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Operator: Good morning. As part of the discussion today, the representatives from Northern Technologies International Corporation will be making certain forward-looking statements regarding Northern Technologies International Corporation’s future financial and operating results, as well as their business plans, objectives, and expectations. Please be advised that these forward-looking statements are covered under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, and that Northern Technologies International Corporation desires to avail itself of the protections of the safe harbor for these statements. Please also be advised that actual results could differ materially from those stated or implied by the forward-looking statements due to certain risks and uncertainties, including those described in Northern Technologies International Corporation’s most recent annual report on Form 10-K, subsequent quarterly reports on Form 10-Q, and recent press releases. Please read these reports and other future filings that Northern Technologies International Corporation will make with the SEC. Northern Technologies International Corporation disclaims any duty to update or revise its forward-looking statements. I would now like to turn the call over to Patrick Lynch, CEO. You may begin. Patrick Lynch: Good morning. I am Patrick Lynch, Northern Technologies International Corporation’s CEO. I am here with Matt Wolsfeld, Northern Technologies International Corporation’s CFO. Please note that a press release regarding our second quarter fiscal 2026 financial results was issued earlier this morning and is available at ntic.com. During today’s call, we will review key aspects of our fiscal 2026 second quarter financial results, provide a brief business update, and then conclude with a question-and-answer session. Please note that when we discuss year-over-year performance, we are referring to the second quarter of our fiscal 2026 in comparison to the second quarter of last fiscal year. Our results were in line with expectations. We continued to execute against our long-term growth strategy. Second quarter performance was driven by solid top-line growth across our businesses, including record second quarter ZERUST oil and gas net sales, with year-over-year growth across all geographies, reflecting the investments we have made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. We have also seen continued strength at Northern Technologies International Corporation China, despite the seasonal impact of the Lunar New Year, and achieved another solid quarter of Natur-Tec growth. Overall, second quarter and year-to-date results reflect the resilience of our business model and the increasing value customers place on our corrosion prevention and compostable plastic solutions. While the macro environment, including geopolitical tensions in the Middle East, ongoing supply chain pressures, and continued challenges in the European economy, has become more uncertain, we remain confident in the direction of our business and the strategies we are executing to drive long-term value. The diversity of our end markets, geographic footprint, and product portfolio positions us well to navigate near-term volatility. As we move through 2026, we expect continued sales growth and improved profitability, supported by stable trends in North America and ongoing strength in Northern Technologies International Corporation China, ZERUST Oil and Gas, and Natur-Tec. So with this overview, I will examine the drivers for the second quarter in more detail. For the second quarter ended 02/28/2026, our total consolidated net sales increased 15.3% to $22.0 million as compared to the second quarter ended 02/28/2025. Broken down by business unit, this included a 72.1% increase in ZERUST oil and gas net sales, an 11.2% increase in ZERUST industrial net sales, and an 8.1% increase in Natur-Tec’s net sales. Turning to our joint venture sales, which we do not consolidate in our financial statements, total net sales for the fiscal 2026 second quarter by our joint ventures increased year over year by 18.6% to $23.5 million, reflecting improved year-over-year demand across many of our joint ventures. We continue to closely monitor trends across our European markets for signs of stabilization following years of subdued demand. As governments begin to implement targeted economic stimulus packages, we expect that any economic recovery from these stimulus packages will lead to a positive impact on our joint venture operating income in future periods, especially in Germany. Improving sales trends continued at our wholly owned Northern Technologies International Corporation China subsidiary. Fiscal 2026 second quarter net sales at Northern Technologies International Corporation China increased by 18.5% to $4.4 million, demonstrating strong demand in this geography. Furthermore, given that the majority of Northern Technologies International Corporation’s China sales are for domestic Chinese consumption, we believe Northern Technologies International Corporation China’s exposure to U.S. tariffs is limited. We expect demand in China will continue to improve in fiscal 2026, helping to support higher incremental sales and profitability in this market. We believe that China will likely become a significant market for our industrial and bioplastic segments, so we will continue to take steps to enhance our operations in this geography. Now moving on to ZERUST Oil and Gas. ZERUST Oil and Gas sales were $2.7 million, a second quarter record, and increased 72.1% from the same period last year. This growth reflects the investments we have made in our global sales infrastructure and the increasing adoption of our VCI solutions within the global oil and gas industry. A highlight of increasing ZERUST Oil and Gas adoption includes the three-year contract with an estimated total value of approximately $13.0 million we announced in November 2025 for a major offshore project with a leading global EPC company. We expect this project to ramp throughout the current fiscal year and continue through calendar 2028. This is a significant validation of our engineering capabilities, the scalability of our ZERUST Oil and Gas business, and the reputation we have built as a trusted partner to leading offshore operators. Brazil represents one of the fastest-growing deepwater markets globally, and we believe this win provides a strong foundation for continued growth and expansion across international oil and gas markets. During the second quarter, we also experienced higher year-over-year oil and gas sales in the Middle East, North America, India, and China from both new and existing customers, reflecting the contribution of recent investments we have made to enhance our sales team and add resources to support future growth. This has improved our sales pipeline; the size and number of opportunities have expanded. Our pipeline includes global opportunities to protect above-ground oil storage tanks, pipeline casings, and offshore oil rigs from corrosion. The nature of this industry will always cause certain fluctuations in ZERUST Oil and Gas sales; nevertheless, we still expect to see ZERUST Oil and Gas sales and profitability improve significantly in fiscal 2026 as we continue to leverage these investments and rein in operating expense growth. Turning to our Natur-Tec bioplastics business, second quarter Natur-Tec sales were $5.4 million, representing an 8.1% year-over-year increase in Natur-Tec sales. We continue to pursue several larger opportunities in North America and India for our Natur-Tec solutions that we believe hold significant promise to benefit our sales in the coming quarters, including advancing the compostable food packaging solution mentioned on prior calls. Overall, we believe Natur-Tec is a best-in-class compostable plastic business that is well positioned for significant future growth in the United States and abroad, and we expect sales to continue to expand throughout the year. Before I turn the call over to Matt, I want to acknowledge the hard work and dedication of our global team of both employees and joint venture partners. Our success and our ability to navigate more complex economic periods are direct results of their efforts. With this overview, let me now turn the call over to Matt Wolsfeld to summarize our financial results for the fiscal 2026 second quarter. Matt Wolsfeld: Thanks, Patrick. Compared to the prior fiscal year period, Northern Technologies International Corporation’s consolidated net sales increased 15.3% in the fiscal 2026 second quarter, the strongest year-over-year growth rate we have achieved since fiscal 2022 because of the trends Pat reviewed in his prepared remarks. Sales across our global joint ventures increased 18.6% in the second quarter. Joint venture operating income in the second quarter increased 19.8% compared to the prior fiscal year period, primarily due to higher sales at our joint ventures. Total operating expenses for the fiscal 2026 second quarter increased 7.7% to $9.5 million, primarily due to higher selling, general, and administrative expenses, partially offset by a reduction in research and development expenses. Operating expenses as a percentage of second quarter sales were 43.2% compared to 46.2% in the prior fiscal year period. We expect quarterly sales to grow faster than operating expenses as we continue to leverage recent investments and upgrades across our global operations. Gross profit as a percentage of net sales was 35.7% during the three months ended 02/28/2026, compared to 35.6% during the prior fiscal year period. Higher gross margin for the second quarter was primarily due to the increase in sales. We expect gross margin to improve sequentially during fiscal 2026. As a reminder, during the second quarter last fiscal year, Northern Technologies International Corporation recognized $1.1 million in other income due to the receipt of a one-time cash employee retention credit payment. No other income was recognized in this fiscal year’s second quarter. Northern Technologies International Corporation reported a net loss of $35,000 or $0.00 per share for the fiscal 2026 second quarter compared to net income of $434,000 or $0.04 per diluted share for the fiscal 2025 second quarter. For the fiscal 2026 second quarter, Northern Technologies International Corporation’s non-GAAP adjusted net income was $70,000 or $0.01 per diluted share, compared to a non-GAAP adjusted net loss of $300,000 or a loss of $0.03 per diluted share in the fiscal 2025 second quarter. A reconciliation of GAAP to non-GAAP financial measures is available in our second quarter fiscal 2026 earnings press release that was issued this morning. As of 02/28/2026, working capital was $20.2 million, including $5.6 million in cash and cash equivalents, compared to $20.4 million, including $7.3 million in cash and cash equivalents, as of 08/31/2025. As of 02/28/2026, we had outstanding debt of $14.3 million. This included $11.3 million in borrowings under our existing revolving line of credit, compared to $12.2 million as of 08/31/2025. Reducing debt through positive operating cash flow and improving working capital efficiencies is a strategic focus for fiscal 2026 and beyond. On 02/28/2026, the company had $29.7 million of investments in joint ventures, of which 51.8%, or $15.4 million, was in cash, with the remaining balance primarily invested in other working capital. In January 2026, Northern Technologies International Corporation’s board of directors declared a quarterly cash dividend of $0.01 per common share that was payable on 02/11/2026 to stockholders of record on 01/28/2026. To conclude our prepared remarks, we believe our second quarter results demonstrate the continued strength and resilience of our business, led by strong year-over-year sales growth and improving year-to-date profitability. While the macro environment remains uncertain, we are encouraged by the underlying trends across our business and the momentum we are seeing across our operations. As we move to the balance of fiscal 2026, we expect revenue growth to increasingly translate to improved profitability supported by operating leverage, disciplined expense management, and continued focus on working capital efficiencies and debt reduction. We believe these factors position us well to navigate near-term macro uncertainty while driving stronger financial performance and cash flow generation over time. With this overview, Patrick and I are happy to take your questions. Operator: As a reminder, to ask a question, please press 1-1 on your telephone and wait for your name to be announced. Our first question will come from the line of Timothy Clarkson of Van Clemens. Your line is open, Timothy. Timothy Clarkson: Hey, guys. Obviously a really good quarter revenues-wise. Earnings still not quite there, but maybe you can talk a little bit about the investments that have been made over the last year or so and where you think the investments have been worthwhile. Matt Wolsfeld: I would say there is what I will call the long-term investment and the short-term investment. The immediate investments we made over the past two years were really the hiring of a lot of people and starting the new subsidiary that we have in the UAE, specifically with the oil and gas opportunities there, and we have seen success from that entity. Part of what has fueled the oil and gas revenue increase has been some of the revenues that we have achieved in the Middle East. If I look at the breakout of oil and gas revenue, I think part of the expectation was that the increase was due to the Brazil contract, which is true, but we are really looking at a non-Brazil increase this quarter of about 85% compared to the second quarter last year and a Brazil oil and gas increase of about 55% this year compared to Q2 of last year. The growth that we are seeing in oil and gas is not localized to Brazil; it is happening based on opportunities in North America, the Middle East, and other regions. We certainly get the sense that we are starting to get traction in that area from the investment we made over the past two years. At this point in time, we are happy with those investments. We are at a point now with oil and gas where it is a transition from the work that we have been doing behind the scenes to really focusing on closing business and adding revenue to the top line that will ultimately flow down to an earnings-per-share standpoint. The other investments we have made will come through the investing section of the cash flow over the past couple of years, where you look at purchasing the building next door and making improvements to that building and adding both warehousing capability and manufacturing capability to our facility, which helped us maintain the gross margins on the new products that we have so we do not have to outsource and can achieve better gross margin for those products. We have spent about $4.0 million plus on that facility, bringing in manufacturing capabilities here. Additionally, over the past two years, we implemented a new SAP system, which certainly has been a little bit more painful to deal with, but long term I think the data that we are getting out of that SAP system and the way that we will be able to integrate things worldwide with how the company is set up with the subsidiaries around the world and the joint ventures is going to give us much better data to be able to grow from a total global company perspective. Those are really the three main investments we have made over the past two years. Although a lot of them have been difficult and certainly added to operating expense over the past two years, I think that is really what is going to fuel the company for the coming three to five years. Timothy Clarkson: Obviously, China is doing really well. There was some concern that as they transition to electric cars there would not be very much demand for ZERUST. It looks like there is still plenty of demand for ZERUST, electric cars or not. Matt Wolsfeld: China has done well, surprisingly well. If I look back at where we were selling in China when we established this subsidiary in 2014, 2015, 2016 compared to where we are now, there has been a transition between supplying the U.S.-based or European-based automotive companies to now focusing on supplying for domestic consumption, which is good given the volatility of what happens in China from an export standpoint. A lot of the increases that we have seen in China have been for domestic consumption of the ZERUST product. Timothy Clarkson: One last question. In general on the R&D end, is the R&D spend particularly on ZERUST-type products or on the compostable stuff, or some of both? Are there some new emerging technologies coming from all the R&D spending? Patrick Lynch: From the HVAC side in particular, we are very positive on what is going to happen in the food packaging, in that we are extremely confident right now that that should fit. Timothy Clarkson: And that was creating the compostable packaging that does not allow moisture in, right? Patrick Lynch: Right. Timothy Clarkson: No one else has that product, right? Patrick Lynch: Right. Timothy Clarkson: One last question I will ask is, historically Northern Technologies International Corporation would net 10% at kind of optimum sales level. Is that still the goal of the company, 10% after tax? Matt Wolsfeld: It is difficult to look at it just from the standpoint of what the traditional net is because, obviously, the joint venture operating income that comes in is not included from a top-line standpoint. The big difficulty we have in the company is if you look back at the historical contributions from the joint ventures, it was significantly higher. Just looking at what we previously received from the German joint venture, that would be anywhere from $0.10 to $0.12 per share per quarter coming in, whereas now you are looking at $0.05 or $0.06 per quarter coming in. What we are seeing is that as we get back to what we expect to see in Q3 and Q4, a significant increase in the earnings compared to Q1 and Q2, it is really a matter of how the Natur-Tec business, the oil and gas business, and the industrial business offset some of the declines we have seen from the difficulties at the German joint venture, specifically dealing with the German economy. They have done a good job with what they are dealing with, given the difficulties with energy prices and things like that in Germany specifically, but it is really a matter of getting the income from the new businesses and seeing those take off to augment what have been a decline in Germany. Patrick Lynch: Thanks, Tim. Operator: Our next question will be coming from the line of Jake Patterson of Atlanta Investment Group. Your line is open, Jake. Jake Patterson: Hey, guys. Just a couple quick ones. First off, on gross margin, I know you had guided for sequential expansion and are continuing to guide for that. We saw margin kind of flattish, even down slightly quarter over quarter, and it looks like a lot of that was from Natur-Tec. I know one of the weaker margins we have seen in at least the last couple of years. I was curious what happened there and the outlook for the second half going forward on that margin. Matt Wolsfeld: There are a lot of different factors that have impacted Natur-Tec if you look back four or five quarters. Historically, it is going to be a more volatile gross margin. The reasons for the volatility are twofold. One is fluctuating input prices from the materials that we are using. Two, a bigger component is that we are doing global manufacturing for the Natur-Tec product, and there has been a lot of impact from tariffs and the change in tariffs that we have in place. When we were focused more on manufacturing in China and there was volatility with tariffs there, we saw some increases and then decreases. We are now set up, or will be set very quickly, where we are able to do manufacturing in China, Vietnam, and India, and longer term looking for some North American manufacturing capabilities for Natur-Tec. The other component to the gross margin is the selling price. We have seen that the Natur-Tec end products operate in a competitive environment, and the companies we are dealing with are dealing with razor-thin margins. At times, we have had to decrease price to remain competitive in some of those larger bids. The goal is to move forward with selling more of the proprietary resins compared to the end products that are in the more competitive space. Ultimately, there are many input factors that impact the gross profit for Natur-Tec specifically. The goal is to hold and increase gross margin as much as possible; it is just sometimes difficult depending on the region. Jake Patterson: Still on the margin side, ZERUST—just looking at the oil and gas mix relative to last year, it is 500 basis points higher and gross margin is down year over year there. Is that still any impact from that supplier issue you guys had in the first quarter? It did not seem like as much improvement as I would have thought. Matt Wolsfeld: We did continue to have the impact on inventory and the impact from supplier issues we talked about in Q1 and the carryover to Q2. The other difficulty we have that has not impacted us from a second quarter standpoint is what is going to happen in Q3 and Q4 given what is going on with energy prices and polyethylene prices worldwide. We have dealt with this before, whether during COVID or other time periods. We do our best to pass through increases in raw material prices to customers as much as possible. We are seeing an increase in some of the main base materials that go into our polyethylene-based products, so it is something to watch out for in Q3 and Q4. Jake Patterson: I saw that as, like, down the line. I think resin prices are up 60% or so, so that should be interesting to see. I guess one last one: you mentioned that the Middle East contributed to some of your oil and gas revenue growth, and they were up, I think, like 80% or something year over year. When you go look at your investor presentations, I think you break out the geographies for ZERUST Oil and Gas, and it only lists Brazil and North America, at least as of November of your fiscal 2025 year. I was curious—it sounded like there was some Middle East revenue from that geography last year, but I am assuming it is still pretty minimal at this point? Patrick Lynch: I would not say it is minimal. We previously were selling to some of these Middle East opportunities and had larger contracts with British Petroleum in Georgia and some other areas like that. We have historically sold to Reliance in India, and these sales were happening through North America. Now we are pushing some of these opportunities to be more localized in that area because they are better set up to serve that region. Those previously were going through North America. Going forward, once the subsidiary in the UAE is fully up and running, fully functional, and operating completely independently, we will break out the revenues for that area in the investor presentation. The other thing that has changed is we are using the subsidiary network that we have in place to go after the oil and gas opportunity. I mentioned specifically opportunities in India, China, and Brazil. These are all areas where we want to go after oil and gas opportunities with those subsidiaries. Some of them are also bringing in and hiring people that specialize in the oil and gas space to be able to go after those opportunities there. We will establish a regional hub in Asia, as we talked about, and in the Middle East, which makes sense. Ultimately, we are looking to push those oil and gas products out through all the subsidiaries that we have to take advantage of that network that we spent so long to build up. Jake Patterson: Gotcha. That makes sense. Cool. That is it for me. I appreciate it. Patrick Lynch: Thanks, Jake. Operator: Our next question will be coming from the line of Gus Richard of Northland Capital Markets. Gus, your line is open. Gus Richard: Thanks so much for taking the question. I want to focus on the impact of the war. You guys reported last quarter, and last quarter ended before the war started. There has been a lot of change in the world, and I am first curious if that is changing regional demand in terms of where companies or countries or regions are getting more active or less active. Matt Wolsfeld: There are a bunch of different impacts from what is happening across the board. You have the very up-close impact where the individuals that we have in the subsidiary in Dubai are getting air raid sirens and are locked in place and told not to go out at various times, and they are seeing this firsthand. A lot of the areas where they are going to sell products and do installations are on lockdown. You do have the opportunity that with some of the infrastructure that has been blown up, there will be opportunities where there is rebuilding and increased spending in those areas where they will need some corrosion protection and things like that. Then you have the secondary impact of what is happening with supply chain, energy prices, and