiday, combined with midterm holiday, we have seen very strong trend. The trend we call is 3Ls, which is long stay, long distance and long tail. Because it's a longer holiday, most people go long haul, which is the strength for Trip.com. And also because people are going so far away, we are able to promote many long-tail travel destinations for sophisticated travelers, and the stay is longer. So if you look at the industry, the domestic market posted a very healthy single-digit growth. Cross-border, it was even stronger. The international capacity recovered even further compared to previous quarter at around 88% pre-COVID level. If you look at our platform, our long-haul, long stay drives strong growth, both domestically and internationally. For outbound hotel and air bookings, it jumped to more than 30% year-over-year growth. And also for inbound travel, we surged by more than 100% year-over-year for Golden Week holidays. So we are very positive for these holiday seasons. Regarding Japan, I think as long as consumers have the buying power, they will travel to different travel destinations. What we've seen a couple of factors impacting traveler's behavior. First of all, the travel destination needs to be safe and welcoming. Secondly, the visa application needs to be eased. Thirdly, the direct flight also is a very important consideration for travelers. So over the years, we have seen -- if certain destination is impacted, travelers as long as they have time, they have money, they can choose different travel destinations to go to. So overall, on our platform, we haven't seen major impact so far, yes. Operator: We will now take our next question from Thomas Chong from Jefferies. Thomas Chong: And congratulations on a strong set of results. My question is about how have hotel and air ticket price trend recently? And what's the outlook for next year? Xiaofan Wang: In Q3, the year-on-year decline in hotel and air ticket prices narrowed to the low single digits. During the Golden Week, both domestic hotel and airfares trended higher, reflecting strong travel demand before easing sequentially after the holiday on the supply side, domestic hotel capacity continues to expand at a mid- to high single-digit pace year-over-year, which is likely to keep some pressure on room prices going forward. Internationally, flight capacity has now recovered to about 88% of 2019 levels. As a result, cross-border air ticket prices have softened compared with last year but remain above pre-pandemic levels while hotel prices have stayed largely stable. Operator: We will now take our next question from Yang Liu from Morgan Stanley. Yang Liu: Congratulations on the solid results first. I have one question that -- yes, could you please hear me? . Michelle Qi: Yes, we can. Yang Liu: My question is that could management share some insight on the recent consumer sentiment and more importantly, your early thoughts for the coming year? Jane Sun: So we have seen the travel industry remain very strong. People's desire to explore the world continues to grow across culture, reflecting travelers' design for good products. In terms of the leisure travel, it has stayed robust supported by extra holidays this year. Our platform, long-haul trips show strong momentum. Outbound hotel and flights rose over 30%, with Europe emerging as a key driving force. Domestically, travelers are also seeking deeper and more immersive experiences and explore less known destinations. Year-to-date, per capital spending on our platform remains in line with last year. For business travelers, it has remained stable. We continue to attract new corporate clients with average business travel spending on our platform has increased year-over-year, supported by Chinese companies expanding its global footprint. Looking forward in 2026 at Trip.com Group we view challenges as opportunities to strengthen our foundation. Our focus remains on enhancing our product, service and to better meet the evolving needs of our global travelers. For international business, our strategy at Trip.com has proven to be very effective driving rapid market share gain outside of domestic market in recent quarter. We will also continue to invest globally, particularly across Asia Pacific to accelerate our growth and expand our presence. Domestically, we are focusing on capturing more demand and providing excellent services to our customers. In particular, we tap into the great opportunity for inbound travel and silver generation and young travelers. We aim to deep the collaboration with our partners when we bring inbound customers to domestic market, it drives huge job opportunities. and also drives huge incremental opportunities for our hotel partners, flight partners, destination partners, rental cars, et cetera. So we are very positive for the growth in 2026. Operator: Our next question comes from John Choi from Daiwa. John Choi: Congratulations on another great quarter. Just quickly, with new strategies from your industry peers in the China market, what kind of impact could this have on your business going forward? Jane Sun: Sure. First of all, I think the travel market brings joy and happiness to people. Secondly, we invest heavily in our technology and AI, try to improve the efficiency for the whole industry, that will benefit all the players in the market. And thirdly, as you can see, we have a couple of offerings, which is very much liked by the consumers. First of all, we provide one-stop total solution. So when you make a reservation for flight, customers automatically will book a nice hotel with us, and we offer airport transfer. We also have a trusted list for destinations -- for attractions. And when you are traveling, if you run into any issues, for example, if a certain area has a tsunami or earthquake or if there is a war happened during your trip within 2 minutes, our team will reach out to the customers in the destination, making sure they are moved to the safe area. The very next day, if our customers choose to fly back to their home countries, we will make prioritized arrangement for our customers. So that capacity and ability to help the customers in destination, pre-trip, post-trip give the confidence for our consumers that when they travel with Trip.com, they have peace in mind. So we continuously improve our customer service level to make sure we offer the best product, best technology and best service to our customers. And we'll continuously do that. I think as long as we make the right investment in this area, our customers will trust our team for our service and product. We will continue to grow. Operator: Our next question comes from Wei Xiong from UBS. Wei Xiong: Sure. Congrats on a solid quarter. On the international side, it's encouraging to see Trip.com continue to maintain strong growth in the third quarter. So could management maybe share more on our international performance and any regional operational highlights? Jane Sun: Sure. In Q3, booking on Trip.com increased by around 60% year-over-year, with APAC growing more than 50%, demonstrating robust growth despite macroeconomic uncertainties. In particular, Asia Pacific remains our operational focus and the largest contributor for our international business growth. Through localizing our products and tailor our marketing strategy, our brand recognition and market presence continue to strengthen across key markets. Trip.com was named as the Best Online Travel Agency in Asia at 2025 Travel Weekly Asia Readers' Choice Award. We are now a leading OTA in several key markets. reflecting our growing and solid footprint. For the new markets, emerging markets such as Middle East and Europe also show encouraging momentum signaling expanding global opportunities. For inbound booking, we surged more than 100% year-over-year in Q3 by continuously innovating our offerings such as half-day tour [ at The Bund ] or at the Great Wall and Taste of China immersive dining experiences we reinforced our position as the pioneer in inbound travel market. So our international business will continue to grow, and we will make strong investment in this field. Operator: We will now take our next question from Brian Gong from Citi. Brian Gong: James, Jane, Cindy and Michelle, congratulations on a solid quarter. My question is regarding the inbound travel. You just mentioned, which is the fastest-growing segment for Trip.com. Could you provide updates on your inbound business and the key catalysts for the growth ahead? Jane Sun: Sure. When we surveyed the inbound customers, we got very positive feedback. People told us the country is very safe, particularly for women travelers. They can run, they can jog in the middle of the night, where they cannot do even in some major cities in their home countries. People are very friendly, very hospitable, the food is delicious, the history is very rich and the infrastructure is very new and effective. And on top of it, they find affordable luxury in inbound travel. By paying USD 100, USD 200, they can stay in a very nice 5-star hotel with excellent services. So that gives a very good foundation for us to build upon these preconditions. And also the free visa gave more than 60 countries, convenience for these people to come for inbound travel. And also the extension for in transit travel from 3 days to 10 days also make it easier for business travelers to come. So we see great opportunity to capitalize on these opportunities. And from our end, because our inventory in China is the most comprehensive one. And our service is also very good. And we offer multi-language services when a customer come in, we offer 24-hour service. if you call our call center within 30 seconds, a live person will answer the call to help them to solve the issues on the ground. And we remain very alert when they enter into the country. So all that combined together, which enable us to drive the volume for inbound travel very strongly, and we will continuously do so. By winning these inbound customers into the country. We also offer very good job opportunities for young people. We also bring new revenue opportunities for our hotel partners for our airline partners for the local tour operators for major travel destination partners and also for famous landmarks attractions. So overall, I think we bring happiness for the consumers who are traveling inbound. We also bring great job opportunities for young people as well as great opportunities for our partners for inbound travelers. So a very positive move in this field. Operator: [Operator Instructions] Our next question comes from Wei Fang from Mizuho. Wei Fang: James, Jane, Cindy and Michelle, congrats on the good numbers. I think I heard there were additional marketing spend allocated to the international business, right, in the quarter? I was wondering, can management give us some more updates on your Trip.com's marketing progress in the quarter? And what's your plan for the next quarter and beyond like 2026? Jane Sun: Sure. Our marketing strategy on Trip.com delivered solid results in Q3. The scalable nature of our business is not directly improving marketing efficiency in our key targeted markets. In Q3, our mega sale in major markets, such as Korea, Thailand, Malaysia reached historical heights for the quarter. Internally, we also empower our execution team to set ROI targets aligned with long-term growth objectives. This approach drives motivation and ensure disciplined control over the key levers of marketing efficiency. Looking ahead, upcoming global holidays will continue to execute our signature campaigns using a proven play book while staying agile to capitalize on the emerging market trends by combining these opportunities with our long-term strategy, we aim to accelerate revenue growth and strengthen our market position, including expanding our organic mobile use base. Operator: Our next question comes from Parash Jain from HSBC. Parash Jain: I have a question more on the recent dynamics in the global market and how they will impact your business. And the dynamics on 2 fronts. Firstly, on probably with your deeper penetration in the region, as you rightly mentioned, are you seeing intensifying competition with the global OTAs like Agoda? And my second question is, I mean, another trend we have noticed is where Google is pushing the paid search instead of SEOs, and does it impact your metasearch platform? Jane Sun: Sure. Thanks for your question. Asia Pacific market offers huge potential representing around 60% of world's total population and benefiting from a strong economic growth rate. The middle income population is rising very fast and the GDP growth in this region is the fastest compared to the rest of the world. The region combined rich -- very rich travel resources from majestic nature to vibrant cities with a fragmented market and relatively low online penetration, highlighting opportunities for consolidation and digital expansion. So we invest heavily to expand into this market. These market dynamics create a very favorable environment for online travel companies. We focus on delivering one-stop total solution for our customers, with localized product and exceptional customer service for APAC travelers worldwide. Our globalization strategy involves the insights from each market, driving significant growth in our presence by taking the dynamic and market-specific approach we are confident in our continuous growth trajectory. Thank you. Operator: Our next question comes from Simon Cheung from Goldman Sachs. Simon Cheung: James, Jane, Cindy and Michelle, I just have one quick question. So I think you touched on when you discussed about your packaged tour business. One of the segments that I'm interested in your destination service business and the so-called experience markets. Wondering whether you can share some thoughts about your long-term positioning and the opportunity over there, especially given -- reported there's some IPO going on in that segment? Jane Sun: Sure. Destination service business is quite small compared to the overall pie. We expect our group to deliver around [ RMB 5 billion ] in GMV for destination service which represents only 2% to 3% of our total GMV. We drive our volume and the growth is more than 130% Trip.com growth year-to-date, and the rising demand from the APAC is strong. We cover about 300,000 offering worldwide, and we continuously cover more and more products in our platform. For us, our strength is one stop travel platform covering activity, attraction, transportation to better match users' demand and enhance overall travel experience. Leverage our large APAC user base, along