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Operator: Good morning. I'll now turn the call over to Scott Parsons, Alamos' Senior Vice President of Corporate Development and Investor Relations. Scott Parsons: Thank you, operator, and thanks to everybody for attending Alamos' Fourth Quarter 2025 Conference Call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer; Greg Fisher, Chief Financial Officer; Luc Guimond, Chief Operating Officer; and Scott Parsons, Vice President of Exploration. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Boswick, our Senior VP of Technical Services and a qualified person. Also, please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now John will provide you with an overview. John McCluskey: Thank you, Scott. So I'm going to start with Slide 3. Production for 2025 was 545,000 ounces, below our guidance as a result of severe weather in late December and other challenges at the Canadian operations. Our costs were above annual guidance, reflecting the same factors. Despite the setbacks, we delivered a number of financial records, including revenue of $1.8 billion and record free cash flow of over $350 million, while funding our high-return growth projects. Supported by strong free cash flow generation, we doubled our shareholder returns, further strengthened our balance sheet by reducing our debt and eliminated more of the hedges inherited from the Argonaut Gold transaction, giving us increased exposure to higher gold price. Looking ahead to 2026, we expect a meaningful improvement in operational performance to drive a 12% increase in production. This will be driven by ramp-up of mining rates at Island Gold as part of the Phase 3+ Expansion as well as higher mining rates at Young-Davidson. We expect further growth in production at lower costs in the coming years as we deliver on the larger Island Gold District expansion by 2028 and bring Lynn Lake into production by 2029. Our longer-term outlook remains firmly on track to nearly double our annual production of approximately over 1 million ounces a year at lower costs. Now turning to Slide 4. Over the past month, we outlined the key drivers of our strong outlook. As detailed in our updated 3-year guidance, we expect to deliver a 46% increase in production at approximately 20% lower all-in sustaining costs by 2028. We also provided exploration updates on our mines and exploration projects, highlighting significant upside potential across our portfolio. Our successful exploration program in 2025 contributed to a 32% increase in year-end mineral reserves to 16 million ounces, making the seventh consecutive year of growth. This included a near doubling of reserves at Island Gold District to over 8 million ounces. As announced earlier this month, this growth is being incorporated into a larger expansion of the district, which is expected to create one of the largest, longest life and most profitable gold operations in Canada. This is a high-return expansion that the Island Gold District can fund on its own while contributing to our increasing free cash flow. Reflecting this strong outlook and growing free cash flow, we are pleased to announce a 60% increase in our dividend commencing this quarter. As outlined in the expansion study, we will be expanding milling rates to 20,000 tonnes per day. The higher rate is supported by increased mining rates of 3,000 tonnes per day from underground and 17,000 tonnes per day from the open pit. With the completion of the expansion in 2028, annual production from the Island Gold District is expected to average 534,000 ounces of gold for the initial 10 years at lower mine site all-in sustaining costs of $1,025 per ounce. This is more than double the 2025 production and at 30% lower costs. At a conservative $3,200 per ounce gold price, the operation will generate in excess of $800 million of annual free cash flow and have an after-tax net present value of $8.2 billion. At a gold price of $4,500 per ounce, the after-tax NPV increases to $12 billion, making the Island Gold District one of the largest and most valuable gold operations in Canada. Now turning to Slide 6. Our 3-year guidance outlined a clear path to reach 800,000 ounces of gold production by 2028 at nearly 20% lower all-in sustaining costs of approximately $1,250 per ounce. Longer term, the completion of the Island Gold District expansion in 2028 and initial production from Lynn Lake in 2029 is expected to drive our production to approximately 1 million ounces per year by the end of the decade with a further decrease in costs. We have one of the best growth profiles in the sector, and we can fund all our growth internally while we continue to generate increasing free cash flow. So I'll now turn the call over to our CFO, Greg Fisher, who will review our financial performance. Greg? Greg Fisher: Thank you, John. Moving to Slide 7. We sold 142,000 ounces of gold in the fourth quarter at an average realized price of $3,998 per ounce for record quarterly revenues of $575 million. For the full year, we sold 531,000 ounces at a realized price of $3,372 per ounce for record annual revenues of $1.8 billion, up 34% from 2024. Our full year total cash cost of $1,077 per ounce and all-in sustaining costs of $1,524 per ounce were above annual guidance, driven by higher costs in the fourth quarter and the temporary challenges at our Canadian operations. Operating cash flow before changes in noncash working capital was $285 million in the fourth quarter or $0.68 per share. This was reduced by $63 million or $0.15 per share, reflecting the cash utilized to eliminate the legacy Argonaut Gold hedges prior to maturity. For the full year, operating cash flow before changes in noncash working capital increased 27% to a record $924 million or $2.20 per share. Our reported net earnings were $435 million in the fourth quarter or $1.03 per share. This included $227 million after-tax gain on the sale of noncore assets, loss on commodity hedge derivatives of $35 million and other adjustments of $16 million. Excluding these items, our adjusted net earnings were $228 million or $0.54 per share. Our full year adjusted net earnings were $587 million or $1.40 per share. Capital spending in the quarter totaled $158 million and include $50 million of sustaining capital, $97 million of growth capital and $11 million of capitalized exploration. For the full year, total capital expenditures were $507 million, including growth capital of $318 million. We continue to fund our high-return growth internally while generating strong free cash flow. This included a record $157 million of free cash flow generated in the fourth quarter and a record $352 million for the full year. Reflecting our growing free cash flow and strong financial position, we returned $81 million to shareholders in 2025, double the amount returned in 2024. This includes the repurchase of 1.3 million shares at a cost of $39 million and dividend payments totaling $42 million. With additional free cash flow growth ahead, we expect further increases in our shareholder returns, starting with a 60% increase in our dividend this quarter. We also paid down $50 million of debt and eliminated half the 2026 legacy hedges inherited from Argonaut Gold. To date, we have now repurchased and eliminated 230,000 out of the 330,000 ounces hedged by Argonaut prior to maturity, providing increased exposure to the rising gold price. We will continue to look for opportunities to eliminate the remaining 100,000 ounces subject to hedges across the second half of 2026 and first half of 2027. Given our strong free cash flow, our cash position grew 90% from the end of 2024 to $623 million, while reducing our debt to $200 million. We expect growing production and declining costs to drive increasing free cash flow over the next several years, while we continue to fund our organic growth plans. With that, I'll turn the call over to our COO, Luc Guimond, to provide an overview of our operations. Luc? Luc Guimond: Thank you, Greg. Over to Slide 8. Fourth quarter production from the Island Gold District totaled 60,000 ounces, a 10% decline over the previous quarter due to lower underground mining rates as well as reduced mill throughput. For the full year, production totaled 250,400 ounces, a 33% increase over the previous year, but slightly below the low end of revised annual guidance. During the fourth quarter, underground mining rates of 1,160 tonnes per day were impacted by additional rehabilitation work related to the seismic event that took place in October as well as downtime in late December due to severe winter weather. This prevented the delivery of supplies and access to site by personnel and emergency services, thus requiring a 3-day standdown of underground operations. The Island Gold mill averaged 1,180 tonnes per day in the fourth quarter, consistent with underground mining rates. The underground rehabilitation work required to ramp up mining rates as part of the Phase 3+ shaft expansion is substantially complete. Mining rates are on track to increase to an average of 1,400 tonnes per day in the first quarter of 2026 and gradually increase to 2,000 tonnes per day in the fourth quarter, driving growing production through the year. The open pit portion of the operation continues to perform well with mining rates averaging 16,600 tonnes per day of ore in the fourth quarter and 15,000 tonnes per day for the full year, in line with guidance. Magino milling rates averaged 8,625 tonnes per day in the fourth quarter, a modest improvement over the third quarter, but below expectations, in part reflecting weather-related disruptions late in the quarter. With a number of initiatives being implemented through the first quarter of 2026, milling rates are expected to improve substantially in the second half of the year. Total cash costs and mine site all-in sustaining costs were above annual guidance, driven by lower mill throughput at Magino and lower mining rates at Island Gold. The Island Gold District generated mine site free cash flow of $61 million in the fourth quarter and a record $205 million for the full year, net of significant capital investment related to the Phase 3+ shaft expansion and exploration. At current gold prices, the Island Gold District is expected to continue generating strong free cash flow while funding its expansion plans and a robust exploration program. We are expecting a significant improvement from the Island Gold District in 2026 with production expected to increase 24% to between 290,000 and 330,000 ounces, driven by the ramp-up of underground mining rates and improved milling rates at Magino. Moving to Slide 9. To improve processing rates within the Magino mill, we have added a temporary crusher to provide supplemental crushed ore feed downstream from the existing secondary crusher. This is expected to help sustain the flow of crushed ore into the mill and support higher milling rates of 10,000 tonnes per day by the end of the second quarter. Additional improvements we are implementing include ongoing work with third-party specialists to optimize and improve the reliability of the circuit and the restructuring of maintenance and mill operating management teams, which will ensure constant senior level oversight. Longer term, the addition of the gyratory crusher, new truck dump configuration and ore bins as part of the larger expansion of 20,000 tonnes per day will support further improvements to the performance of the existing circuit. Moving to Slide 10. Substantially, all the capital related to the Phase 3+ expansion has been spent or committed with the shaft infrastructure and paste plant commissioning expected in the fourth quarter. This will be the catalyst to increase mining rates to 2,400 tonnes per day in 2027 and ultimately, 3,000 tonnes per day in 2029 as part of the larger expansion. The photo on the right highlights the progress on the 1,350 shaft station. Once the station is completed, the remaining 29 meters to shaft bottom will be sunk by the end of the first quarter. Over to Slide 11. As John previously noted, the Island Gold District expansion to 20,000 tonnes per day is expected to create one of the largest, lowest cost and most valuable gold mines in Canada. Following the completion of the expansion in 2028, production is expected to increase to average 534,000 ounces per year over the initial 10 years at mine site all-in sustaining cost of $1,025 per ounce. This represents more than double the production from the district in 2025 at 30% lower all-in sustaining costs. At a $4,500 per ounce gold price, the expansion has an after-tax IRR of 69% and net present value of $12 billion. The Island Gold District is quickly evolving into one of Canada's largest, most profitable and valuable operations. And as Scott will touch on later, we believe there is more upside to come given the significant exploration potential. Over to Slide 12. As detailed in the photos, the expansion to 20,000 tonnes per day is well underway. As part of the Phase 3+ shaft expansion, we already started construction on a new mill building that was sized to accommodate the larger expansion. The new circuit will blend -- we'll process a blend of high-grade underground ore as well as open pit ore at a rate of 10,000 tonnes per day, while the existing circuit will process only open pit ore at only -- at also 10,000 tonnes per day. Construction of the open pit truck shop is well underway, which will follow for timely and cost-effective maintenance of the mobile fleet. With all the earthworks and concrete foundations complete and structural steel already erected, the larger expansion of the operation has already been significantly derisked. Over to Slide 13. Young-Davidson produced 41,400 ounces in the fourth quarter, a 9% increase over the previous quarter, but below expectations. Mining rates were impacted by severe weather conditions in late December, rehabilitation work required on 1 of 3 ore passes and the failure of a small portion of a paste plug underground. Production for the full year totaled 153,400 ounces, below revised guidance due to lower-than-expected mining rates and grades. With rehabilitation work completed on the impacted ore pass and an additional ore pass being commissioned this quarter, the total number of ore passes will increase to 4, providing additional operational flexibility. This is expected to support improved mining rates of approximately 7,600 tonnes per day in the first quarter and 8,000 tonnes per day in the second quarter and through the rest of the year. Cost per ounce were above guidance for the full year due to lower mining rates and grades processed. Despite the temporary challenges, Young-Davidson generated record mine site free cash flow of $250 million in 2025. In 2026, improved mining rates are expected to drive an increase in production from Young-Davidson to between 155,000 and 175,000 ounces, supporting strong ongoing free cash flow at current gold prices. Over to Slide 14. Production from the Mulatos District totaled 40,100 ounces in the fourth quarter, an 8% increase over the previous quarter, reflecting higher stacking rates and the recovery of previously stacked ounces on the leach pad. Production for the full year was 141,600 ounces, in line with annual guidance, which was revised higher in October. For the full year, costs were also in line with guidance. The Mulatos District generated record quarterly mine site free cash flow of $92 million and $222 million for the full year, net of $100 million in cash tax payments. The district remains well positioned to continue generating strong free cash flow while fully funding construction of the PDA project. For 2026, production from the Mulatos District is expected to be between 125,000 and 145,000 ounces at similar costs to 2025. I will now turn the call over to our VP of Exploration, Scott Parsons. Scott R. Parsons: Thank you, Luc. Over to Slide 15. We continued our track record of growth with a 32% increase in mineral reserves to 16 million ounces at the end of 2025. This marked the seventh consecutive year of growth over which reserves have increased 64% with grades also increasing 24% as our reserve base continues to grow in both size and quality. This year's growth was mainly driven by the Island Gold District, which added nearly 4 million ounces to reserves in 2025. Measured and indicated resources increased 6% with growth at Young-Davidson, the Mulatos District and Lynn Lake more than offsetting resource conversion at Magino. Inferred resources decreased 63%, reflecting the successful conversion of Island Gold District resources to reserves. We recently announced exploration updates for all of our mines and projects, highlighting the significant upside potential across our asset base. This led to an increase in our 2026 exploration budget to nearly $100 million, 