things like that with what is going on in the Strait and relationships, which is causing energy prices to increase, which is causing raw material prices to increase, which is impacting not just Northern Technologies International Corporation, but certainly all the joint ventures and the subsidiaries. On top of that, you have subsidiaries that are further away—take, for example, Brazil—where they potentially have supply constraints from the standpoint that raw material needs to be shipped there. There are potentially shortages of the product. We are not seeing shortages of product in North America; prices are going up, but we are not seeing shortages. We are looking at certain regions around the world where they are potentially running into issues of even having raw materials in place to be able to make the product, which is different than just price increases. There are a lot of different ways where what is going on in the Middle East with the war is impacting the company. It is certainly a concern, but I think we are in a position where we are able to deal with those issues. If I look at what is happening in Brazil, we had a conversation about supply lines. We are fortunate in the way we have other subsidiaries and other entities around the world that could potentially meet customers in Brazil, meet their demand, and provide product to them. We are not sole-sourced in areas. It allows us flexibility and the ability to pick and choose what we want to go after and have options as far as picking lowest-cost suppliers and steps like that. Gus Richard: You have increases in input prices. Are you able to pass that increase on to your customers? How are you adjusting to higher input costs, and how receptive are your customers to that, or contractually? Matt Wolsfeld: The good thing we have is that initially, when things kicked off, we did build up inventory a little bit. We are doing our best to hold prices where we can, but we also do not want to be in a situation like we had in COVID where we reacted too slowly and ultimately did not raise prices for six months and we had issues. We are monitoring prices, and we are looking at raising prices where we can. Specifically, when we are selling custom-made products, based off of the price that we pay, it is easier to push that increase on the customers. The other benefit is it is not like this is an anomaly where the customers do not understand what is going on from an international standpoint and raw material pricing standpoint. They see what is happening at the gas pump. They can read and hear what is happening from supply chain and prices going up. It is easy to come in and explain and say, look, the price of polyethylene has increased by $0.20. This is how your price of our product is increasing and why. It is a matter of walking the customers through it and explaining what is happening, but we can point to very clear data that shows exactly how our input prices are increasing. That certainly helps with passing those increases on to customers and an increased final price of the die. Gus Richard: You talked about operating leverage. Does the operating leverage come from holding OpEx flat and rising revenue, or is there an opportunity to trim your OpEx? A little color there would be helpful. Matt Wolsfeld: The goal from a leveraging standpoint is to increase revenue. If we look forward at the backlog that we have and the projects that we have, the expectations are that our third and fourth quarters will be significantly better than first and second quarter. We have historically had very strong third and fourth quarters from a revenue standpoint, and I would expect that trend to continue. Second quarter is traditionally our slowest quarter from a revenue standpoint. The reason why revenues look good in the second quarter this year is because second quarter last year was down so much and was such a bad quarter from a comparative standpoint. Given where we are at from a backlog and expected projects we have to close, third and fourth quarter should really show how the company is going to get back on track from an earnings standpoint and profitability standpoint, where you can see how we are going to utilize that leverage and push as many gross margin dollars to the bottom line as possible. Holding OpEx flat or as low as possible is certainly the objective, and not necessarily cutting expenses at this point. Gus Richard: The last one for me: looking at the balance sheet, cash has declined the last five quarters in a row, or net cash has declined. Your debt has increased; the cash has kind of stayed the same. I want to understand what was driving that decline. Was it the investments in the business? What is the plan to get cash back to a better place? Can you repatriate some of the cash in some of the JVs? Any thoughts there? Matt Wolsfeld: There is a three-pronged approach. One is to bring back, from a dividend standpoint, cash at the subsidiaries and at the JV level to help increase the amount of cash we have here and ultimately get at the line of credit. The number one thing we need to do is increase earnings. If you look back quarter by quarter at what we are doing from an earnings standpoint, you are not going to be able to build your cash back. In fiscal 2025, we had virtually no earnings. In fiscal 2024, we generated $0.60 a share, which helped from a cash standpoint, but everything we did in 2025 from an earnings standpoint hurt us. A big component to our income is the equity income, which obviously is not cash coming in; it is the dividends that come in from the equity income that ultimately get you there. The goal is to increase earnings, which I think is what you are going to see in Q3 and Q4, which will help pay down the debt. The other item is the investing section from a cash flow standpoint. We made significant investments in PP&E items—the building next door—and the SAP system that we had cash out the door to fund. The actual investments that we are going to be making from a cash flow standpoint over the next few years are going to be significantly smaller than we have done in the past two years, and that is also going to significantly put more cash back on the books. I think the trend is going to start in Q3 and Q4 to work on reducing the debt exposure. Gus Richard: Got it. That is it for me. Thanks so much. Matt Wolsfeld: Great. Thanks, Gus. Operator: I am showing no further questions. I would now like to turn the call back to management for closing remarks. Patrick Lynch: I want to thank everybody for coming. Have a good morning, and wish you a good day. Operator: This concludes today’s program. Thank you for participating. You may now disconnect.
Operator: Good morning, everyone, and welcome to Pure Cycle Corporation's Second Quarter 2026 Earnings Call. As in prior quarters, we'll start the call with a presentation from our CEO, Mark Harding, and then we'll provide time for questions and answers afterwards. [Operator Instructions] So we'll start the earnings call with a presentation [indiscernible] questions and answers. Without further ado, I'd like to introduce Mark Harding, our CEO. Mark Harding: Thank you. Good morning, everyone. My wingman today are Marc Spezialy, our CFO; and our Controller, Serena Fingan. So if you have any questions, we'll have a solid team to weigh in on all of the details here. For those of you that are looking at this, we do have a deck for this. It's on our website. I think it's on our landing page, you can click on that and then we'll be able to advance through the presentation and give you the details on it. So with that, I'll start. And start with our forward-looking statements, statements that are not historical facts contained or incorporated it reference in this presentation are forward-looking statements as that is the meaning of the Securities and Exchange Act. Most of you are familiar with that. [indiscernible] want to continue to emphasize the team that we get to work with an outstanding team of professionals that really bring their game every day. And so it helps drive value for the corporation. So continued shout out to our management team. Also, our Board of Directors, I do want to welcome our newest Board of member, Dan Rohler and look forward to working with him. He is actively engaged and really working with the directors and the team. So we look forward to working with him. Let's take a look at kind of the investment snapshot here. We continue to deliver shareholder returns and returns on our assets through consistent and profitable results continuing our street with a 27th continuous profitable quarter here. We're growing our revenues, our recurring revenues and durable revenues through all 3 business segments. We continue to grow our asset base by delivering lots to our national homebuilder customers as close to a just-in-time basis and really doing that to really match market demands and we do see a lot of cyclical nature in the housing market. Water is a little bit more tempered in that, but we continue to really focus on our assets and monetizing our assets and build shareholder value really through our strong balance sheet and strong liquidity position. Let's dive right into the results, really had a great order and this year has been a more tempered year to be able to even out our revenues and our cash flows on this, and that's really been a function of a very, very mild winter for my fellow skiers the morning the loss of ski season, but we're celebrating the opportunity for us to really do a lot of the work that we can't do seasonally in the winter by a lot of the concrete work and the asphalt work. So what you see is kind of a more even paced development, where we're able to -- through our cost of completion on our project, be able to even out these cash flows on it. So quarter-over-quarter revenue this first 6 months, about $5.1 million in revenue, about $2.8 million in gross profit. And really, those are driven by those percent completions on delivering our lots to our customers. We're about as much as 6 months ahead of schedule on some of the lot deliveries on that. And so a lot of our builders are equally thrilled with that because they were able to get out in the field and put up some model homes for this spring season. Taking a look at net income and earnings per share. Again, those are going to match really exceeding our guidance typically on the quarter-over-quarter just because of the advancements on our projects on that. So net income, a little over $1 million earnings per share, about $0.05 per share. And really, this is up by about 36%, really driven by all segments, mostly land but water as well as single-family rentals. We're adding a few more of our rental segments in there, and we'll have a little bit more color on that later, but also seeing a bit of an uptick in our water through industrial water sales to oil and gas operators this year, taking a look at just the comparison to our guidance, our full year guidance. So we're right at that 50% our guidance through halfway through the year. So that's a bit unusual for us just because the winter quarters usually our weakest year or weakest quarter of the year just because of the seasonality of weather out here. And so we're about $14.3 million in total revenue of our close to $30 million forecast or guidance and then profit at about $9 million to our about $19 million guidance on that. So really terrific results year-over-year. Moving to net income and earnings per share also we see those pacing more evenly through the year. Margin results are showing a bit more moderated because we have advancements and investments into the delivery of lots slightly ahead of our contract delivery. So those will normalize through the rest of the year and really kind of help us temper those [indiscernible]. So specifically, with the quarter end results, what I'd like to do is kind of drill down to each of these segments and talk a little bit about what it is that each of these are driving for us. One of the things I recently heard was an acronym called a [ halo ], which is used to describe some companies that -- in the context of this, it's a heavy asset, low obsolescence, and I found that pretty descriptive over our company and you can't get a more low obsolescence asset than water utilities. And so we'll drill down on the water utilities and talk specifically about what we're seeing in that growth and margin opportunities. We really deliver water to customers kind of in 3 various segments. We have our domestic deliveries, which is your portable water that we deliver to residential and commercial users. We have our industrial segment, which delivers water to our oil and gas operators. And then we have continued customer growth, which is our connection fees, and those are onetime fees that are paid by our homebuilder customers and then that just adds to the customer growth of the overall segments. Taking a look at revenues on a quarter year-to-date basis, we continue to see some customer growth corresponding revenues driven by the connection fees, which is really adding new customers to the system. Our oil and gas revenues are up this year, and I think we'll see a very strong performance in industrial water sales and then just monthly water and wastewater sales continue to grow, and that's really a function of continued growth in the rates as well as the number of customers for that. Detailing out the industrial segment. Our oil and gas sales are up significantly over last year's primarily because last year was largely a permitting year for our operators, mostly our largest operator who was working to secure as many as 200 permits in and around our service area and really, that's translated into increased drilling and increased fracking this year, which is really turning out quite well for them, given the rise in oil prices, so they couldn't have timed that better for bringing a lot of that new supply online. The outlook looks very good for this year. I think we'll exceed our guidance that we had taken a look at this year. And I think it's going to continue into the future, right? We see rigs that we have a dedicated rig to our service area, which is drilling some of those 200 well permits, and that will probably take them somewhere around the 3 years to drill all those wells. Our revenue per well continues to strengthen. We do have a multiyear contract with our operators to deliver these water supplies. So it allows us to do some strength in planning and then also making sure that our infrastructure is capable of not only meeting our industrial, but the domestic demands on that. One of the things that we like to highlight in our Water segment is the capacity that we have and the fact that we continue to grow and developing this capacity, but yet we're still only using a small fraction of our portfolio while we generate significant revenues from this segment and really at very attractive margins when we're really looking at that variable demand for oil and gas, they do have a preferential pricing on that where we do get a premium on that to make that water supplies available to them as they need that in the volumes that they need. Let me move into highlighting our land development segment. This is a nice area of our high school at Sky Ranch that's being constructed. So we're very excited about that. It will really deliver not just -- it's a full K-12 campus. So we've got the primary school, which is a Ka as well as our high school there. And really, a lot of the relocation and customer feedback on buying in the community is a function of the school campus that we have here. We're delighted to continue to work with our charter school operator National Heritage Academy or Terrific Partners in bringing educational excellence at Sky Ranch. Talking a little bit about how we're delivering a lot. So this fiscal year, really focusing on punching out Phase II, which was about 228 lots and we're about 95% complete with that and then also Phase IId, which we're almost 80% complete on that. And really, that's the big advancements for this quarter. over the winter months, we were able to get a lot of that infrastructure in the ground. Very proud of our portfolio of homebuilder customers, all of the major homebuilders including the Lennar, D.R. Horton, KB Taylor Morrison, Challenger, Pulte, [indiscernible] all bring entry-level homes to the Denver market. Phase II started out with about 780 homes, but through some product alignments and diversification, that's really grown to about a little over 1,000 lots in that area. So we do see a significant uptick in our density out of Sky Ranch, and that's terrific for us. Not only does that allow us to deliver more lots but allows us to increase the assessed value, which really has an impact on generating additional capacity, bonding capacity within the district to repay our reimbursables on that, which you see us continue to grow. Let's drill down a little bit on that land development by phase, period-over-period, the revenues really did crush it. We really are generating significant Q2 revenues, more of a function of that mild winter and an opportunity for us to kind of turn up the volume and get that payment down and finished those lots so that the homebuilders can get those building permits and really start getting their model homes up for the selling season. We do see an uptick in traffic out of Sky Ranch. All our builders are seeing an uptick on that and a little bit more of a conversion to that. There's lots of reasons that housing has variable demands, whether that's interest rate sensitivities, and we see a little bit of volatility in the interest rate segment. I think that still is the #1 incentive that our homebuilders are offering is a mortgage buydown. I think they're hitting that sweet spot of trying to buy down those mortgages right below that 5% range. So that 4.99%. So when you see a lot of that adjustment from the Federal Reserve on interest rates, that may not have as big an impact on this particular segmentation of it just because that's the primary incentive that our homebuilders are offering or first-time buyers in converting those into sales. The pace of our land development will normalize through the rest of the year. We really do have a little bit to complete in that Phase II and then are really moving into grading the next phase, which is going to be [ 2E]. That's about another -- we've got another good slide on kind of the visual aspect of completing out each of these. And so as you see, you can see that in the lower left cell there where -- we've got a number of homes that are up and constructed for that Phase IIC and then Phase IID, while it's a little bit out of the picture on this, we do have model home lots being developed in there. So we have really 2 active phases that are complete where they're developing lots. So we've got about maybe 430 lots available for homebuilders to really tap the market on a variety of products. We've got all phases of the products, whether they are standard for task 45-foot front load, 45-foot rear-load, 35-foot rear-load, duplexes, townhomes. We really have a very strong portfolio diversity of product type out there is really creating opportunities for almost every type of home buyer in that. Moving on to kind of the development time line here. This gives you kind of an overview of our phasing. And as most of you know, most of our contracts are geared towards a system of developing a portion of the infrastructure in phases and then having -- once that's complete, having our homebuilder customers reimburse us and support the next phase of the development activity. And so we get payments at the Platt stage, which is when we finish the recorded flat and there's a real property interest that they acquire. And then a second payment, which is at the completion of wet utilities, once we're done with the water sewer and storm facilities on the phase and then finally, that third payment at finished lot pays. And so that's where you saw some of those lots being pulled forward on being able to finish a number of those lots on Q2. As I started to allude to, we are starting Phase II. So our grading contractors mobilizing on site will be hitting that this month. And really, those are about 160 lots that we're looking for delivery and continuing pacing that so that each of our builders can have a year's worth of inventory. Those will be 2027 lots. So we expect those to deliver sometime in the summer of 2027. That Phase IIE here is to give you kind of an orientation of where that's at it's directly across the street from our school. And this is really more of an infill site. We have most of the infrastructure done on that. A lot of the road network is done. Most of the main lines on the water and the sewer system are already in place. That kind of gives you a -- that's our water -- our peak hour water storage tank and comp station. They're in the picture as well, but that's a very streamlined process for us to be able to bring this online. It's about another $14 million in lot revenues, correspondingly $4.3 million in tap fees and about $240 million in recurring revenue from the number of comers that we have on that. This was kind of a celebratory opportunity for us, together with National Heritage Academy, really on a groundbreaking for that and really partnering with our local school district, the [ bentoschool district ] as well as the National Heritage Academy to bring this K-12 campus to our development. I wanted to show a continuing -- one of the most underappreciated assets I think we have in our portfolio is our service area. And as many of you have heard me talk through the years, the Denver Metro area continues to grow out on the Eastern planes, we really live on an ocean. We can't grow West as a metropolitan area. So really moving to the east side of it. This really kind of gives you an illustration of the level of activity that's occurring around our service area on the Lowry Ranch. As you all know, the State of Colorado owns the Lowry property, it is owned in the school trust, and they develop their assets to generate revenue for the public education system here in the state of Colorado. And there's a couple of parcels that really just highlighted here, one on the south side of the property, and that kind of gives you -- that bottom picture is an orientation looking north and then it's a very active development on that. That's about a half section 320 acres. And then also properties that you've seen the -- what's occurring on the west side with all the development from the city of Aurora that's on the west side, but then also projects starting on the north side of the property as well. And so there's substantial opportunities all around the property, and it's well positioned for whenever the state looks to find opportunities for the Lowry range, we are the exclusive water and wastewater provider for this particular property. And having been able to develop Sky Ranch, I think we can demonstrate that we would love to partner with them on opportunities for land development should that occur, but we really do want to kind of give you perspective of kind of the growth of the metropolitan area and how that grows in relationship to where some of our assets are, whether that's Sky Ranch or whether that's our service area at [indiscernible]. Moving into our third segment, single-family rental. There's a bit of an update in what I probably call a realignment for a couple of reasons in the single-family rental segment, as many of you know. The current administration has had some strong comments about corporate ownership of homes I probably would push back a little bit on that on kind of the justification for that. But they were sort of concerned about corporate ownership and what that is doing to housing affordability. And so we took a strong look at how we were positioning the growth trajectory of this particular segment and really decided to slow our growth of this segment and take a look at these assets in a couple of ways. We wanted to really get a strong look at what the return on the investment is for these segment assets. And as they settle in, as we've got them constructed as we've got them leased out. We really want to understand, well, what are these -- what is the return for this particular asset? And is that going to meet an acceptable level of threshold here for the company and making sure that, that delivers the returns that the shareholders are looking for in that. And so what we've done is push back a number of those lots that we were having, our homebuilder customers build for us. And as an illustration here, this kind of shows you the lots that were identified in blue are the ones that are either constructed or under construction. And so that will settle up to be about 60 units. The lots that we have that are kind of highlighted in this light yellow, light green color, those are the lots that we kind of reevaluated and we're able to resell back to each of the homebuilders that are building their product classes in there. And so what we've done is kind of pared that back from a growth strategy up to about 90 units and really scale that back to about 60 units. And so that will allow us to have a little