with the loyalty program and AI tool, we're deepening engagement and driving repeated booking. Over the next 3 to 5 years, our focus is broadening product covering and market share. So for us, the [indiscernible] destination service is free because our customers already make the air flight and hotel bookings. So we don't need to spend money to acquire these customers. So the acquisition of these customers is free. And on top of it, we don't intend to make any money for destination marketing because it's very small. It's mainly to enhance users experience and making sure our customers love our product, love our platform. So we intend to expand aggressively in this field aiming to increase the loyalty and customer satisfaction to better serve our customers on the flight hotel. So the one-stop ecosystem gives us the advantage from a traffic acquisition also take away the pressure for making profit for this very small segment. Operator: Our next question comes from Ellie Jiang from Macquarie. Ellie Jiang: Congrats on the solid print. I have a question on the cost side. The operating expenditure came in at slightly lower end of expectations during the third quarter. How should we think about the outlook for the coming quarter, fourth quarter as well as for 2026? Xiaofan Wang: We continue to manage our investments with discipline on sales and marketing side, we adjust spending based on each market's maturity and the characteristics of different channels. As a result, the overall expense mix may in line with business priorities. On the personnel front, as more markets grow rapidly, we are expanding our global presence while maintaining high standards for new hires to ensure strong marginal cost efficiency. The quarter-over-quarter increase in operating expenses mainly reflected seasonal factors in China. With the global holiday season approaching, we plan to step up marketing investments as planned. while the marketing ratio may rise sequentially, it will vary year-over-year depending on regional and channel mix. Over the longer term, we remain focused on improving efficiency by growing direct mobile traffic enhancing cross-selling and strengthening customer loyalty. Operator: We will now take our last question from the line of Qiuting Wang from CICC. Qiuting Wang: My question is about Trip.com's margin as our international business grows rapidly, how should we expand margin out of Trip.com next year and in the longer term? Xiaofan Wang: It is still too early to provide specific commentary on the margin outlook for 2026. In general, we view margin as a natural result of a dynamic business mix. and ongoing improvements in operating efficiency across each business segment. In the long run, we do not see any structural limitations to our profit margins, supported by our innovative strategies global expansion and forward-looking investments, our margins could be comparable to both of our international peers. Operator: We have now come to the end of the question-and-answer session. Thank you all very much for your questions. I'll now turn the conference back to Michelle for closing comments. Michelle Qi: Thank you. Thank you, everyone, for joining us today. You can find the transcript and webcast of today's call on investors.trip.com. We look forward to speaking with you on our fourth quarter of 2025 earnings call. Thank you, and have a good day. Jane Sun: Thank you very much. See you next quarter. . Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect your lines.
Operator: Good afternoon. Thank you for joining us today to discuss LifeMD's results for the third quarter ended September 30, 2025. Joining the call today are Justin Schreiber, Chairman and Chief Executive Officer; and Marc Benathen, Chief Financial Officer. Following management's prepared remarks, we will open the call for a question-and-answer session. Before we begin, I would like to remind everyone that during this call, the company will make a number of forward-looking statements, which are subject to numerous risks and uncertainties that may cause actual results to differ materially from those projected. These risks and uncertainties are described in the company's 10-K and 10-Q filings, and within other filings that LifeMD may make with the SEC from time to time. Forward-looking statements made during this call are based on current information available to the company as of today, November 17, 2025. The company assumes no obligation to update or revise any forward-looking statements after today's call, except as required by law. Also, please note that management will be discussing certain non-GAAP financial measures that the company believes are important in evaluating LifeMD's performance. Details on the relationship between these non-GAAP measures to the most comparable GAAP measures and reconciliations thereof can be found in the press release issued earlier today. Finally, I would like to remind everyone that today's call is being recorded and will be available for replay in the Investor Relations section of the company's website. Now I'd like to turn the call over to LifeMD's CEO, Justin Schreiber. Please go ahead. Justin Schreiber: Thank you, and good afternoon, everyone. After the market closed, we issued a news release announcing our third quarter financial results and posted an updated corporate presentation on our website at ir.lifemd.com. LifeMD made considerable progress executing on our strategic plan in the third quarter. Our RexMD business returned to growth adding approximately 10,000 net new subscribers, and our weight management offering has stabilized and is now well positioned for significant growth in 2026. We also continued to deliver strong year-over-year performance with telehealth revenue up 18% and adjusted EBITDA increasing 30% compared to the prior year period. That said, the most exciting thing about LifeMD today is not our past performance or even the results this quarter, but the important foundational steps we have taken to set the company up for an exceptional 2026. During and following the third quarter, we made substantial progress on our women's health and behavioral health offerings, two verticals that we believe have the potential to each become 9-figure businesses over the next 3 years. We also advanced the development of our LifeMD+ membership and in-app health marketplace, which we expect will meaningfully enhance patient experience, deepen engagement and strengthen long-term retention. In addition, we secured regulatory approval for our nonsterile 503-A compounding pharmacy, a major milestone that will dramatically expand our ability to produce personalized medications at scale and a significantly improved economics compared to relying on third-party pharmacy partners. We were also pleased to successfully divest our majority interest in WorkSimpli. This transaction strengthened our balance sheet and allows us to operate as a pure-play virtual care and pharmacy company. While it was a difficult decision, the opportunity in front of our core business is so substantial that we felt it was essential to dedicate 100% of our focus and resources to our core health care platform. As we look ahead to 2026, our strategic priorities are clear. One, accelerating high-quality growth in our weight management offering by leveraging our collaborations with Novo Nordisk, Eli Lilly and others. Two, scaling our virtual women's and behavioral health businesses built around synchronous care delivered by highly trained providers and personalized therapies. Three, expanding and diversifying RexMD, particularly through personalized compounded medications and hormone therapies. And four, launching a more robust unified LifeMD platform and marketplace designed to increase patient engagement, improve cross-care participation and deliver a significantly enhanced experience across both mobile and desktop applications. LifeMD has made a deliberate decision to play the long game in the GLP-1 space. We are one of the few virtual care providers fully integrated with both Novo Nordisk and Eli Lilly. And we believe these collaborations represent a significant and durable competitive advantage, especially as prices come down on branded therapies and oral therapies come to market. The last 2 quarters have been challenging in the weight management category due to intense competition from low-cost and, in many cases, low-quality compounded GLP-1 makers offering prices we cannot and will not match. While many of these compounded products are less effective and in some cases, unsafe, aggressive marketing and artificially low entry price points have drawn in a portion of consumers and created near-term pressure. Despite this environment, we have maintained our market share, remained disciplined and continued investing in the high-quality, clinically sound weight management model that we believe will create long-term shareholder value. We have consistently believed that branded GLP-1 manufacturers would ultimately reduce pricing to broaden patient access. And that moment is now clearly underway. Just this morning, we announced that through our collaboration with Novo Nordisk, LifeMD will begin offering Wegovy and Ozempic to self-pay patients for $199 for the first 2 doses, a 60% reduction from current prices. Higher doses will be available to self-pay patients for $349 per month, representing a 30% reduction. Eli Lilly also recently announced that self-pay patients will be able to access the Zepbound multi-dose pen, if FDA approved, at $299 for the lowest dose and up to $449 for the highest dose. Even more exciting is the expected approval of the Wegovy pill with a PDUFA date in late December. Analysts widely anticipate FDA approval and commercial availability in early January. LifeMD will be among the first virtual care providers to offer oral Wegovy through our collaboration with Novo Nordisk. While formal pricing has not been publicly released, we expect lower dose levels to be approximately $149 per month based on recent public remarks from President Trump. The Wegovy pill is expected to be the most effective oral medication for weight loss ever approved by the FDA. In clinical trials, patients achieved on average 15% weight loss over 68 weeks with side effect profiles comparable to the injectable formulation. In addition, Eli Lilly plans to launch its oral GLP-1, orforglipron, later in 2026, which we also anticipate offering through our platform at accessible pricing. The bottom line is clear. oral therapies combined with substantial price reductions will fundamentally broaden access, accelerate demand and reshape the GLP-1 landscape. With more than 130 million Americans eligible for treatment, LifeMD is uniquely positioned to be a leading virtual destination for high-quality longitudinal care. Care is essential for patients to achieve the long-term outcomes these medications can deliver. Our men's health platform, RexMD, also had a strong quarter overall. Demand for our personalized ED medications, which combines sildenafil and tadalafil has been exceptional. And these formulations now represent 25% of all new ED prescriptions on the platform. These medications are currently fulfilled through a third-party pharmacy partner, so we plan to bring the majority of this fulfillment into LifeMD's in-house pharmacy in early 2026. This transition will meaningfully reduce COGS, improve gross margins and give us full control of the end-to-end patient experience. Our hormone replacement therapy offering is also demonstrating strong momentum and clear signs of future scalability. Early patient retention has been strong. New patient acquisition continues to grow. Demand is robust across age groups, and we have expanded into men's HRT coverage to 35 states. In addition, RexMD continues to broaden its portfolio with new men's-focused pharmacy products across behavioral health, weight loss, dermatology and more. We believe that our recently licensed 503-A compounding pharmacy will be a major enabler of RexMD's growth, allowing us to offer personalized therapies, lower-cost compounded options and superior margins across multiple men's health categories in 2026 and beyond. In addition to our weight management and men's health businesses, we are very optimistic about the 2026 opportunity in both women's health and behavioral health. Demand in both categories is very strong. And while these businesses are not yet contributing meaningfully to revenue, the initial engagement metrics, interest levels, click-through rates and acquisition costs are on par with categories like ED and weight loss that scaled rapidly within their first year. In both verticals, our focus is on building high-quality, high retention revenue streams. In my view, industry-leading retention is driven by 3 things: an exceptional product, great patient care and customer service, and transparent pricing and strong value proposition. We also believe that enabling patients to use their commercial or government insurance is a critical part of the equation. While insurance enablement has been slower to deploy in our platform than planned, it remains a top strategic priority and will be an important component of our 2026 story. Our women's health business is highly differentiated. We have built and continue to expand an exceptional advisory Board of national leaders in women's hormonal health, menopause, bone health and longevity. We've also assembled a dedicated, highly trained clinical team to deliver this care, and we are confident in our ability to scale as demand accelerates. Patients can choose between bundled care and prescription cash pay programs or flexible models where they pay a la carte or use insurance to cover visits, lab work and commercially available medications. In addition, our in-house compounding pharmacy will enable affordable access to compounded therapies for hormone optimization, sexual health, dermatology and more. We believe this will be the highest quality, most comprehensive and most accessible virtual women's health offering in the country, and we expect demand to be extremely strong. Our psychiatry offering follows a similar structure, combining a la carte consults with bundled care plus medication programs that deliver discounted access and long-term, high-quality care. Most patients begin with a synchronous consultation with a state license provider before transitioning into asynchronous message-based ongoing care. While the current patient count is small relative to our overall business, we saw meaningful quarter-over-quarter traction and expect psychiatry to become a sizable business in 2026. We