37% higher than in 2025. Over to Slide 16. The big driver of the year-over-year increase in reserves was the impressive growth at the Island Gold District. Underground reserves more than doubled, increasing 125% to 5.1 million ounces, while open pit reserves increased 56% to 3.1 million ounces. The increase was driven by a successful delineation drilling program at both deposits, which resulted in the conversion of a large portion of mineral resources into mineral reserves. Despite the focus on delineation drilling, we are successful in increasing our overall mineral inventory at Island Gold for the 10th consecutive year with mineral reserves and resources increasing to 6.8 million ounces. Over to Slide 17. Drilling continues to extend high-grade mineralization across the Main Island Gold structure as well as within several hanging wall and footwall structures. This includes in the Lower Island East area, where reserves have grown to include 1.6 million ounces, grading 15 grams per tonne of gold. This represents one of the highest grade portions of the ore body, containing some of the deepest and best drill hole intersections to date. Based on our ongoing success and with the deposit open laterally and at depth, we expect the Main Island Gold deposit will continue to grow well into the future. Over to Slide 18. At the regional scale, drilling at the past producing Cline-Pick and Edwards Mines continues to extend high-grade mineralization beyond the limits of historic drilling. This included intersecting the highest grade hole ever drilled at Cline-Pick at 178 grams per tonne over 3.5 meters. These regional targets are located within 7 kilometers of the Magino mill and represent potential future sources of higher-grade supplemental feed as part of a larger district expansion. Over to Slide 19. The deepest holes drilled to date at Cline-Pick have intersected high-grade mineralization at depth of 540 meters. By comparison, drilling at Island Gold has intersected high-grade mineralization down to depths of over 1,600 meters. Both deposits remain open at depth and with similar deposits in the Canadian shield extending well beyond depth of 3,000 meters, there's significant potential for further growth and upside to the Island Gold District expansion study. Additionally, limited drilling has been completed within the 7-kilometer gap between Island Gold and Quin Pick and further along strike to the Northeast across our broader 60,000-hectare land package, highlighting the district scale potential. With that, I'll turn the call back to John. John McCluskey: Thank you, Scott. And I'll turn the call over to the operator who will open up for your questions. Operator: [Operator Instructions] Your first question comes from Cosmos Chiu with CIBC. Cosmos Chiu: Maybe my first question is on exploration here. Good to see that you're targeting some of the higher-grade mineralization at Young-Davidson and some of the newly defined hanging wall zones. I guess my question is, some of these new targets, are they still associated with the historic kind of cyanide intrusive rock? Or are you actually finding stuff in some of the sediments and ultramafic stratigraphy? And if it is still associated with cyanide, what makes it so that this is potentially higher grade? Scott R. Parsons: Thanks for the question, Cosmos, this is Scott. So to start, I guess, what got us really excited initially about the hanging wall mineralization that we're intersecting at YD in 2024 initially was that it was a different style of mineralization. So it was in the hanging wall in a different lithologies. So we're seeing this in conglomerates, volcanics and the cyanides out there as well, but the higher grades we were seeing were associated with the conglomerate units. And that's what we've been focusing on drilling with our hanging wall drift and do see potential for higher grade mineralization in that conglomerate. The second hanging wall target that we had highlighted in our press release on exploration for 2025 was something called the South cyanide. So it's a similar lithology to what hosts the main reserves at Young-Davidson, but this is offset 300 meters south. So it's a different cyanide body, we think, at this time. And we are seeing locally higher grades within that and we are working as we speak on drilling that to understand what's controlling the higher grade in that south cyanide body. Cosmos Chiu: That's good to hear. And then I guess, another sort of deposit we don't talk enough about the PDA. And I know you talked about that a little bit -- quite a bit actually at the Investor Day. But can you remind me, as you mentioned, initial production is targeted for mid-2027. What kind of key deliverables are there in 2026? What are some of the kind of critical path items that you need to target in 2026 in order to get to your mid-2027 initial production? Luc Guimond: Cosmos, it's Luc here. I'll take that question. So I mean, there's 2 key components there. Obviously, one is on the mining side, establishing the port entrances, which is what we're currently working on right now. So there'll be 2 port entrances into the PDA underground workings. And then obviously, over the next -- over the life of the mine, but certainly over the next 12 months as we're looking to prepare for -- sorry, for the next 18 months to be able to prepare for commissioning of the mill complex to bring that online will be development work and still preparation as far as being able to maintain and sustain our mining rates at 2,000 tonnes per day. So that's the key aspect is really get the portals commissioned this year, established and start on the development work over the next 18 months and the rest of that life of the mine of that operation. The other key component is related to the processing plant. So we've already -- we're well advanced on that as well. Most of the earthworks have been completed for the crushing station locations as well as the -- where the -- sorry, where the ball mill is going to be located for the mill complex. And we've already procured the long lead items that we need with regards to that construction schedule. And everything is well advanced to be able to have most of the work will get completed through the 2026 period. And then by mid-2027, we'll be wrapping up some of the construction-related activities related to the processing plant itself. But everything is tracking online, on schedule and certainly on budget for mid-2027. Cosmos Chiu: Great. And then maybe one last question, bigger picture here. And it was certainly good to see that you've increased your dividend by 60%. But I guess my question is, do you feel like you're getting fully rewarded for this dividend by the market? Or do you think you need to target a higher yield before you can get fully rewarded by the market for this dividend? And maybe broader, John, if you can talk about kind of your capital return strategy. John McCluskey: We've done -- historically, we've paid this dividend going back to 2010. We've always done a combination of dividends and share buybacks. Last year, we almost returned as much by way of share buybacks as we did through the dividend. And we're always going to keep that in balance. We're very opportunistic with respect with the share buyback. But the dividend itself, I think there's further room for growth, but this is a good indicator of our intentions. And despite the fact that we're going through a heavy capital spend schedule over the next couple of years as we effectively double our production between now and the end of the decade, the gold prices are strong. We're generating phenomenal free cash flow. There is -- there was room to increase the dividend, and we did so. But I think investors should expect more dividends to come. Operator: There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932, extension 5439.
Operator: Good day, and welcome to the ONE Gas Fourth Quarter and Year-End 2025 Earnings Conference Call and Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Ms. Dailey. Erin Dailey: Good morning, and thank you for joining us to discuss our fourth quarter and year-end financial results. This call is being webcast live, and a replay will be made available later today. After our prepared remarks, we are happy to take your questions. A reminder that statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933 and the Securities and Exchange Act of 1934, each as amended. Actual results could differ materially from those projected in any forward-looking statements. For a discussion of factors that could cause actual results to differ, please refer to our SEC filings. This call will include financial results and guidance with respect to adjusted net income and adjusted net income per share, which are non-GAAP financial measures as defined by the SEC. A reconciliation of the company's GAAP net income and GAAP earnings per share to adjusted net income and adjusted net income per share is available in the appendix to the earnings release we issued yesterday. Joining me on the call this morning are Sid McAnnally, Chief Executive Officer; Christopher Sighinolfi, Chief Financial Officer; and Curtis Dinan, Chief Operating Officer. And now I'll turn the call over to Sid. Robert McAnnally: Thanks, Erin, and good morning, everyone. I began our call today by recognizing our coworkers across the company for their dedication to serving our 2.3 million customers during Winter Storm Fern. This storm was the first multi-day subfreezing event we've experienced since Winter storm Uri in 2021. On the peak day of the storm, we delivered over 3 billion cubic feet of gas to our customers with no supply disruptions. This performance is a testament to the work completed after Uri, including the Austin system reinforcement, which boosted our available winter peak capacity by approximately 25%. Our post-Uri investments also included a focus on gas supply. We increased our storage capacity to over 60 Bcf implemented strategic reinforcements across our system and diversified our gas supply, all enhancing reliability and reducing the impact of price fluctuation on our customers. As a result, across our service territory, over 80% of the gas supply needed during the storm was shielded from temporary price increases. Our full year 2025 financial results were also strong. In August, based on a solid first half performance and the expected impact of Texas House Bill 4384, we raised the midpoint of our EPS guidance to $4.37. We finished the year fully in line with that mid-summer expectation. This marks our 12th consecutive year of meeting or surpassing the midpoint of our initial EPS guidance. Finally, to ensure that the financial impact of the Texas legislation is appropriately reflected in our disclosures, we've introduced a non-GAAP adjustment to our net income and earnings per share. This update adds clarity to our disclosures and helps better illustrate the earnings that our regulator allows. I'll ask Chris to discuss the details. Chris? Christopher Sighinolfi: Thanks, Sid, and good morning, everyone. With solid fourth quarter performance, we delivered full year financial results squarely in line with our revised guidance. 2025 net income totaled $264 million or $4.37 per diluted share compared with $223 million and $3.91 in 2024. Capital expenditures totaled $760 million for the year. As Sid noted, we have introduced non-GAAP adjustments to our financial reports and our earnings guidance. These adjustments offer a comprehensive view of our performance within the Texas regulatory model and better reflect the returns allowed by our regulator. I want to spend a moment detailing specifically what these adjustments represent and why we are introducing them now. In 2011, the Texas Railroad Commission adopted Rule 8.209 of the Texas Administrative Code. This rule allows natural gas utilities to defer depreciation expense and ad valorem taxes and accrue a carrying cost on qualifying safety-related capital expenditures between the time of project in service and its inclusion in rates. Texas House Bill 4384 signed into law last June, extends the approved deferrals and accruals of Rule 8.209 to all capital expenditures in the state. The carrying cost allowed to be accrued under both provisions is defined as the unrecovered gross plant multiplied by the utilities' pretax weighted average cost of capital as established in its most recent rate proceeding. As we know, weighted average cost of capital includes a return on debt and a return on equity. It is specifically the accrual and allowed recovery of this equity return and the timing of its impact that cause a delta between our regulatory books in Texas, and our reported GAAP financials. This difference in treatment between our regulatory accounting and GAAP accounting has existed since the adoption of Rule 8.209 in 2011, but it represented a modest annual impact when only Rule 8.209 applied. For example, in 2024, this difference was approximately $2 million or roughly $0.03 per diluted share. With the expansion of qualifying capital under House Bill 4384 last year, this delta widened to nearly $7 million or roughly $0.11 per diluted share. With a full year of impact in 2026, we anticipate it will constitute an approximate $12 million variance, roughly $0.18 per diluted share or 4% of our projected consolidated full year EPS. In sum, this difference in treatment is a fundamental aspect of our regulatory framework and an embedded feature of our financial profile. Texas House Bill 4384 has amplified the impact of these adjustments and with them meaningfully increased the persistent delta between regulatory accounting and GAAP accounting. For these reasons, we will report non-GAAP adjusted net income and EPS figures as key indicators of business performance going forward. Adjusted net income for the fourth quarter was $90 million or $1.48 per diluted share compared with $78 million and $1.35 in the same period in 2024. For the full year, adjusted net income was $271 million or $4.48 per diluted share compared with $225 million and $3.94 in 2024. Our expected financial performance, as expressed in our 2026 financial guidance has not changed, but we intend to also provide guidance based on our adjusted numbers going forward. So for 2026, we expect adjusted net income in the range of $306 million to $314 million and adjusted earnings per share in the range of $4.83 to $4.95. Consistent with our previously communicated 5-year financial outlook, we expect long-term adjusted net income growth of 7% to 9% and adjusted EPS growth of 5% to 7%. These growth rates now use adjusted 2025 actual results as the baseline for the 2026 through 2030 planning period, implying a 2030 adjusted EPS midpoint of roughly $6. Turning to other financial results. O&M expense for the full year was up approximately 5% over 2024, slightly above our 4% CAGR guidance. As I noted on our third quarter call, we had the opportunity and capacity to execute some projects earlier than we had initially planned, resulting in the slightly elevated expense rate for 2025. Executing certain projects ahead of schedule is another example of how we continually look for ways to deliver improvements more efficiently, while maintaining financial discipline. Our long-term outlook continues to project a 3% to 4% O&M CAGR as indicated in our guidance. Excluding amounts related to KGSS1, interest expense in the quarter was $2.9 million lower year-over-year, primarily reflecting lower rates on commercial paper borrowings and the implementation of Texas House Bill 4384. We benefited from Federal Reserve rate cuts in 2024 and 2025, which we anticipated, though they occurred more quickly than we had assumed in our plan. As a reminder, we have assumed no further rate cuts in 2026. As with everything we do, we are focused on efficient execution of our financing strategy, so any future rate cuts flow through to our bottom line. Our balance sheet remains strong. In December, S&P affirmed its A- credit rating and stable outlook. And earlier this month, Moody's affirmed its A3 rating and stable outlook. 