stronger performance on the revenue from the Land Development segment because we're getting about $100,000 to $110,000 a lot on that. So we'll see that come back to the company and then really take a look at really what the performance is on this segment, be able to get our returns on that and really report that to you. And make a decision as to how this segment continues in the future. So that's been really the key realignment here is to take a more measured growth approach to our single-family rentals on that. We've got 19 homes completed to date and they are all completely rented. We are seeing extremely strong demand for rentals in this unit. So I'm very optimistic about the continued performance of it. Each of the homes as we bring them on market are already rented. I think we've got homes rented for home deliveries that we're seeing up through August right now. So we do continue to see that as a strong performer in the segment. And then this will instruct us on how the appreciation of the homes are going as we continue to add value to the community, not only from the schools, but then all the commercial development and open space and trails and the recreational opportunities that we deliver. We are seeing continued strong growth of these home values, and that's an opportunity for us to really measure that within the overall segment. One of the most attractive features of the single-family rentals is our recurring revenues and the asset appreciation. So period-over-period, revenues are up 20%, mostly as a result of additional units. We continue to see growth in the monthly rentals on this. And what we really like to do is make sure that we get all these units fully leased and have a 100% occupancy on that. [indiscernible] the growth trajectory. This is kind of how each of the phases of performance. And this is a bit of an update from our previous position on that where we were growing up to about 90 homes. And I think we really took a look at that and payer back almost all of the units in Phase II [indiscernible] on of the units in Phase IIC, really just as a reactionary element to some of the pressures that this segment was receiving on ownership, corporate ownership and then also opportunities to demonstrate to you all what the return of this segment is going to look like. Talk a little bit about shareholder value, our assets and kind of what we have in use and really a little bit about where we're headed. As most of you know, we are extremely hawkish about our equity, with our last issuance being more than 15 years ago. And so we really do fund our operations through our balance sheet. If you take a look at really all of the components of this, we maintained a strong balance sheet. I believe our assets are significantly more valuable than the recorded value. And that's mostly because they're legacy assets. They've been acquired many, many years ago, more than more several decades ago. And taking a look at each of these individual segments, if you take a look at our Water segment, we have about $74 million or, call it, $75 million in total assets, and that's about 44% of the total assets of the company. But then when you take a look at kind of what's developed and what that contribution is, that's only about 4% developed. So you see how that kind of the pedal that we have left in the water segment and really the opportunity that we have to continue to grow that segment in our business. Land segments, we acquired Sky Ranch in 2010. It's about a $5 million acquisition of the land. We did get some water beneath that as well. And then taking a look at kind of the developed land for sale, how we do the percent completion on that, that represents about 6% of our total assets, and it's about 20% developed. So while we continue to generate strong returns year-over-year on that, we still have a good amount of land that we have developed more homes and then the commercial value on that. So really terrific opportunities to continue to grow the land development segment. And as many of you know, we continue to look for other opportunities in the land development segment. Taking a look at our single-family home segment. That's a relatively small segment, about a total of 5% of the total assets and had a little detailed discussion about that on kind of how we're going to really mark that performance of that segment. But really, the biggest opportunity for us here is our total liquidity here. And taking a look at the cash and receivables, it's about a 44% asset. And largely held in that note receivable from the municipality where we continue to develop the infrastructure, those public improvements are reimbursable to us. And we take a look at building the assessed value through adding additional homes there. Our next opportunity for monetizing some of that assets likely to be in 2027, where we're taking a look at financing and refinancing. We'll have a financing on the interchange. As many of you know, we talked about kind of how we're going to construct a new interchange on the interstate there, but also being able to refinance some of the Phase 2 bonds and really capitalize on the opportunity we financed our first bonds on Phase 2 at about 780 units and growing that to the [ 1,030 units ] gives us an opportunity to have a significant reimbursement for refinancing those bonds now that they'll be mature and more assessed value than we originally planned in the first financing. So that will be a great opportunity for us moving forward. The low obsolescence the recurring revenue really come from water and wastewater revenues and rents from our single-family home rental segments. And so you do have strong sticky revenue on those sides and really a lot of the growth revenue from selling lots to national homebuilders as well as the connection charges to add our customer growth into our Water Utility segment. talk a little bit about shareholder value. We consistently grow our balance sheet and income statement quarter-over-quarter year after year. and really generate kind of leading -- industry-leading margins from all segments, whether that's going to be the water segment the land development segment and the single family rental segments. And so we're very targeted to continue to monetizing our assets, taking a look at where we're at in our guidance. So we're taking a look at our guidance for 2026 at about $2.7 million in recurring revenue and asset growth, bringing that a little over $160 million. So those still look strong. Profitability trends. We continue to build shareholder value on really each of these segments and really on pace for delivering our fiscal year-end results. We will share some guidance on 2027 at our Q3 as we get a little bit clearer picture of kind of how the Phase IIE is going to come along and tap fees and the oil and gas deliveries for fiscal '27 become a little clearer for us. Taking a look at kind of that total gross revenue, our guidance is going to be in that $26 million to $30 million range. We're still supporting that earnings per share in that same range $0.43 to $0.52. And upside in some of that acceleration of that is really going to be probably the timing of the delivery of lots as well as, I think, oil and gas, and so we'll have a lot -- a much stronger year in selling industrial water sales just because of the permitting that was done last year and really, I think the strength and the price of oil will really reinforce the fact that our operators are going to really try and capitalize on that, keep those rigs in active service on our service area in and around our service areas. So we don't have just the 1 operator, we do have several operators that are looking at programs and multi-well pad sites this year. So we believe we'll have a strong performance on that industrial segment. We continue to reinvest and repurchase shares. I believe our stock is undervalued, significantly undervalued. We are we're encouraged by some of the recent strength in the stock and really do believe that the assets do have continued support and really focused on continuing to deliver that shareholder value. And some of the ways of doing that are really going to be kind of the development of our commercial opportunities, getting this interchange completed, we're really at the final stages of that permitting process, and getting that into [ CDOT and Rabo County ] who are regulatory agencies here, but it does allow us to accelerate not only the commercial opportunities, but also continuing on the residential side. So that's another thing to keep a look out in the next fiscal year. And then also I did want to kind of give you a revised video. We're trying to kind of keep this video as part of our format to kind of share with you the progress that we make. So it's about a minute long, but I'll give you kind of an opportunity to see -- gives you a perspective. That should be an all white picture there in the background, and it's just not. So that gives you an illustration of kind of the dry year that we've had and [indiscernible] also gives you kind of a picture. You can see the landscaping is fairly dry throughout the community. It's pretty typical, but I think that we're going to have a challenged year for some of our water supplies and other providers. I think we're strong in our position in our portfolio, but other providers are going to see very seasonal water deliveries. Just kind of drills in on that Phase IIC number, we probably got more than 1/3 of these homes permitted and started and then it also gives you kind of where we're taking a look at IID, where you've got homebuilders really starting construction activity on that project as well. And really, this is the unusual aspect. We would not expect to have all these roads paved and these lots available for that. But we were able to capitalize on that this year with the mild winter. And so that's a great opportunity for us and our homebuilders. And then moving into kind of Phase IIb, we're nearly complete here. We probably only got maybe half a dozen home lots that are yet to be constructed in that phase, and then this kind of rolls up into a good view of the high school and construction progress on that. We've enjoyed that opportunity as well. They are ahead of schedule with the mild winter that we've had as well. So that will open up in August for our toolkit for the next '26, '27 school year. So that's exciting for us. And then ultimately, kind of a shot at where we're going to be with that interchange in our commercial properties up there in that area. So we are actively marketing our commercial properties. We've got both retail and industrial brokers engaged and are seeing some exciting opportunities. We're out there pitching a lot of the retail and some industrial opportunities for distribution centers, a number of different types of uses, whether that's going to be a heavy water user or just access to that Interstate is a terrific asset for us. So with that, I guess I'll -- those are our prepared remarks. So what I'd like to do is open it up for Q&A. I think the easiest way to do the Q&A is if you want to on Mike and just shout out a question and then we'll coordinate seeing how that technology works for everyone. So with that, I'll turn it over to you all. Elliot Knight: Mark, I've got several questions for you. Most important on your last call, you made it clear that completion of the new interchange is very important. You sound encouraged, could you give us a real -- a detailed update? Mark Harding: Yes, drilling down in then. So the interchange, we have -- we've been working on that. It's -- government always has an acronym for it, and then Colorado, it's called the 1601 permit process. And so you do that in conjunction with the [indiscernible] Department of Transportation, and it's a comprehensive effort, right? You go through every component of your interchange design, what the load capacities are going to be, what the traffic movements are going to be what the distance setbacks are for signals to the interchange and environmental aspects of it. And so we're now at about a 30% design of that interchange. So we really have a solid idea of how that's -- the cost estimates are going to be and then really how do you fund that. So it's a private permit, the Sky Ranch will be a permit for that. And then we work together with Arapaho County because they'll be the administration of that. It's in the jurisdiction of Arapaho County. We should be submitting that 1601 seat. We submitted every component of that as we go along for their review and their concurrence. So what we hope to do is have that ready sometime this June and then really be in a position of going to final design on that. That will probably take through the end of the year and then take a look at funding that bonding of that. We've got specific mills that have been set aside within the community to be able to bond that. So we have that as a component of the 1601 and then start construction in 2027 with a completion in 2028. So that would be the time line. Elliot Knight: Okay. That slipped a little bit from completion in 2028 because on the last call, I think you were thinking in late 2027? Mark Harding: Yes. that probably has slipped just a little bit, but we continue to be able to deliver each individual phase. So I think we'll still -- we won't really miss any of our cadence on lot deliveries on that. I think what we've tried to do is work on currently with some of our commercial opportunities [indiscernible] lead time as well, and we want to make sure that we can bring those online as we're constructing the interchange. Elliot Knight: Okay. On your last call, you mentioned data center -- no mention of it today. Could you please update us anything you can tell us there? Mark Harding: Yes. We -- it's not that we are not continuing to pitch that. But Colorado is probably not as attractive as a state on some of these larger hyperscale or data center type opportunities, and it's really twofold. One, a lot of these -- the ones that we were very active [indiscernible] really are looking for tax incentives and so the state had the bill before the legislature, they have 2 competing bills. They have 1 bill that is seeking incentives and 1 bill that's seeking to disincentivize and Colorado just has a dysfunctional relationship with itself on being able to set a consistent policy. But they are heavy water users, which is something that we certainly have an opportunity to support, but they're also heavy power users and Colorado probably is a little more challenged than other areas on bringing on additional power, particularly gas turbine-based power in the area. So those are the risk elements that some of the data centers that we have been marketing to are sharing with us. We still like the opportunity. There still are data centers that are being built in this area. And so we'll compete with that and see where it lands. But it's not just the data centers. We have water and bottling opportunities. Those are going to be heavy water customers, that we're pitching to and then just overall distribution centers and things like that for our commercial industrial opportunities. Elliot Knight: Okay. Last question. I was delighted to see that you've added another 1,600-plus acre feet of water. You acquired little bits and pieces of water, I think in the last few years. The company continues to say it has 30,000 acre feet of water. It must have more than that. Doesn't it -- how much does it have? Mark Harding: We do. We do. You're set to heat tabs on that. We probably increased that portfolio about 10%. And so we're maybe closer to 300 or 3,000 acre feet of water. And correspondingly, we do have the ability to probably provide service to more than 60,000 connections, and those are very important metrics. Those are longer tail on it. But when you take a look at how we scope that opportunity, we talk about $40,000 a connection charge of $60,000, which is about $2.5 billion, and that number is probably [indiscernible] consider. It's probably closer to $3 billion worth. But those are longer lead that kind of carries us out and continues to add to the real depth of that segment of the business and as we get closer to that 25,000 connections within the company, we can really detail out really how much more of that we have to serve. And I think couple of areas for that, the Denver area growing out in and around Sky Ranch in and around [indiscernible] which is our service area, are really the key opportunities for us to continue to add to that portfolio -- that customer on that portfolio. I see Jeff's got to stand up. Unknown Analyst: Quick question. The -- as I recall, you were going to wait for the commercial development until the [indiscernible] was actually finished. Did I understand that you're currently actively marketing the commercial opportunities? Mark Harding: We are. Yes. Unknown Analyst: Is that an acceleration of what you had wanted to do? Mark Harding: Well, I think we had that time line. And as Elliot kind of highlighted, we were looking at getting that 1601 permit kind of this summer, and I think we'll look to get that towards the end of the year. but we already set that up in motion, right? We want to be in front of these users. It's not something that you can just directly turn on and say, okay, get out there and start building your building or your retail use or whatever it is. We really want to make sure that it is a highly attractive site, and we want to be regionally specific. We want all of those folks that are looking at sites and interchanges to be appreciating what it is that we're putting into this opportunity and put it into their scope and planning. And we do have some capacity to get started on it. It's not 100% conditioned on the interchange being developed. We have an existing interchange, it does have service capacities, and we do have opportunities where we can add maybe it would be a nontraffic sensitive type user to the site, someone like a distribution center that would have the appreciation. Okay, we can use the existing interchange to get our building permitted and started. And then as that gets completed, really would have that truck traffic. So that's what we were trying to do is parallel that process and make sure that this doesn't have that long lead time and really deliver just in time. Unknown Analyst: Mark, just quick. Do you have any expectation on the timing of the next receivables? Mark Harding: Great question. we'll take a look at what that capacity is from the 2022 bonds. And so those typically have a 5-year call provision, and so that's where they start to burn off in 2027. And taking a look at really the differential that we had in our first filing and our second filing, we think they're somewhere around $10 million to $12 million worth of additional reimbursables from refinancing just what we've already financed there. And then as we move into Phase II, we'll take a look at because that will be that 2027 time frame as well as we complete that interchange and really start processing permits into Phase III, that could be as much as $20 million. So -- and I think we got about $10 million of refinancing of one bonds and then probably another in of fresh financing moving into Phase III. Unknown Analyst: Awesome. And then can you talk about the builders' appetite for lots right now, delivered the current phase ahead of schedule, we know new home demand spend kind of sluggish given interest rates. So I guess I'm just wondering, is there any risk of an air pocket between this phase and then starting the next phase if it takes a while for the builders to deliver the lots that you delivered ahead of schedule? Like how does that impact the timing of starting the next phase? Mark Harding: That's a great question. And so really, what we saw as a result of kind of this pull back in the market. And I'd say consumer confidence is the #1 factor on decisions to buy houses. Interest rates always impact that, but that's -- that's not, I think, in our segment, where homebuilders are able to buy down mortgages and at an entry-level point, that's a little less costly for them. When you're buying down a mortgage at maybe a point at $450,000 home there's a lot less than if you're buying down that point at $800,000 home. And so that sensitivity for us isn't so much in interest rate but more consumer confidence. And so what we were able to do is pull in new homebuilders to the portfolio. We had 4 homebuilders -- 4 national homebuilders that were part of the portfolio as we started Phase II. We now have a -- and those 3 new ones that are in the mix on this thing are really -- there is a filing 2D. And so they have 1 year inventory, and we're looking at 2027 in deliveries and sell. They may not be in IIC but they're in IID. And then the other 4 were in IIC and IID. And so they're a little bit long on that annual inventory, but the other ones are a little short on that annual inventory. And so that gives us the opportunity to roll Phase IIE on because they're the ones that want those '27 deliveries working on the '26 deliveries that they already have. And so that's an opportunity for us to bring in more builders. And we really like having that yearly deliveries for them and a number of builders in there. So they're bringing diversity of products. So it's not cannibalizing the market. It's really having an opportunity where we have a very robust portfolio builders. Operator: [Operator Instructions]. Mark Harding: [Operator Instructions]. Operator: There was a question in the chat related to a slight decline in some reoccurring revenue from 2025 to 2026. We -- I looked into that and it looks -- we have some commercial customers non-oil and gas that are off site of Sky Ranch that are governmental buildings that could fluctuate from year to year. And that looks like what it's what's causing that slight decline. Obviously, we're not seeing a decline on the average house per residential house in Sky Ranch nor are we forecasting any kind of decline there even with water restrictions that are coming forward. So it happens to be just a slight anomaly between some off-site customers that are showing that slight decline. Mark Harding: Well if there aren't any other [indiscernible]. Unknown Analyst: A couple of quick questions for you. One, on the land acquisition. Any updates from any of the potential spots you're looking at and -- or from Lowery, I know you discussed Lowry, but nothing else except for just the fact that everything is built out already, and we need to -- that's the next logical spot. And then secondly, when it comes to stock buyback, I know you guys have been buying back stock, but really just to maybe offset the -- not to reduce share count. Any thoughts to stepping that up at a quicker pace with the stock still sitting here? Mark Harding: A couple of good questions. We are taking a look at new acquisitions really, there are a number of land areas in and around Sky rands and other areas. And -- and there's a soft way of taking a look at that. Where we go out and we buy a land and hold that in inventory and -- is that the best use for our shareholder capital because some of those projects would be very long stemmed in being able to do that. And there's some we're trying to get -- I think our priority opportunities where we can either get those in a partnership, get those in away -- acquisitions in a way where that doesn't become a big drain on tying up shareholder capital for many, many years on that. And so there's still opportunities in there. Most of those guys really aren't that excited about that type of structure. And so what we want to do is time those out if we've got an opportunity that we can buy a cheap land, but that land doesn't look to turn over for 7 to 10 years. That may not be our highest priority. There are opportunities where that has gone up. And we sort of said, well, we like that land interest, and we might not be the buyer today, but we might be the buyer in 5 years and it doesn't matter where we may have to pay a little bit more in 5 years, but it's also 5 years closer to when that would be looking for development. So we're really being disciplined about that type of opportunity. Did highlight, Lowry, and those are -- we continue to see great opportunities there. That is controlled by the state, and we'll work with them and whatever their time line is on something like that. So we'll be reactionary to that. On the share buyback, we took a look at what our trading windows are and we wanted to open up some flexibility on that to be able to be more aggressive on particular areas. There's certainly a lot of restrictions on the windows that we can repurchase those shares and -- we want to be a little bit more flexible for that. And so we did modify our window of trading activity. And then really, Craig, I think our continued focus is capital stack to be in a position to reinvest in the company. And this -- our balance sheet and liquidity and our flexibility here has been really demonstrated by being able to do that this winter and having the capital to be able to do that. And so you did see a real change in the liquidity where we were dropping that liquidity down substantially because we did deliver in advance of