believe this category will be another powerful, durable growth engine for LifeMD. Given the strength of our balance sheet and the promise of these new offerings, we intend to invest in growth in these verticals early on in 2026 to rapidly build the patient base in these 2 verticals and in our offering to drive superior long-term retention. Lastly, we are investing significant energy and resources into launching the core functionality and features that will enable LifeMD to execute on its long-term vision, building the leading integrated marketplace for virtual care, pharmacy, laboratory services and wellness. Much of this functionality, including a comprehensive relaunch of the LifeMD website and mobile app, we'll be rolling out between now and early Q1 2026. These upgrades will allow patients to effortlessly participate across multiple care programs, access a broad suite of pharmacy offerings and order convenient in-home lab testing through a partnership we expect to formally announce early next year. Enabling seamless navigation across cash pay and insurance supported workflows is not easy, but it is essential to our long-term strategy. When completed, these enhancements will not only broaden the depth and breadth of services we provide, they will also deliver a significantly improved patient experience with clear pricing, more flexibility and expanded a la carte options. Our objective is for patients to view LifeMD as a true virtual care destination, a place where they can access synchronous or asynchronous visits with trusted clinicians; obtain generic, branded or compounded medications at transparent prices; and conveniently order the labs that support their health goals and inform long-term care plans across both primary and specialty programs. We believe the integration of these capabilities will meaningfully differentiate LifeMD, deepen patient relationships and serve as a key driver of sustainable growth as we move into 2026 and beyond. With that, I'll now turn the call over to our CFO, Marc Benathen, to provide more detail on our third quarter financial results and outlook. Marc? Marc Benathen: Thank you, Justin. Good afternoon, everyone, and thank you for your flexibility as we rescheduled this call from November 6 to today. Our third quarter telehealth business results were solid with year-over-year growth of 18% in revenue and 30% in adjusted EBITDA. Our Rex business rebounded from its late second quarter lows with a net gain of 10,000 new members in the third quarter. We've also executed initiatives to significantly strengthen our balance sheet, including the divestiture of our majority ownership position in WorkSimpli and the payoff of all of our debt. Following these transactions, LifeMD has the strongest balance sheet and liquidity position in the company's history. This will enable us to operate from a position of strength in 2026 as we continue to invest in scaling our core offerings, plus further diversifying our platform through growth and recently launched offerings. Now turning to third quarter numbers. Consolidated revenue grew 13% versus the year ago period to $60.2 million. Telehealth revenue increased 18% to $47.3 million with telehealth adjusted EBITDA growing 30% to $2.9 million. Telehealth subscriber growth remained strong with the number of active subscribers increasing 14% year-over-year to over 310,000 at quarter end. Gross margin for the third quarter was 88%, a decline of 290 basis points versus the prior year due to revenue mix. Gross profit was $52.8 million, an increase of 9% from the year ago period. Telehealth gross margin was 86% as compared to 89% in the year ago period, driven by the revenue mix. Our GAAP net loss attributable to common stockholders for the third quarter of 2025 was $4.6 million or a loss of $0.10 per share. This compares with a GAAP net loss attributable to common stockholders for the third quarter of 2024 of $5.4 million or a loss of $0.13 per share. Adjusted EBITDA as a non-GAAP measure we define as income or loss attributable to common shareholders before various items as outlined in today's news release. Adjusted EBITDA totaled $5.1 million for the third quarter of 2025 as compared with $4.3 million in the year-ago period. Telehealth adjusted EBITDA as a non-GAAP measure defined as adjusted EBITDA for only the ongoing telehealth business, excluding WorkSimpli. This measure was $2.9 million for the third quarter of 2025 as compared to $2.2 million in the year ago period. We exited the third quarter with $23.8 million in cash and no debt. As previously disclosed on November 5, we identified adjustments following system migrations related to the recognition of revenue with offsetting related balance sheet accounts for 2022, 2023, 2024 and 6 months ended June 30, 2025. This resulted in an approximate $4.6 million impact in over recognition of revenue attributable for the total period. This adjustment had no impact on the company's cash flow or cash position. Turning to financial guidance. Following the divestiture of our majority ownership in WorkSimpli, resulting in a pure-play, stand-alone telehealth business, we expect fourth quarter revenue in the range of $45 million to $46 million, with adjusted EBITDA in the range of $3 million to $4 million. For the full year 2025, we expect revenue in the range of $192 million to $193 million and adjusted EBITDA in the range of $13.5 million to $14.5 million. Full year guidance represents growth of 24% for revenue and 254% for adjusted EBITDA versus 2024. With that, let's now open the call to your questions. Operator? Operator: [Operator Instructions] Our first question comes from David Larsen with BTIG. David Larsen: Congratulations on a good quarter. Can you talk a little bit about the mix of telehealth product revenue, especially in like weight loss, like how much is coming from branded scripts? How much is coming from compounded scripts? There was obviously a sequential decline. Just any color of why that happened? Just any thoughts around 2026 in the obesity health sort of product line. Marc Benathen: Yes. David, this is Marc. I'll let Justin take the second part of the question on go-forward product strategy. As far as the revenue mix, so weight management still is more than 50% of the company's total revenue mix. Yes, there was a slight sequential decline that we had quarter-on-quarter. The subscriber base was roughly flat. It was down about 1,000 quarter-on-quarter, although that has stabilized and looks to be stable through the balance of Q4 and then with some of the product innovation in 2026 should return back to growth levels. The biggest, I'd say, mix-wise, as far as new patient sign-ups, we're seeing more than half of them coming in through branded therapy. It's less than half of the total revenue because that -- the new patient base obviously needs time to build up relative to the existing base on the patients that are coming through branded therapy of which obviously, there's a substantial portion at this point. As we mentioned, we -- the only real difference in the economics is the fulfillment fee that was on the personalized compound. So obviously, we do lose that. That was roughly -- for the majority of the time period was roughly about $50 in orders. So we have had some impact from that. That we expect to have some additional impact in Q4, which is reflected in the guidance that we put out today. And then we expect ourselves, particularly with a lot of the product innovation going on in the market and where we're positioned with our collaboration partners to be able to capitalize upon pretty solid growth heading into next year. Justin Schreiber: This is Justin. I'll just add quickly on 2026. I mean there are 2 big things that we expect to drive the weight management business. The first, as we emphasized in the call, is better pricing for branded therapies, which, as you know, we've made a kind of big investment in. And so I think you're already seeing the writing on the wall there. I also think that as pricing for the cash pay programs comes down, I think you'll see more and more payers covering these medications. We've also, obviously, seeing the outline of a program for Medicare to cover these drugs, which is also something that LifeMD is set up for. So I mean we're generally like really, really positive on 2026. The other -- like the other big thing that would help us would be the Trump administration doing something. And I think this is likely, not just possible, but likely that as these -- as the branded therapies that are FDA approved become more affordable to patients, I think it is highly likely that you see FDA crack down on compounding, which would be an amazing thing for our business if FDA were to slow that down. Right now, we're getting beat up every single day by just a lot of these very low-priced semaglutide and tirzepatide offers out there that are all compounded, and it's very difficult for us to compete in that kind of a marketplace. David Larsen: So Justin, I think you had been talking at one point about the percentage of new obesity health members coming on the platform in December of '25, expected to be around either 50% or 75%. Does that -- is that still true, like the majority of new patients are on branded products? Justin Schreiber: Yes. I mean that's what Marc just said. I don't have the precise number as of the last 30 days, David. But I mean, I still think that, that range is certainly extremely likely. I think we're at the lower end of that range now. But I think as these prices come down and especially when the initial doses come down into the $200 to $300 range per month, it makes it very competitive with a lot of the other compounded offers that are out there. So I mean, I think you easily could see that number going to 75% or even higher in the very near future. David Larsen: Okay. That's very helpful. And then in terms of your coverage, your insurance coverage like Medicare, Medicaid, commercial, just I mean, it seems to me like now that Medicare and Medicaid apparently will cover these branded products in 2026. I'm not sure when that's going to start in '26, but assuming that it does happen, I mean, it seems like that could be a significant revenue stream for you. What portion of your revenue now is, I guess, Medicare or Medicaid or insurance covered versus cash pay? And by the end of '26, what percentage of your revenue do you think will be insurance related? Justin Schreiber: Yes, I mean, Dave, I'm not really prepared to -- Marc nor I are prepared today to give you an exact number for -- on a percentage by the end of '26. What I can say is that we are 100% ready to go with Medicare once these drugs are covered. So I think that's going to be a very significant thing for our business. And we have actually been seeing -- I don't think traction is the right word, but like we did turn on -- we have right now, it's somewhere between 100 -- I think it's somewhere between 100 million and 150 million lives under coverage right now. And we actually turned this on for the first time broadly last week. And we saw over a 1/3 reduction in our CPA. So it actually is a very, very positive thing for acquisition costs. So I think that -- I don't want to say I think, but the team at LifeMD is really energized around this. It's one of our differentiators. It's been frustrating how long it's taken for us to get these programs live. But I think that also speaks to like the difficulty for others that try to launch a 50-state payer network, right? So I think it's going to be a very positive thing for the business. And I'm really hopeful that we'll start to see that in the coming quarters and be able to talk in more detail about that becoming a greater share of our patients. David Larsen: Any sense for what percentage of the members that are on your platform now actually have insurance? Or what percentage that would -- that perhaps don't join the platform, don't because they wanted insurance, but now that you take it, they can join in '26? Just any -- can you put some numbers or anything around the potential lift in revenue we might see with insurance coverage? Justin Schreiber: Well, I can tell you, Dave, a decent percentage, I mean almost at least 25% of patients that sign up for our program end up not continuing with the program because they don't have insurance coverage for the medication. So that's a big thing. And as coverage increases these medications, it's going to be a massive thing for our business. So on the care side, I think it's significant. I mean I think that -- look, I mean, the stat I just gave you, we saw a 33% ballpark reduction in customer acquisition costs when we turned on the ability to use your health insurance for like, I don't know, 1/3 of the population, probably even less. So I mean that's a great sign. Like there's massive demand out there. And that once we get these programs live and functioning the way we need them to function of scale, like it actually will have a really positive repercussion on the overall business. David Larsen: And then just one more before I hop back in the queue. Can you talk about your clinical services and your retention levels amongst members? So let's say these GLP-1s go solid oral in early '26. Like the value that LifeMD brings to members that, say, for example, an Amazon would not or a typical like Costco maybe would not. Can you maybe just talk about the value you bring and the retention levels or the weight loss that your members typically see that they may not see otherwise at a different platform? Justin Schreiber: Sure. So I mean, some of the other partners like the Costcos of the world are going to have these drugs inventory, just like I think it's pretty likely at some point that LifeMD will be able to direct ship these medications as well from our pharmacy directly to patients. So not a big differentiator there. Where I think there is a really big differentiator is in the portfolio of services and products that LifeMD offers. So the way I envision it, Dave, is like people may come to LifeMD and -- or they make as an alternative to Costco or their family Doctor's office, they start with -- they typically start with an amazing visit with a state license provider, and they're going to use that to access -- initially, the goal might be to access the GLP-1 medication and use their insurance for the pharmacy coverage maybe even use their insurance to cover the cost of the visit. But no one has one need. And most people that are using a GLP-1 have many other health needs, whether it's preventative care, whether it's lab work for -- it could be