2025 cash flow metrics were several hundred basis points above our respective downgrade thresholds with both agencies. And our financial plan supports similar performance going forward. With that, Curtis, I'll turn it to you. Curtis Dinan: Thank you, Chris, and good morning, everyone. I'll begin with an update on regulatory and legislative activity. Earlier this month, we received a final order in the Texas rate case. The Railroad Commission approved a $14.4 million revenue increase, a 9.8% return on equity and a 59.9% equity ratio. The commission also approved consolidation of our 3 remaining Texas jurisdictions into a single statewide division. We plan to make one GRIP filing for Texas Gas Service and our PBR filing in Oklahoma later this quarter. Our Kansas GSRS filing is planned for April. We have no full rate cases planned until the Oklahoma filing in 2027 as required by our tariff. Turning to legislative activity. We are supporting proposed legislation in Kansas that would allow for more efficient recovery of the capital we invest in the Kansas Gas Service system. We view this as a constructive step towards better aligning capital recovery with investment timing as we help to advance ongoing economic development in Kansas. Moving on to operations and commercial activity. Our strong finish to the year reflects the consistent disciplined execution of our capital plan, which is designed to support growth while staying closely aligned with our affordability, safety and reliability commitments. We completed $760 million worth of capital investment projects during 2025, with $170 million dedicated to serving our growing customer base. An example of the investments we're making is the new pipeline announced in December, where ONE Gas will invest roughly $120 million to deliver over 100 billion cubic feet of natural gas annually to Western Farmers Electric Cooperative in Southeastern Oklahoma. This project will support a new natural gas fuel generation plant and create capacity for future economic growth across the region. We have also broken ground on a project to serve an advanced manufacturing plant outside of El Paso, which is on track to be in service by the third quarter of this year. This is another project that supports reliability and system growth without increasing costs for residential customers. Both projects were included in our guidance. Beyond these projects, we continue to add about 23,000 new residential customers each year. Growth in our customer base allows us to spread costs more efficiently, helping keep service affordable. In addition to our customer-focused growth strategy, our overall approach to running the business ensures customer affordability remains a key priority. Sid alluded to some of the steps we take to mitigate gas cost. Examples include sourcing gas at the Waha Hub, which often offers favorable pricing, increasing our storage by 20% and using physical and financial hedges to mitigate temporary price fluctuations like we saw last month. We're also focused on long-term value and efficiency as we make staffing and operational decisions. Our in-sourcing program is a good example. While onboarding and training new employees temporarily increases cost, the long-term benefits are clear: our teams operate more efficiently, deliver stronger performance and create a pipeline of future talent. We completed 1.3 million line locates last year and now perform about 40% of that work in-house. In-sourcing this work has delivered significant operational improvements as our ratio of total excavation damages per 1,000 locates, a common industry metric, decreased by over 14% year-over-year even though we experienced an 8% increase in ticket volumes. Bringing this work in-house reflects our broader focus on improving execution, reducing long-term cost and strengthening our operational capabilities. Our efforts to run the business efficiently have paid off as we have kept our cumulative residential bill CAGR below inflation at just under 2%, while continuing to deliver top-tier safety performance. And now I'll turn it back to Sid for closing remarks. Robert McAnnally: Thank you, Curtis. Yesterday, we announced that Curtis will take on an expanded role as President and Chief Operating Officer. As our system continues to grow and the number and scale of new projects increases, this change will allow us to leverage the experience that Curtis brings from both his time in operations as COO and his financial experience as CFO in the early years of our company. We're fortunate to have someone that combines deep experience across the business with strong leadership skills to take on this expanded role at an exciting time for our company. Operator, we're now ready for questions. Operator: [Operator Instructions] First question comes from Gabe Moreen with Mizuho. Gabriel Moreen: Congrats to Curtis. I'm sure he's looking forward to saving all that time on conference calls talking through only one Texas regulatory jurisdiction at this point. . Curtis Dinan: Thank you, Gabe. Gabriel Moreen: I want to start off on the -- some of the non-GAAP adjustments here. I'm curious why, first of all, maybe you couldn't -- didn't feel like you could speak to this in December. But then sort of as a larger picture here, given that this, I think, is a bit of a material step change as far as kind of your starting point here for EPS growth. Does that also play into kind of equity issuance -- or needed equity issuance? How you think about your cap structure, your dividend payout ratio? Or does it matter less because this is sort of, as you mentioned, regulatory versus financial accounting? Christopher Sighinolfi: Gabe, it's Chris. On the timing, A couple of things to note. We -- this was obviously a legislation passed in June, and we studied it throughout the period. As you may recall, the Railroad Commission had a 270-day window to draft and pass procedural rules associated with this legislation. We've been party to that process throughout the fall and the early part of the winter. And so we were a participant in comments. We looked at early drafts. The final rules are on the RRC agenda for approval at next Tuesday's meeting. So if there was a final step to solidify our understanding of the state's intent in this legislation, we feel very confident that we know with the final rules sitting for approval where the state's intent is. And so that was kind of the final step of it. It was the increase in the magnitude of the delta between regulatory books and GAAP books, and then it was the conclusion of that process that led us to take action on this at this point and not at an earlier juncture. As it pertains to your question as to the capital market side of the plan, it really doesn't have an effect in a meaningful way on that. The house bill accounting treatment is in the early part of it, more impactful to earnings than it is to cash flow. And so I wouldn't expect that it would change that in a material way. It may over time, but not initially. Gabriel Moreen: Got it. And then maybe if I can just pivot a little bit to some of the, I think, growth opportunities with the Western Farmers announcement and the like. Can you just talk about sort of the competitive landscape, and I think some of the backlog within the projects that I think you're in negotiation on? How you're competing with, I think, some other providers, like midstream providers that also may be looking to lay their lines to additional power gen facilities? How that shapes up within kind of, I think, the regulatory construct that you're probably pitching to potential customers? Curtis Dinan: Gabe, it's a really good point. The -- what we tried to do early in the process, we have lots of these opportunities coming towards us. And one of the early filters we apply to it is do we have a competitive advantage to serve that facility. There are some situations where we are very competitively advantaged because of assets we already have nearby to the opportunity, and there's other situations where we're not as competitive. We don't have assets in those areas, so we quickly try to move on from those. You're right, though, where those 2 things are maybe equal between a midstream provider and us, the tiebreaker often is our regulatory structure and being able to be very transparent about what's included in our rates, how top charges to that customer would be funded if there are any customer payments required for the construction. It's very transparent by being able to look at our tariffs. So I think in many ways, just that transparency gives us a competitive advantage, but that's just one of the pieces of it, in addition to what I was describing as the geographic advantages we have sometimes. Operator: We now turn to Paul Zimbardo with Jefferies. Paul Zimbardo: Congratulations Curtis as well. Curtis Dinan: Good morning, Paul. Paul Zimbardo: The first question, is there any way that you could frame the potential benefit from that proposed Kansas legislation you mentioned, whether earned ROE or net income? That would be helpful. Curtis Dinan: So Paul, it's still in the early stages. I think just this morning, the proposed bill cleared the House of Representatives. The main parameters in the bill as it's written that's going to the Senate is an increase in the types of capital that can be included. Essentially all of the capital that we invest directly in Kansas would now be part of that GSRS filing, so an expanded universe, so to speak. And then the cap would increase. Today, it is $0.80 per month of impact to a customer. That $0.80 would increase to $1.35. But I would emphasize it's -- the point it is, it's cleared the house. It still has to go through the Senate process. So I would characterize this still as in early innings. Paul Zimbardo: Okay. And how much of -- you said it would make substantially all the capital qualify. How much will qualify currently? Curtis Dinan: Currently, what qualifies is safety-related expenditures, so system integrity type of work as well as cybersecurity. So this would add in any growth capital we're doing facilities that we're putting in place, those types of things that are directly in the state of Kansas. Any corporate allocation such as an ERP system and that applies to all of the company, that would have to go through a full rate case to be able to be included. So it substantially includes all of the capital we're spending up there other than those corporate items. And you've seen our filings each year, at $0.80, it's been about an $8 million GSRS filing. So it would increase from that $0.80 to $1.35. Paul Zimbardo: Okay. That's helpful. And then a bigger picture one, just as you add in the Texas legislation benefit to the adjusted profile, any direction you're providing on, kind of where within that growth rate range? I think latest vintage was around the midpoint, long term. Any refreshed thoughts on that as you shift? Christopher Sighinolfi: Paul, it's Chris. No, not specifically. When we offered guidance last year, we had noted the high end of the range. This year, we noted the midpoint. It's so -- and we are just 6 weeks in. I would stick to that for now. Operator: [Operator Instructions] We now turn to David Arcaro with Morgan Stanley. David Arcaro: Congratulations, Curtis as well. Best wishes to you in the new expanded role here. I was wondering -- let me see -- just to check, does the guidance and the adjusted EPS level, does that assume the latest Texas rate case outcome essentially that you just got in terms of what cost of capital is being embedded in there? Christopher Sighinolfi: Yes, it does. Our original guidance back in the fall embedded the best estimate for what we thought that would prove to be and it's pretty close to that. So it's in on the GAAP side and obviously carries forward from there to the non-GAAP. David Arcaro: Got it. Okay. And I didn't quite catch it, Chris, but is the adjustment -- is there a cash component to that? Like in terms of the higher earnings from the regulatory perspective, are you getting that as a cash recovery, like a boost to cash in some way or is that all pure just on paper in terms of the accounting? Christopher Sighinolfi: The accrual and deferral is not. But once obviously, that gets rolled into the GRIP filing, it will be a larger cash flow item than it would have been without the legislation. So there is a cash component, but the cash component shows up as it would in normal rates and not in the deferral accrual. David Arcaro: Got it. Yes, that's clear. And then just last quick one. I was curious, how are treasuries and the current kind of treasury curve lining up against your guidance expectations at this point? Christopher Sighinolfi: We've seen pretty strong market performance from issuers that have gone so far. I would say, David, if we were to move with something today, it's probably slightly favorable to what we embedded in our refinancing for the year. But that term loan that we put in place last year does not mature until September. And so I'm always nervous to take today conditions that may or may not exist by the time we access the capital markets. But specific to your question, it's favorable to it today. Operator: That concludes the question-and-answer session. I would now like to hand it back to the ONE Gas team for closing remarks. Erin Dailey: Thank you again for your interest in ONE Gas. We look forward to seeing many of you at upcoming conferences in Chicago and New York. Our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in May. We'll provide details on the conference call at a later date. Have a wonderful day. Operator: This concludes the ONE Gas Fourth Quarter and Year-End 2025 Earnings Conference Call and Webcast. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. Hello, and welcome to Farmland Partners Inc. Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to our President and CEO, Luca Fabbri. Please go ahead. Luca Fabbri: Thank you, Dustin. Good morning, everybody, and welcome to Farmland Partners Fourth Quarter and Full Year 2025 Earnings Conference Call and Webcast. We truly appreciate you taking the time to join us for this call because we see them as a very important opportunity to share with you our thinking and our strategy in a format less formal and more interactive than public filings and press releases. I will now turn over the call to our General Counsel, Christine Garrison, for some customary preliminary remarks. Christine? Christine Garrison: Thank you, Luca, and thank you to everyone on the call. The press release announcing our fourth quarter earnings was distributed after market closed yesterday. The supplemental package has been posted to the Investor Relations section of our website under the subheader Events and Presentations. For those who listen to the recording of this presentation, we remind you that the remarks made herein are as of today, February 19, 2026, and will not be updated subsequent to this call. During this call, we will make forward-looking statements, including statements related to the future performance of our portfolio, our identified and potential acquisitions and dispositions, impact of acquisitions, dispositions and financing activities, business development opportunities as well as comments on our outlook for our business, rents and the broader agricultural markets. We will also discuss certain non-GAAP financial measures, including net operating income, FFO, adjusted FFO, EBITDAre and adjusted EBITDAre. Definitions of these non-GAAP measures as well as reconciliations to the most comparable GAAP measures are included in the company's press release announcing full year 2025 earnings, which is available on our website, farmlandpartners.com, and is furnished as an exhibit to our current report on Form 8-K dated February 18, 2026. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control. These risks and uncertainties can cause actual results to differ materially from our current expectations, and we advise listeners to review the risk factors discussed in our press release distributed yesterday and in documents we have filed with or furnished to the SEC. I would now like to turn the call to our Executive Chairman, Paul Pittman. Paul? Paul Pittman: Thank you, Christine. So it was a very, very good quarter and a very good year for the company. Luca will go through many of these things in detail, but super strong AFFO, very strong asset sale program. We've continued to simplify the business with the sale of Murray Wise. We reduced our debt and our leverage overall, particularly when you consider that we have now paid off the preferred. So Senior claims to common shareholders have been reduced substantially. And now we have increased the dividend by 50%. This is something that's taken us a long time to get here, but it's driven by disciplined cost control and sort of disciplined strategic thinking with regard to what assets to own and what assets not to own. That process is driven at this point largely by Luca and the rest of the management team in Denver. But as you all know, I'm still pretty involved as well. So with that, I'll turn it over to Luca to be a little more specific about the events of the past year. Luca Fabbri: Thank you, Paul. I will actually pass the ball here to Susan Landi, our CFO, to walk you guys through more specific details about our performance, both in the quarter and the year. So I will stick also to some kind of broader general comments. We had a very, very strong Q4 in the context of a very strong year. I just want to remind everybody that this is kind of as expected. We historically have a very strong seasonality emphasis on Q4, especially on the revenue side because of the nature of some revenue streams that we recognize only when we actually have actual cash receipts. We -- as Paul also mentioned, we had embarked in an effort to really strengthen our balance sheet and our liquidity access, preparing for the repayment of our Series A equity that we just repaid here in February. So we were able to do so as a cash repayment rather than a common stock conversion, which would have been very dilutive. So we are very happy that we were able to strengthen our balance sheet and preserve the value embedded in our stock for our shareholders. We sold our brokerage and auction and asset management subsidiary, MWA, to People's Company, but we continue to have a very close working relationship with the buyer and with our former team over there. So we essentially got a double benefit of simplifying our business and streamlining a little bit while not really losing access truly to the market intelligence that we derived from having that team within our organization. A quick word about the 2026 outlook. It is also very strong. Our approach, especially at the beginning of the year, given the comment that I just made about seasonality, we try to be realistic, but -- and provide the best possible kind of picture to our investors as to what we expect for the year. But agriculture is a very uncertain business until you actually go and harvest the fruit and sell it in some cases. So we tend to remain somewhat cautious at the beginning of the year, given that seasonality is still far away from us. As far as dispositions are concerned, in 2026, we expect to continue doing little marginal improvements to our portfolio with some emphasis in California, for example. And we will do so whenever we have the opportunity to do it at what we consider fair prices that reflect the intrinsic value of the assets that we are disposing. Given all of that, we felt very comfortable in raising our current dividend by 50% to $0.09 per share per quarter. And we look forward to proving to the market that, that was a very strong choice, a very, very good choice and possibly, hopefully, outperforming the performance that we are expecting for the year. And with that, I will turn the call to Susan Landi, our CFO. Susan? Susan Landi: Thank you, Luca. I'll be covering the financial results from 2025 and guidance for 2026. I'll be referring to the supplemental package, which is available on the Investor Relations section of our website under the subheader Events and Presentations. Net income was $32.2 million for 2025 and $21.8 million for the quarter or $0.65 and $0.49 per share available to common stockholders, respectively, which is lower than the same periods for 2024. AFFO was $17.9 million for 2025 and $11.4 million for the quarter or $0.39 and $0.26 per weighted average share, respectively, which was higher than the same periods for 2024. There are several key drivers of these variances. Total operating revenues declined by approximately $6 million, but this is primarily because of the dispositions that occurred in 2024 and 2025. These declines were partially offset by an increase in variable rents during the fourth quarter and increased interest income due to higher average balances on loans under the loan program. Overall, total operating expenses, excluding impairments, were down by approximately $3.6 million. This is primarily due to lower property operating costs and depreciation related to 2024 and 2025 dispositions and lower G&A expenses due to lower bonus expense in the current year and a onetime severance expense of $1.4 million and accelerated stock-based compensation that was recorded in the prior year. Impairment of assets increased by $17 million, which was related to certain West Coast properties that we have concluded had a loss in value. This impairment was recorded in Q2. Other income was lower than prior year due to lower gains on property dispositions, but this was partially offset by a $9.2 million reduction in interest expense as a result of significant reductions in debt that have occurred since October of 2024. The increase in AFFO primarily relates to the increased activity under the FPI Loan Program, lower interest expense from the reduction of outstanding debt and overall lower operating expenses. There are a few key -- a few capital structure items that I'd like to highlight. First, we had undrawn capacity on the lines of credit of approximately $164 million at the end of December 2025. As of today, we have undrawn capacity of approximately $111.7 million. The net borrowings subsequent to year-end were primarily utilized to redeem the remaining 68,000 outstanding Series A preferred units. This removed the common stock overhang and further simplified our balance sheet. We also successfully amended our Farmer Mac Facility in December, which led to an increase in our facility size from $75 million to $89.6 million. Format life loans have resets coming up in 2026 on debt that totals approximately $26 million. One of these loans repriced in January at 5.19%. Page 15 has our outlook for 2026. The assumptions are listed at the bottom of the page. The forecasted net income range is from $8.8 million to $10.9 million. The forecasted range of AFFO is $14.4 million to $16.4 million or $0.33 to $0.37 per share. On the revenue side, Fixed Farm, Solar, Wind and Recreation Rent reflects the full year impact of 2025 dispositions as well as lease renewals and variable payments crop sales and crop insurance is expected to decrease from 2025, partially from our early season outlook on citrus and avocados and partially from 2025 dispositions. On the expense side, a decrease in property operating expenses and depreciation, depletion and amortization is due to the dispositions that occurred in 2025. In addition, G&A decreased as a result of lower payroll costs, primarily due to the sale of MWA and due to lower expected credit losses on loans. Interest expense did increase as a result of borrowings that have occurred thus far in 2026. This summarizes where we stand today. We will keep you updated as we progress through the year. This wraps up our comments this morning. Thank you all for participating. Operator, you can now begin the Q&A session. Operator: [Operator Instructions] And we will take our first question from Stefan (sic) [ John ] Massocca from B. Riley. John Massocca: Maybe looking at the guidance, you mentioned a little bit of the drivers. As I'm thinking about the change versus in variable rent versus 2025, kind of how much of that is asset sales roughly? And how much of that is just a different look on kind of farm revenue? Paul Pittman: Luca, do you want to take that question, please? Luca Fabbri: I'm going to take a first pass and then I'll hand over to Susan. On the variable payments, there is -- it's a little bit of both, actually. There is both asset dispositions and the fact that some of our variable payments performed really, really strongly in Q4 of 2025, and we are taking a little bit more cautious approach in forecasting their performance in 2026 in Q4. And to be honest, this is really not based on any hard knowledge because both crop yields and crop pricing in Q4 is completely unknown to us. It's just a matter of kind of being a little bit more cautious in our forecast. Susan, anything that you want to add to that? Susan Landi: No, except that the majority of the decrease does relate to dispositions. We did have -- our farm rents were a little -- they were relatively flat. So we did primarily single year renewals as a result of that. But I'd say the vast majority of that decline would be related to 2025 dispositions. Yes, for the fixed farm rent. John Massocca: And then maybe sticking with guidance a little bit. As I think about kind of the year-over-year decline that's expected in G&A, how much of that maybe is Murray Wise? How much of that is related to kind of expectations around your loan portfolio and how much of that is just other kind of efficiencies, and I guess maybe longer term, is the 2026 number, you think close to what the run rate maybe is for you as an operating business? Luca Fabbri: So a large part of... Paul Pittman: Let me handle that one, if you don't mind. So Murray Wise is a significant reduction in the G&A cost because we had quite a few employees, which we no longer have on the payroll. So it's a big chunk of it. But we are also making some other cost reductions in the company and our general overhead costs. So it's a combination of all of those things. And frankly, think that's sustainable and ongoing run rate is where we are for the '26 year. John Massocca: Okay. And then on the disposition side, how should we kind of think about the runway for dispositions? How much of that is maybe contingent on the California market becoming more open and having more transaction activity? Are there other things kind of in your portfolio that you think are kind of salable today beyond some of your core Corn Belt holdings? Paul Pittman: So everything in the portfolio is salable. I mean nothing that wouldn't sell. As far as California goes, the market there is now open again. The pricing isn't great, by the way, but the market is open again. You went through sort of the catharsis of buyers and sellers being super separated in terms of expectations of value, but that's now -- gap is now closed out. So there's transactions occurring again. We will continue to weed out California. We have soured on California full stop. The very best properties we have in almonds, in particular, almonds and other tree nuts likely to hold those. That Olin transaction is incredibly good for us. But for most of the rest of it, we will gradually liquidate it. But we're disciplined in terms of achieving the highest reasonable prices that we can get under current market conditions. As far as the rest of the country goes, the overwhelming majority outside of California is now based in Illinois. We will continue to sort of whittle down exposure in other states as much as anything for efficiency reasons at this point. If you only -- if you're down to just 1 or 2 farms in a state, you either got to grow again or you need to, frankly, liquidate those. And so we'll see some sales there. And then things in Illinois are for sale if somebody wants to pay top dollar. We are super, super bullish on Illinois. A lot of those assets are up 30% or more since we purchased them. But if we can achieve those gains and distribute to shareholders, we certainly, as we've proven in the past, are willing to do that. John Massocca: Okay. And then just one kind of maybe technical follow-up. If you did sell a meaningful amount of California assets, I know it would kind of depend farm to farm, but would that have more of an impact on your kind of fixed farm rents? Or would that flow through to kind of some of the variable rent opportunities? Paul Pittman: It'd be strong -- it'd be a bigger impact on a variable rent. Operator: Our next question comes from the line of Craig Kucera from Lucid Capital Markets. Craig Kucera: I believe you had 2 FTI loans that were scheduled to mature at the end of January. Were those repaid? Or were there any extensions? Susan Landi: Yes. We did extend those to September. Craig Kucera: Extended them to December at the end of the year. Okay. Great. And it would seem like you've seen a decent pickup in that program over the last year. Are you still seeing a decent amount of demand? Paul Pittman: Yes. The opportunity in the loan program is pretty strong these days. The loan program is kind of countercyclical in many ways to land prices and farmer economics. So we're in an environment where there are some struggling farmers. So therefore, we have some loan opportunities. As long as we're comfortable with the collateral, we frankly like to keep those loans out as long as we can because the returns are strong. That's the extension we made. We're not troubled by extending as long as collateral is still solid. And so I would say that, that program will be either growing a little bit or a steady state for the next year. Craig Kucera: Okay. That's helpful. Changing gears, I think you mentioned in the supplement that you had a lease that transitioned from fixed to variable. It was fixed and variable and it became just variable. How meaningful was that to the fourth quarter variable payments? And was that lease now going to be sort of a standard 3-year type of lease? Or was that one of those 1 years you discussed? Paul Pittman: Luca, I don't know the specifics there, so you and somebody in the team can take that. Luca Fabbri: Yes. This was not a very significant movement. Off the top of my head, it was a 1-year extension on a farm in California that we have then disposed of, I believe. In any case, it was not particularly significant to the P&L. Craig Kucera: All right. Great. You got the Term Loan #1, which I believe you're in the process of refinancing here this quarter. I think it matures in March. Can you give us a sense of kind of where you anticipate that might price? Paul Pittman: Go ahead, guys. Luca Fabbri: Okay. Susan, go ahead. Susan Landi: We think it's probably going to reprice at some point in the -- about the 5.3% range. Luca Fabbri: In other words, fairly very much in line with the other -- with the market conditions that we see for these type of loans. Craig Kucera: Okay. Great. It sounds like you guys might sell a few assets out of California opportunistically. I know there aren't any acquisitions or dispositions in the guidance. But as you look at the market, whether that's in the Midwest or Southeast, are you seeing market pricing where you could accretively acquire at your current cost of capital or seeing transactions that are attractive? Paul Pittman: So the answer to that question is pricing is not down any significant amount anywhere in the country. In the core of the Midwest, it might be down 2% or 3% at most from the peak. The other states may be a little bit more. California, of course, is different, but we're not going to be acquisitive there in any case. So I would say when you think about making good -- this is an asset class where 2/3 of your return is appreciation and 1/3 is current yield. So you need to buy high-quality farms and you need to buy value and you need to be financed in a way that you can be patient because that increase in value will definitely come. It's sometimes a little lumpy, but it's highly certain. So we can find acquisitions where we could expand. Current yield will not be as high as we would want. If interest rates continue to lower, you may be in a place in which you're not running a negative spread between debt and farm yields, which makes expansion easier. That being said, our attitude is -- we don't need to grow for growth's sake. Our attitude is to create value for shareholders, whether that's through dispositions or through growth. It's about raising money, growing money, if you will, not growing crops or the size of the business. Operator: [Operator Instructions] Our next question comes from the line of Tousley Hyde from Raymond James. Tousley Hyde: With the increase in the dividend, how should we think about the capital recycling strategy and uses of disposition proceeds going forward, particularly as it relates to share repurchases? Paul Pittman: I think share repurchases as our stock price continues to appreciate, will probably decline. I still think we are trading way below our breakup value or liquidation value of the portfolio assets. But that gap has certainly narrowed here in the first quarter. So I think stock buybacks will be less common than they've been in the past, assuming that stock price holds. As far as increasing the dividend, we're increasing the dividend driven largely by increased AFFO. Obviously, it puts us in a position where we might have to make less special dividends to stay in tax compliance. But the dividend increase is largely driven by the cash flow expectation, not by asset sales. The dividends -- asset sales drive special dividends, but we don't really want to drive our regular common dividend based on asset sales because they're frankly unpredictable. Tousley Hyde: Got you. Okay. Yes, that's helpful. And then I did have one quick follow-up related to the FPI Loan Program. I just want to make sure I'm understanding the accounting and kind of the contract terms correctly here with some of these renewals. If the original terms called for principal and interest to maturity, is that entire balloon payment kind of being repackaged and extended out? Or is the interest being collected and just the principal being extended? Paul Pittman: Usually, we are getting interest along the way and principal is what's being extended, not just -- we don't have -- we tend not to capitalize interest. I wouldn't say never, but