those. And as that comes back and that liquidity continues to reimburse. There are opportunities for us to increase our share buyback, and that's something that we continue to evaluate, and we will take advantage of as appropriate. [indiscernible]. Operator: [Operator Instructions]. Unknown Analyst: Yes. This is Greg Bennett. Could you go through the economics of the -- you're deemphasizing the rental program, but what are the -- what is the return unlevered rate of return in the rental program. I mean you're -- am I correct the loan that you have against these properties is a floating rate loan. And yes, I'm just curious, you've never mentioned what the places rent for or what the capital you have tied up in you go through the economics of that? Mark Harding: Yes. Yes. I mean, so I'll give you kind of a high-level version of that. So typically, what we see is we're carrying forward some of that equity in the lot and the water. And so when we go out and we contract with our homebuilders to build those homes, they're coming in around $350,000 is really the cost that, that vertical construction is on that home. The home typically appraises somewhere in that $530,000 range. So we have about $180,000 margin in there. And a lot of that's just kind of the equity value of that. We do have a credit instrument for that. It's a fixed rate credit instrument, not a variable rate one. So we do have a facility that we're using that credit facility and not our cash to be able to do that. It's about a 6.5% credit facility. So our first few were done in a very low credit facility, right around that 4.5% rate. So it was much better at that rate. The rentals on these cover the debt service on that and provide us a margin. So typically, these homes are renting around $3,000. I'll just use that as a kind of a round number. some are a little lower, some are a little higher, depending on the number of bedrooms and the square feet of that. And so when you take a look at all of those, we don't have a lot of holding costs on those. And so our rate of return on that somewhere in the 8% to 10% range, but we want to dial that in. We want to see, okay, is that -- how is that performing? What is the capital creation of those homes. If those homes are appreciating at 4% or 5%, together with the rental incomes we want to see what those segments are performing out and making sure that, that meets our investment threshold. So that's really the pause of continued growth of that segment is to get a good handle on how that segment is performing and report that out and make a determination of management and the board level as to is that adequate? And do we want to keep moving forward with it. Unknown Analyst: Okay. Second question on -- you mentioned in your comments in the oil and gas segment, the impression I got is that you contracted out for the drilling companies. Are these all -- is that firm take-or-pay or let's just say oil prices go down to $60 a barrel or $50 a barrel, are these -- is the contract a take-or-pay? Or can they say, no, we're not going to take the water, we've decided to slow down our drilling operation? Mark Harding: Yes, great question. The oil and gas companies really will pay a premium for you to be at their back end call. And so when we when we price our spot oil and gas or industrial deliveries, that's about 3x, 3x what we price it out at our residential customers. But the downside of that is that sometimes they help back on that call. And so no, we don't have a very fixed amount of take or pays and we're one of the very few providers that can dial up and dial down on their systems, and that makes us very attractive to them. And so the premium that I think we charge them for that flexibility is really good for them and good for us. And as you saw last year, we had relatively weak oil and gas deliveries compared to 2023 time frame or 2024 time frame. And so it is a variable demand. It is hard for us to forecast because they do -- it takes a significant amount of lead time for them to get their permits in line, get their rigs committed. And so what we will see is we will see some pretty robust demand through 2026, and we will see a pretty healthy opportunity in 2027, given what they've already what they drilled to date. And so I think we're pretty we're pretty confident about the next 2 years on that. But forecasting out beyond that, as you highlight, is a real function of how oil and gas is doing in the overall commodity index. Unknown Analyst: Okay. And final question, and I'm in a car, but I didn't see your slide, but in the very beginning of your presentation, you gave an area view, I guess, of Aurora or some of the properties, I guess, that are south of Sky Ranch that were undergoing -- my impression was there were undergoing development of home sites. Is that correct? Mark Harding: That is correct. Unknown Analyst: Yes. So the stuff that's been permitted south of the Sky Ranch that actively being developed. What's the time -- I mean, how many units is that? What's the absorption? Is that thousands of units? Is that like a 5-year plan for -- these are other companies or it's Aurora. But what's the time frame to get all those years? Mark Harding: Yes. And so just that -- you're correct. And there's a lot of land in and around this area, right? The I-74 is probably be highest development corridor in the metro area. And it had reasons for that being the case. One, it has transportation. Secondly, it has available land. And so there are on a number of projects, which are thousands of residential units, and they're all around our area. And the Denver area is adding around 15,000 to 17,000 units a year. And I would say this submarket is probably 1/3 to 40% of that domain, whether it's in Aurora, whether it's in IncorporApple County, it really is the strongest development segment in that area, and it will continue to be that way. It will add 6, 000 or 7,000 units a year in this corridor for the next 50 years, right? There's no other area to develop. So we worry less about how we compete necessarily a Sky range to the next development. I think we have a lot of advantages that bring us into a higher performing master plan community than other areas. But at the end of the day, it's all going to absorb. And so this happens to be we're targeted in the right segments of the Denver Metro area. We're offering the right product. We're offering the right model for delivery of lots to our homebuilder customers. So we worry less about is that project can absorb in conjunction with our project absorbing and are we going to see any competition in that area. I would say that's not the biggest metric for us. What we really want to do is be the right developer being that we are doing a horizontal work. We're doing it exactly the way our customer wants it with annual lot deliveries. We're adding to the builder portfolio so that we have all of the builders in our projects and whether we have 1 project at Sky Ranch. But we have multiple projects where there are other Sky Ranch 2, Lowry, any of the other projects, we want to make sure that -- we continue to pay those deliveries and maintain what will be a very long tail of land development. Unknown Analyst: Yes. I guess my question was more when do other parties have to come to you for water -- if you don't own the [indiscernible]? Mark Harding: Yes. I misunderstood that. So they're in the city of Aurora, which as you can see, most of the land directly south of Sky Ranch is in the city of Aurora. They will not come to us, right? They will get their water from the city of Aurora. Those land areas that are not incorporated into the city and the corporate or Apple County, low rate, they will get their water from us. And so I would say it's maybe an even split of opportunities that are going to be competing with us that are going to get their water from Aurora and opportunities that we are competing for to be the developer or just the water utility provider because they're in unincorporated [indiscernible]. whether we develop it or another developer develop, is it. Unknown Analyst: Mark, I think I figured out my [indiscernible] here. Congratulations to you and the team on another solid quarter here. So following up on the question with regard to water. You've got capacity. Obviously, you've got great variability with industrial water sales. What -- can you just refresh us what the opportunity, what your obligations are to WISE and what the opportunity there is, especially if I think you alluded to earlier in your comments that this might be a challenging year when it comes to water supplies and other areas. Do you have the ability to sell through the WISE program or draw from the WISE program. Mark Harding: We do have the ability to draw from the WISE program. So that's an addition, as Elliot identified earlier, that's one of the acquisitions of water supply that's added to the portfolio. We get about, I think, our full subscription in there is about 900-acre feet of water. That system is fully built. We have capacity within that system. So we have, in addition to the 900-acre feet, we have 3 MGD of pipeline capacity in there. And the -- WISE is a kind of a partnership among 12 different water providers in the Denver metro area. And what we've done over the last several years is -- there are opportunities where we want more water, like if we have very heavy oil and gas demands in the winter and other of the WISE participants do not have real high water demand because their summer irrigation season hasn't quite kicked in. There are opportunities for us to get more water out of WISE. And then sometimes when the heavy irrigation season is going on and we have light oil and gas or industrial water deliveries, our domestic deliveries are relatively modest. They're probably 5% of the total capacity that we deliver in any given year, we have opportunities to sell water to the otherwise participating. So we go both ways. WISE, where we're able to trade for more water or trade or less water in that opportunity within WISE. Is there opportunities for that to expand? Yes. We're looking at partnerships and regional partnerships for storage. As many of you who have been following the company for a long time now, we have some very valuable storage reservoirs. And so those are opportunities for us to develop and store other water supplies as our partners look to develop those water supplies had a higher treatment capacity where we can deliver more than our subscription that [indiscernible] into that. So that will grow over time for opportunities for us to expand and it would be a spot water type market, but opportunities for -- as oil and gas over the next 10 years starts to mature out. And if they recycle in and refrac those wells, that will continue to build in the next cycle of the development of this [indiscernible] formation. And then also opportunities for us to be spot and peak water deliveries to other WISE participants. So we look at all those opportunities and that interconnect of that system is a very important aspect of that. Well, terrific questions, and I want to thank you all for your continued engagement. We continue to really pace the development of our assets and really are looking forward to built out at Sky Ranch. We're looking forward to continuing to expand in the land development and really monetizing our service area and more water opportunities and really building this in. So we couldn't be more excited about our runway and really the market penetration that we seen as a utility provider in the [indiscernible] as well as the land developer in the Denver area. And so I think that's going to continue to generate really handsome returns for us and returns to the shareholders. So -- if you didn't get on the call, if you're listening to this on a rebroadcast and a question arises, certainly don't hesitate to give us a call. We will have our Annual Investor Day this coming in July. So -- do we have a date set on that? I think it's [indiscernible] third week of July. So be on the lookout for that. I think it's typical on a Wednesday. I know I did get 1 shareholder that was looking for combining that with a Friday activity, but we'll send some information out as it gets a little bit closer to that. But again, thank you all for your continued investor confidence, and we look forward to the next steps. Thank you.
Operator: Greetings, and welcome to The Simply Good Foods Company Second Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] As a reminder, this
Operator: Greetings, and welcome to Constellation Brands' Fiscal Year 2026 Fourth Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Blair Veenema, Vice President of Investor Relations. Thank you. You may begin. Blair Veenema: Thank you, Donna. Good morning all, and welcome to Constellation Brands' Q4 and Full Year Fiscal '26 Conference Call. I'm joined this morning by Bill Newlands, our CEO; and Garth Hankinson, our CFO. I'm also pleased to welcome our incoming CEO, Nicholas Fink, who is joining us at the start of today's call to share a few remarks. Following Nick, Bill will briefly review the fiscal year, after which we will turn it over to your questions for Bill and Garth. Before we proceed, we trust you had the opportunity to review the news release and CEO, CFO commentary made available in the Investors section of our company's website, www.cbrands.com. On that note, as a reminder, reconciliations between the most directly comparable GAAP measure and any non-GAAP financial measures discussed on this call are included in the news release and website. And we encourage you to also refer to the news release and Constellation's SEC filings for risk factors that may impact forward-looking statements made on this call. Before turning it over to Bill to kick things off, -- please keep in mind that as usual, answers provided today will be referencing comparable results unless otherwise specified. Lastly, in line with prior quarters, I would ask that you limit yourselves to 1 question per person, which will help us to end our call on time. Thanks in advance, and for the final time, over to you, Bill. William Newlands: Thanks, Blair, and good morning, everyone. I'm going to make a few opening comments before we get into Q&A. But first, I'd like to pass it over to Nick Fink our President and CEO elect for a few brief comments. Nick, warm welcome. Nick will assume the role on April 13, and we are pleased to have him with us today to say a few words before we get started. Nick? Nicholas Fink: Thank you, Bill, and good morning, everyone. I'd like to start by recognizing Bill's leadership over the past 7 years as CEO and in total, his 11 years of contributions to Constellation Brands. He strengthened the foundation of the company in meaningful and lasting ways, and I've valued our partnership during my time on the board. I look forward to continuing to work closely with him over the coming months to ensure a seamless transition as he moves into his role as a strategic adviser. I'm honored to step into the CEO role next week at such an important time for our business. Constellation enters this chapter from a position of strength with a leading portfolio in high-end beer, a reshaped wine and spirits business, best-in-cost marketing and sales capabilities and a proven playbook that continues to deliver consistent share gains year after year. While the consumer landscape remains dynamic, I firmly believe that we are well positioned to continue delivering for our consumers, employees, distributors and shareholders over the long term. Having served on the Board for the past 5 years, I've been closely involved in our key strategic and operational priorities. That perspective gives me strong conviction in our strategy and in our ability to execute going forward. We will continue to be insights-driven and consumer obsessed, lean into our strengths in beer, allocate capital with discipline and generate strong cash flow while thoughtfully navigating an evolving consumer landscape. As I formally assumed the role on April 13, I look forward to spending time with our operators, distributors and many of you in the investment community to gain an even deeper understanding as we begin to shape the next phase of our growth journey ahead. I'll close by reiterating my confidence in this business, in our iconic brand portfolio, our route to market and consumer-led marketing, our best-in-class operations and most importantly, our talented people. These strengths underpin our differentiated capabilities as we seek to continue delivering sustainable long-term growth and attractive shareholder returns. With that, I'll turn it back to Bill. . William Newlands: Thanks, Nick. Just a few additional comments from me before we start Q&A. As we stated in our published remarks, we ended the year with some solid momentum in our beer business, despite operating in a challenging environment during our fiscal '26. It was a year that required agility and focus as consumers continue to navigate a tough economic backdrop with more selective shopping behavior, which weighed on overall category performance for much of the year. Our teams stayed tightly aligned on what we can control, drawing points of distribution, supporting our core brands and executing with discipline. That approach allowed us to take share and strengthen our competitive position. Our beer portfolio continued to lead the high-end segment with Modelo Especial maintaining its leadership as the #1 beer brand by dollars in the United States and momentum improved as the year progressed. In Wine and Spirits, our efforts to reshape the portfolio are gaining traction with strong contributions from brands like Kim Crawford and Mecampo. Lastly, from a financial standpoint, the business delivered solid cash generation, giving us the flexibility to reinvest while also returning capital to shareholders. As we look ahead, we're encouraged by the improvement we saw exiting the year, but we remain realistic about the current operating environment, which remains fluid with limited visibility. That said, we feel good about where we're positioned. -- with strong portfolio, clear priorities and a disciplined approach to operating, we believe we're well equipped to continue building momentum and delivering long-term value. Now back over to you, Donna, for the questions. Operator: [Operator Instructions] Our first question today is coming from Nik Modi of RBC Capital Markets. . Nik Modi: Bill, best of luck going forward. Maybe you could just unpack the beer top line guidance for the upcoming fiscal year, the negative 1 is a positive one. And I ask that in the context of what seemingly is a pretty good start to March or to the year. if you could just give us some context on kind of what you're thinking? Is there anything that we should be thinking about in terms of like why it would decelerate for the full year relative to what we're seeing in March right now? Any context would be helpful. . William Newlands: Sure, Nick. Obviously, the single biggest challenge that exists now is our limited visibility. Things have been very volatile in terms of what the consumer reaction has been and our continuing research suggest that the consumer is still cautious. With that said, as we noted in our overview, -- we exited last year in a very strong position. We saw sequential gains in the quarter, and we saw depletions up in the quarter, which had not been the case over the prior 3 quarters. March is off to a solid start, better than planned with continued increasing momentum. So certainly, we remain optimistic about the year that we have just begun. -- but we need to continue to recognize volatility has been high and visibility has been low. Operator: The next question is coming from Bonnie Herzog of Goldman Sachs. . Bonnie Herzog: All right. And best of luck Bill from me, too. It was great working with you. I have a question on beer operating margins. Your guiding margins of 37% to 38% for this year, which is a step down from your prior guidance of 39% to 40%. So can you help us understand the key drivers of the new margin delivery I guess, especially around fixed cost absorption from the new Veracruz brewery coming online. Also, how should we think about the phasing of margins across 1H versus 2H? And then finally, I guess, I'm curious to know if you believe you could get back to the 40% margin range? And if so, is that a possibility next fiscal year? Or is this going to take longer . Garth Hankinson: Thanks for the question, Bonnie. So you're right. We've got to 37% to 38% margins. I'll tell you what the headwinds are and then what we're doing to offset those headwinds. You rightfully pointed out that -- the primary headwind as it relates to operating -- our gross profit margins are expense-related, costs associated with our new brewery in Veracruz, which is expected to begin production around the middle of our fiscal year. With that, we were going to have some fixed cost absorption headwinds as we go through the year. And then further down the P&L, we have an increase in our SG&A expense related to lower incentive comp in FY '26 and incremental investments in marketing that we will make in this year to drive continued growth within the business, both in the short and in the long term. Offsetting those headwinds will be 1% to 2% price delivery, which, as we've noted in the materials we uploaded overnight, we'll be at the lower end of the range this year. We will continue to deliver against our cost savings agenda, where we've been very successful in our migration from a builder to an operator. And then we -- additionally, as you saw in materials, we'll have relief from aluminum tariffs this year. As it relates to beyond FY '27, we're not prepared to talk around any guidance beyond this year. So we'll cover that as we go through this year and into next. Operator: The next question is coming from Dara Mohsenian of Morgan Stanley. . Dara Mohsenian: Best wishes for me also, Bill, I enjoyed working with you. And Garth, maybe if I can just follow up on the beer margin side, -- can you just break out what you're expecting from a key input cost standpoint in fiscal '27 aluminum freight and some of the other key buckets, just how hedged you are on the input cost side as well as FX side -- and then as you think about beer margins, maybe volatility there, what might be some of the upside drivers versus downside drivers -- and then also just focus on wine and spirits as much, but the margin guidance is clearly a lot lower than maybe the ongoing business should support longer term. So just help us understand the wine and spirits margin guidance for '27, how much of that is depressed by factors specific to '27 versus extends longer term? Garth Hankinson: Yes, Dara, there was a lot there. So I hope I got it off. So from a hedging perspective, we're fairly well hedged as we enter the year in both the [indiscernible] and on currencies. For fuel, we're nearly 100% hedged; on aluminum were approximately 90% hedged; natural gas, about 80% hedged; in corn about 75% hedged. Across all of our currencies, we're right around 80% hedged as we enter the year. So we're in a good spot. In terms of beer margins and what could lead to upside I think volume, as Bill noted, we're cautiously optimistic around the start of the year. And if volumes were to increase from where we are, that would certainly benefit the margin profile. As it relates to wine and spirits margins, there are a number of factors that are going into our -- the guided margin profile, including ongoing category pressures, channel headwinds, the timing of our cost deleveraging and distributor inventory rebalancing. Starting with the category headwinds. We've seen a material downgrade in the outlook from where we were a year ago U.S. high-end wine has shifted from expected low single-digit growth to low single-digit declines. U.S. high-end spirits are decelerating from plus mid-single-digit growth to flat to slightly down. And so while we're significantly outpacing the market, it's sort of on what I would call a little bit of a lower base. Relating to channel headwinds. We've seen some tasting room softness in our Napa-based wineries. And then internationally, we've seen some weakness as it relates to U.S. made or U.S. sourced wines and spirits, particularly in Canada, which is our largest market, where ban on U.S. wine and spirits remains in place. And then as we outlined in our materials, we've agreed to some inventory rebalancing with our key distributors, reflecting the softness we're seeing in the wine and spirits category. And then in terms of the timing of cost leverage because the top line is softer, as you know, in wine, the length of time it takes for things to move from the balance sheet into the P&L just it will take a bit longer than expected. That being said, structurally, we still believe that our target margins are achievable over the medium term as distributor inventories normalize as the category declines moderate and as our cost savings agenda moves from the balance sheet and into the P&L. Operator: The next question is coming from Filippo Falorni of Citi. Filippo Falorni: Just adding my best wishes to Bill and congrats to Nick on the new position. So