something that most of these people have never had a provider speaking to them about their hormone health. LifeMD is also launching a cardiovascular offering in late this quarter, early January, which is going to be an incredible program. There's an incredible shortage right now of cardiologists throughout the country. So we're very excited about that. The ability to get a different medication. So we obviously don't compound GLP-1 medications, but we have a full-blown compounding pharmacy here that if somebody needs a hormone or a dermatology product, we can compound that at a fair price, ship it directly to them. So like this is the type of thing that I think many of these other retailers that you mentioned, I don't want to name names, but I think they would all love to have this type of marketplace and even the brand associated with that marketplace. So that's going to be the big difference between LifeMD and these other places. Also it's worth pointing out that Costco doesn't have a doctor or a nurse practitioner, like they don't have the provider that can write the script. So you can go pick up your drug at Costco or some other or CVS, right? But like you still need a provider. And that's where LifeMD comes into play. I think with Amazon, you obviously get the provider. But look, there's a big difference in the LifeMD brand and Amazon's brand. And there are certainly people that are going to be very loyal to Amazon. And -- but it's a big space, right? I mean there's going to be room for a number of high-quality players in this market. David Larsen: Great. And last one, Marc, was there any revenue impact from that, I guess, restatement, we'll call it? Was there a -- would revenue have been $4 million higher? Or was it -- there was no impact? Marc Benathen: No. So it was not a restatement, it was a revision. The revision had a $1.1 million impact on this year. However, the revisions were made in the quarters that they applied to. So there was no impact to this quarterly results from it. Operator: We'll now move on to Steven Valiquette with Mizuho. Steven Valiquette: So I think you kind of touched on this a little bit, but I guess I was kind of curious just also on kind of like the brand uptake, how that's going to track relative to your expectations. You gave some comments on less than half is still on brand. But I guess what kind of jumps out to me is just the fact that since you guys announced your brand drug partnership deals with Novo back in April and May, we've seen Novo Nordisk sign partnership deals for low-cost branded drive with a whole bunch of other companies in the virtual care space and pharmaceutical supply channel. So I'm wondering if some of those deals have diluted your expected uptake in any way, some of those other deals actually helped you in some ways again. Just trying to get a better sense of your ability to capture your fair share of customers seeking the lower-cost brand drugs in the weight management category and diabetes, too. Justin Schreiber: Sure. This is Justin. I'll answer that. So I think we knew that Novo and Lilly would do multiple deals. I think -- look, I don't think that them collaborating with other retailers and pharmacies and telehealth companies has an impact on the demand or the take rate on -- or the conversion rate on our platform. I think it's all about -- I think -- and I can tell you that I'm pretty sure they agree with me. Look, I think it comes down to price. And in a world where FDA ignores what's happening in the compounding world, and you can go out there and get a compounded therapy for, I don't know, even half the price or more a lot of times of what -- where the branded therapies are priced. It just makes it really difficult. And the competitiveness of even the compounding world, something that we didn't expect as -- since these drugs have come off of -- since these drugs have come off the shortage list, the number of players out there, the number of direct marketing firms that are competing in the compounded GLP-1 world has skyrocketed. I don't have an exact number, but it's just gotten -- we expected it to get better, and it actually just got a lot worse and a lot more competitive. So when people are seeing a branded therapy that's priced at $349 to $499, they're seeing -- while they're purchasing and immediately after they purchase while they're waiting for a visit, right, they're seeing 10, 20 other ads, right, for these drugs sometimes as low as $99 for the first month. And usually, the prices quickly escalate, a lot of times in ways that aren't clearly disclosed to the consumer. But that's the current landscape. So we're really optimistic about branded therapy continuing to -- these branded therapies continuing to like perform on our platform. I think there's a big demand. We think the price point, they need to be in the $200 to $300 range to be competitive with a lot of these offers. We need to see better coverage. We think oral therapies, and I mean, most importantly, we think that the Wegovy pill that's likely to be launched in January is going to be -- could be a massive catalyst for the business. And so that's kind of where we're at today. Operator: We'll now move to Anderson Schock with B. Riley Securities. Anderson Schock: So first, on the return to RexMD growth, how much of this volume has been driven by the men's HRT offering versus the ED business returning to historical levels? And how does ED patient acquisition outlook compared to historic levels? I know you previously mentioned it was back to around 80% to 90% of historic levels as of the call in August. Marc Benathen: Yes. This is Marc. Most of the growth, so the 10,000, about 8,000 came from the sexual health business, which is mostly ED. The balance of it came from a mix of the HRT business, hair loss and insomnia. As far as the acquisition volume, I mean, the acquisition volume is very close to where it was at historical levels. I'd say the caps are about $5 to $10 higher than what they had been, but still healthy unit economics comparable to where they have been, and the levels are very close to where they have been historically. Anderson Schock: Got it. And then telehealth's gross margin declined around 350 basis points. Could you provide some more color on what drove this? And how should we think about the telehealth? Marc Benathen: Yes. So this is Marc. Nothing in the business drove it. Like-for-like product lines or service lines, the margins are the same, but it was really -- it was a couple of fold. One, as we mentioned, we're shifting more to branded product in the weight management business. That branded product, obviously, doesn't carry with it some of the medication processing or medication processing fulfillment fees that we had on the personalized compounds. That contributed probably about 150 basis points of that change. And we had always mentioned that before when we had spoken about the change from compounding to branded. The balance of the rest of it is mix in business. So today, weight management is over 50% of the company's total revenue. If you were to flip back a year ago, Rex was the biggest part of our revenue. Rex, particularly Rex sexual health will have the highest gross margins that will sit in the upper 80s. So the mix in that business and the shift there contributed to the rest. Anderson Schock: Okay. Got it. And how should we think about the telehealth margins going forward with the new offerings in women's and behavioral health and also as you scale the 503-A compounding pharmacy? Marc Benathen: Yes. So in general, we would expect gross margins on a rate basis to probably be slightly below where they are today. And the reason for that is a fewfold. One, mental health is a big area of opportunity for us, which will be very accretive to the company's top line and bottom line. But with that being said, gross margins in that business are not going to be 85% to 87% or so. They are going to be lower. They'll typically have a 7 in front of them from a gross margin standpoint, which is if you operate very well, which we do operate our business very well. Secondly, some of the compounded offerings, the gross margins will be slightly lower even after we transition. Although after we transition fully to our pharmacy, they'll probably get back to where the generic is or very close there. But in the interim, there will be -- the gross margins will be slightly lower and we expect that ratio shifting to branded therapy and weight to continue to go up and up to gross margins under current arrangements today where the product is a complete pass-through to the end customer, that would also have a mild impact on gross margins. All of these businesses, we do expect to be accretive to the bottom line and they all have massive ability to scale and growth opportunities. Some of them have lower advertising costs than some other businesses that we've been in. So there are puts and takes there. But from a pure GM rate standpoint, we would expect a mild erosion in the rates just due to mix of business. Operator: We'll now move on to Sarah James with Cantor. Sarah James: Earlier, you mentioned turning on insurance broadly last week and you talked about an observation of customer acquisition costs being down 33%. I'm wondering if you have any other observations from turning it on broadly. And then just if you could clarify the 33%, was that the lower cost of customers with insurance coming on? Or was it that the cost per customer, customer acquisition costs for those with insurance would be even lower and you just had a big mix shift to those with insurance. Justin Schreiber: Sarah, it's Justin. I'll take that one. Look, I think what it demonstrates -- I think what it demonstrates is that a lot of patients that are coming through the medical intake process that have clicked on LifeMD ad or business because it's something they sell on TV. I think it just demonstrates that a lot of these -- a lot of people like want to use their insurance for health care. And one of the unique things about the platform that we have that is still mostly synchronous is that we can participate in the benefits world. So it's just a function of more people getting through the flow, being able to check the insurance route versus the self-pay route, obviously, they're seeing a lower price point as well if they choose the insurance route. So there's also like a kind of exercise that we need to go through to kind of rework the financial model and see how that all plays out. But it was super encouraging and I think there's a lot more optimization that we could do as well. And so where I get really excited about this, especially is things like Medicare where if you have broad coverage for these drugs, and we know we're going to get paid for a consult, and it's really just about the patient going through the initial benefits verification process. And then you have the visit and the medication that are covered and then we can ship the medication directly from our pharmacy to the patient. I think that's super exciting. And I think it just -- I think we've always known that this would have a big impact. We were just pleasantly surprised to see that it was that big of an impact without optimizing it more. Sarah James: Great. And the new consumer-facing app and website that you're launching, do you have any thoughts on how that could impact cross-selling ability? Justin Schreiber: Yes. I mean it's massive. I mean, the number of kind of cross-care sign-ups per day. I mean I think it could easily be 50 or 100 consults per day off the bat and various care programs without us doing any work except for just the technology functioning. So I'm really excited about it. I mean, I think I know that it has the -- I know that it's the potential to like totally change the profile of the business. And also just totally LTV and retention rates across the business. So it's been a big effort and the new app is going to be beautiful. It's going to look -- I mean, I think our current app looks good. But what we're launching is just leagues ahead of where we are today. And I think it's going to have a big impact on the brand and also on the cross-care rate and ultimately the LTV for the business. Operator: We'll now move on to Yi Chen with HCW. Eduardo Martinez-Montes: This is Eduardo on for Yi. I had a question regarding the 503-A pharmacy. You mentioned that you're licensed in 14 states now. I'm just curious if you have an anticipated time line to reach the 50-state coverage and how much margin impact do you think that will have once you're fully scaled. Justin Schreiber: Yes. I think -- this is Justin, again. The licensing process is pretty quick for a pharmacy that's already licensed up across the country like we are. So I would expect to be 35 state licensed in the next 60 to 90 days at the latest, could be even sooner. And then the next kind of 15 states will trickle in, I think, let's just say another 30, 60, 90 days from there with 1 or 2 like California being the most difficult. So it's not a long-term thing, let's just say, I think we can be 50-state licensed for compounding, maybe with the exception of 1 or 2 difficult states in the next couple of months. Eduardo Martinez-Montes: Got it. And then regarding the... Justin Schreiber: And your question on the margin, I mean, the reality is it does have -- I mean owning and operating a 503-A compounding pharmacy is a big, big competitive advantage for us. It's extremely difficult to get the COGS to where you need them to be for our type of business, working with a third-party pharmacy. We do have some great third-party compounding pharmacy partners, and they're not going anywhere. But again, being able to bring these things in-house, control the patient experience, really leverage kind of our supply chain capabilities as well, which are really good, especially in pharmacy to drive down COGS. I mean it just makes these things so much more accessible for patients. Eduardo Martinez-Montes: Got it. And regarding the oral obesity products that we anticipate coming on to market soon. Do you have any visibility? Is there any market research to indicate what kind of bump -- like what fraction of patients are really holding back because they don't like the needle, right? I'm just trying to get a feel for your impression of how much these orally bioavailable obesity products are going to have on uptake of these therapies. Justin Schreiber: I think it's big, but I think your guess is as good as mine and probably as good as the drug manufacturers, right? I don't think there's never been an oral medication for weight loss with the type of efficacy profile that Wegovy pill will have that's been approved by FDA. So it's really difficult. I think it's enormous. I mean in my social circles, especially people that are a little bit older, I think it could expand the market by 25% to 50%. I personally know a number of people that I would never think would avoid a very small needle like this or injectable, but that are just waiting for the oral product to come to market. So I think it's going to be very big. I mean to put a number on it, it's very difficult, but there is going to be massive demand is what I think. Operator: Thank you. At this time, we've reached our allotted time for questions. I'll now turn the call back over to Justin Schreiber. Justin Schreiber: Thank you for your questions and for your interest in LifeMD. And we look forward to speaking with you once again when we report our third quarter results -- or sorry, when we report our fourth quarter results in March of next year. Have a great evening. Operator: Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and welcome to the Serko FY '26 Interim Results Announcement. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Darrin Grafton. Please go ahead, sir. Darrin Grafton: Good morning from Auckland, New Zealand, and thanks for joining our investor briefing covering Serko's results for the half year ending 30 September 2025. I'm Darrin Grafton, CEO of Serko, and I'm with our CFO, Shane Sampson. This morning, I'll take you through our performance and highlights for the half year period. I'll then hand to Shane to cover our financial results in detail. Then, I'll talk through how we're positioning Serko for the future growth, our outlook and finishing with Q&A. As always, unless otherwise stated, comparisons are made to previous half year period 1H FY '25. And let's begin on Slide 5. This is Serko's strongest half year performance ever on both revenue and EBITDAFI. This was due to disciplined execution and our focus on profitable growth. Key callouts are: first, we achieved strong total income growth of 45% to $61.8 million, and this reflects the scalability of our model with strong contributions from Booking.com for Business and the addition of GetThere, driving our expansion into North America. Second, we delivered EBITDAFI of $6.1 million. This is our highest ever EBITDAFI result. Third, we generated $3 million of free cash flow, and this reflects our cash-generating existing business and the fact we're still in the early stages of our ramping our investment into building Serko for the future. At the same time as delivering these results, we're setting the business up for the future, and I'll touch more on that shortly. Turning to Slide 6. Total income was up 45%. This was driven by a strong trajectory we're on with Booking.com for Business, which continues to grow as we focus on activation, engagement and conversion. This is translating to substantial growth. The other driver is GetThere, which has delivered significant growth in online bookings and to Serko's income. Turning to Slide 7, where we double-click on our Booking.com for Business performance. Completed room nights grew 32% to 2.1 million. This was driven by a 40% growth in active customers, improved onboarding and new platform capabilities that are driving higher customer engagement. We added 40,000 new customers in the half year, significantly stronger than in the same period last year. Completed room nights frequency per active customer was slightly lower, and our view is this likely reflects small- and medium-sized businesses in Europe booking fewer trips due to the macroeconomic headwinds there. We monitor these trends closely, and our analysis gives us confidence that customer activity should normalize as macro conditions improve. Serko crossed into the second tiering of commissions on multiple months, and we're tracking above 4.2 million completed room nights this financial year. Shane will talk to this further. We're delivering at pace against the new initiatives we told you about at our FY '25 announcement, including the latest release of incentives. We're seeing green shoots of success with Genius Level 2, and we have confidence it's driving increased customer retention. We also rolled out significantly improved checkout experience and company onboarding that improved the overall customer experience. Turning to Slide 8. In Australasia, online bookings grew 2%. This was offset by a minus 2% decline in average revenue per booking from reduced third-party costs, some of which were previously passed through the customers. Although this impacts slightly on the ARPV, it significantly reduces our cost, creating a net cost benefit. This mix shift improves the quality of our revenue and demonstrates our focus on sustainable margin expansion. Overall, this resulted in a stable revenue result. Our early commitment to NDC is now paying off. We are one of the few players globally delivering a fully integrated NDC offering across Sabre and Amadeus. We continue to invest and innovate as we strengthen our market leadership and as NDC starts to gain traction. Turning to Slide 9 on our GetThere acquisition and strategic partnership with Sabre, which has fundamentally repositioned Serko in the U.S. market. What's working well? We've fully integrated GetThere, stabilized the customer base with new ARR churn on key accounts around 1% of annualized revenue. We've established our new India development hub and setup global capability center that's now scaling. Revenue exceeded our expectations in the half, reflecting some of the expected churning customers taking longer to offboard than anticipated and very low level of new churn. Where we've been less effective, we haven't achieved our targeted U.S. sales, but we have a clear path forward. It's become apparent as we've been establishing our sales pipeline with leading Fortune 500 companies that many of them want to wait for the new capabilities we're building rather than onboarding to our existing products and going through a second migration later. The other point to note is that our partner, Sabre has shifted their focus away from direct corporate contracts to growth and relationships with travel management companies. This change has contributed to lower direct corporate sales. Sabre is referring TMC resellers to us, but the lower direct corporate sales means we don't anticipate making any performance payments for the 2025 calendar year. Our go-forward plan. In North America, we're now focused on scalable growth through a dual channel approach, firstly, via our TMC reseller network and direct corporate sales. Leveraging our Sabre partnership, we're targeting key management resellers. We've already onboarded 2 partners, Tangerine and Elite Travel. And while smaller in volume, they provide valuable insights into mid-market customer needs. On the direct side, through customer forums with leading Fortune 500 companies, they are involved in helping us to codesign our future AI-powered capabilities. With GetThere fully integrated, we're in the room with major corporates, gaining visibility and confidence in our North American opportunity and our execution model. As discussed at our Annual Shareholder Meeting, GetThere and our Sabre partnership have redefined Serko's North America position. We now have strong market presence, direct customer insights and relationships, along with the data and expertise in a key market, which positions us well for our future success. In summary, the first half has been about strengthening the platform, deepening relationships and codesigning our next-generation AI-powered capabilities. The second half is about establishing the technology to enable our growth, executing with focus and accelerating our North American opportunity. And I'll talk more to the strategy and outlook shortly, but now I'll pass to Shane to cover the financial highlights. Shane Sampson: Thanks, Darrin, and good morning, everyone. Darrin has already called out some highlights for the half year, and I'll go into more detail. I'm going to focus on the key outtakes from the result, and we've also put some additional financial detail in the appendix for your reference. Turning to Slide 11. Total income increased by $19 million or 45% to $61.8 million, reflecting growth in bookings for business volumes in their acquisition. Operating expenses increased by 29% to $65.1 million, up $14.7 million, primarily reflecting costs associated with GetThere and investment in the U.S. market of approximately $16 million and the initial stages of our platform acceleration initiatives with investment of $1.6 million in the half. This was partly offset by lower third-party hosting costs, so lower third-party costs and hosting efficiencies achieved in our pre-acquisition business. Our preferred measure of total spend, which excludes the impact of accounting decisions around capitalization and amortization, increased by $15.2 million or 34% to $59.3 million, broadly consistent with the increase in operating expenses. Higher growth in income relative to spend resulted in EBITDAFI improvement of $4.9 million to $6.1 million. Net loss after tax increased to $9.5 million, an increase of $4.4 million. I will talk to the drivers on the next slide. Free cash flow improved by $1.7 million to $3 million, reflecting the stronger EBITDAFI partially offset by realized FX losses, increased capital expenditure and capitalization of internally generated software and higher taxes paid. Turning to Slide 12. Net loss grew despite EBITDAFI growing and total income growth outpacing total spend growth. The bottom part of Slide 12 shows the primary drivers of the increased loss, which are lower interest income, foreign exchange slipping from a gain in the prior period to a loss in this period and the disposal of InterplX. Net finance income was $1.3 million lower, reflecting lower interest rates and less cash on hand as a result of the GetThere acquisition. We incurred a $2 million noncash accounting loss on the sale of InterplX. I will talk to this in more detail later. Serko puts foreign exchange contracts or FECs in place as an economic hedge against revenue received in Australian dollars and euro. Historically, we have not designated these FECs as hedges for accounting purposes, and therefore, any gains or losses on the FECs were recognized in the profit and loss, while the revenue was accounted for at the actual rates applying at the time the revenue is earned. The significant appreciation of the euro against the New Zealand dollar in the last 6 months has resulted in $3.7 million in the recognition of losses on FECs not designated as hedges for accounting purposes and other sundry FX losses. In the prior period, FX rates moved the other way, resulting in a gain of $1.4 million, but the change from the prior period was an adverse movement of $5.1 million. Note that in substance, the FECs are acting as economic hedges. For FY '27, we have designated some euro FX contracts as hedges for accounting purposes. I will talk to this more on a subsequent slide. Turning to Slide 13. While Serko has started to make investments in the platform acceleration program and acquired GetThere to support long-term growth in the U.S., the faster growth in total income still resulted in total income exceeding total spend in the period. This reflects strong unit economics in Booking.com for Business and improved margins in Australasia. Through our Booking.com for Business and Australasian results, we have demonstrated our ability to invest and grow revenue and then to optimize the business to generate operating leverage, giving us confidence as we prepare to make increased growth investments again. Turning to Slide 14. Our balance sheet remains strong with cash and short-term deposits of $65 million and no debt. Relative to 30 September 2024, cash has reduced and other assets and liabilities have increased, reflecting the GetThere acquisition in January. Relative to 31 March 2025, cash was up $3.6 million, reflecting the positive free cash flow and a cash inflow relating to a working capital adjustment on the GetThere acquisition. Noncurrent assets and noncurrent liabilities increased, primarily reflecting our new India office lease. Intangibles declined, reflecting the disposal of intangibles and goodwill associated with the InterplX business and amortization exceeding capitalization of software, reflecting our conservative approach to software capitalization. Turning to Slide 15. Our partnership renewal with Booking.com in April 2024 revised our revenue share arrangement with the revenue share continuing at the 50% rate for volumes up to the equivalent of approximately 4.2 million completed room nights or CRNs per year and a new TA system for higher incremental volumes. The arrangement is designed to mutually incentivize and benefit both parties. The chart on the left is from our May annual results and shows that in FY '25, we achieved NZD 3.3 million completed room nights. And in FY '26, we expect to exceed NZD 4.2 million, the approximate level at which incremental transactions and lower commission. This reflects the strong growth in CRN since the renewal was signed. The chart on the right shows average revenue per completed room night or ARPCRN, as shown earlier in the presentation, with ARPCRN declining 3%. The chart in the middle shows the average commission per completed room night or AComPCRN. We introduced this new metric in May as a way to show underlying changes in our share of commissions as the ARPCRN has impacted by the tiering of commissions. You can see the AComPCRN declined by 2%, slightly less than the ARPCRN as we had 2 months in the first half where our monthly volumes slightly exceeded the first tier, resulting in the blended commission percentage reducing to 49% from 50% in prior periods. As you have seen from the strong operating leverage we've achieved over the past few years, our incremental margins are high, and therefore, even on the lowest tier, our gross margin percentage is expected to be healthy. Turning to Slide 16. As I noted earlier, Serko has historically had FECs in place to act as an economic hedge, but has not designated them as hedges for accounting purposes. During the half, we chose to put FECs in place for FY '27 and designate them as hedges for accounting purposes. This will reduce volatility in reported revenue, FX gains and losses and therefore, reported net profit or loss in each period. Instead, mark-to-market gains or losses at each reporting date will go through the cash flow hedge reserve and be reflected in the total comprehensive profit or loss for the period. We have included details of the accounting hedges here to assist analysts and investors to calculate the impact on projected FY '27 revenues. I note a portion of expected FY '27 euro revenues are not covered by the accounting hedges and that we've not designated any FECs as accounting hedges in relation to FY '26 revenues. Turning to Slide 17. As previously announced, we sold our U.S.