that's not the ordinary course for us in most of our loans. Operator: There are no more further questions. I will now hand the call back over to our President and CEO, Mr. Fabbri, for closing remarks. Luca Fabbri: Thank you, Dustin, and thank you, everybody, for joining us today. We appreciate your interest in our company and look forward to updating you on our activities and results in the coming quarters. Operator: The meeting has now concluded. Thank you all for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Jericho, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Taseko Mines 2025 Q4 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Brian Bergot, Vice President of Investor Relations. Please go ahead. Brian Bergot: Thank you, Jericho. Welcome, everyone, and thank you for joining Taseko's 2025 Fourth Quarter and Annual Results Conference Call. The news release and regulatory filing announcing our annual financial and operational results was issued yesterday after market close and is available on our website at tasekomines.com and on SEDAR+. I am joined today in Vancouver by Taseko's President and CEO, Stuart McDonald; Taseko's Chief Financial Officer, Bryce Hamming; and our COO, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. As such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our fourth quarter MD&A and the related news release as well as the risk factors particular to our company. These documents can be found on our website and also on SEDAR+. I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. And finally, all dollar amounts we will discuss today are in Canadian dollars unless otherwise specified. Following opening remarks, we'll open the phone lines to analysts and investors for questions. I'll now turn the call over to Stuart for his remarks. Stuart McDonald: Great. Okay. Thanks, Brian, and good morning, everyone. Thanks for joining our call today to discuss our fourth quarter and 2025 annual results, which were released yesterday. As usual, I'll start by providing some comments and additional detail on the operational aspects of our business, and then Bryce will review the recent financial performance. So I'm going to jump straight to the exciting news that we announced yesterday. Florence Copper is now producing copper as of just a few days ago when we turned on the electrowinning circuit. Copper is now being plated, and we're just a few days away from harvesting the first cathodes. This is a great achievement for everyone at Taseko and especially the construction and operating teams at Florence. As we've talked about, wellfield operations commenced in the fourth quarter, so we've actually had solutions flowing in the commercial wellfield for about 3 months now. Initial results from the wellfield have been very positive as we've been able to achieve higher injection flow rates than expected in these first few months. As a result of those higher flows, the acidification of the ore body has been faster than planned and the grade of copper recovered in solution or PLS has actually ramped up faster than expected. So it's still early days, but the initial leaching results have been quite positive. And actually, our PLS grade was high enough to begin copper production several weeks ago, but the commissioning of the SX/EW plant took a few weeks longer than planned. We're expecting Florence to produce approximately 30 million to 35 million pounds of copper this year. And by the time we report first quarter earnings, we'll be in a good position to provide some operating metrics in terms of flow rates, PLS grade and production from the initial wells. A key factor in the ramp-up will be our ability to expand the wellfield and bring on new wells through the year. Drilling resumed in the fourth quarter, and there are now 3 drill rigs running. It's taken some time for the new drilling crews to get ramped up. We have a fourth drill rig being added in the next week or so and expect to see improved drilling productivity going forward. Before we turn to Gibraltar, I'd like to start by commenting that safety is a core value at Taseko. Nothing is more important than ensuring that the people who work at our operations go home each day the same way they arrived. In November, a tragic accident occurred at Gibraltar that resulted in the death of a contract worker. We're deeply saddened by the loss of a colleague and again, offer our condolences to the coworkers, friends and family of the individual. Findings from that incident are in the process of being reviewed with employees on site. In terms of production at Gibraltar, in the fourth quarter, we saw copper head grades increase to 0.26% and recoveries of 81%, which led to 31 million pounds of copper production. So it was a strong production quarter. The higher grades and recoveries were slightly offset by throughput, which was about 8% under design capacity for the period due to unscheduled mill downtime. Molybdenum production was 800,000 pounds and also benefited from higher grades and recoveries. Copper and moly production for the quarter was the highest level of 2025 as we expected it would be. And for molybdenum, it was actually the best production quarter in the history of the mine. With higher production, our total operating costs dropped to USD 2.47 per pound in Q4. For the year, Gibraltar produced a total of 98 million pounds of copper and 1.9 million pounds of molybdenum at a cost of $2.66 per pound. Production was heavily weighted to the second half of the year as we mine deeper into the connector pit to access higher grades and better ore quality in the third and fourth quarters. Looking ahead to 2026, mining operations are much better situated in the Connector pit, so we expect higher annual production and much less quarterly variability than last year. We are, however, taking a more conservative view on copper grades due to the impact of small higher-grade zones that have not been realized through our mining so far in the Connector pit. Over the last 18 months, we've also encountered more oxide and supergene and transitionary ore in the Connector pit than we originally expected. The oxide ore has been stacked on leach pads and would be processed through the Gibraltar SX/EW plant. But the supergene ore goes through the concentrator with lower recoveries. For 2026, we're expecting average recoveries between 75% to 80%. And that's really a similar level to what we saw in the second half of 2025. Taking all of this into account, we're expecting Gibraltar to produce 110 million to 115 million pounds of copper this year. And given that the Connector pit will be the primary source of ore for the next 3 years, we expect annual production will remain in the same range, plus or minus 5% through the end of 2028. With copper prices now roughly 25% higher than last year's average price, we are well positioned to benefit from our copper price leverage supported by higher production from Gibraltar and production growth at Florence. Tight supply due to global mine disruptions, combined with strong demand from traditional end users and new demand from AI data centers and grid modernization all support continued strong copper prices. So Taseko is very well positioned for cash flow growth in the future. We also have significant long-term optionality and value in our other projects. And in 2025, we achieved some significant milestones at both Yellowhead and New Prosperity. The new technical report from Yellowhead confirms strong economics, and we will continue to advance the project towards an ultimate construction decision and begin unlocking the net present value. And talking about leverage to copper, that NPV also benefits from a strong copper price environment. When we published our report in June, we used a price of $4.25 per pound, which gave us a $2 billion NPV. At today's pricing, that's more like $4 billion after-tax NPV or even higher. So the project is getting a lot of attention from potential partners. And when you consider the lack of large-scale open pit copper projects in North America that can be brought online in this time frame, these opportunities are very rare. So it's a great asset, I think, for the company going forward. Permitting efforts are very active, and we continue to engage with the local communities and open houses in recent months with no major issues arising so far. Our Yellowhead project team is also preparing the detailed project description that will be filed later this year. So 2026 promises to be another busy and productive year on many fronts. And with that, I'll turn the call over to Bryce for some commentary on the financials. Bryce Hamming: Thank you, Stuart, and again, welcome, everyone. I'll give some further color on some financial details before we get into any questions. Total copper sales for the fourth quarter were 32 million pounds, including 800,000 pounds of cathode from Gibraltar's SX/EW facility at an average realized price of $5.13 per pound. Including $25 million of revenue from moly, we generated revenue of $244 million in the quarter. For the year, revenues of $673 million were recorded for the sale of 99 million pounds of copper and 1.9 million pounds of moly. The average realized copper price in 2025 was robust at USD 4.61 per pound, and we benefited from a generally weaker Canadian dollar. Both quarterly and annual revenue are the highest Taseko has ever recorded now that we own 100% of it. For the quarter, we recorded net income of $4.5 million or $0.01 per share. And on an adjusted basis, after removing unrealized marks on our liabilities, which are tied to the higher copper price and other unrealized items, it was $42 million or $0.11 per share of adjusted earnings. Adjusted EBITDA in the fourth quarter was $116 million as compared to $56 million in the same quarter in 2024 and $62 million in Q3. For the year, adjusted EBITDA was $230 million, slightly higher than the prior year. So production in Q4 contributed to half of our annual earnings. Also for the quarter, cash flow from operations was $101 million, which was significantly higher than previous quarters, with Gibraltar contributing free cash flow of $72 million. For the year, $220 million of cash flow from operations was generated from Gibraltar. Overall, financial performance was strong and definitely benefited from the higher copper pricing in the second half of the year with improved production and sales levels. I will remind everyone that we do have copper price collars in place that we put in place to support our Florence copper project development and project finance. It has a ceiling price of $5.40 per pound until the end of June, which had a mark at year-end of $22 million. For Q3 of 2026, we have added copper price collars that have secured a minimum price of $4.75 per pound for 8 million pounds per month in the third quarter, and that have much higher ceiling prices of $7.50 and $8.50 per pound. As we move beyond the ramp-up of Florence, we do plan to revert to our longer-term strategy of just buying copper put options over shorter-term time horizons and leaving the entire upside to copper price open with 2 mines running. Now on to Florence, where things have been going very well, as Stuart mentioned, we completed the capital project in the fourth quarter. Capital spending decreased dramatically from prior quarters to just USD 8 million in the quarter as construction activity started winding down. Final capital costs for the commercial facility were USD 275 million, which was approximately 3% over the revised budget from early 2024 when we started construction. In the fourth quarter, $60 million of site operating costs and commissioning costs were capitalized for Florence. With cathode production now underway, we will begin expensing operating costs, which to date have been capitalized significantly still in the first quarter. We ended the year with a cash balance of $188 million plus our undrawn revolving credit facility for USD 110 million. So that brings our total liquidity to a very strong $340 million. With strong cash flows expected from Gibraltar in 2026 and the development capital spending behind us at Florence, our balance sheet will improve throughout the year in the current copper price environment. As Florence Copper begins to provide cash flow as the second operating mine, our credit rating will naturally re-rate, and we will prioritize delevering the balance sheet with our excess cash later this year. And with that, operator, I'll open the lines for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Ernad Sijercic from TD Securities. Ernad Sijercic: Congratulations guys on Florence. Just a quick question here. What should we expect for CapEx and stripping this year? Bryce Hamming: It's Bryce. Yes, I think with respect to CapEx, last year, we had $80 million of capitalized strip and we'll have slightly less this year as we're kind of in -- we're past some of the heavier strip sequences of Gibraltar. So we'll see that come down to some extent. I think we have on the sustaining CapEx side as well, the main thing is some additional tailings work that we're going to do this year, but that should also be contained. So nothing really unusual compared to some of the capital projects that we've had in prior years like the crusher move and so forth. Ernad Sijercic: Great. And just one follow-up. How should we think about grade and throughput this year as it relates to your guidance? Stuart McDonald: Well, I think -- I mean, I think throughput, we're always expecting to achieve something in the range of design capacity, which is 85,000 tonnes a day, just over 30 million tonnes for the year. That's always the goal. And I think we've been successful. I think last year, we achieved that. Grade, as I noted in my remarks, I think the reserve grade in the Connector pit is 0.25. But what we've actually seen is the impact to some -- of that reserve grade being skewed a little bit by some smaller high-grade zones. So we're being a little more conservative now in our expectations and expecting something potentially 5% to 10% lower than that. So yes, that's generally how we get to the guidance figures. Operator: Our next question comes from Dalton Baretto from Canaccord Genuity. Dalton Baretto: Congratulations on Florence. And maybe I'll start there. Stuart, as you're thinking about the ramp-up on a go-forward basis now, is -- how do you think about some of the risks? What are you keeping your eye on? Is it purely a function of wellfield expansion? Are you sort of concerned around homogeneity of the ore body? What are you keeping an eye on? Stuart McDonald: Yes. I think -- I mean, obviously, we're very pleased with the initial leaching results, right, and our ability to solidify new sections of the wellfield, get our PLS grade up. Obviously, we still have a lot of work to do to stabilize the whole process from wellfield through to actually plating the copper. So it's still very much a ramp-up, but early days, but so far, so good. One thing I would say on the ramp-up, as you noted, is definitely the drilling. We do need to add new wells. And in our mining plan, we plan to add 80 to 100 new wells essentially every year for the next decade or longer. So that's normal course, going to be normal course at Florence, and that's an important part of the ramp-up. So, yes, I don't know, Richard, if you have any comments. Richard Tremblay: Yes. No, that is exactly, Stuart. Really, the thing we're watching closely is just the drilling performance and how the drilling is moving forward to bring on the new wells that we know we need as the production profile increases. Dalton Baretto: That's great, guys. And then maybe switching gears to Gibraltar. Can you talk a little bit about some of these issues you're seeing at the Connector pit? I mean what happened? Why aren't you picking up some of those higher-grade zones? And maybe why some of the higher oxide and supergene material was maybe missed in the reserve? Richard Tremblay: Yes. I think the easiest way to explain the high-grade zone is there's very high -- there's a kind of isolated drill hole -- exploration drill hole results that are skewing the geological model, and we're in the process of kind of going through and I guess, reinterpreting those drill holes. And in turn, it's going to downgrade the grade that we're encountering because we've mined through a few of those areas and not realized the grade that we expected. So we know those, I would describe as ultra-high grade pockets that are in the model need to be adjusted, which we're in the process of doing, and that's why we provided the guidance we did today. Dalton Baretto: And what about on the supergene and oxide material? It sounds like you're seeing more of it than you anticipated. Richard Tremblay: Yes. The oxide has been a positive that's allowed us to go to the oxide dumps