maybe staying on beer margins, but on the marketing spend side. You mentioned in the prepared remarks that you're thinking about 9.5% of sales on marketing. How should we think about the cadence throughout the year? Obviously, you have a World Cup -- for World Cup coming in the summer, should we think maybe there's a little bit of actual spending in the summer months. And longer term, how do you guys think about the marketing levels is this 9.5% still a good place to think about longer term beyond fiscal '27? . William Newlands: You bet. We're going to very aggressively invest against our brands in the first half of this year for a number of reasons. One is the momentum that we saw coming out of the end of the year and the momentum that we've seen in March. Secondly, the World Cup is an outstanding event that provides an opportunity for many of our loyalist consumers to engage with our brands. And we're going to invest heavily against that. We always invest in the first half of the year. You will see additional investment this year. Part of that will be done against our high-end light beer strategy. You've probably noticed, we are seeing momentum in our oral and premier brands, particularly coming out of our repositioning of our price points for those 2 sub-brands and we're going to invest behind it. We think that remains a tremendous opportunity for our business, and we're going to invest behind that. We're going to continue to invest against Modelo. Modelo, we believe, still has a lot of runway and will be very appropriate in the time frame of the World Cup. And lastly, I got to make a call out to both Pacifico and Victoria, which have both on a tear, you're going to see more investment against Pacifico than we have done historically as we see that momentum is 1 that we can continue to leverage going forward. And last but not least, Victoria. Victoria has done very well and brings in a younger consumer than our overall portfolio mix, which we find is very beneficial for the long run as well. So a lot to be excited about within our brands that doesn't even begin to touch on things like Sunbrew, which obviously is another one. That showed great momentum in its first full year. So a lot of things for us to invest in, as Garth noted a moment ago. We are increasing our investment this year as we feel it's the perfect time to begin to take advantage of some of this momentum that we're seeing. Operator: Our next question is coming from Chris Carey of Wells Fargo Securities. . Christopher Carey: I wanted to follow up I think it was Dara's question just around some of the key drivers of margin and I have another question. But are you expecting a step-up in depreciation this year with the capacity? And are you well hedged on FX, I think you've been talking about layering in some hedges over the past several years. So if you could just confirm those for me, please? And then just from a medium-term perspective, I think we saw that you had given some concrete targets for cases on Pacifico over the medium term. Can you just expand on that? And and how you see the portfolio evolving and some of the key drivers of your business kind of through fiscal '30, is Pacifico going to be the new growth driver as Modelo normalizes. So I appreciate just some confirmation on the margins in the medium term. . Garth Hankinson: Yes, Chris. So I'll take the first part of that. And as it relates to depreciation, we are expecting a step into up in depreciation as Veracruz comes online in the middle or expected to be in the middle of our fiscal year. And then as it relates to currency hedging across all of the currencies that we hedge, we're roughly hedged at about 80%, and that's inclusive of the Mexican peso. And obviously, we don't get too far down the track on what we expect volumetrically for our brands. But I think your statement, do you expect Pacifico to be a continuing growth driver for our business. The answer is yes. I think you can see by the takeaway that's existing in Circana channels, Pacifico continues to explode. And it's done a very similar thing to what you saw initially with Modelo which was the initial strength was on the West Coast, and you're starting to see that strength broadening across the country. You probably have noted, we have a new campaign that focuses on the tremendously exciting yellow color of our cans, which stand out both on the shelf and in the [ cold box. ] The consumer continues to be excited about the product in the bottle or the can -- and we think that Pacifico is going to be a critically important part of our growth profile going forward. Not to diminish by the way, the potential that still exists on Modelo as well. So lots of areas for growth drivers, but certainly, Pacifico is going to be a critically important 1 for us going forward. Operator: Thank you. The next question is coming from Lauren Lieberman of Barclays. . Lauren Lieberman: Great. So Bill, as you just went through talking about the brands, 1 that was absent was Corona Extra. And so just I'd love to hear a little bit about like kind of what's next for that brand. But in particular, also extending to think about Modelo. You shared the general market ZIP codes are continuing to outperform the higher Hispanic population areas. But I want to talk about Corona Extra and Modelo Especial, particularly within gen market and what you've been seeing. And then like I said at the outset, just kind of more broadly on Corona -- any thoughts on kind of what's next to the brand given the trends have remained pretty soft. . William Newlands: Yes. No problem. Obviously, Corona remains 1 of the best loved brands that we have in the entire category. And I think the -- our ability to do things like Corona Sunbrew and the strength of Familiar are really reflective of the strength of Corona Extra. With that said, we're going to continue to invest aggressively against extra. Well, we don't see that necessarily as the growth driver of the business going forward. We believe it's important to maintain that with the kind of strength that exists today for that particular business. Recognizing the overall family is very healthy for the Corona franchise because of some of those sub-brands like Familiar and Sunbrew and Premier. Relative to Modelo, we have seen improvements as most of you know, we assess ZIP code data on a quintile basis. What's the percentage of Hispanic consumers, less than 20%, 20% to 40% and so on as you go up the ladder. We were very pleased to see coming out of the fourth quarter that all of those quintiles showed a sequential improvement in the takeaway. It was probably most notable in the state of California, which is part of the reason you've seen very strong Circana data over the recent past, where we have gained over 1 share point in both dollars and volume over the last 4 weeks, which gets us back to a more traditional share-gaining position. As you probably saw, we came out of the fourth quarter gaining 0.6 share points that has accelerated as we started into the new year. A lot of that has been driven by Modelo as well as you've seen Modelo begin to show continued strength. And we continue to invest not only with our core Hispanic consumer but in the broader marketplace as well. You will expect to see, as you have been, if you've been watching any sports that are focused against sports and that whole platform for Modelo will continue this year, and I think it will speak very well to Modelo's continue ability to grow. Operator: Thank you. Our next question is coming from Rob Ottenstein of Evercore ISI. . Robert Ottenstein: Great. Just would love to understand your process in terms of thinking about capital expenditures, given the uncertain and muted outlook of this year, the declines of last year, the lack of visibility going forward and obviously, you have to invest ahead of actual results and visibility. So -- how have you adjusted your thinking on CapEx? What -- how do you think about what to spend today for growth tomorrow and maybe update us in terms of your medium-term expectations for volume for the business. . William Newlands: So let me start, and then I'll turn it over to Garth for some more specifics about the operational footprint. I think it's important to recognize we've continued to do what we've said for a number of years now around capital allocation which has involved continuing our spend at the levels that we think are important for the long run. It's continuing to do the dividend. And more importantly, we've continued to return dollars to shareholders. Over $900 million last year despite some extra dark periods we had in preparation for the announcement of Nick joining our business. So that kind of financial discipline is 1 that I think you can expect to see continue as we go forward. Nick has been an important part of supporting our development of that strategy over the last 5 years that he's been on the board. And I think, broadly speaking, you're not going to see any real change in our approach to capital allocation. Now specifically, to the operational side of that. Garth, I'll pass that to you. . Garth Hankinson: Yes, Robert. So first of all, we're not ready to give any guidance beyond FY '27 at this point in terms of growth. That being said, -- we do expect that we will return to growth and that the headwinds that we're facing today are more cyclical in nature than they are structural. So that being said, we'll continue to operate very modularly as it relates to bringing production capacity online. I think we've been very effective in this over the last several years. This past year, FY '26 -- we spent significantly less in CapEx than where we had started our expectations in the year. And that's going to continue, right? We'll manage that spend. Some of that spend will get delayed as we bring on capacity later than expected and some of it may get avoided altogether. To your point on the timing of when you make those decisions, I mean, as we've spoken about before, a lot of what goes into a brewery are long lead items. And so you have to make those commitments ahead of time, sometimes years in advance. And so that's the process we go through is looking at what we have for expectations for growth and then back backing that into when we think that capacity needs to come online. But again, very successful in managing the modularity of when capacity comes online and managing the cost associated with it. Operator: The next question is coming from Peter Galbo of Bank of America. Peter Galbo: Garth, maybe just a clarification and then a question for Bill. I think off the back of Dara's question around just wine and spirits margins for the year. Maybe you can just help us a little bit with the phasing I think that you talked about inventory distributor reductions. I don't know if that's mostly a Q1 event, so that weighs on the margin. Just any help there. And then, Bill, just a question on on beer, you mentioned Victoria actually being a nice bright spot for the portfolio. That's obviously a very Hispanic-dominant brand. And so -- just I want to kind of reconcile the comments you have about the Hispanic consumer against 1 of the stronger brands in the portfolio, albeit small, growing at the rate that it is, given kind of the cautious view. . Garth Hankinson: So on the first piece of that, I would say that there's nothing abnormal or unusual around the phasing of line and Spirits margins in FY '27. The inventory destocking with distributors will happen throughout the year and not sort of in 1 event, if you will. . William Newlands: So relative to Victoria, 1 of the things we've seen, and I alluded to it on 1 of the prior questions, is Victoria has been a much younger demographic, 21 to 25. We're bringing in new consumers. And while you're correct, it is heavily driven by Hispanic consumers it's a Hispanic consumer that is recognizing the heritage of Victoria and the authenticity of Victoria and are adopting that as their brand. We've seen many times over the course of time that generations, new generations will find a brand that they would like to make their own. And it certainly appears at this point in time, recognizing it's early days, that a younger Hispanic consumer is focused on Victoria and is coming to that brand in very strong numbers and quantity. So -- we're very encouraged about that. It's always good within a portfolio of brands to have a somewhat different demographic base. And we think Victoria is going to be a sleeper. It's more than doubled over the last few years, and we think it has a lot of potential going forward as well, partially because of that younger demographic profile. Operator: Thank you. Our final question today is coming from Nadine Sarwat of Bernstein. . Nadine Sarwat: Guys, Bill, it's been a pleasure working with you and best of luck in the next chapter. Maybe 2 for me, just 1 clarifying on an answer earlier than my actual question. Earlier on the call, you said that you feel that your target margins for wine and spirits are still achievable over the medium term. But I know you withdrew your fiscal '28 guidance. Could you help us understand therefore what that target you're referring to is, is that north of 20% -- and then my actual question, mix was a 50 basis point drag to the beer top line in this last quarter, you guys called out packaging type. Can you give a little bit more color -- how much of this is you guys introducing new mix dilutive offerings? How much of that behavioral change from the consumer end? And what are you assuming in your full year guidance for this year when it comes to mix? . Garth Hankinson: So as it relates to our wine and spirits target margins, we still believe that structurally, we can get those margins in the low 20s. -- again, given all the headwinds that we're facing, that's going to take us a bit longer than expected, but we still expect to achieve that over the medium term. Operator: Thank you. At this time, I'd like to turn the floor back over to Mr. Newlands for closing comments. . William Newlands: All right. Thank you, Donna. In closing, literally, -- thank you all for joining the call today. As you can see, we are confident we're well positioned to achieve our objectives in fiscal '27 and continue driving long-term shareholder value. We have a strong foundation and a clear strategy, and this is the right moment for a seamless leadership transition. It has truly been an honor and privilege to serve as CEO of Constellation Brands over the last 7 years, Together as an organization, we've accomplished a great deal. We've grown our beer business from roughly 280 million cases to well over 400 million cases. nearly double the size of Modelo Especial and made it the #1 selling beer brand by dollars in America. We reshaped our wine and spirits business to be focused on a portfolio of higher-end brands -- we've established a capital allocation framework that we executed against with consistent discipline and we invested behind our organization to develop best-in-class talent and a company culture and future truly worth reaching for. While the industry landscape remains dynamic, I firmly believe Constellation is best positioned in this space with advantaged brands, best-in-class marketing and sales capabilities, and most importantly, an exceptional team. Having worked closely with Nick on the Board for the past 5 years, I know he understands our business deeply and has the leadership, judgment and strategic perspective to lead this company into its next phase of profitable growth. So to our investors, partners, employees with gratitude, I thank you for your trust and support over the years. It's been a privilege to lead this to lead this remarkable organization. And with that, Donna, back to you. Operator: Thank you. Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast at this time, and enjoy the rest of your day.
Alex Ng: Good afternoon, and welcome to Stolt-Nielsen's earnings call for the first quarter of 2026. As always, the earnings release and related materials are available on our website. We will also be recording this session and playback will be available on the website from tomorrow. Included in this presentation are various forward-looking statements. Such forward-looking statements are subject to risks and uncertainties, and we refer you to our latest annual report for further details. I'm Alex Ng, Vice President of Corporate Development and Strategy. Joining me today are Udo Lange, CEO; and Jens Gruner-Hegge, CFO. At the end of the presentation, there will be a Q&A session where we'll be taking questions online. [Operator Instructions] Thank you. And over to you, Udo. Udo Lange: Yes. Thank you, Alex. Good afternoon, everyone, and thank you for joining us today for our first quarter 2026 results. The presentation will follow our usual format. I will begin with an overview of the group's results for the first quarter and share some key highlights. Jens will then take us through the financial detail before handing back to me to cover the performance of each of our divisions, our view of the market outlook and some concluding remarks. Let's get started. In the backdrop of elevated market disruption and considerable global uncertainty, I'm pleased to report that Stolt-Nielsen has delivered a solid first quarter, achieving group EBITDA of just over $180 million. This result reflects the strength of our diversified business model and the resilience it brings to our earnings. Our non-tanker portfolio contributed 44% of group EBITDA in the quarter, a clear demonstration that Stolt-Nielsen is not simply a shipping company. In fact, our Stolthaven Terminals business had its second highest ever quarter in terms of operating profit achieved. We are a global liquid logistics business and our diversification continues to support earnings through periods of market dislocation. We are, of course, closely monitoring the conflict in the Middle East and in particular, the effect on transit through the Strait of Hormuz. This introduces new complexities to global energy and chemical supply chains, which we are working through with our customers to keep products moving. We are thankful that our people remain safe, that none of our vessels are currently stuck in the Arabian Gulf and that our assets are not impacted thus far as our network continues to adapt to a rapidly changing situation. Our priorities at this time are to keep our people safe, leverage our global logistics network to best support our customers through the disruption and to maintain strict cost discipline and capital allocation for flexibility and long-term value creation while maintaining robust liquidity management. We have limited visibility on how the conflict in the Middle East will play out and a range of outcomes are possible, which makes giving meaningful EBITDA guidance very challenging. Hence, we have withdrawn our previously issued EBITDA guidance for 2026. I would also like to highlight a number of strategic developments during the quarter. In Taiwan, our Stolthaven Terminals joint venture in Kaohsiung commenced operations, adding more than 60,000 cubic meters of new storage capacity. And we recently announced the planned sale of a 50% equity stake in Avenir LNG, which will be achieved through a strategic joint venture with Japanese shipping company, NYK Line. Consistent with our strategy of building the Avenir business for the future while preserving our own balance sheet flexibility. From a financial standpoint, we maintain robust liquidity of $546 million, and our net debt-to-EBITDA ratio stands at 3.02x. And in February, the Board recommended a final dividend for 2025 of $1 per share, bringing the total for the full year to $2 per share, subject to shareholder approval at the AGM later this month. Let us now turn to our financial highlights. I'm satisfied with the results the company has achieved in the quarter against a complex and challenging market backdrop. Looking across the key metrics. Operating revenue for the quarter was $717 million, up 6% compared to the same period last year, predominantly driven by the inclusion of SUS. EBITDA before the fair value adjustment came in at just over $180 million. This represents a modest decline of 4% year-over-year, driven principally by weaker freight rates in Stolt Tankers, lower margins within STC and additional costs associated with integrating Suttons. Operating profit was $82 million, down 24% versus last year, mainly to the performance in Stolt Tankers and Stolt Tank Containers, plus additional depreciation from lower residual values and the consolidation of the Hassel 4 ships, Avenir and Suttons. Net profit was $47.5 million, driven by the same factors as well as higher interest expense due to the consolidation of Avenir and Hassel Shipping 4's debt. Free cash flow was nearly $120 million this quarter, which was significantly higher than the same period last year, which included the cash outflows for Avenir and Hassel Shipping 4. And our net debt-to-EBITDA ratio has improved slightly from 3.12 last quarter to 3.02x. These results demonstrate the underlying resilience of our business even as we navigate a period of heightened market complexity. Over the page, we look at some of the key drivers of performance. Stolt Tankers enjoyed increased volumes this quarter, but due to ongoing weaker freight rates, the average deepsea TCE revenue for the quarter was approximately $23,600 per operating day, a decline of 14.5% year-on-year. At Stolthaven Terminals, performance has been strong and steady. Utilization was stable at 91.2% in the first quarter versus 91.9% in the same period last year, and we saw some positive impact from storage rate increases. At Stolt Tank Containers, gross profit per shipment declined by 33% year-over-year. Stolt Tank Containers is navigating a very challenging market environment where margins are squeezed and is focused on integrating Suttons. That is all from me now. Jens, I will hand over to you for the financials. Jens Grüner-Hegge: Thank you, Udo. Good afternoon, everyone, and good morning to those of you joining us from the U.S. I will compare the first quarter of '26 against the first quarter of 2025. And as a reminder, our first quarter runs from December 1 through February '28. And as such, the closure of Strait of Hormuz did not impact the first quarter results. Also, the company recently published its annual report for 2025 and this year, including the CSRD environmental report for the first time, and you can find this on the company's website, www.stolt-nielsen.com/investors. Let's dive into the financials. Revenue for the quarter was up $41.2 million over the same quarter last year due to the following main factors: this is the first full quarter with Suttons included, and they contributed $38 million in revenue this quarter. S&G saw a $16 million increase over the first quarter last year due to the acquisition of 100% of Avenir at the end of January 2025. And Stolt Sea Farm had a $10 million increase in revenue on the back of firm prices. This was partly offset by lower revenue in Stolt Tankers, which declined by $22.5 million, mostly due to lower freight rates, lower demurrage revenue and lower bunker surcharge revenue due to falling bunker prices. However, volume was up by 20%, but mostly due to somewhat shorter voyages and higher share of commodity chemicals versus specialty chemicals. Moving to operating expense. This increased by $33 million, mainly due to the additional Suttons shipments and related expenses as well as the consolidation of Avenir and added ship owning expenses due to a larger wholly owned fleet, partly offset by lower time charter expenses and lower bunker cost. Depreciation and amortization expense was $17 million higher than the same quarter last year, and this was due to a reduction in the residual value of ships following a fall in steel prices, requiring us to increase depreciation of ships. Also, the 100% acquisition of the 2 businesses towards the end of the first quarter last year as well as the acquisition of the Suttons assets in November increased our asset base and hence also increased our depreciation. JV equity income was lower in part due to the purchase and consolidation of 100% of Hassel Shipping 4 last year and the weaker tanker markets in general, partly offset by a lower loss in Higas, our LNG terminal in Sardinia, Italy. So as a consequence, operating profit for the quarter was $81.8 million, down from $107.9 million in the fourth quarter last year. The finance expense was up $6 million compared to the first quarter of '25, and that's due to the additional debt related to the acquisition and consolidation of Hassel Shipping 4, Avenir and as well as Suttons. And as such, the net profit for the quarter was $47.5 million with EBITDA of $180.8 million. Net profit is down from $151.4 million in the same quarter last year, but please note that in the first quarter '25, we had a one-off gain on the step-up in value related to the acquisition of Avenir and Hassel Shipping 4 of $75 million. And also, as EBITDA excludes the impact of interest and depreciation, both of which increased year-over-year, the swing in EBITDA is significantly less than the swing in net profit. Now let's have a look at the cash flow