-focused expense business, InterplX on 30 September. Serko has recognized a noncash accounting loss of $2 million on the sale, primarily reflecting intangibles and in particular, goodwill. The InterplX business made a modest contribution to revenue of $0.8 million in the first half, and the disposal is expected to have a small net benefit to our profitability going forward. In addition to the financial benefit, we expect strategic benefits from the sale, including increased operating focus and improved ability to partner with leading U.S. payments and expense providers. Thanks, and I'll now hand back to Darrin. Darrin Grafton: Thanks, Shane. And turning to Slide 19. Let's shift to the product initiatives we are delivering that position us for growth. And the first is Booking for Business. In Booking.com for Business, we're focused on 3 outcomes; acquiring, converting and retaining customers. The pace of delivery has accelerated with significant deliveries in the half. In particular, I'd like to call out the new checkout experience, which is consumer grade with pay now, pay at property capability, simplified VAT and company detail capture and tighter authentication. This is reducing checkout error rates, improving completion reliability and improving conversion. The new checkout is built in our new platform and enables faster iteration and experimentation to drive further improvements for users and improve activation, conversion and retention. It's also a significant milestone as users can now register, make a booking and check out all within the new platform with a consistent user experience. So in the Australasian market, Qantas switched to NDC as their preferred channel in July. This was a big milestone and a significant investment to integrate through our partners, Sabre and Amadeus. We've seen NDC volumes start to scale since launch. And while still small in percentage of total bookings by September, this was starting to make a positive contribution to our ARPB. In North America, our focus has been on how we engage with our customers to co-design the future, while at the same time, sustaining our heritage products and serving existing customers with an improved user experience and travel supply. This includes key initiatives we launched during the half year that help to deliver customers a consumer-grade experience. Examples of new capabilities launched within our GetThere product, our new hotel shopping experience and new NDC carrier connections with Air Canada and British Airways, which provide content breadth and depth for our key U.S., Canada and transatlantic markets. This is about Serko adapting to the changing travel distribution landscape and ensuring we maintain connections to sources of supply to -- so customers have access to the breadth and depth of choice. On the Serko platform evolution, we've designed our platform to enable performance, scale and excellent unit economics and fast delivery of new capabilities, including for Booking.com for Business. We're building out our product and tech capability in India. And this month, we officially cut the ribbon on our new Bengaluru office. We're hiring key talent to work alongside the team who came on board with GetThere. This is a key part of our platform strategy and a focus for our leaders. AI coding tools are firmly embedded across our engineering team with more than 55% of daily active users using AI coding tools. More than 30% of the suggestions from AI are accepted by our engineers. And these stats compare well with industry benchmarks, and we continue to drive them even higher. We're continuing to roll out additional AI metrics and support our developers to grow their capabilities as tooling matures, and we update our collection of analysis of the related data. We're also trialing a wide range of AI tools and models. Turning to Slide 20. Serko is in the strongest position operationally and strategically that we've ever been in, with ongoing improvements across the business and a clear blueprint for our AI platform. We're now able to accelerate our investment to capture the opportunity ahead. We're well positioned to achieve our NZD 250 million revenue aspiration for 2030. Booking.com is the strongest business brand in global travel. And our partnership with them has enormous potential. Booking.com for Business is already driving significant revenue and contribution, but we have only captured a fraction of the opportunity. We have a clear strategy in place for growth for Booking.com for Business through both our partnerships and platform investment. We're accelerating our platform transformation to deliver AI-powered capabilities for customers. And we're optimizing our operating model to enable fast delivery and scalable profitable growth. Turning to Slide 21. We have strong momentum delivering Booking.com for Business capabilities and a track record that proves we're executing on our growth strategy. Our platform is successfully powering core components of Booking.com for Business, including the new checkout experience and all hotel room bookings. As part of our accelerated investment program, we have major initiatives underway as we continue to deliver new platform capabilities and value. This includes flight service modernization, a core service of the platform, allowing flight content to be retrieved across multiple supply integrations. We continue to lay the technical foundations for Serko's future, including removing any dependencies that the new platform has on legacy technology. We're also building AI and data frameworks powered by Serko data as part of our strategy to unlock the value of AI and emerging technologies. Turning to Slide 22. AI is central to our strategy and our roadmap. We're increasing our investment in AI, a targeted, disciplined way so we can launch new capabilities to customers and deliver future growth. Our teams are working alongside customers and prospects in the U.S. as we codesign new AI-powered capabilities. To enable our future, we're optimizing our operating model to ensure we allocate resources where they generate the greatest long-term value. In October, we launched an internal program to reallocate some of our people investment to focus on delivering AI and data capabilities. Around 60 roles from our global team of 460 may be impacted, while at the same time, we are creating new roles while we're hiring for -- the proposed program is expected to deliver $12 million in annualized savings, providing capacity to reinvest further in AI and innovation while supporting continued margin expansion. You've previously seen the outcomes of how we have successfully managed our resources and grown revenue while holding back cost. You've also heard how we've activated AI across our teams to establish new ways of building technology and deliver new capabilities to market. And turning to our FY '26 outlook on Slide 23. We reaffirm our FY '26 total income guidance of $115 million to $123 million. Serko is revising its total spend range to $124 million to $128 million for FY '26 from the $127 million to $133 million previously. Risks to Serko achieving its FY '26 goals include macroeconomic and geopolitical factors and currency and ARPCRN movements. We're all in on executing our strategy with scalable global platform, strong partnerships and a clear roadmap to profitability and growth. Serko is positioned to deliver sustained shareholder value. Thank you. That concludes our presentation, and we're now happy to take questions to allow more people to ask questions. We request that you ask one question back into the queue. Thank you. Operator: [Operator Instructions] We'll take our first question from Guy Hooper with Jarden. Guy Edward Hooper: Well done on some strong growth numbers. Maybe just to start with one on the spend. I mean you previously outlined a base spend rate over the next couple of years and then what an accelerated path might look like. I mean how should we think about the change in the FY '26 guide and the reduction in spend in that context? Shane Sampson: Guy, it's Shane. I'll take that one. So I think there's probably a couple of things that are worth calling out on the spend. One is you'll note that the midpoint of guidance implies meaningful growth into the second half relative to the first half, the total spend. So if you like, you will start seeing that acceleration and that really reflects, as Darrin talked about in the speech, we've been quite prudent in our spend. So teams are using AI throughout the business. But in terms of particularly dedicated spend on building AI into the product, we've been relatively prudent while we get clear what that looks like. And now we're at the point where we have the confidence to really start investing and accelerating that. So you will start seeing that acceleration in spend in the second half. I think the other thing Darrin called out in his presentation was that we are effectively looking to reallocate some of our resources. So that will result in reduced spend on an annualized basis in terms of the roles that will go, but we're actually looking to reinvest that next year again, back into that more AI-focused build of the future products. So I think we're reallocating resource from our heritage businesses, generating more operating leverage in those and then that resource to build the future products that are going to drive our growth. So I think those will be 2 callouts as you be sort of familiar with our performance over the last years, we're generally reasonably prudent in how we spend. So we tend to be at the bottom end of the range. Probably the other call out would be -- effectively, as we noted, we're not where we want to be in terms of U.S. sales. A chunk of our executive and senior staff remuneration is on performance. And so that also reduces the spend a little bit this year. So yes, those combination things, but definitely starting to get to the point where we're pressing to go on investment and that's because we have that clarity that we're clear what we do and how we're going to do it. And we're currently, I think, targeting to have an Investor Day on the 12th of March and hoping that we'll be able to show some of what we're doing there at that. Operator: We will go next to Wei-Weng Chen with RBC Capital Markets. Wei-Weng Chen: Yes, just a question from me about the U.S. So you previously won that lower U.S. government work had impacted on GetThere volumes. Wondering if you could speak to, I guess, what happened during the shutdown period, which happened in, I guess, your second half. I assume it's all covered within the reiterated guidance, but it would be good to kind of get some color on what exactly happened there. Shane Sampson: Wei-Weng, this is Shane. I can talk to that. Yes. So we continue to see weakness in U.S. government through the half year. Definitely, the government shutdown had even more extreme impact. But yes, that's all incorporated within the guidance. And obviously, we're pleased that the shutdown has finally come to a conclusion after setting a new record. Obviously, still a little bit of risk of another one on [ 30 ] January when they have the next deadline in the U.S. But yes, that's all incorporated within our guidance. Wei-Weng Chen: Yes. Is there anything you can quantify there or not really? Shane Sampson: I think in terms of -- yes, not a massive impact in terms of the shutdown across the U.S. business as a whole. As we know as Darrin noted, we've seen churns being very low in terms of new churn. So even with that government shutdown, we still expect the U.S. to be a bit stronger than we were anticipating in May. Operator: [Operator Instructions] We'll go next to Vignesh Nair with UBS. Vignesh Nair: Just a quick one on Booking.com. Obviously, you talked to some of the weaker macro impacting completed room nights per active business, sort of a mid-single-digit compression there year-on-year, it looks like. Can you just talk to what style of number you're expecting through completed room nights per active business based in the last 2 months of trading for the second half of '26 and how we should think about it? Shane Sampson: Yes, certainly in terms of the last couple of months, I think, consistent. So I think we -- in terms of where we saw that drop in the frequency per active customer, that really kicked in from kind of mid-May. So -- and hopefully, just as we had talked to you guys back in May, we were just starting to see that and then it's pretty much carried consistently through. So the sort of September and October in terms of the last couple of months are seasonally strong months. So we've seen that seasonal uptick, but with sort of that same consistent issue of slightly weaker booking frequency. So if you like that -- that will have a little bit of a dampening effect across the year, but at a sort of similar effect to what you've seen in the first half of a few percentage points lower relative to the size of the base. Vignesh Nair: So if it started in May, that's kind of the second half of the first half, so the second quarter. Are you expecting that to continue into the third and fourth quarter? Shane Sampson: Yes sorry, is kind of middle of the first quarter of our financial year. So yes, at the moment, we're assuming that continues in terms of in our kind of base case, obviously, if we've got a reasonable range of guidance for total income, and that's one of the reasons of the potential for that to recover. But in just the last couple of months, we've kind of seen that being reasonably consistent. Operator: We'll go next to Joshua Dale with Craigs Investment Partners. Joshua Dale: Just a quick one for me. Total income grew 45% to $61.8 million. What were those numbers in constant currency terms? Shane Sampson: Apologies. So Josh, Shane here. Apologies, we haven't actually got those to hand. I will look to dig into that. It would have been a little bit lighter. I think off the top of my head, we had about a 7% or 8% upswing in Booking for Business revenue through FX. The Australian and U.S. impacts would have been meaningful. So yes, a little bit lighter if we hadn't had that FX benefit. Operator: [Operator Instructions] We currently have no other questions holding. I will turn the conference back to the speakers for any additional or closing remarks. Darrin Grafton: Thank you, everyone, and we're entering the second half with strong momentum, a clear plan and unwavering confidence in our ability to execute. Thanks for your continued support as we deliver on Serko's next phase of growth. Thank you very much, everybody. Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day.