and will actually allow us to run the SX/EW plant longer than was originally envisioned. So it's actually a good case scenario from an overall cathode production perspective. The supergene hypogene kind of transition zone is there's interpretations of where that is. And in some places, we've seen it not be properly reflected where the supergene actually is more than we have in the model. And those things are -- we just need to adjust it to reflect the reality of what we're seeing. Dalton Baretto: Got it. And if I could just squeeze in another one here just on the portfolio. I mean, in this environment, clearly, Yellowhead and Prosperity are very valuable assets and niobium looks like it's going to have its day in the sun as well. Stuart, how are you thinking about next steps for each of those? Stuart McDonald: Well, Yellowhead is very much a permitting project now. We've got a lot of work underway. We have a big -- good solid team in place that's working closely with the regulators and with the community. We've got solid relationships, I think, there. I think in the coming -- over the next year or 2, I think we're going to probably advance some discussions with potential JV partners there. There's a lot of interest, as you would expect in this copper price market. And as I mentioned in my remarks, this is a pretty unique opportunity with a large-scale open pit greenfield project in North America. There are very few of these out there that could be brought on in the next 5 years, 4 to 5 years. So that's heading on a path, I think, on a good path to realize value. New Prosperity, obviously, the big news last year, we signed our agreement with the Tsilhqot'in Nation in BC. I think generally, look, we all know that is an incredibly valuable deposit. But to really unlock it and move forward, we need the consent of the Tsilhqot'in Nation, and that was clarified, obviously in our agreement last summer. So we're allowing their land use planning process to move forward, and we'll be patient and respect that process, obviously still in the future. Yes. And then niobium, you mentioned, it's obviously one that's a little bit off the radar perhaps for some of our investors, but it's a very large open pitable niobium deposit in Northern BC. It's one of the largest undeveloped niobium deposits in the world. And we continue to work on that in the background. We don't talk a lot about it, but we do have a strong technical team that is pushing forward on and doing some very good work. And we're also expanding our work and looking for potential offtake partners and partners to help us develop that project. So lots happening there. Yes, so it's good. We've got -- I think one thing about our company. We've got obviously immediate growth with Florence, but we've got a lot of longer-term options as well in our portfolio. So pretty exciting, we think. Operator: [Operator Instructions] There are no further questions at this time. That concludes the question-and-answer session. I would like to turn the call back over to the Taseko management for closing remarks. Stuart McDonald: Great. Okay. Well, thanks again, everyone, for joining. Yes, we will continue to keep you updated as the Florence ramp-up progresses and obviously look forward to talking again next quarter. Thanks. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Greetings, and welcome to the Polaris Renewable Energy Inc. Fourth Quarter 2025 Conference Call. [Operator Instructions] And please note, this conference is being recorded. I will now turn the conference over to your host, Alba Ballesteros, Chief Financial Officer with Polaris Renewable Energy. Ma'am, the floor is yours. Alba Ballesteros: Thank you, Ali. Good morning, everyone, and thank you for joining us for our 2025 fourth quarter earnings call for Polaris Renewable Energy, Inc. Before we begin, we would like to remind you that in addition to our press release issued earlier today, you can find our financial statements and MD&A on both SEDAR+ and our corporate website at polarisrei.com. Unless noted otherwise, all amounts referred to are denominated in U.S. dollars. We will also like to remind you that comments made during this call may include forward-looking statements within the meaning of applicable Canadian securities legislation regarding the future performance of Polaris Renewable Energy Inc. and its subsidiaries. These statements are current expectations and as such, are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. These risks and uncertainties include the factors discussed in the company's annual information form for the year ended December 31, 2025. On today's call, I will walk through our operating and financial results for the fourth quarter 2025 and full 2025 year. We will then turn the call over to Marc, who will provide a review of our 2025 performance and discuss the outlook for our business and growth prospects. Following our comments, we look forward to taking your questions. Overall, 2025 was a year of measurable progress for Polaris. We delivered year-over-year growth in energy production, revenue and adjusted EBITDA. Solid operational execution and disciplined cost management, a strong operating cash flow generation, materially simplified and optimized capital structure and continued capital returns to shareholders. Importantly, we achieved this while maintaining balance sheet strength and financial flexibility, which remains central to our long-term strategy. Starting with operations, for the full year 2025, consolidated energy production totaled 810,731 megawatts hour compared to 764,756-megawatt hour in 2024, representing a 6% year-over-year increase. This increase reflects the addition of the 26-megawatt Punta Lima Wind Farm in Puerto Rico, a strong hydrology in Peru and Ecuador and solid plant availability across our portfolio. The strongest performance over the year was achieved by our hydroelectric projects in Peru and Ecuador. In Peru, favorable hydrology and excellent plant availability led to a 12% increase year-to-date in hydro output for the Peruvian project, following what had been a historically dry year in 2024. Our hydroelectric facility in Ecuador also had an exceptional year, producing 19% more energy year-to-date versus 2024 and 26% more energy in the fourth quarter of 2025 versus the comparative period in 2024, thanks to a strong rainfall and an excellent technical performance, resulting in the highest resource availability since operations began. In Puerto Rico, 2025 marked the first year of contribution from Punta Lima, adding 42,056 megawatts hour post acquisition and strengthening our technology diversification. In Panama, solar generation in the quarter was 5% higher than in the 2024 comparative period. These increases offset lower output from Nicaragua where expected geothermal normalization and natural streams declined, reducing generation by about 5% in 2025 versus 2024. Production at our Dominican Republic Canoa 1 Solar Facility decreased slightly 2% year-to-date reflecting efficiency gains from the new panels installed in 2024, which allowed setting grid wide curtailments, which were 3,500 megawatt hours in the quarter and 5,900 megawatts hours for the year. Overall, our diversified portfolio, spanning geothermal, hydro, solar and wind across 6 jurisdictions continues to demonstrate resilience and stability and remains one of Polaris' structural strength. From a financial perspective, adjusted EBITDA increased up to $56.5 million, reflecting a 3% increase year-over-year. Despite inflationary pressures and the onboarding of new assets, operating margins continued to perform strongly, benefiting from disciplined cost management. I would like to highlight that we have already announced that we will be paying a quarterly dividend on February 27 of $0.15 per share to shareholders of record on February 17. Polaris now has a 10-year track record of consistent dividends, having returned approximately $105 million to shareholders in that period. Also during 2025, under our Renew NCIB program, we repurchased and canceled 169,800 common shares for approximately $1.5 million during the year, of which 80,000 were purchased in Q4 for approximately $0.8 million. Today, following debt repayments in Q1 2025, and Punta Lima Wind Farm integration, Polaris has a simplified structure, ample liquidity and the year 2025 with a consolidated cash position of $93.2 million, including restricted cash and an optimized and energy diversified platform for further growth. This positions the company well to deploy capital into expansion opportunities. With that, I will turn the call over to Marc. Thank you. Marc Murnaghan: Thanks, Alba. So just a few comments about sort of production and guidance on that front for this year. So we did -- as we messaged, we moved the major maintenance at San Jacinto from end of last year to this year. It has been completed and executed. As expected, no issues with the turbines, which is great. What that means in terms of, call it, total production on a consolidated basis for our budget for this year without any new plans, without any acquisitions, so we just take the existing plants in operation, with that, with the major maintenance there and some curtailment in the Dominican, our consolidated range for the year would be around 775 to 790 gigawatt hours for the year. In terms of what we are working on, on the growth side, as people know, we really focused on the ASAP project last year because of the size of it, which was -- which is very well matched with the excess cash we have on the balance sheet and the profitability of that project. And so we're very focused on that. And what I would say that given the delays in the approval, which I'll get to in a second, we, 3, 6 months ago, really started to, call it, diversify our development opportunities in some existing jurisdictions as well as some new ones. So -- and I think we're going to start to see the fruits of that very shortly. In terms of the actual ASAP program, the -- we received approval back in August for -- from the Energy Bureau and then moved to PREPA, which is the actual contracting agent. It turns out that in Q4, they did -- the Board was basically not properly constituted to approve it. It is now properly constituted. They do now have a quorum. And our understanding is that the meeting or basically the first board meeting of PREPA with properly constituted call it quorum will be taking place within the week. And we do know that our ASAP project is on the docket for such board meeting amongst other projects. So we're not the only one, there's numerous projects that they need to get to, given that there's, I would say, been a pause in terms of their approval of projects. So we are expecting that board meeting to happen in the short term now that they have the quorum. And then -- so in addition to that, we do have nonbinding LOI that we signed regarding the acquisition of the small solar project in one of our current jurisdictions. It's not big, but it's strategic. And we would look to be going binding on that by the end of March. So that's on the acquisition front. In terms of other development activities, we are participating in an RFP process in Puerto Rico as well that came out in the end Q4. There was a request for qualifications in December, which we successfully passed, and we're now in the RFP process. We're going to be submitting a solar plus BESS with a heavy BESS weighting to it, so it's more dispatchable. And interestingly, despite the PREPA, which has been delayed, I would say that the process in this RFP is moving very quickly. The timeline is very aggressive and any sort of correspondence, I would say, responded to very quickly. So -- and the actual formal timeline that they have published is that they're looking to have contracts signed by June. We actually had to submit or comment on contracts yesterday. So that is actually moving. So we're very interested in that in Puerto Rico. Also in the same area, I would say that while the Dominican is having issues with curtailment, we do think that opportunities centered around storage will emerge from it, and we will be looking at being, call it, ready for that, and there are things that we're working on there. And then in terms of importantly, in other markets, big focus going forward now is Mexico for us. We, yesterday signed an exclusivity agreement with a local developer there for -- which gives us access to approximately 1,000 megawatts of projects. The way that -- so we're very happy about that. The way that things are working in Mexico is there's different processes that are going to be happening throughout the year. The first one is something called mixed projects, which is -- we were actually invited given the work that we've done last year, so Polaris was invited to participate in, it's called the convocatoria. It's basically a process to -- for them to some fast-track projects/signing of contracts. But the short-term one, which is we actually have to submit by next Friday. It's for what they call mixed projects, which is where your, I would call it, basically their build-own-operate transfer, 25-year build, own, operate transfer projects with CFE which is -- and they're going to be your contracting entity. So we will -- with this portfolio that we've call it, have exclusive rights to, we will definitely be submitting some of those projects in that portfolio for this short-term mix projects, convocatoria by next Friday. And then still short term, but a little bit later, call it Q2 this year, there's going to be a second process, which will be for more traditional, private company long-term PPAs where they're not build. So that's expected to be happening in April, May of this year. And so the plan would be to submit more projects from this portfolio into that as well as likely some other ones that based on conversations with other local developers that are quite interested in partnering with us for that. So -- and then beyond that, which I would say is more, call it, a medium term is that those are the two most short-term processes, but that doesn't -- that's not going to be the end of it. We don't -- there's going to be more abilities to contract either directly with CFE or with other. There's numerous sort of approved purchasers of power there on a wholesale basis. And so that's -- we think that, that can be back half of the year or sort of early next year in terms of actual contracting. So there's going to be a lot happening on the development side this year in Mexico. In addition, another opportunity that is there that we're looking at is behind the meter. Given the regulation changes as well as the pent-up demand from industrial consumers there. So we do have several acquisitions we're looking at and projects we're looking at that are behind the meter. And there behind the meter can be up to 20 megawatts. So you can get some scale in behind-the-meter projects now in Mexico. So I would say with Mexico, with the, call it, RFP in Puerto Rico and with ASAP, I would say we are now sitting here with a lot more, call it, development shots on the net than we had 3 months ago, and I would anticipate being able to having -- taking a reasonable success rate. Obviously, we're not going to advance all of those, but that we should be having news in the next 3 to 6 months with defining actual projects that were going to be, call it -- starting to build this year and next year and the following year so that the connecting the dots on the 5-year plan will be much clearer in the next 3 to 6 months. So that's it for the formal remarks. We can open up for questions. Operator: [Operator Instructions] Our first question is coming from Melissa Dean with National Bank Capital Markets. Unknown Analyst: Just firstly, I wanted to ask you guys about your M&A pipeline. You mentioned a couple of opportunities in your prepared remarks. Could you just walk us through the pipeline you're seeing in Latin America? And what kind of valuation multiples and IRR you're seeing if anything has changed since the last time we spoke? And then you also mentioned in your prepared remarks a nonbinding LOI that you signed. If you could provide more detail there as well, that would be great? Marc Murnaghan: Yes. Just on that one, given it's not [indiscernible] haven't press released, but it's not a large project. It's -- but it's really strategic in terms of it's essentially colocated with one of our other solar projects. So I think there's a high degree or likelihood we convert that to a mining deal, but it's -- just think of it as about 10 megawatts. So it's not huge, but we quite like the economics. And it's -- there's just synergies there. So it's -- we think it's a good transaction. In terms of the overall pipeline, I would say in terms of multiple things we're generally looking at, it is a range. I would say