statement. Net cash from operations was down this last quarter, predominantly reflecting $50 million in weaker earnings and working capital outflows, $7 million lower dividends from joint ventures, $3.8 million higher interest payments and $2.4 million lower interest receipts, partly offset by lower tax payments. Net cash used in investing activities was significantly down at $44.1 million from $232 million due to last year's business acquisitions. In the current year, cash spent on capital expenditures related mostly to tankers and terminal investments. The sales proceeds of $11 million that you can see there as well relate to the sale of a ship during the quarter. And then net cash used in financing activities of $66.1 million reflect the dividends paid in December 2025, while the debt proceeds and repayments reflect refinancings concluded during the quarter. As such, total cash flow for the quarter was a positive $10.1 million. And if you look at the graph on the bottom right, you can see we ended the fourth quarter with $546 million in available liquidity, as Udo has pointed out. So let's go over and look at the capital expenditures. Capital expenditures during the quarter totaled $42 million, with mostly spent on tankers progress payments for new buildings as well as terminals and Stolt Sea Farm expansion CapEx. Overall, for 2026, we expect to spend around $300 million, significantly down from the $511 million we spent on CapEx in 2025. And this is to a large part driven by the sale of 50% of Avenir, removing CapEx of $112 million across '26 and '27 related to 2 new LNG carriers. And in 2027, we expect to see capital expenditures increase again due to the significant progress and delivery payments on the newbuilding program for tankers. We intend to continue to invest strategically in our businesses, but we also need to focus on integrating our added capacity into our operations for maximized long-term benefit for our customers and our shareholders. And with the current geopolitical uncertainties, we will be cautious with committing to further CapEx until we see the full effect of the current unrest. So this is our debt maturity profile, which is relatively smooth over the 5-year horizon shown here. The debt profile reflects the recently refinanced debt for Hassel Shipping 4 and the deconsolidation of Avenir's debt. The gray boxes represent normal repayments, while the black and orange boxes reflect balloon payments on bank loans and bonds, respectively. If you look at the bottom left graph, gross debt reduced in the first quarter due to Avenir being accounted for as held for sale. So $120 million in Avenir debt is no longer included in this overview. And our average long-term interest rate in the fourth quarter was 5.65%, an increase from the previous quarter, driven by temporary drawdowns on more expensive revolving credit facilities and the full quarter of the bond issued in October 2025. This is our -- shows our financial KPIs and the continued steady performance of the company has supported our covenants. The decrease in debt during the first quarter supported a decrease in net debt to tangible net worth on the top left quadrant and net debt to EBITDA on the bottom left quadrant. Debt to tangible net worth is now at 0.98 as well below our covenant limit of 2.25x. With the lower EBITDA for the quarter, the last 12 months, EBITDA fell slightly to $777 million. EBITDA to interest expense on the top right quadrant was down to 5.31, whilst the net debt-to-EBITDA decreased from 312 to 3.02, as Udo mentioned. So overall, we are well within compliance on all covenants. And finally, before handing back to Udo, let me finish up with a snapshot of our main sustainability metric, the annual efficiency rating for Stolt Tankers, which finished 2025 at 9.34, just over 40% reduction from 2008. Also in 2025, we held gold ratings from EcoVadis for our 3 logistics businesses. And just to inform you, a gold rating indicates that the business is in the top 5% of companies in the industry. And then again, to point out that the recently issued annual report for 2025 contains our first CSRD report in case you want to read more about the company's ESG performance, and you can find the report on our website, as I mentioned. And with that, I would like to pass it back to you, Udo. Udo Lange: Yes. Thank you so much, Jens. I will now take us through the highlights from each of our operating divisions. Let's start with Stolt Tankers. Operating revenue at Stolt Tankers was $386 million for the quarter, down 5.5% on the year. This decline reflects the rate environment, which was only partially offset by a modest increase in operating days, driven by additions to the fleet. The rate decline is driven by a change in the mix of speciality versus commodity cargo as a result of near-term market conditions, which also drove up volumes. COA rates were renewed in the first quarter at an average rate decrease of 5.3%. This has improved versus the 9.6% decrease in Q4. EBITDA was $102 million, down 7%. Operating profit was just over $50 million, down 24% year-on-year. This reflects the lower freight rates on both regional and deepsea spot trades. We remember that previously, Hassel Shipping 4 was a joint venture and so was included as equity income. And as a result of the Hassel Shipping transaction within this quarter's results, we also saw higher owning expenses, additional depreciation and lower equity income from joint ventures versus the prior year. Depreciation was further impacted by changes in residual value. Maren and her team continue to work diligently to navigate this highly complex and unpredictable macro environment with a clear focus on delivering for our customers. I commend them for all their efforts during what continues to be a very challenging period. Looking now more closely at tanker rate trends. Whilst the TCE rate for the quarter declined to approximately $23,600 per operating day, down around 15% year-on-year, we continue to trade well above the 2018 to 2022 down cycle average of $19,825 per day and a level marginally above the long-term 10-year average of $23,300 per day. The early signs of rate softening that we saw last quarter have continued with a quarter-on-quarter change of under 4%. The effects of the conflict in the Middle East and the disruption at the Strait of Hormuz are introducing new complexities for global trade flows, and we are keeping a watchful eye on developments. This global disruption has the potential to create additional upward movement in rates and ton mileage in certain routes and downward movement in others. I also want to reiterate a point we have made before. We are not simply a chemical tanker business. We encourage investors and analysts to evaluate our performance across our diverse portfolio as a whole. I'm pleased to report a strong consistent performance from Stolthaven Terminals, and I would like to thank Guy and his team for achieving the second best operating profit in the company's history. Operating revenue was $79 million in the quarter, up 4% year-over-year. This improvement was driven by storage rate increases on existing contracts as well as new business secured at improved rates and favorable foreign exchange impacts, partially offset by softer utilization in certain areas. Utilization remained essentially stable at 91.2% from Q4 to Q1, but declined versus the prior year's 91.9%. EBITDA was $45 million, up 4%. Operating profit was $28.6 million, broadly level year-over-year as improvement in revenue was offset by inflationary cost increases and the impact of foreign exchange. We continue to progress adding storage capacity at existing U.S. sites. Projects in Houston and New Orleans are expected to come online in a staggered fashion, and we expect this incremental U.S. capacity to provide a contribution to earnings growth over the medium term. Stolt Tank Containers saw a strong increase in revenue this quarter, driven by the addition of the Suttons tanks to the fleet. Operating revenue was $184 million, up 20% year-over-year. Overall shipments totaled nearly 48,000 in the quarter, up 31% year-on-year, reflecting the addition of the Suttons volumes, while underlying volume was also slightly improved. Stolt Tank Containers recorded an operating loss of $5 million in the quarter, predominantly driven by weaker transportation margins and reduced demurrage in a highly competitive market. Suttons related integration costs and the typical seasonal softness in the first quarter. The integration of Suttons into our platform is going as planned, and we expect the positive EBITDA impact from the Suttons business to materialize from 2027 onwards once integration is more substantially complete. In the near term, Jens and his team are focused firmly on cost discipline, margin improvement and executing the integration effectively, and I thank them for their efforts. I now want to cover our view of the market and concluding remarks before we open for Q&A. Let me first give you some important context for understanding the operating environment we are navigating today. The Strait of Hormuz handles approximately 20% of global seaborne oil and CPP volumes, around 15% of global chemicals, 20% of LNG and 40% of LPG. The closure of the Strait of Hormuz represents the largest supply shock to global energy markets since 1973. The disruption to trade flows is already creating tangible effects in the chemical markets with volatile energy prices, shifting demand patterns and increased activity in the U.S. Gulf contrasting with a slowdown in other regions. We are also seeing spillover effects, including elevated bunker prices and availability constraints east of Suez, which are adding to the operational complexity for all participants in the market. This is not just a temporary disruption. It is a structural dislocation and the downstream consequences for chemical and industrial supply chains are already being felt. Firstly, the supply shock itself. Approximately 20 million barrels per day have been effectively removed from global seaborne flows due to the Hormuz closure. Middle East exports are down around 60% from around 25 million barrels per day to a net negative position when you account for the coordinated attacks across Saudi Arabia, UAE, Qatar and Iraq. Critical infrastructure has also been impacted. The Saudi East-West pipeline bypass with a capacity of approximately 7 million per day is already operating at a maximum. And even at full utilization, it can only reroute around 35% of Saudi Arabia's export volumes. There's simply insufficient physical replacement for what has been lost. In the center here on the chart, we begin to see system breakdown. Storage infrastructure is now approaching saturation, what the industry refers to as tank tops, and this is beginning to force production shut-ins. We are seeing force majeure declarations across LNG, LPG and chemical cargoes. The physical constraints on rerouting storing and processing volumes are compounding the supply loss. The third shock is demand rebalancing with Asia firmly at the epicenter. Japan, Taiwan, South Korea, Vietnam and Singapore collectively import more than 70% of the crude from the Arabian Gulf. The feedstock consequences are severe. Naphtha supply is down approximately 1.2 million barrels per day, and LPG prices have risen sharply since late February. This could potentially translate into a feedstock crisis with shutdowns of crackers, PDH plants, methanol facilities and aromatics units resulting in lower volumes. China, Korea and India have begun implementing export controls and rationing measures. The conclusion is clear. This is not a market we expect to normalize quickly. We are planning for a range of potential scenarios, spanning from a stabilized transit environment where trade flows largely normalize through to most restricted or even a closed transit regime. Across these scenarios, we have a clear set of operational and financial levers available to us. These include deploying our tanker fleet to optimize utilization and our COO and spot mix, leveraging the diversification of liquid logistics and aquaculture portfolio, providing some resilience to our earnings, adjusting capital allocation by deferring nonessential CapEx and drawing on our strong liquidity and balance sheet capacity to absorb volatility. At this stage in time, it is unclear whether the disruption will create more complexity or opportunity for our business. From a supply perspective, the stainless steel tanker order book stands at approximately 18% of the existing fleet with net supply growth of around 4% expected in 2026. However, a significant feature of the current fleet is its age profile. Approximately 14% of the stainless steel tanker fleet is aged 25 years or older and eligible for retirement. And this proportion increases to around 30% when you consider vessels aged 20 years and above. The potential for fleet retirements to absorb new supply is considerable and also acts as a buffer in case of potentially prolonged demand contraction. We expect these supply dynamics to continue to provide underlying structural support to the chemical tanker market over the medium term. To wrap this up, we are operating in an exceptionally uncertain global environment. The geopolitical pressures we face, particularly from the conflict in the Middle East and the disruption at the Strait of Hormuz introduce real complexity and market risk. Our immediate priority is to protect our people, our assets and our earnings. And we are maintaining a clear focus on what we can control. In that context, I want to leave you with 4 key themes. Firstly, we are safeguarding earnings and maintaining our focus on customers. Our ships are not currently directly affected, and our fleet is adapting swiftly to the changing situation. Our global network is agile and well positioned to support customers through the current period of supply chain disruption, and we're working closely with customers to find solution with them. Secondly, we are leveraging our diversification. The resilience of our non-tanker portfolio provides 44% of group EBITDA, providing earnings and support at a time when the tanker market faces headwinds. Thirdly, we are maintaining disciplined management of our costs and capital allocation. We have a clear set of financial levers available to us, and we will deploy them appropriately as the situation evolves. And fourth, we enter this period of uncertainty from a position of financial strength. We have robust liquidity of $546 million, a well-structured balance sheet and the capacity to absorb volatility while still pursuing strategic opportunities. Despite the challenges ahead, our strategic foundations are strong. Our portfolio is resilient and our team is focused. We continue to navigate this complex environment, delivering long-term value for our shareholders, our customers and all of our stakeholders. Thank you for your attention. I will now pass you back to Alex for Q&A. Alex Ng: [Operator Instructions] So we will start with the first question. First one for you, Jens, in relation to EBITDA guidance. Could you provide a bit more comment around the rationale for removing the EBITDA guidance? And then any information about when you would expect to resume that guidance? Jens Grüner-Hegge: Thank you, Alex, and thank you for the question. As Udo talked about, we're living in a situation which is rather unpredictable. And this could go either way up or down. And therefore, we feel that there is no real foundation to provide an EBITDA guidance at this stage. I think once we start seeing things normalize, which would mean a number of the factors that are currently causing disruptions coming back to normal, then we can reconsider providing an earnings guidance at that point. Udo Lange: Yes. Maybe let me add. So what is really the value of guidance? The value of guidance is that we see more in the business than you as an outsider and that we provide basically guardrails with the lower level or an upper level. And when you have a situation like this, if the guidance range becomes ridiculously large or it's so foggy, then it's a little bit like the COVID time. So nobody was surprised when companies stopped providing guidance during COVID. So this is not a decision that we take lightly. So we really had long conversations around this. And we just came to the conclusion. What we are seeing right now is not good enough to provide reasonable guidance. Exactly what Jens said, it can go up and it can go down, and we will come back when we have more clarity. Alex Ng: Thank you. Next question is in relation to tank containers. Would you be able to provide some guidance, Jens, in relation to where the integration costs sit in the line items? Are they entirely booked in SG&A as a starting point? And maybe just another comment around Stolt Tank Containers SG&A more broadly. Apologies, I think you're on mute. Jens Grüner-Hegge: I am indeed. Thank you. To the first part of the question, yes, the integration cost is in SG&A. And as I mentioned in my speaker notes, it was about $5 million that we incurred in the first -- during the first quarter. As for SG&A in general, as we compare the first quarter of '26 with the first quarter of '25, you have pretty much 1 year of inflationary expenses that have come in and that impacts the results. Other than that, I think for STC, I think it's fair to say they are in a tough market. And when you are in a tough market, you're always having a close eye on your expenses, and that is also the case with STC at the moment. So when this then will normalize, it's hard to say again because they are in the midst of a significant integration following the acquisition, plus we also have the market disruptions that we have to consider as we look forward. Alex Ng: Thank you, Jens. Also continuing on STC, Udo, would you be able to provide a bit more color into the current state of the market and any potential views on outlook in relation to potential improvements in the underlying markets there? Udo Lange: Yes. So the market, as you see, continues to be very challenging. And so when you look at what is really the underlying driver, it is an oversupply. As you know, during COVID, there's a long tail of competitors that got added. This is starting to shake out with our acquisition of Suttons and some other consolidations that are happening in the market. There is consolidation going on, but this is, of course, not changing overnight. And then you take a Middle East situation and that, of course, added extra pressure to the whole situation. So I think what we are really focused on is, of course, working with our customers, delivering value there, but also being focused on margins. So we are very clear on looking at how do we do margin management overall in the business. And in addition, of course, we have a fantastic digital platform and a strong best shore center. And so we just need to deliver even more value on productivity and operational efficiency, and we are fast tracking also on the Suttons integration. So we do everything that is in our control to improve the situation. So we know that this was an exceptionally weak quarter, and Hans' his team are fully focused on that. But of course, there's also a market piece in there. And it's too early for me to tell when the market will change. Alex Ng: Thank you. Next is an accounting question. For tankers, you mentioned that there was an uptick in depreciation quarter-on-quarter due to a change in residual values driven by steel prices. How should we think about the Q1 level? Would it be a new run rate for the tankers depreciation? Or is there an element of one-off effects here? Jens Grüner-Hegge: So typically, what we do is we adjust steel price or we do an assessment of the residual value once per year, and this is done basis steel prices. Steel prices reflect the recycling value of older tonnage. And that sets the target depreciation when the ship reaches its fully depreciated age. And so once a year, we reset this value unless there are any demand shocks. And then that sets really the level of depreciation for the following year. So yes, there was a significant increase this time around, but you should expect that other than changing in our asset base due to acquisitions or sales of assets that it should remain steady accordingly. Alex Ng: And next question is in relation to Avenir and the sell-down there. Are you able to provide a sense for the proceeds both in cash and more broadly relating to the balance sheet you received from this? And how will you allocate those proceeds? Jens Grüner-Hegge: So we are not allowed to talk about the actual sales price of this is unfortunately confidential and as often as the case in such transactions. But as I mentioned, we have removed the debt from our balance sheet now, and we also removed future CapEx, future CapEx being approximately $120 million impacting '26 and '27 and the debt being reduced by $112 million. So hence, you see that reduction now already in our balance sheet. Udo Lange: Yes. And let me add what Jens says. So we are super excited about this deal because it's really a double whammy. So on the one hand, we can accelerate our strategic ambitions in this space because we have a strong partner with NYK, who can also bring offtake for the business, and we can jointly grow. But then on the other hand, it also helps us both on our balance sheet side. And as you saw, it has a significant impact on reducing our CapEx exposure, and that is quite relevant during a time like this. Alex Ng: A question relating to the results and how they presented, Jens. Last quarter, there was a like-for-like income statement, which was very helpful. Is it possible to get something like that for this quarter, particularly given the number of moving items that have been occurring during the period? And also, do you expect similar in the coming periods? Jens Grüner-Hegge: Yes. I think previously, there were a lot of movements related to acquisitions of Suttons and also with the 2 acquisitions we did in the beginning of the year. We haven't presented that at the moment. Going forward, when we compare next quarter, it will be on a like-for-like basis because you will have had a stable second quarter of '25 and a stable second quarter of '26, you'll probably see a little bit less volatility other than, of course, Avenir. And we can put that in when we present the next quarter's earnings so that you get a like-for-like, and then we can share it broadly with the whole market at the same time. Alex Ng: Thank you. Next question is in relation to the performance of Stolt Sea Farm. Stolt Sea Farm performance looked particularly strong. Q1 is typically strong, but is it primarily volumes or price driven this development? And how do you expect this to continue? Jens, maybe that's one for yourself around the Q1. Jens Grüner-Hegge: Yes. I think, first of all, Q1, we have this typically seasonally strong Christmas season, where you have good volumes that are being sold, particularly in December, after which it tapers off a little bit in the beginning of the new year typically. But this quarter, we saw good movement in prices, favorable movements in prices, and that is reflected in the improvement in the results. That's really the main driver. I think we've elected to not report in detail on Stolt Sea Farm, but there is -- there are sections in the interim financials that were issued together with the earnings release that have more detail on Stolt Sea Farm. It remains strategic. It is important to us, and we will continue to invest in it. And -- but you can find more details about Stolt Sea Farm in the interims. In the presentations itself, we want to focus on the liquid logistics, which is really the bulk of the company's assets and what drives the performance of the company, particularly in times like this when you have disruptions in the global supply chains. That said, under such circumstances, it's nice to have a business like Stolt Sea Farm contributing steadily to the performance overall of the group. Alex Ng: Very good. That concludes all the questions that we have. So thank you very much. Just as a reminder, we'll be posting a recording of our call on our website tomorrow. And Udo, back to you. Udo Lange: Yes. Thank you so much, everybody. I really appreciate you joining us today, and I look forward to talking to you again when we present our results for the second quarter of 2026 in July. And of course, like all of us, I hope that by then, the world has come to a more peaceful landing than where we are right now. With that, all the best for today.