Operator: Good day, and welcome to the Serko FY '26 Interim Results Announcement. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Darrin Grafton. Please go ahead, sir. Darrin Grafton: Good morning from Auckland, New Zealand, and thanks for joining our investor briefing covering Serko's results for the half year ending 30 September 2025. I'm Darrin Grafton, CEO of Serko, and I'm with our CFO, Shane Sampson. This morning, I'll take you through our performance and highlights for the half year period. I'll then hand to Shane to cover our financial results in detail. Then, I'll talk through how we're positioning Serko for the future growth, our outlook and finishing with Q&A. As always, unless otherwise stated, comparisons are made to previous half year period 1H FY '25. And let's begin on Slide 5. This is Serko's strongest half year performance ever on both revenue and EBITDAFI. This was due to disciplined execution and our focus on profitable growth. Key callouts are: first, we achieved strong total income growth of 45% to $61.8 million, and this reflects the scalability of our model with strong contributions from Booking.com for Business and the addition of GetThere, driving our expansion into North America. Second, we delivered EBITDAFI of $6.1 million. This is our highest ever EBITDAFI result. Third, we generated $3 million of free cash flow, and this reflects our cash-generating existing business and the fact we're still in the early stages of our ramping our investment into building Serko for the future. At the same time as delivering these results, we're setting the business up for the future, and I'll touch more on that shortly. Turning to Slide 6. Total income was up 45%. This was driven by a strong trajectory we're on with Booking.com for Business, which continues to grow as we focus on activation, engagement and conversion. This is translating to substantial growth. The other driver is GetThere, which has delivered significant growth in online bookings and to Serko's income. Turning to Slide 7, where we double-click on our Booking.com for Business performance. Completed room nights grew 32% to 2.1 million. This was driven by a 40% growth in active customers, improved onboarding and new platform capabilities that are driving higher customer engagement. We added 40,000 new customers in the half year, significantly stronger than in the same period last year. Completed room nights frequency per active customer was slightly lower, and our view is this likely reflects small- and medium-sized businesses in Europe booking fewer trips due to the macroeconomic headwinds there. We monitor these trends closely, and our analysis gives us confidence that customer activity should normalize as macro conditions improve. Serko crossed into the second tiering of commissions on multiple months, and we're tracking above 4.2 million completed room nights this financial year. Shane will talk to this further. We're delivering at pace against the new initiatives we told you about at our FY '25 announcement, including the latest release of incentives. We're seeing green shoots of success with Genius Level 2, and we have confidence it's driving increased customer retention. We also rolled out significantly improved checkout experience and company onboarding that improved the overall customer experience. Turning to Slide 8. In Australasia, online bookings grew 2%. This was offset by a minus 2% decline in average revenue per booking from reduced third-party costs, some of which were previously passed through the customers. Although this impacts slightly on the ARPV, it significantly reduces our cost, creating a net cost benefit. This mix shift improves the quality of our revenue and demonstrates our focus on sustainable margin expansion. Overall, this resulted in a stable revenue result. Our early commitment to NDC is now paying off. We are one of the few players globally delivering a fully integrated NDC offering across Sabre and Amadeus. We continue to invest and innovate as we strengthen our market leadership and as NDC starts to gain traction. Turning to Slide 9 on our GetThere acquisition and strategic partnership with Sabre, which has fundamentally repositioned Serko in the U.S. market. What's working well? We've fully integrated GetThere, stabilized the customer base with new ARR churn on key accounts around 1% of annualized revenue. We've established our new India development hub and setup global capability center that's now scaling. Revenue exceeded our expectations in the half, reflecting some of the expected churning customers taking longer to offboard than anticipated and very low level of new churn. Where we've been less effective, we haven't achieved our targeted U.S. sales, but we have a clear path forward. It's become apparent as we've been establishing our sales pipeline with leading Fortune 500 companies that many of them want to wait for the new capabilities we're building rather than onboarding to our existing products and going through a second migration later. The other point to note is that our partner, Sabre has shifted their focus away from direct corporate contracts to growth and relationships with travel management companies. This change has contributed to lower direct corporate sales. Sabre is referring TMC resellers to us, but the lower direct corporate sales means we don't anticipate making any performance payments for the 2025 calendar year. Our go-forward plan. In North America, we're now focused on scalable growth through a dual channel approach, firstly, via our TMC reseller network and direct corporate sales. Leveraging our Sabre partnership, we're targeting key management resellers. We've already onboarded 2 partners, Tangerine and Elite Travel. And while smaller in volume, they provide valuable insights into mid-market customer needs. On the direct side, through customer forums with leading Fortune 500 companies, they are involved in helping us to codesign our future AI-powered capabilities. With GetThere fully integrated, we're in the room with major corporates, gaining visibility and confidence in our North American opportunity and our execution model. As discussed at our Annual Shareholder Meeting, GetThere and our Sabre partnership have redefined Serko's North America position. We now have strong market presence, direct customer insights and relationships, along with the data and expertise in a key market, which positions us well for our future success. In summary, the first half has been about strengthening the platform, deepening relationships and codesigning our next-generation AI-powered capabilities. The second half is about establishing the technology to enable our growth, executing with focus and accelerating our North American opportunity. And I'll talk more to the strategy and outlook shortly, but now I'll pass to Shane to cover the financial highlights. Shane Sampson: Thanks, Darrin, and good morning, everyone. Darrin has already called out some highlights for the half year, and I'll go into more detail. I'm going to focus on the key outtakes from the result, and we've also put some additional financial detail in the appendix for your reference. Turning to Slide 11. Total income increased by $19 million or 45% to $61.8 million, reflecting growth in bookings for business volumes in their acquisition. Operating expenses increased by 29% to $65.1 million, up $14.7 million, primarily reflecting costs associated with GetThere and investment in the U.S. market of approximately $16 million and the initial stages of our platform acceleration initiatives with investment of $1.6 million in the half. This was partly offset by lower third-party hosting costs, so lower third-party costs and hosting efficiencies achieved in our pre-acquisition business. Our preferred measure of total spend, which excludes the impact of accounting decisions around capitalization and amortization, increased by $15.2 million or 34% to $59.3 million, broadly consistent with the increase in operating expenses. Higher growth in income relative to spend resulted in EBITDAFI improvement of $4.9 million to $6.1 million. Net loss after tax increased to $9.5 million, an increase of $4.4 million. I will talk to the drivers on the next slide. Free cash flow improved by $1.7 million to $3 million, reflecting the stronger EBITDAFI partially offset by realized FX losses, increased capital expenditure and capitalization of internally generated software and higher taxes paid. Turning to Slide 12. Net loss grew despite EBITDAFI growing and total income growth outpacing total spend growth. The bottom part of Slide 12 shows the primary drivers of the increased loss, which are lower interest income, foreign exchange slipping from a gain in the prior period to a loss in this period and the disposal of InterplX. Net finance income was $1.3 million lower, reflecting lower interest rates and less cash on hand as a result of the GetThere acquisition. We incurred a $2 million noncash accounting loss on the sale of InterplX. I will talk to this in more detail later. Serko puts foreign exchange contracts or FECs in place as an economic hedge against revenue received in Australian dollars and euro. Historically, we have not designated these FECs as hedges for accounting purposes, and therefore, any gains or losses on the FECs were recognized in the profit and loss, while the revenue was accounted for at the actual rates applying at the time the revenue is earned. The significant appreciation of the euro against the New Zealand dollar in the last 6 months has resulted in $3.7 million in the recognition of losses on FECs not designated as hedges for accounting purposes and other sundry FX losses. In the prior period, FX rates moved the other way, resulting in a gain of $1.4 million, but the change from the prior period was an adverse movement of $5.1 million. Note that in substance, the FECs are acting as economic hedges. For FY '27, we have designated some euro FX contracts as hedges for accounting purposes. I will talk to this more on a subsequent slide. Turning to Slide 13. While Serko has started to make investments in the platform acceleration program and acquired GetThere to support long-term growth in the U.S., the faster growth in total income still resulted in total income exceeding total spend in the period. This reflects strong unit economics in Booking.com for Business and improved margins in Australasia. Through our Booking.com for Business and Australasian results, we have demonstrated our ability to invest and grow revenue and then to optimize the business to generate operating leverage, giving us confidence as we prepare to make increased growth investments again. Turning to Slide 14. Our balance sheet remains strong with cash and short-term deposits of $65 million and no debt. Relative to 30 September 2024, cash has reduced and other assets and liabilities have increased, reflecting the GetThere acquisition in January. Relative to 31 March 2025, cash was up $3.6 million, reflecting the positive free cash flow and a cash inflow relating to a working capital adjustment on the GetThere acquisition. Noncurrent assets and noncurrent liabilities increased, primarily reflecting our new India office lease. Intangibles declined, reflecting the disposal of intangibles and goodwill associated with the InterplX business and amortization exceeding capitalization of software, reflecting our conservative approach to software capitalization. Turning to Slide 15. Our partnership renewal with Booking.com in April 2024 revised our revenue share arrangement with the revenue share continuing at the 50% rate for volumes up to the equivalent of approximately 4.2 million completed room nights or CRNs per year and a new TA system for higher incremental volumes. The arrangement is designed to mutually incentivize and benefit both parties. The chart on the left is from our May annual results and shows that in FY '25, we achieved NZD 3.3 million completed room nights. And in FY '26, we expect to exceed NZD 4.2 million, the approximate level at which incremental transactions and lower commission. This reflects the strong growth in CRN since the renewal was signed. The chart on the right shows average revenue per completed room night or ARPCRN, as shown earlier in the presentation, with ARPCRN declining 3%. The chart in the middle shows the average commission per completed room night or AComPCRN. We introduced this new metric in May as a way to show underlying changes in our share of commissions as the ARPCRN has impacted by the tiering of commissions. You can see the AComPCRN declined by 2%, slightly less than the ARPCRN as we had 2 months in the first half where our monthly volumes slightly exceeded the first tier, resulting in the blended commission percentage reducing to 49% from 50% in prior periods. As you have seen from the strong operating leverage we've achieved over the past few years, our incremental margins are high, and therefore, even on the lowest tier, our gross margin percentage is expected to be healthy. Turning to Slide 16. As I noted earlier, Serko has historically had FECs in place to act as an economic hedge, but has not designated them as hedges for accounting purposes. During the half, we chose to put FECs in place for FY '27 and designate them as hedges for accounting purposes. This will reduce volatility in reported revenue, FX gains and losses and therefore, reported net profit or loss in each period. Instead, mark-to-market gains or losses at each reporting date will go through the cash flow hedge reserve and be reflected in the total comprehensive profit or loss for the period. We have included details of the accounting hedges here to assist analysts and investors to calculate the impact on projected FY '27 revenues. I note a portion of expected FY '27 euro revenues are not covered by the accounting hedges and that we've not designated any FECs as accounting hedges in relation to FY '26 revenues. Turning to Slide 17. As previously announced, we sold our U.S.