it's maybe at 6.5 to 7 on the low end, 8.5 to 9 on the high end. But it's -- I don't -- I wouldn't say that it's really increased in terms of our pipeline. And partly, that's just because we are in several processes, but we've seen a lot more of what I would call mid- to late-stage development, which are technically acquisitions, but they're really just us coming in and taking over that's really, really increased. And when we look at those, when you -- whether it's batteries or solar or the combination of the two, the construction risk and the construction timeline being, call it, we think the risk is relatively low. The timelines are relatively low, that you're all in sort of multiple on those is just significantly lower than what we're seeing on the acquisition side that the gap doesn't justify really going for these acquisitions. It justifies going for, call it, the shovel-ready or 6 months shovel-ready type projects, which is what we're seeing in, for sure, Puerto Rico, a couple of the other markets and for sure Mexico now. So I would say that -- we want people to think there's a ton of M&A activity for this year. I think it's going to be much more on the late-stage development activity. Unknown Analyst: Okay. So you're seeing a stronger skew of potential for, I guess, in development assets than operating or better returns, I guess, right now at this point? Marc Murnaghan: Yes. And part of that, too, is I would say there's been a real push by offtakers in all the jurisdictions we're seeing where there's activity to -- that are forcing developers to basically partner with people with a balance sheet, track record and ability to put LCs or guarantees prior to getting contracts. So the developers can't go all the way to having a PPA in hand and then selling it to the top bidder. It's just not possible anymore. So they're being forced to basically to come sooner, which is making the economics more attractive for, call it, companies like ourselves that do have access to capital. Unknown Analyst: Okay. Perfect. That's very helpful. And just on the Mexico opportunity that you mentioned, you said, I think, some 1,000 megawatts of project availability, signed an exclusivity agreement. Can you talk about the PPA structures you're seeing in the Mexico market in terms of contract duration? And what kind of IRR opportunities you're seeing there as well? Marc Murnaghan: Yes. So the duration are, I'd say, low end 15, but 20 to 25 would -- is typical. So good duration. But the way that you are required to have 3 hour -- sorry, 30% coverage with storage for 3 hours, so not 4, which is interesting. But so as long as you have that, you can get capacity. So it's not just -- they're not just energy PPAs. They're sort of energy plus capacity. So -- and I would say that the economics sort of breakdown that it's, call it, set approximately 70% is your energy and 30% is your capacity, but they're both -- you're actually getting contracted for the capacity for the life of it. You are not having to -- it's not as if you get a contracted energy price and then you're going spot on the capacity. If you're getting that, you're getting both for the life of the contract. In terms of IRRs, I would say, for the cleanest sort of CFE, highest credit quality, you are going to be in the 12% to 14% and then IRR and then others, we're seeing -- bring that 13% to 16%. So I'd still say your -- it's mid-teens, maybe 14% is the right number. But strategically for the company, I think what we're really trying to do. So it's not as high as what we see, for instance, Puerto Rico or, call it, Dominican or call it Caribbean. But we do think that bringing on those megawatts is much more, call it, predictable in terms of timeline. It's much bigger in the market, so we don't need a huge win, it's a very small market share that we need to be, call it, material for Polaris. But so the combination, I would say, of, call it, megawatts coming from that market in Mexico on a much more, call it, bankable basis with a much higher impact returns from the Caribbean is the combination we're looking for. Now a lot of that realistically, though, in Mexico is not going to be shovel ready until, call it, Q4 or Q1 of next year. So the timing of it is important, too, which is we get the ASAP, and that's going to become this year's big CapEx project, but then we will have something, I would say, in Mexico on the backs of that, but more for next year. Unknown Analyst: Okay. Understood. And just for the Mexico projects, the construction timeline, I believe, for SO1 and Puerto Rico was 12 months or less. Are you seeing similar construction timelines for Mexico? Or do they differ quite materially? Marc Murnaghan: No, I would say 12, 15 months, similar, very similar. Operator: Our next question is coming from Nicholas Boychuk with ATB Cormark. Nicholas Boychuk: Just coming back to the PR. I'm wondering if you can kind of expand a little bit more on that curtailment issue, specifically how much it might impact this year, if there's anything you can do about it? And I know you mentioned that they are looking to do battery energy storage, but it feels like that absolutely has to happen here. And I'm curious what signals you're getting from the regulators in the Dominican as to the size and urgency of needing battery energy storage on their grid? Marc Murnaghan: Yes. So we were about 6,000 megawatt hours last year. It's hard to gauge exactly where it's going to land this year. I think that's a reasonable number. I think our budget to be conservative as we assume sort of 10,000 for this year and then we think it will drop because we do -- we know that they are taking the storage seriously. I don't want to sort of really promise anything on sort of us doing more storage there, though, but we're -- you know that we're going to try to be in the mix. What I can say is that the -- we do know they're taking it very seriously. And we -- based on what we have heard from them and what we're seeing them do is that they would agree with our assessment, which is the best way sort of forward here is to have numerous sites, call it, storages transmission is to absorb that energy in the middle of the day. I mean they have very expensive cost energy and need at night, so it's not as if they're awash in energy from 6 to 10 p.m., they need it. It's that they just don't [ need ] much during the day. So I don't think there's any disagreement now in terms of the way forward. It's just -- it's going to be hard to [indiscernible] exactly what we can do there. So I think short term, call it more curtailment this year, but I do think they'll get their act together, such that next year, they will have resolved the situation at some point next year in terms of the actual curtailment. We're going see what we can do. We'll see what we can do in terms of -- and I think if we can do that, as long as they do that, I think it is a market you still want to participate in, in some form or fashion, yes. Nicholas Boychuk: Understood. You mentioned there's a couple of new relationships with local developers, and it sounds like the activity in that sphere is really picking up. I'm curious if you can expand a little bit on the drivers behind that. Is it -- is it as much the lack of capital in the local market where you guys need to partner with someone like yourself? You mentioned that, but I'm curious if there's also a bit of a nationalization in energy sovereignty and these regulators are pushing more of this in their market to decouple from things like fossil fuels? And I guess the whole point of the question is trying to figure out, is this the earliest innings of a push like this? And are we going to see a lot more activity in the coming 6, 12 18 months? Marc Murnaghan: So this -- so in terms of actual -- I would say that the dynamic that I was mentioning of developers are being sort of forced to talk to companies like us earlier. I would say we're seeing that in every market that we're in. And that's just I think that the driving factor is more the -- whichever the government entity is that's running a process or that the contracting entity I think have had experiences where they're just [indiscernible] a lot of developers that couldn't get a project to the finish line. And so that just seems to be a threat in all these markets. So it's not specific to anyone. So I think that's the reason why it's happening. And I think we're just in a nice position there with cash on the balance sheet and operating track record in the region that we tick the boxes. And so it was literally just -- we started looking at projects presence in Mexico last January quietly and met with a bunch of the different government entities. And it was only because of that, that we actually got invited to participate. So we didn't even actually have -- when we got the invitation to participate, we didn't have a specific project. We have specific projects now that we're going to be submitting, but we got invited to participate just because of our CV, call it. But no sort of small developers without an operating experience were invited. I don't know if I'm answering because I think there were several questions in your question, so you ask away if I didn't answer them all. Nicholas Boychuk: I guess the only other thing is if you're hearing anything about energy sovereignty and the decoupling of fossil fuels? Marc Murnaghan: Energy, what? I missed that word, Nick. Nicholas Boychuk: Energy sovereignty, like just making sure that these grids are not in any way tied to external markets like the U.S. supply and fossil fuels and natural gas and diesel. Marc Murnaghan: No, I wouldn't -- I'm not hearing that. I think they do want to be self sufficient. I think unfortunately, it started -- on that issue, Nick, I'd say it's almost different for every different market we're looking at. So for instance, obviously, Puerto Rico is part of the United States. So it's got its own -- it's got its own character. Mexico, I would actually say as being a Canadian company is quite helpful there. And DR, I would say it hasn't -- where -- there it has much more to do with, call it, the too much energy in the day, i.e., curtailment issue is absolutely the driving factor. So I would say there's no common thread on that front in the different markets that we're in. Nicholas Boychuk: Makes sense. And then last for me, just on timing and magnitude of CapEx. So if ASAP goes through with this now being quorum board, when do you think that would turn on? And how are you thinking about overall capital availability for that, potentially battery energy storage in the Dominican, these other RFPs in Puerto Rico, your 1,000 megawatts in Mexico, puts a lot of irons in the fire. How are you feeling about the balance sheet? Marc Murnaghan: Yes. So I would also say that we've moved a bit to last year was we had one -- like we had other irons in the fire, as you know, but it was -- we really were focused on the ASAP. So we are -- I'm much more -- we're more on the -- have many more irons in the fire and then to get the optionality for us. I would also say that I am relatively confident that with our cash position, but also still a conservative balance sheet that our ability to raise, I would say, fixed income capital to top up there, is quite significant and at rates that are better than what we did before. And that can really -- and those rates can work in all of these markets we're looking at in terms of the growth opportunities. So we want a lot more irons in fire and I think we can fund what we're looking at. And so the theories of let's get to the point where we have call it, too much to do, and then we have to start paring back and choosing. But I would say this year, it's still most likely, call it, the tiny acquisition, ASAP. And then call it, announcements and dotting the Is, crossing the Ts on CapEx programs that are realistically going to start maybe Q4, but I'd say more likely start in Q1, Q2, Q3 next year for projects that are coming online. So if you call it ASAP is coming online Q1, Q2 next year, the rest of it is, call it, 12 months behind that and I would say 12 and 24 months behind that. So you're going to see sort of some clarity on what '27 is going to look like. The CapEx this year for '27, cash flow, but also then having a line of sight on realistically CapEx for '27 and '28 for revenue, cash flow in '28, '29. And everything we're seeing at least that we're working on is such that it's all, I would say, chunky enough that they call it the numbers that we have in our presentation for where it'd be in 2029, we're definitely -- they're big enough to get there. And one add I would say is that I wouldn't say this, say, for Puerto Rico or Dominican, but what I would say for Mexico is if there's too much. I don't think there's going to be, I think we need to assume there's a certain hit rate, right? But if there was, I would say there's a lot of local capital there that is very interested in participating alongside companies like ours. So I do think that there's possibly -- it's early days, but I do think there's a possibility that you have -- we don't need to be 100% of the local sort of SPV. If there's a lot of megawatts there, I think we can find relatively attractively priced capital, both on the debt and equity side there. Operator: As we have no further questions on the lines at this time, this will conclude today's Q&A session and today's conference. You may disconnect your lines at this time, and have a wonderful day, and we thank you for your participation. Marc Murnaghan: Thank you. Alba Ballesteros: Thank you.
Operator: Good morning, ladies and gentlemen. Thank you for standing by. Welcome to the Supremex 2025 Fourth Quarter and Year-End Earnings Conference Call. [Operator Instructions] Before turning the meeting over to management, please be advised that this conference call will contain statements that are forward-looking and subject to a number of risks and uncertainties that could cause actual results to differ materially from those anticipated. I would like to remind everyone that this conference call is being recorded on Thursday, February 19, 2026. I will now turn the call over to Martin Goulet of MBC Capital Markets Advisors. Please go ahead. Martin Goulet: Thank you, operator. Good morning, ladies and gentlemen, and thank you for joining this discussion of Supremex' financial and operating results for the fourth quarter and fiscal year ended December 31, 2025. The press release reporting these results was published earlier this morning via the Globe Newswire News services. It can also be found in the Investors section of the company's website at www.supremex.com, along with the MD&A and financial statements. These documents are available on SEDAR+ as well. A presentation supporting this conference call has also been posted on the website. Let me remind you that all figures expressed on today's call are in Canadian dollars unless otherwise stated. Presenting today will be Stewart Emerson, President and CEO; as well as Norm Macaulay, CFO. With that, I invite you to turn to Slide 37 of the presentation for an overview of the fourth quarter, and I turn the call over to Stewart. Stewart Emerson: Thank you, Martin, and good morning, everyone. Well, although 2025 had its ups and downs, Supremex made significant progress in further expanding its presence in key markets. With 3 acquisitions, the addition of many new customers and multiple successful initiatives to enhance efficiency, it was indeed a busy year. Despite the persistent headwinds from over 12 months of labor unrest, unhelpful press and delivery disruptions, yes, a word was plural, disruptions at Canada Post and the significant volume reduction from a single important U.S. direct mail client, we put our head down, got to work and actually increased our envelope volume in a declining market and grew packaging revenue by more than 8% for the year and 18% in the fourth quarter alone. In parallel, we returned significant value to our shareholders and finished the year with an exceptionally strong, call it, a fortress financial position with less than $1 million in net debt, putting us in the driver's seat to execute our business strategy. Right out of the gate, I want to thank our employees for believing in our plan and for their unwavering dedication to continuous improvement and superior customer service to help us achieve this important growth. Now turning to operations. Let's begin with the envelope business. While fourth quarter revenue held steady year-over-year, it was up 8.5% sequentially from Q3, which in itself was up 3% from Q2 despite those tremendous headwinds that I'll discuss in more detail shortly. Envelope volume grew 5.3%, again, against the backdrop of some tough headwinds driven by the exceptional spade work in the U.S. envelope market and to a