Operator: Ladies and gentlemen, welcome to OVHcloud H1 Full Year 2026 Results. Today's speakers will be Octave Klaba, Chairman and CEO of OVHcloud; and Stephanie Besnier, CFO. I now hand over to OVH management to begin today's conference. Thank you. Octave Klaba: Good morning, everybody. I'm Octave Klaba, Chairman and CEO of OVHcloud. Thanks to being with us this morning. Let me start with the key highlights of H1 '26. As we announced, we generated EUR 555 million revenue and EBITDA EUR 227 million. That means that we generated around 5.5% like-for-like growth this H1. Our adjusted EBITDA, it's 40.9% and net revenue recurring rate, it's more than 100%. And we had this other -- unlevered free cash flow of EUR 32.3 million. As the key initiatives, so as you know, I started as the CEO 6 months ago, I make my -- a lot of interviews internally, and we already started some strategic initiatives in OVH to start this 5-year strategic plan that we started with '26 to '30. And inside of that, we announced that we will create -- that we actually started to create a vertical in defense market. The goal is really to go after the customers and the needs that we had a lot of feedback in the last quarter, and for this very critical horizon that some customers they ask us. Another strategic initiative, it's really focusing on the sales side on the Starters and Scalers on the acquisition. We can go deeper insight if you have any question about that. And on the corporate, more focusing on the regular fast closing, midsized deals. And again, I have some highlights if you have the questions about that. And we announced also that we create our AI lab, and it started -- it was initiated with this acquisition of Dragon LLM. And it's really to address the growing market that we feel that we -- our customers, they want us to be part that it's agentic AI. And on the operational highlights. So we had a few things that we wanted to share with you. So we had this EBITDA that is quite highest record from the IPO 5 years ago. So we still continue to improve the EBITDA, and it's going up and the goal is really to not to be satisfied with the level that we have today. And there was another key operational highlight. It's about the front-loaded CapEx to secure the -- our free cash flow in this year and the next year. So I think you will have some questions about that. So we will go deeper with your questions. So next page, please. On the -- so let's go deeper in the different range of products. So first one is private cloud. So we generated EUR 169 million that represents about 60.5% of our group revenue, and the growth is about 2.9% from the like-for-like growth on the Q2. And on the H1, it's 3.4%. As the highlight on the bare metal, so you know we started these initiatives in the first H1, first quarter and the second quarter. As the result, we have this 12% more customers acquisition. If we compare H1 '25 and H1 '26, it works better on the acquisition, but we need still to continue and to increase our aggressivity on the market and to win more customers. So what we put in place works, but it's not enough. I want more. And this is where we want to go into H2, in the Q3 and Q4 after more customers on the startup. On the scalers, we have this continued growth, and it works nicely what we have internally. There's still some improvement. But what we have, I'm happy what we have. And on the corporate, yes, we had some churn on some 2 customers on the corporate that didn't impact on the fundamentals of the -- on the growth. So we still have growth on that, but just we lost 2 corporate customers on that. Yes, we announced that we signed a strategic deal, strategic contract with Alchemy that is a blockchain platform. And we have a lot of successful in this blockchain platform that helps us really understand how to grow faster in the scaler go-to-market. On the hosted private cloud, on the Starters and Scalers, we still see that there was a few optimization of our customers. We are working on this new product. And I think in the next weeks, where you will see some announcement that we'll make with Broadcom. In other corporate, it's -- we really ramp up of this mission-critical deals that it's a really interesting market that we didn't have yesterday that based on the 3-AZ, maybe we'll have a chance to talk about that. Next page, please. On the public cloud, on the public cloud, we generated in the Q2, EUR 60 million, that is EUR 119 million in H1. There was 26% of Q2 growth and 14.5% of the growth in Q2. That means on the H1, it's 15.1% of growth. So we have a solid new customer acquisition. As I said, we changed the things, but still, we can make it better. On the scalers, strong upside of the current customers, and we see the opportunities on the additional products on this 3-AZ approach that we have that customers really like, and we see some migrations from the current data centers to this new model of the 3-AZ. On the corporate, we have more traction on the corporate. Still, those small -- the 2, 3 products that is still missed, and it will be delivered in the next quarters that will help definitely to go after this corporate market -- on the corporate market. So we've also have been working a lot, and we will secure more our public cloud on this end-to-end encryption on the confidential computing on the -- all the securities that it's -- that we can deliver on this public cloud in the product. And this is additional value that some customers, they are asking us. On the entry level of the range of the product, the VPS and the SaaS, we have a good proof that what we've done, it works well because we had more than 100% of additional customers that we had in H1 '26 versus H1 '25. That means that we doubled acquisition of number of customers. We started to see that in the revenue, and we'll see how it will evolve in the next quarters. But this is kind of prove that the strategy of the very aggressive prices, more volume, more customers and then having this machine to upsell and going and helping customers to use all our products, it works. Now we need to scale that and to go after more geographies, more customers and to be more aggressive, and this is what we will see in the next quarters. Next page, please. On the Web Cloud, we generated EUR 50 million, that means on the H1, EUR 100 million growth of the Q2, 70.5% and on that 70.5% of our group revenue. And then our growth is 2.4% on the Q2 and 2.5% on the H1. There was still -- yes, I would just go after the topics, and then I would just add additional comments on that. So on the starters, we just didn't really started repricing and to generate new demand, okay? This is exactly what we are doing right now, and it will be delivered in the next 2 months, 1 or 2 months, it's really ongoing. So we want to be really seen as very competitive on the starters market for the Web Cloud, but we have also the opportunity to go after the more higher market of the customers. They are more pro business that they trust us and they order us more products. So we want to go after this 2 segmentations of the products and also working on the web AI. And you will see the next quarters, next months, this transformation of the web cloud to the web AI that we will operate over the next months and quarters to go after this totally new market where AI helps our customers to build a faster, faster delivering website, help them to operate them to having the marketing, to having the additional products, the additional services. And this is what we are doing right now on the web cloud. So you don't see really the results of that in the numbers today because this is what we started last quarter, and there's still a lot of things to do, but you will see by the end of this fiscal year, I hope the first result of this strategy. Next page, please. If we see on the split by countries, France, we have in Q2, a growth of the 4.5%. That means on the H1, 5%. On the Europe, excluding France, we have 2.9% and then on the H1, 2.5%. I have to say that it was a really complex quarter. There was a lot of -- there was something that is really new, but we have seen that last 2, 3 years. And it seems like on this Q2 period of time, we will see in the next years, this customer optimization because it is end of the calendar year for events and the beginning of the next year. And I think this is what we have seen -- we started to see as the -- for the last year, this year and 2 years ago, that we have this kind of the new pattern of the behavior of the customers in December, January, February, where you see optimization of the cost and to having these discussions probably internally on the budget and the event starting as lower as they can, the new year and event then grow over the year until the December. So it's something that it's not confirmed yet. We're still working on the numbers to really understand. But this is also what we see on this Q2 result that we knew that it will be -- it's a tough period. Now we started to know and started to understand why it's a tough period. Still work to do to really understand the behavior of the customers and to confirm that we will have in the future this Q2 pattern on our revenue. So I don't know yet, but it is what we started to see. And then the rest of the world, we had this Q2, 8.7% and then H1, 9.5% still continue to grow on the bare metal and on this public cloud product. So I will let Stephanie to go in the financial results, and I will have talk with you on the outlook. Stephanie Besnier: Thank you very much, Octave. Hello, everyone. This is Stephanie speaking. Thank you for being with us this morning. So let's begin this financial section with our key financial figures for H1. So we delivered a profitable growth with a record adjusted EBITDA margin since our IPO and solid unlevered free cash flow despite having significantly front-loaded our CapEx ahead of H2. We'll come to that point. So we recorded an organic revenue growth of 5.5% and adjusted EBITDA margin of 40.9%. So we are up 90 basis points compared with H1 '25, thanks to our operational efficiency. And CapEx was 42.9% of our revenue, up 6.9 points compared with last year H1 '25, of which 11% were front-loaded for H2. We have decided to make proactive investments to secure our supply chain and mitigate the impact of skyrocketing component costs, which began to materialize in our Q2. Despite this anticipation of our CapEx, you see that we generated a solid unlevered free cash flow of EUR 32.3 million on this H1. So going to the next slide. Regarding our top line, as Octave said at the beginning, we delivered a like-for-like growth of 5.5% during this H1. So this was driven by, first, a private cloud performance, up 3.4% like-for-like, impacted by a 1.2 point headwind from the churn of the 2 corporate clients that we mentioned during our Q1 results. And we have also a softer hosted private cloud dynamics following Broadcom price increases. Second, public cloud continues to lead our growth trajectory, up 15.1% like-for-like, confirming its position as our primary growth engine. And last, Web Cloud, up 2.4% like-for-like. So now let's take a closer look at our P&L on the next slide. So P&L, as you can see, we achieved another strong step-up in profitability with an adjusted EBITDA of EUR 227 million in H1, and it represents a margin of 40.9%, our highest margin since our IPO. So the strong 90 basis points improvement in our EBITDA margin is coming from a positive mix effect on our direct costs, reduced electricity costs as a percentage of revenue compared to H1 at less than 5% of our revenue. And I can tell you that we are hedged in the current context also for the next 18 months. And we have also a strong operating leverage on our fixed cost base. We delivered an EBIT of EUR 35.4 million, representing a margin of 6.4%. On a like-for-like basis, if we exclude the one-off gain from the disposal of a legacy data center in Paris last year, our EBIT margin remained broadly stable. After including a financial result of minus EUR 28.7 million and a tax expense of EUR 0.7 million, we recorded a net profit of EUR 5.9 million for H1, slightly lower than last year. Now let's look at the increase in profitability, how it translated into cash generation. So our strong profitability enabled us to generate a solid unlevered free cash flow of EUR 32.3 million in H1 '26. So our CapEx, if we exclude M&A, amounted to EUR 238 million -- EUR 238.5 million exactly in H1, and it represents 43% of our revenue. Our growth CapEx accounted for 30% of revenue. And again, 11 points of our CapEx were deliberately front-loaded ahead of H2 to secure component availability and contain hyperinflation. Recurring CapEx represented 13% of revenue. So our level of CapEx is compensated by our profitability and change in operating working capital requirements, which was higher than usual and amounted to EUR 54.7 million in H1, and it includes phasing effect due to late orders in February. So all in all, after leases and financial charges, our levered free cash flow stood at minus EUR 14.2 million. So now let me give you a detailed view of our CapEx on the next slide. So our CapEx, again, excluding M&A, represented approximately 43% of revenue in H1. So let me explain the key moving parts. First, on the hardware CapEx, it represented 33% of revenue, EUR 187 million. So it's a step-up compared with EUR 27 million in H1. And as I already mentioned, this was a deliberate decision in face of a global supply crisis on memory and disk components to first secure our component availability and contain cost hyperinflation. Second, our infrastructure and network CapEx came down to 2% of revenue, EUR 11 million, with some phasing effect from H1 to H2. And product and software CapEx remained stable around EUR 37 million, 7% of our revenue, reflecting our continued investment in expanding the product portfolio. Notably with new public cloud services and mission-critical offerings while we control our costs. Other CapEx remained marginal, around 1% of our revenue. So now given the exceptional supply environment, we have adjusted our full year CapEx guidance, which I will walk you through on the next slide. So as I just mentioned, the global component crisis, particularly on memory and disk has led us to adjust our full year '26 CapEx guidance. So I will take you through the bridge on this slide. You'll remember, our initial guidance was 30% to 32% of CapEx as a percentage of our revenue. The exceptional hyperinflation on memory and disk components add approximately 3 percentage points. However, we decided to front-load some of those CapEx, and by doing so, we realized a saving of approximately EUR 10 million in our H1. So we are already partially offsetting the inflation impact through proactive timing, and we are securing our supply. So this brings our new FY CapEx guidance to 33% to 35% of revenue. This adjustment is cyclical and not structural. It reflects the current component inflation environment. We have already passed through price increases to part of our customers effective April 1, and we continue to monitor the situation closely to calibrate further adjustments as needed. On top of this, we are going to build a dedicated stock of approximately EUR 50 million in memory and disk components. Those are standard components, and there are no obsolescence risk, and it will be strictly earmarked for '25 consumption. This exceptional envelope allows us to secure availability. This is very important, and we lock in pricing ahead of further anticipated cost increases. Here again, by purchases in H2 rather than at the beginning of '27, we estimate additional savings of approximately EUR 15 million, 1-5. So in total, EUR 10 million in H1, EUR 15 million coming up in H2. Our front-loading strategy generates EUR 25 million savings that would have been lost had we waited. To finance this EUR 50 million of lock-in stock for '27, we will use a dedicated exceptional financing facility. So our underlying business generates sufficient cash to cover all our FY '26 investments and delivering a positive levered free cash flow in FY '26 that we confirm today. So including exceptional and dedicated financing for those lock-in stock for FY '27 CapEx. Let me now turn to our balance sheet and financial structure. That will be my last slide. So our financial structure remains robust and well positioned for the future. Our net debt stood at EUR 1.125 billion at the end of February '26, and it's broadly stable compared to August '25. Our leverage ratio has continued to decrease 2.6x our EBITDA, in line with our debt policy. The all-in cost of debt remained unchanged year-on-year at 4.4%, demonstrating the quality of our hedging strategy. Available liquidity stands at EUR 236 million, comprising EUR 36 million in cash and our undrawn EUR 200 million multipurpose credit facility. As you can see on the right-hand side of the slide, we have no major debt repayment before FY 2030, giving us significant financial flexibility. Our funding sources are well diversified. We have our EUR 500 million inaugural bond at a fixed rate of 4.75% maturing in FY '31, rated BB- by S&P and Ba3 by Moody's, our EUR 450 million EU taxonomy aligned green loan maturing in FY 2030. So it's a first for a European cloud player. Our EUR 200 million EIB credit facility; and finally, our undrawn multipurpose facility of EUR 200 million. And this credit facility was also converted into a sustainability-linked loan, further reinforcing our commitment to responsible financing. So in summary, we have a strong, well-hedged balance sheet with no near-term refinancing needs, supporting our path to positive free cash flow. And now I will hand over to Octave to discuss our outlook. Octave Klaba: Thank You, Stephanie. So for the FY '26 activity, our guidelines don't change, doesn't change. We anticipate like-for-like revenue growth of 5% to 7%. Adjusted EBITDA margin more than FY '25. CapEx, adjusted CapEx, if we consider really FY '26 activity is 32%, 35%, that is a little bit more, but levered free cash flow -- free cash flow will be positive for this '26 activity. So now we open the floor for your questions, if you have any. Operator: [Operator Instructions] The next question comes from Ines Mao from BNP Paribas. Ines Mao: I just have 2 questions. The first one is on your CapEx breakdown. So I look at the CapEx breakdown by component. I see that hardware was up as a percentage of revenue, which was voluntarily. But if it was only hardware, why was also recurring CapEx higher in H1 year-over-year? And my second question is, can you comment further on potential pass-through price increases to moderate the impact of this price up cycle on CapEx? Is it still on the menu? Or is -- yes, can you give us more color on this? Stephanie Besnier: Yes. Thank you, Ines. So we have a slight increase of our recurring CapEx to 13% of our revenue. This incorporates also the impact of inflation that started to kick in, particularly in our Q2 numbers. And as for the price increase, we have already started to partially pass through the impact of this inflation. We launched the first initiative around increasing our prices April 1. We are doing it tactically. We don't price all our customer bases. We focus particularly on the new configurations, on new customers and also on products where we have less price elasticity. And obviously, I mean, we remain very careful, like we mentioned, and we will continue to monitor the evolution of the prices to be ready to react and to engage into potentially new price increases if needed. Operator: [Operator Instructions] The next question comes from Derric Marcon from Bernstein. Derric Marcon: So the first one is on price increase. Can you quantify the impact that it will have in 20 -- in fiscal year 2026? And what was factored in the unchanged guidance of plus 5%, plus 7%? And if we look to 2027, what would be the impact of this price increase? That's my first question. The second question is about the telephony and connectivity. Do you see the trough coming in the next quarters? Or where do you see the trough for this business because it's still waiting on the performance of Web Cloud in H1? And my third question is on AI. Could you quantify, please, the impact of AI on public cloud growth? Stephanie Besnier: Thank you, Derric, for your questions. So first, on the price increase, I mean, we've just launched them a few days ago. Like I said, I mean, we've done tactical price increase, and this will have a gradual effect. We have some of our customers that are committing. So bear in mind that this will flow through over several quarters. We will also monitor the impact of this price increase. So far, it's too soon to tell you a clear impact. In any case, on that basis, we have no -- we have decided not to change our guidance, and we confirm the 5% to 7% range for this year. And again, for the same reason, I mean, we monitor the impact in our Q3. We'll have a better view probably at the end of Q3 of this impact, and we will work also on the guidance for '27 in the coming months, and we'll get back to you with indications and guidance for '27 at the end of October during our full year communication. Octave Klaba: On the VoIP and access, thanks for this question. So no, we don't see any change for the moment. We started to work on the web pages on the offers just last quarter, and it's still the work we are working on. I hope that the next quarter, it will be done, and we will start seeing the difference in this decrease of the revenue because it's impacting the perception on our growth on the Web Cloud. So it's sad to have this decrease of the revenue while we're doing well on the domain name of the e-mails, et cetera. So I understand your question. Still it's work -- the work will be delivered. I hope it will be May 1 on the -- or June 1, on the new range of the Web Cloud and the new range of the VoIP. And when we will see also what to do exactly, we have different options for the access, for the connectivity. Stephanie Besnier: And your last question, Derric, was on AI contribution. You remember, I mean, we always mentioned and that was true so far that we remain cautious with regard to AI, considering the level of return of investment that we've seen so far. So the contribution remained quite small because we invested tactically to answer also some requests from our customers. It's around 1 point like in the previous quarter. Now I mean you may have seen the announcement last week, we've decided to launch our lab -- our AI labs. We've made a small acquisition for Dragon LLM. And last point is that we -- in the context of this inflation on the standard components, we do see a clear improvement on the GPU return compared to CPU. And now it looks like we could achieve similar return on GPUs and on some of our CPUs. So basically, what I'm saying is that we are seeing an evolution on the market and on the economics, and we are ready to invest in the coming quarter more significantly in AI. Operator: The next question comes from Qihang Zhang from Lazard. Qihang Zhang: It's regarding your leverage -- levered free cash flow guidance is guided to be positive for financial year 2026. Could you please elaborate on this front? Is the EUR 50 million locked-in stock for '27 included in this guidance? And how should we think about the working capital for this year? Stephanie Besnier: Thank you for your questions. So to be very transparent on the levered free cash flow, like we explained, we are going to acquire components ahead of '27 that will be clearly isolated and stopped for '27 for EUR 50 million that will help us secure our supply chain. And also by doing so, it's prudent management because we will generate what we estimate around EUR 50 million of cost savings. So we are going to invest EUR 50 million more exceptional. And in front of it, we are going to set up an exceptional short-term financing of EUR 50 million. So those 2 elements will be included in our levered free cash flow and neutralized. So basically, I would say, adjusted for '26 basis, our levered free cash flow is going to be positive in '26. We don't guide for any specific numbers. It will be, in any case, above 0. And working capital, I mean, we don't guide also specifically. You see that we have some positive impact for this semester because we had some payments that were out of the period, it will also depend on the timing of the reception of the CapEx. So it's a bit too soon to comment on our working capital for the full year. Operator: Thank you for your questions. I hand the conference back to the OVH management for any closing comments. Octave Klaba: Perfect. Thank you very much for your questions. Just to have the key takeaways, highlights. 5.5% growth like-for-like. Adjusted EBITDA that is a record from IPO and the front-loaded CapEx for FY -- so H2 '26 and a lock in the stock for CapEx FY '27. Last strategic initiatives, we have -- we wanted to highlight 3 of them. Defense market, we go after this. Going after the acquisition of the small customers, digital customers, having more pressure of that and going after this more regular midsized deals and also launching our AI labs with the acquisition of Dragon LLM. In FY '26 guidance, 5% to 7% of growth like-for-like, adjusted EBITDA more than FY 2025, adjusted CapEx 33%, 35% of the revenue and positive levered free cash flow. I want to thank you for all your questions at the time and having a very good day. Stephanie Besnier: Thank you very much. Octave Klaba: Thank you.