-focused expense business, InterplX on 30 September. Serko has recognized a noncash accounting loss of $2 million on the sale, primarily reflecting intangibles and in particular, goodwill. The InterplX business made a modest contribution to revenue of $0.8 million in the first half, and the disposal is expected to have a small net benefit to our profitability going forward. In addition to the financial benefit, we expect strategic benefits from the sale, including increased operating focus and improved ability to partner with leading U.S. payments and expense providers. Thanks, and I'll now hand back to Darrin. Darrin Grafton: Thanks, Shane. And turning to Slide 19. Let's shift to the product initiatives we are delivering that position us for growth. And the first is Booking for Business. In Booking.com for Business, we're focused on 3 outcomes; acquiring, converting and retaining customers. The pace of delivery has accelerated with significant deliveries in the half. In particular, I'd like to call out the new checkout experience, which is consumer grade with pay now, pay at property capability, simplified VAT and company detail capture and tighter authentication. This is reducing checkout error rates, improving completion reliability and improving conversion. The new checkout is built in our new platform and enables faster iteration and experimentation to drive further improvements for users and improve activation, conversion and retention. It's also a significant milestone as users can now register, make a booking and check out all within the new platform with a consistent user experience. So in the Australasian market, Qantas switched to NDC as their preferred channel in July. This was a big milestone and a significant investment to integrate through our partners, Sabre and Amadeus. We've seen NDC volumes start to scale since launch. And while still small in percentage of total bookings by September, this was starting to make a positive contribution to our ARPB. In North America, our focus has been on how we engage with our customers to co-design the future, while at the same time, sustaining our heritage products and serving existing customers with an improved user experience and travel supply. This includes key initiatives we launched during the half year that help to deliver customers a consumer-grade experience. Examples of new capabilities launched within our GetThere product, our new hotel shopping experience and new NDC carrier connections with Air Canada and British Airways, which provide content breadth and depth for our key U.S., Canada and transatlantic markets. This is about Serko adapting to the changing travel distribution landscape and ensuring we maintain connections to sources of supply to -- so customers have access to the breadth and depth of choice. On the Serko platform evolution, we've designed our platform to enable performance, scale and excellent unit economics and fast delivery of new capabilities, including for Booking.com for Business. We're building out our product and tech capability in India. And this month, we officially cut the ribbon on our new Bengaluru office. We're hiring key talent to work alongside the team who came on board with GetThere. This is a key part of our platform strategy and a focus for our leaders. AI coding tools are firmly embedded across our engineering team with more than 55% of daily active users using AI coding tools. More than 30% of the suggestions from AI are accepted by our engineers. And these stats compare well with industry benchmarks, and we continue to drive them even higher. We're continuing to roll out additional AI metrics and support our developers to grow their capabilities as tooling matures, and we update our collection of analysis of the related data. We're also trialing a wide range of AI tools and models. Turning to Slide 20. Serko is in the strongest position operationally and strategically that we've ever been in, with ongoing improvements across the business and a clear blueprint for our AI platform. We're now able to accelerate our investment to capture the opportunity ahead. We're well positioned to achieve our NZD 250 million revenue aspiration for 2030. Booking.com is the strongest business brand in global travel. And our partnership with them has enormous potential. Booking.com for Business is already driving significant revenue and contribution, but we have only captured a fraction of the opportunity. We have a clear strategy in place for growth for Booking.com for Business through both our partnerships and platform investment. We're accelerating our platform transformation to deliver AI-powered capabilities for customers. And we're optimizing our operating model to enable fast delivery and scalable profitable growth. Turning to Slide 21. We have strong momentum delivering Booking.com for Business capabilities and a track record that proves we're executing on our growth strategy. Our platform is successfully powering core components of Booking.com for Business, including the new checkout experience and all hotel room bookings. As part of our accelerated investment program, we have major initiatives underway as we continue to deliver new platform capabilities and value. This includes flight service modernization, a core service of the platform, allowing flight content to be retrieved across multiple supply integrations. We continue to lay the technical foundations for Serko's future, including removing any dependencies that the new platform has on legacy technology. We're also building AI and data frameworks powered by Serko data as part of our strategy to unlock the value of AI and emerging technologies. Turning to Slide 22. AI is central to our strategy and our roadmap. We're increasing our investment in AI, a targeted, disciplined way so we can launch new capabilities to customers and deliver future growth. Our teams are working alongside customers and prospects in the U.S. as we codesign new AI-powered capabilities. To enable our future, we're optimizing our operating model to ensure we allocate resources where they generate the greatest long-term value. In October, we launched an internal program to reallocate some of our people investment to focus on delivering AI and data capabilities. Around 60 roles from our global team of 460 may be impacted, while at the same time, we are creating new roles while we're hiring for -- the proposed program is expected to deliver $12 million in annualized savings, providing capacity to reinvest further in AI and innovation while supporting continued margin expansion. You've previously seen the outcomes of how we have successfully managed our resources and grown revenue while holding back cost. You've also heard how we've activated AI across our teams to establish new ways of building technology and deliver new capabilities to market. And turning to our FY '26 outlook on Slide 23. We reaffirm our FY '26 total income guidance of $115 million to $123 million. Serko is revising its total spend range to $124 million to $128 million for FY '26 from the $127 million to $133 million previously. Risks to Serko achieving its FY '26 goals include macroeconomic and geopolitical factors and currency and ARPCRN movements. We're all in on executing our strategy with scalable global platform, strong partnerships and a clear roadmap to profitability and growth. Serko is positioned to deliver sustained shareholder value. Thank you. That concludes our presentation, and we're now happy to take questions to allow more people to ask questions. We request that you ask one question back into the queue. Thank you. Operator: [Operator Instructions] We'll take our first question from Guy Hooper with Jarden. Guy Edward Hooper: Well done on some strong growth numbers. Maybe just to start with one on the spend. I mean you previously outlined a base spend rate over the next couple of years and then what an accelerated path might look like. I mean how should we think about the change in the FY '26 guide and the reduction in spend in that context? Shane Sampson: Guy, it's Shane. I'll take that one. So I think there's probably a couple of things that are worth calling out on the spend. One is you'll note that the midpoint of guidance implies meaningful growth into the second half relative to the first half, the total spend. So if you like, you will start seeing that acceleration and that really reflects, as Darrin talked about in the speech, we've been quite prudent in our spend. So teams are using AI throughout the business. But in terms of particularly dedicated spend on building AI into the product, we've been relatively prudent while we get clear what that looks like. And now we're at the point where we have the confidence to really start investing and accelerating that. So you will start seeing that acceleration in spend in the second half. I think the other thing Darrin called out in his presentation was that we are effectively looking to reallocate some of our resources. So that will result in reduced spend on an annualized basis in terms of the roles that will go, but we're actually looking to reinvest that next year again, back into that more AI-focused build of the future products. So I think we're reallocating resource from our heritage businesses, generating more operating leverage in those and then that resource to build the future products that are going to drive our growth. So I think those will be 2 callouts as you be sort of familiar with our performance over the last years, we're generally reasonably prudent in how we spend. So we tend to be at the bottom end of the range. Probably the other call out would be -- effectively, as we noted, we're not where we want to be in terms of U.S. sales. A chunk of our executive and senior staff remuneration is on performance. And so that also reduces the spend a little bit this year. So yes, those combination things, but definitely starting to get to the point where we're pressing to go on investment and that's because we have that clarity that we're clear what we do and how we're going to do it. And we're currently, I think, targeting to have an Investor Day on the 12th of March and hoping that we'll be able to show some of what we're doing there at that. Operator: We will go next to Wei-Weng Chen with RBC Capital Markets. Wei-Weng Chen: Yes, just a question from me about the U.S. So you previously won that lower U.S. government work had impacted on GetThere volumes. Wondering if you could speak to, I guess, what happened during the shutdown period, which happened in, I guess, your second half. I assume it's all covered within the reiterated guidance, but it would be good to kind of get some color on what exactly happened there. Shane Sampson: Wei-Weng, this is Shane. I can talk to that. Yes. So we continue to see weakness in U.S. government through the half year. Definitely, the government shutdown had even more extreme impact. But yes, that's all incorporated within the guidance. And obviously, we're pleased that the shutdown has finally come to a conclusion after setting a new record. Obviously, still a little bit of risk of another one on [ 30 ] January when they have the next deadline in the U.S. But yes, that's all incorporated within our guidance. Wei-Weng Chen: Yes. Is there anything you can quantify there or not really? Shane Sampson: I think in terms of -- yes, not a massive impact in terms of the shutdown across the U.S. business as a whole. As we know as Darrin noted, we've seen churns being very low in terms of new churn. So even with that government shutdown, we still expect the U.S. to be a bit stronger than we were anticipating in May. Operator: [Operator Instructions] We'll go next to Vignesh Nair with UBS. Vignesh Nair: Just a quick one on Booking.com. Obviously, you talked to some of the weaker macro impacting completed room nights per active business, sort of a mid-single-digit compression there year-on-year, it looks like. Can you just talk to what style of number you're expecting through completed room nights per active business based in the last 2 months of trading for the second half of '26 and how we should think about it? Shane Sampson: Yes, certainly in terms of the last couple of months, I think, consistent. So I think we -- in terms of where we saw that drop in the frequency per active customer, that really kicked in from kind of mid-May. So -- and hopefully, just as we had talked to you guys back in May, we were just starting to see that and then it's pretty much carried consistently through. So the sort of September and October in terms of the last couple of months are seasonally strong months. So we've seen that seasonal uptick, but with sort of that same consistent issue of slightly weaker booking frequency. So if you like that -- that will have a little bit of a dampening effect across the year, but at a sort of similar effect to what you've seen in the first half of a few percentage points lower relative to the size of the base. Vignesh Nair: So if it started in May, that's kind of the second half of the first half, so the second quarter. Are you expecting that to continue into the third and fourth quarter? Shane Sampson: Yes sorry, is kind of middle of the first quarter of our financial year. So yes, at the moment, we're assuming that continues in terms of in our kind of base case, obviously, if we've got a reasonable range of guidance for total income, and that's one of the reasons of the potential for that to recover. But in just the last couple of months, we've kind of seen that being reasonably consistent. Operator: We'll go next to Joshua Dale with Craigs Investment Partners. Joshua Dale: Just a quick one for me. Total income grew 45% to $61.8 million. What were those numbers in constant currency terms? Shane Sampson: Apologies. So Josh, Shane here. Apologies, we haven't actually got those to hand. I will look to dig into that. It would have been a little bit lighter. I think off the top of my head, we had about a 7% or 8% upswing in Booking for Business revenue through FX. The Australian and U.S. impacts would have been meaningful. So yes, a little bit lighter if we hadn't had that FX benefit. Operator: [Operator Instructions] We currently have no other questions holding. I will turn the conference back to the speakers for any additional or closing remarks. Darrin Grafton: Thank you, everyone, and we're entering the second half with strong momentum, a clear plan and unwavering confidence in our ability to execute. Thanks for your continued support as we deliver on Serko's next phase of growth. Thank you very much, everybody. Operator: Thank you. Ladies and gentlemen, that will conclude today's call. We thank you for your participation. You may disconnect at this time, and have a great day.