Operator: Ladies and gentlemen, welcome to OVHcloud H1 Full Year 2026 Results. Today's speakers will be Octave Klaba, Chairman and CEO of OVHcloud; and Stephanie Besnier, CFO. I now hand over to OVH management to begin today's conference. Thank you. Octave Klaba: Good morning, everybody. I'm Octave Klaba, Chairman and CEO of OVHcloud. Thanks to being with us this morning. Let me start with the key highlights of H1 '26. As we announced, we generated EUR 555 million revenue and EBITDA EUR 227 million. That means that we generated around 5.5% like-for-like growth this H1. Our adjusted EBITDA, it's 40.9% and net revenue recurring rate, it's more than 100%. And we had this other -- unlevered free cash flow of EUR 32.3 million. As the key initiatives, so as you know, I started as the CEO 6 months ago, I make my -- a lot of interviews internally, and we already started some strategic initiatives in OVH to start this 5-year strategic plan that we started with '26 to '30. And inside of that, we announced that we will create -- that we actually started to create a vertical in defense market. The goal is really to go after the customers and the needs that we had a lot of feedback in the last quarter, and for this very critical horizon that some customers they ask us. Another strategic initiative, it's really focusing on the sales side on the Starters and Scalers on the acquisition. We can go deeper insight if you have any question about that. And on the corporate, more focusing on the regular fast closing, midsized deals. And again, I have some highlights if you have the questions about that. And we announced also that we create our AI lab, and it started -- it was initiated with this acquisition of Dragon LLM. And it's really to address the growing market that we feel that we -- our customers, they want us to be part that it's agentic AI. And on the operational highlights. So we had a few things that we wanted to share with you. So we had this EBITDA that is quite highest record from the IPO 5 years ago. So we still continue to improve the EBITDA, and it's going up and the goal is really to not to be satisfied with the level that we have today. And there was another key operational highlight. It's about the front-loaded CapEx to secure the -- our free cash flow in this year and the next year. So I think you will have some questions about that. So we will go deeper with your questions. So next page, please. On the -- so let's go deeper in the different range of products. So first one is private cloud. So we generated EUR 169 million that represents about 60.5% of our group revenue, and the growth is about 2.9% from the like-for-like growth on the Q2. And on the H1, it's 3.4%. As the highlight on the bare metal, so you know we started these initiatives in the first H1, first quarter and the second quarter. As the result, we have this 12% more customers acquisition. If we compare H1 '25 and H1 '26, it works better on the acquisition, but we need still to continue and to increase our aggressivity on the market and to win more customers. So what we put in place works, but it's not enough. I want more. And this is where we want to go into H2, in the Q3 and Q4 after more customers on the startup. On the scalers, we have this continued growth, and it works nicely what we have internally. There's still some improvement. But what we have, I'm happy what we have. And on the corporate, yes, we had some churn on some 2 customers on the corporate that didn't impact on the fundamentals of the -- on the growth. So we still have growth on that, but just we lost 2 corporate customers on that. Yes, we announced that we signed a strategic deal, strategic contract with Alchemy that is a blockchain platform. And we have a lot of successful in this blockchain platform that helps us really understand how to grow faster in the scaler go-to-market. On the hosted private cloud, on the Starters and Scalers, we still see that there was a few optimization of our customers. We are working on this new product. And I think in the next weeks, where you will see some announcement that we'll make with Broadcom. In other corporate, it's -- we really ramp up of this mission-critical deals that it's a really interesting market that we didn't have yesterday that based on the 3-AZ, maybe we'll have a chance to talk about that. Next page, please. On the public cloud, on the public cloud, we generated in the Q2, EUR 60 million, that is EUR 119 million in H1. There was 26% of Q2 growth and 14.5% of the growth in Q2. That means on the H1, it's 15.1% of growth. So we have a solid new customer acquisition. As I said, we changed the things, but still, we can make it better. On the scalers, strong upside of the current customers, and we see the opportunities on the additional products on this 3-AZ approach that we have that customers really like, and we see some migrations from the current data centers to this new model of the 3-AZ. On the corporate, we have more traction on the corporate. Still, those small -- the 2, 3 products that is still missed, and it will be delivered in the next quarters that will help definitely to go after this corporate market -- on the corporate market. So we've also have been working a lot, and we will secure more our public cloud on this end-to-end encryption on the confidential computing on the -- all the securities that it's -- that we can deliver on this public cloud in the product. And this is additional value that some customers, they are asking us. On the entry level of the range of the product, the VPS and the SaaS, we have a good proof that what we've done, it works well because we had more than 100% of additional customers that we had in H1 '26 versus H1 '25. That means that we doubled acquisition of number of customers. We started to see that in the revenue, and we'll see how it will evolve in the next quarters. But this is kind of prove that the strategy of the very aggressive prices, more volume, more customers and then having this machine to upsell and going and helping customers to use all our products, it works. Now we need to scale that and to go after more geographies, more customers and to be more aggressive, and this is what we will see in the next quarters. Next page, please. On the Web Cloud, we generated EUR 50 million, that means on the H1, EUR 100 million growth of the Q2, 70.5% and on that 70.5% of our group revenue. And then our growth is 2.4% on the Q2 and 2.5% on the H1. There was still -- yes, I would just go after the topics, and then I would just add additional comments on that. So on the starters, we just didn't really started repricing and to generate new demand, okay? This is exactly what we are doing right now, and it will be delivered in the next 2 months, 1 or 2 months, it's really ongoing. So we want to be really seen as very competitive on the starters market for the Web Cloud, but we have also the opportunity to go after the more higher market of the customers. They are more pro business that they trust us and they order us more products. So we want to go after this 2 segmentations of the products and also working on the web AI. And you will see the next quarters, next months, this transformation of the web cloud to the web AI that we will operate over the next months and quarters to go after this totally new market where AI helps our customers to build a faster, faster delivering website, help them to operate them to having the marketing, to having the additional products, the additional services. And this is what we are doing right now on the web cloud. So you don't see really the results of that in the numbers today because this is what we started last quarter, and there's still a lot of things to do, but you will see by the end of this fiscal year, I hope the first result of this strategy. Next page, please. If we see on the split by countries, France, we have in Q2, a growth of the 4.5%. That means on the H1, 5%. On the Europe, excluding France, we have 2.9% and then on the H1, 2.5%. I have to say that it was a really complex quarter. There was a lot of -- there was something that is really new, but we have seen that last 2, 3 years. And it seems like on this Q2 period of time, we will see in the next years, this customer optimization because it is end of the calendar year for events and the beginning of the next year. And I think this is what we have seen -- we started to see as the -- for the last year, this year and 2 years ago, that we have this kind of the new pattern of the behavior of the customers in December, January, February, where you see optimization of the cost and to having these discussions probably internally on the budget and the event starting as lower as they can, the new year and event then grow over the year until the December. So it's something that it's not confirmed yet. We're still working on the numbers to really understand. But this is also what we see on this Q2 result that we knew that it will be -- it's a tough period. Now we started to know and started to understand why it's a tough period. Still work to do to really understand the behavior of the customers and to confirm that we will have in the future this Q2 pattern on our revenue. So I don't know yet, but it is what we started to see. And then the rest of the world, we had this Q2, 8.7% and then H1, 9.5% still continue to grow on the bare metal and on this public cloud product. So I will let Stephanie to go in the financial results, and I will have talk with you on the outlook. Stephanie Besnier: Thank you very much, Octave. Hello, everyone. This is Stephanie speaking. Thank you for being with us this morning. So let's begin this financial section with our key financial figures for H1. So we delivered a profitable growth with a record adjusted EBITDA margin since our IPO and solid unlevered free cash flow despite having significantly front-loaded our CapEx ahead of H2. We'll come to that point. So we recorded an organic revenue growth of 5.5% and adjusted EBITDA margin of 40.9%. So we are up 90 basis points compared with H1 '25, thanks to our operational efficiency. And CapEx was 42.9% of our revenue, up 6.9 points compared with last year H1 '25, of which 11% were front-loaded for H2. We have decided to make proactive investments to secure our supply chain and mitigate the impact of skyrocketing component costs, which began to materialize in our Q2. Despite this anticipation of our CapEx, you see that we generated a solid unlevered free cash flow of EUR 32.3 million on this H1. So going to the next slide. Regarding our top line, as Octave said at the beginning, we delivered a like-for-like growth of 5.5% during this H1. So this was driven by, first, a private cloud performance, up 3.4% like-for-like, impacted by a 1.2 point headwind from the churn of the 2 corporate clients that we mentioned during our Q1 results. And we have also a softer hosted private cloud dynamics following Broadcom price increases. Second, public cloud continues to lead our growth trajectory, up 15.1% like-for-like, confirming its position as our primary growth engine. And last, Web Cloud, up 2.4% like-for-like. So now let's take a closer look at our P&L on the next slide. So P&L, as you can see, we achieved another strong step-up in profitability with an adjusted EBITDA of EUR 227 million in H1, and it represents a margin of 40.9%, our highest margin since our IPO. So the strong 90 basis points improvement in our EBITDA margin is coming from a positive mix effect on our direct costs, reduced electricity costs as a percentage of revenue compared to H1 at less than 5% of our revenue. And I can tell you that we are hedged in the current context also for the next 18 months. And we have also a strong operating leverage on our fixed cost base. We delivered an EBIT of EUR 35.4 million, representing a margin of 6.4%. On a like-for-like basis, if we exclude the one-off gain from the disposal of a legacy data center in Paris last year, our EBIT margin remained broadly stable. After including a financial result of minus EUR 28.7 million and a tax expense of EUR 0.7 million, we recorded a net profit of EUR 5.9 million for H1, slightly lower than last year. Now let's look at the increase in profitability, how it translated into cash generation. So our strong profitability enabled us to generate a solid unlevered free cash flow of EUR 32.3 million in H1 '26. So our CapEx, if we exclude M&A, amounted to EUR 238 million -- EUR 238.5 million exactly in H1, and it represents 43% of our revenue. Our growth CapEx accounted for 30% of revenue. And again, 11 points of our CapEx were deliberately front-loaded ahead of H2 to secure component availability and contain hyperinflation. Recurring CapEx represented 13% of revenue. So our level of CapEx is compensated by our profitability and change in operating working capital requirements, which was higher than usual and amounted to EUR 54.7 million in H1, and it includes phasing effect due to late orders in February. So all in all, after leases and financial charges, our levered free cash flow stood at minus EUR 14.2 million. So now let me give you a detailed view of our CapEx on the next slide. So our CapEx, again, excluding M&A, represented approximately 43% of revenue in H1. So let me explain the key moving parts. First, on the hardware CapEx, it represented 33% of revenue, EUR 187 million. So it's a step-up compared with EUR 27 million in H1. And as I already mentioned, this was a deliberate decision in face of a global supply crisis on memory and disk components to first secure our component availability and contain cost hyperinflation. Second, our infrastructure and network CapEx came down to 2% of revenue, EUR 11 million, with some phasing effect from H1 to H2. And product and software CapEx remained stable around EUR 37 million, 7% of our revenue, reflecting our continued investment in expanding the product portfolio. Notably with new public cloud services and mission-critical offerings while we control our costs. Other CapEx remained marginal, around 1% of our revenue. So now given the exceptional supply environment, we have adjusted our full year CapEx guidance, which I will walk you through on the next slide. So as I just mentioned, the global component crisis, particularly on memory and disk has led us to adjust our full year '26 CapEx guidance. So I will take you through the bridge on this slide. You'll remember, our initial guidance was 30% to 32% of CapEx as a percentage of our revenue. The exceptional hyperinflation on memory and disk components add approximately 3 percentage points. However, we decided to front-load some of those CapEx, and by doing so, we realized a saving of approximately EUR 10 million in our H1. So we are already partially offsetting the inflation impact through proactive timing, and we are securing our supply. So this brings our new FY CapEx guidance to 33% to 35% of revenue. This adjustment is cyclical and not structural. It reflects the current component inflation environment. We have already passed through price increases to part of our customers effective April 1, and we continue to monitor the situation closely to calibrate further adjustments as needed. On top of this, we are going to build a dedicated stock of approximately EUR 50 million in memory and disk components. Those are standard components, and there are no obsolescence risk, and it will be strictly earmarked for '25 consumption. This exceptional envelope allows us to secure availability. This is very important, and we lock in pricing ahead of further anticipated cost increases. Here again, by purchases in H2 rather than at the beginning of '27, we estimate additional savings of approximately EUR 15 million, 1-5. So in total, EUR 10 million in H1, EUR 15 million coming up in H2. Our front-loading strategy generates EUR 25 million savings that would have been lost had we waited. To finance this EUR 50 million of lock-in stock for '27, we will use a dedicated exceptional financing facility. So our underlying business generates sufficient cash to cover all our FY '26 investments and delivering a positive levered free cash flow in FY '26 that we confirm today. So including exceptional and dedicated financing for those lock-in stock for FY '27 CapEx. Let me now turn to our balance sheet and financial structure. That will be my last slide. So our financial structure remains robust and well positioned for the future. Our net debt stood at EUR 1.125 billion at the end of February '26, and it's broadly stable compared to August '25. Our leverage ratio has continued to decrease 2.6x our EBITDA, in line with our debt policy. The all-in cost of debt remained unchanged year-on-year at 4.4%, demonstrating the quality of our hedging strategy. Available liquidity stands at EUR 236 million, comprising EUR 36 million in cash and our undrawn EUR 200 million multipurpose credit facility. As you can see on the right-hand side of the slide, we have no major debt repayment before FY 2030, giving us significant financial flexibility. Our funding sources are well diversified. We have our EUR 500 million inaugural bond at a fixed rate of 4.75% maturing in FY '31, rated BB- by S&P and Ba3 by Moody's, our EUR 450 million EU taxonomy aligned green loan maturing in FY 2030. So it's a first for a European cloud player. Our EUR 200 million EIB credit facility; and finally, our undrawn multipurpose facility of EUR 200 million. And this credit facility was also converted into a sustainability-linked loan, further reinforcing our commitment to responsible financing. So in summary, we have a strong, well-hedged balance sheet with no near-term refinancing needs, supporting our path to positive free cash flow. And now I will hand over to Octave to discuss our outlook. Octave Klaba: Thank You, Stephanie. So for the FY '26 activity, our guidelines don't change, doesn't change. We anticipate like-for-like revenue growth of 5% to 7%. Adjusted EBITDA margin more than FY '25. CapEx, adjusted CapEx, if we consider really FY '26 activity is 32%, 35%, that is a little bit more, but levered free cash flow -- free cash flow will be positive for this '26 activity. So now we open the floor for your questions, if you have any. Operator: [Operator Instructions] The next question comes from Ines Mao from BNP Paribas. Ines Mao: I just have 2 questions. The first one is on your CapEx breakdown. So I look at the CapEx breakdown by component. I see that hardware was up as a percentage of revenue, which was voluntarily. But if it was only hardware, why was also recurring CapEx higher in H1 year-over-year? And my second question is, can you comment further on potential pass-through price increases to moderate the impact of this price up cycle on CapEx? Is it still on the menu? Or is -- yes, can you give us more color on this? Stephanie Besnier: Yes. Thank you, Ines. So we have a slight increase of our recurring CapEx to 13% of our revenue. This incorporates also the impact of inflation that started to kick in, particularly in our Q2 numbers. And as for the price increase, we have already started to partially pass through the impact of this inflation. We launched the first initiative around increasing our prices April 1. We are doing it tactically. We don't price all our customer bases. We focus particularly on the new configurations, on new customers and also on products where we have less price elasticity. And obviously, I mean, we remain very careful, like we mentioned, and we will continue to monitor the evolution of the prices to be ready to react and to engage into potentially new price increases if needed. Operator: [Operator Instructions] The next question comes from Derric Marcon from Bernstein. Derric Marcon: So the first one is on price increase. Can you quantify the impact that it will have in 20 -- in fiscal year 2026? And what was factored in the unchanged guidance of plus 5%, plus 7%? And if we look to 2027, what would be the impact of this price increase? That's my first question. The second question is about the telephony and connectivity. Do you see the trough coming in the next quarters? Or where do you see the trough for this business because it's still waiting on the performance of Web Cloud in H1? And my third question is on AI. Could you quantify, please, the impact of AI on public cloud growth? Stephanie Besnier: Thank you, Derric, for your questions. So first, on the price increase, I mean, we've just launched them a few days ago. Like I said, I mean, we've done tactical price increase, and this will have a gradual effect. We have some of our customers that are committing. So bear in mind that this will flow through over several quarters. We will also monitor the impact of this price increase. So far, it's too soon to tell you a clear impact. In any case, on that basis, we have no -- we have decided not to change our guidance, and we confirm the 5% to 7% range for this year. And again, for the same reason, I mean, we monitor the impact in our Q3. We'll have a better view probably at the end of Q3 of this impact, and we will work also on the guidance for '27 in the coming months, and we'll get back to you with indications and guidance for '27 at the end of October during our full year communication. Octave Klaba: On the VoIP and access, thanks for this question. So no, we don't see any change for the moment. We started to work on the web pages on the offers just last quarter, and it's still the work we are working on. I hope that the next quarter, it will be done, and we will start seeing the difference in this decrease of the revenue because it's impacting the perception on our growth on the Web Cloud. So it's sad to have this decrease of the revenue while we're doing well on the domain name of the e-mails, et cetera. So I understand your question. Still it's work -- the work will be delivered. I hope it will be May 1 on the -- or June 1, on the new range of the Web Cloud and the new range of the VoIP. And when we will see also what to do exactly, we have different options for the access, for the connectivity. Stephanie Besnier: And your last question, Derric, was on AI contribution. You remember, I mean, we always mentioned and that was true so far that we remain cautious with regard to AI, considering the level of return of investment that we've seen so far. So the contribution remained quite small because we invested tactically to answer also some requests from our customers. It's around 1 point like in the previous quarter. Now I mean you may have seen the announcement last week, we've decided to launch our lab -- our AI labs. We've made a small acquisition for Dragon LLM. And last point is that we -- in the context of this inflation on the standard components, we do see a clear improvement on the GPU return compared to CPU. And now it looks like we could achieve similar return on GPUs and on some of our CPUs. So basically, what I'm saying is that we are seeing an evolution on the market and on the economics, and we are ready to invest in the coming quarter more significantly in AI. Operator: The next question comes from Qihang Zhang from Lazard. Qihang Zhang: It's regarding your leverage -- levered free cash flow guidance is guided to be positive for financial year 2026. Could you please elaborate on this front? Is the EUR 50 million locked-in stock for '27 included in this guidance? And how should we think about the working capital for this year? Stephanie Besnier: Thank you for your questions. So to be very transparent on the levered free cash flow, like we explained, we are going to acquire components ahead of '27 that will be clearly isolated and stopped for '27 for EUR 50 million that will help us secure our supply chain. And also by doing so, it's prudent management because we will generate what we estimate around EUR 50 million of cost savings. So we are going to invest EUR 50 million more exceptional. And in front of it, we are going to set up an exceptional short-term financing of EUR 50 million. So those 2 elements will be included in our levered free cash flow and neutralized. So basically, I would say, adjusted for '26 basis, our levered free cash flow is going to be positive in '26. We don't guide for any specific numbers. It will be, in any case, above 0. And working capital, I mean, we don't guide also specifically. You see that we have some positive impact for this semester because we had some payments that were out of the period, it will also depend on the timing of the reception of the CapEx. So it's a bit too soon to comment on our working capital for the full year. Operator: Thank you for your questions. I hand the conference back to the OVH management for any closing comments. Octave Klaba: Perfect. Thank you very much for your questions. Just to have the key takeaways, highlights. 5.5% growth like-for-like. Adjusted EBITDA that is a record from IPO and the front-loaded CapEx for FY -- so H2 '26 and a lock in the stock for CapEx FY '27. Last strategic initiatives, we have -- we wanted to highlight 3 of them. Defense market, we go after this. Going after the acquisition of the small customers, digital customers, having more pressure of that and going after this more regular midsized deals and also launching our AI labs with the acquisition of Dragon LLM. In FY '26 guidance, 5% to 7% of growth like-for-like, adjusted EBITDA more than FY 2025, adjusted CapEx 33%, 35% of the revenue and positive levered free cash flow. I want to thank you for all your questions at the time and having a very good day. Stephanie Besnier: Thank you very much. Octave Klaba: Thank you.