lesser extent, the contributions from Enveloppe Laurentide acquired in July and from Elite Envelope acquired in December, which I'll come back to shortly. Clearly, we continue to increase our penetration of the U.S. market with substantial share of wallet growth and impressive organic business development throughout the year, which is a testament to the strength of our envelope sales and operations team. As I said earlier, this yeoman's work allowed us to offset significantly lower volume from 12-plus months of labor, service and delivery uncertainty at Canada Post and the continued substantial volume decline from customer #1 in the U.S. On the latter, the change in mailing patterns and buying habits has persisted for a few quarters now, and we're getting closer to lapping the headwind as evidenced in the decline was significantly less this quarter than earlier in the year. What I think is important is that despite the impact of this 1 customer, we have been able to pivot to the point where we sold more units in the U.S. in 2025 than in the prior year, which again is a reflection of the brand and the sales team. While the U.S. volume decline was offset, the mix in margin is different. New business or replacement business is of a much different profile than the higher value-added volume that it was replacing. It comes with both lower cost and lower selling price, hence, the sales decline. However, this increased replacement volume was critical in maintaining a high level of asset utilization and absorption but it comes with more operating and SG&A expenses than dealing with a single large customer. Despite these additional expenses and lower pricing, we generated an adjusted EBITDA margin of nearly 16% for the quarter. Again, marking a significant sequential increase over the third quarter where margin came in shy of 12%. This is another impressive example of the resiliency of our envelope business, the commitment of our people and the quality of our assets. And as I alluded to earlier, in December, we completed the acquisition of Elite Envelope. With relatively small annual volume of approximately USD 5 million, Elite has been servicing the New England market for over 2 decades out of a facility located in Randolph, Massachusetts, South of Boston. That facility is just less than an hour away from our existing and much larger Douglas, Massachusetts facility, and we completed the transfer of production and several hourly and sales staff to Douglas immediately after Christmas. As part of a 3-month transition services agreement, we are in the process of selling excess equipment and will exit the Randolph facility at the end of February. While it takes effort, we invested the energy because Elite is another perfect tuck-in acquisition for Supremex with a rapid payback of less than a year. The additional volume will improve asset utilization and absorption in Douglas while yielding additional synergies, and importantly, leaves Supremex as one of the very last short-run local manufacturers in all of New England. In a subsequent event, we recently announced the decision to shutter our envelope manufacturing capabilities in Indianapolis, Indiana as part of our rationalization and network optimization initiative. While the Indianapolis location played an important role in the Supremex success in the U.S. envelope market dating back to its acquisition in 2015, the location became significantly less strategic after the 2022 acquisition of the 2 plants in the Chicagoland area, some 2 hours away. In 2025, the facility produced less than 8% of the total Supremex units sold, and we are confident in our ability to retain the sales as we locate production to other facilities in the network. While it's true that the envelope market is in secular decline, let me repeat that despite the gas caused by one, albeit large customer in -- our U.S. volume was up in 2025. And excluding that customer, U.S. volume increased almost 15%. And for all of Supremex units have increased by -- in excess of 5% and revenue by low single digits. I recognize there's a lot of ifs and buts in there, and it's not generally my style but not providing the added color would do a disservice to the listener by underreporting the significant gains we continue to make in envelope. As I said earlier, we've almost lapped the impact of the account and the Canada Post -- and Canada Post ratifying its labor agreements a month ago, I look forward to not having to address these issues again anytime soon. Finally, with respect to envelope, to sustain and accelerate our momentum, we added Andy Schipke as Vice President of Sales for U.S. Envelope. Andy is well known in the envelope and mailing industries for building relationships and delivering results and is responsible for leveraging the entire Supremex envelope platform to drive volume, improve customer reach and strengthen Supremex' position as the third largest envelope manufacturer in North America. Turning to packaging. We had another solid quarter driven by folding cartons' strong performance in the health and beauty and the over-the-counter pharmaceutical segments coupled with impressive new business wins from current and reactivated customers and revenue from the Trans-Graphique acquisition in July, which supports our strategy of enhancing our presence in food-grade packaging where we see superior stable growth. In addition, we sustained our upward trajectory in e-commerce solutions and specialty packaging driven by new customer wins and greater volume from existing customers and looking ahead, we expect the momentum to continue unabated. Unfortunately, again, this quarter and throughout the year, the impressive gains made by the core folding carton and e-commerce packaging solution verticals was partially offset by the commercial printing activities where they too have a meaningful reliance on Canada Post to deliver the coupons, direct mail and its inner components, which we produce. We anticipate some of this volume to come back now that the delivery uncertainty has ebbed with the signing of the new collective agreements in late January, and we continue to push for new opportunities to support absorption while at the same time, managing the cost structure in line with the revenue stream. As for profitability in the overall Packaging segment, we concluded both the quarter and the year with an adjusted EBITDA margin of approximately 13% and approximately 16%, excluding the commercial print activities, marking substantial improvements year -- over the prior year, but still shy of true potential. As I said in the past, potential is a great thing to have, but a bad one to keep. We're actively tackling transitioning potential into results by stimulating revenue and volume growth to improve asset utilization and absorption, continue to push for operational improvements and synergies across the network and evaluate the various business units on their individual merits. With that, I turn the call over to Norm for the financial results. Normand Macaulay: Thank you, Stewart. Good morning, everyone. Please turn to Slide 38 of the presentation. Q4 total revenue amounted to $72.9 million, up 5.6% from $69.1 million last year. Envelope revenue was $48.9 million, up slightly from $48.8 million last year and up sequentially from $45.1 million in the third quarter. The year-over-year variation reflects a 5.3% volume increase driven by the contribution of Enveloppe Laurentide for the entire period and of Elite Envelope over 3 weeks. It also reflects new customer wins and share of wallet growth in the U.S., as Stewart indicated, which offset lower volume from a large U.S. customer and the negative effect of disruptions at Canada Post. Meanwhile, average selling prices decreased 4.8%, reflecting volume reduction from a large U.S. customer and lower average prices on the business acquired from Enveloppe Laurentide. Packaging and specialty products revenue was $24 million, up 18.3% from $20.3 million last year and also up significantly on a sequential basis from $20.6 million in the third quarter. The year-over-year increase is mostly due to higher folding carton revenue, driven by important gains with large multinational consumer packaged goods customers, sustained expansion of our e-commerce packaging activities new business wins from existing customers and the contribution from Trans-Graphique acquired in July. Moving to Slide 39. Adjusted EBITDA totaled $9.1 million or 12.5% of sales compared to $12.9 million or 18.7% of sales in last year's fourth quarter but up sequentially from $6.2 million or 9.4% of sales in the third quarter of 2025. Envelope adjusted EBITDA was $7.8 million or 15.9% of sales versus $9.2 million or 18.8% of sales last year, but up sequentially from $5.3 million or 11.8% of sales in the third quarter. The year-over-year decrease mainly reflects lower selling prices. Packaging and specialty products adjusted EBITDA was $3.2 million or 13.2% of sales up from $2.4 million or 11.6% of sales last year and up sequentially from $2.2 million or 10.5% of sales in the third quarter. The year-over-year increase is essentially due to higher folding carton volume, as mentioned a moment ago. Finally, corporate and unallocated costs totaled $1.9 million compared to a $1.4 million recovery last year. The main driver of that variation was a foreign exchange loss of $1.3 million this quarter on intercompany trade AR [ NVP ] compared to a gain of $0.8 million last year. This is a noncash item related to the revaluation of intercompany balances and does not reflect the underlying operating performance of the business. In fact, this accounting revaluation accounted for most of the year-over-year decline in consolidated adjusted EBITDA. As we look ahead, we are evaluating options to reduce the noise and volatility of the intercompany FX movements on our reported results. The goal is simply to ensure that our reported results more clearly reflect how the business is actively performing without unnecessarily volatility. Turning to Slide 40. Reflecting the reduction in adjusted EBITDA, a Supremex concluded the fourth quarter with net earnings of $1.3 million or $0.05 per share versus $5.8 million or $0.23 per share last year. Adjusted net earnings were $1.5 million or $0.06 per share in Q4 2025 versus $5.2 million or $0.20 per share a year ago. Moving to cash flow on Slide 41. Net cash flows from operating activities totaled $14.1 million versus $9.2 million last year. The increase stems from improved working capital efficiency, partly offset by lower profitability. As a result of higher operating cash flow, free cash flow was $13.4 million in Q4 2025, up from $8.7 million a year ago. For the year, free cash flow totaled $73.2 million. Excluding the $53 million inflow from the sale leaseback completed last July, our free cash flow yield is approximately 22% on a trailing 12-month basis considering our recent share price. Turning to Slide 42. Net debt stood at $1 million as at December 31, 2025, down from $8.9 million 3 months ago, and down significantly from $41.2 million at the end of last year. The decrease reflects a long-term debt repayment of $39 million using proceeds from the sale leaseback and solid free cash flow generation. Our ratio of net debt to adjusted EBITDA was 0.03x versus 0.26x 3 months ago and 1.02x a year ago which is well within our comfort zone of keeping our leverage ratio below 2x. Our strong financial position leaves us with significant flexibility to finance our operations and future investments, including acquisitions as well as to return funds to shareholders. Since initiating a normal course issuer bid program in August, we've repurchased over 171,000 shares for consideration of $0.6 million. Subsequent to year-end, we repurchased an additional 45,000 shares for consideration of $0.2 million. Finally, the Board of Directors declared a quarterly dividend of $0.05 per common share payable on April 2, 2026, to shareholders of record at the close of business on March 19, 2026. I now turn the call back over to Stewart for the outlook. Stewart? Stewart Emerson: Great. Thank you, Norm. I trust you can hear that we're encouraged by the significant improvements achieved in our core business during the late stages of 2025. And the end of the Canada Post disruptions and the lapping of the customer #1 headwind. Entering 2026, our foundation is stronger than ever, both operationally and financially as we continue to methodically build this business for the long term. Operationally, ongoing efforts to improve productivity and optimize our footprint are paying off. In parallel, when we look at the underlying fundamentals, our teams have done a great job in both segments to drive sales by leveraging the brand to grow share of wallet with existing customers and driving new customer wins. Financially, our almost debt-free balance sheet provides us with the considerable flexibility to execute our business plan and sustain long-term profitable growth. We have successfully integrated 3 tuck-in acquisitions in the latter half of 2025, and we will continue sourcing similar opportunities to leverage our existing footprint while simultaneously exploring more substantive M&A opportunities. Finally, we remain committed to optimizing returns to shareholders through regular quarterly dividend payments and timely share repurchases. This concludes our prepared remarks. We are now ready to answer your questions. Operator: [Operator Instructions] Our first question today is from Donangelo Volpe with Beacon. Donangelo Volpe: It's good to see resumption of top line growth in Q4. Just wondering how things are looking now that we're kind of at the halfway point in Q1 in terms of pricing and volumes in both Canada and the United States? Just kind of wondering if we should be expecting year-over-year top line growth to persist throughout Q1? Stewart Emerson: Donangelo, thank you very much for the question. Q1 is off to a good start, reasonable start. As I said, I think the important piece is the lapping of the headwind that we had in 2025. So that's an important element and sort of gives us the opportunity to continue that upward trajectory. Envelope is envelope and the debate on Canada Post and whether there's longer-term effect of the labor disruption is still open for debate. Our penetration in the U.S. continues to be extremely strong. Team has done an amazing job there and less reliance on customer #1 sets us up for that continued growth. Packaging doing extremely well, particularly the folding carton and the e-commerce segments. So yes, Q1 looks solid, and we continue to push forward. Donangelo Volpe: Okay. Just moving over to the Elite Envelope acquisition. Correct me if I'm wrong, trailing 12-month revenue was about $5 million. Could you provide the trailing 12-month EBITDA figure? Stewart Emerson: It was low single digits on a percentage standpoint pre-synergy. Donangelo Volpe: Okay. Stewart Emerson: Sorry, low double digits. Did I say single digit? Donangelo Volpe: Yes, you said double digit, yes. Stewart Emerson: Yes, double digits. Yes. I thought, s*** did I say single. Donangelo Volpe: Double is always better than a single. Stewart Emerson: Yes, indeed. Donangelo Volpe: Okay. And then just pivoting over to, I guess, kind of the capital allocation strategy. So just given the current debt to adjusted EBITDA ratio, I'm just wondering how aggressive you guys are expecting towards M&A on the packaging side. And if you could give an update on the pipeline here and a reminder on which areas you'd be most interested in, it would be appreciated. Stewart Emerson: Yes. I don't think our strategy has changed from what we've done over the last couple of years with respect to tuck-ins. If there are tuck-ins that are accretive very, very quickly, close by existing operations, whether it be envelope or packaging, we're certainly interested in doing those. With the cleaned up balance sheet and my commentary is that we're now in a position to do something more substantive, and we've always indicated that more substantive would be on the packaging side, preferably in Canada. And I would say our pipeline is fairly robust. Donangelo Volpe: Okay. And then final question for me. Just regarding the closure of the envelope facility in Indi. Just wondering if you could provide any insights towards the weighting of nonrecurring charges in Q1 versus Q2. Normand Macaulay: Nonrecurring charges, like we're going to take a provision in the first quarter, and it will probably be somewhere between $1 million to $2 million. That being said, the synergies that we're going to derive from this should be fairly substantial as the year plays out. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Stewart Emerson for any closing remarks. Stewart Emerson: Great. Thank you very much, operator. Thank you to everybody for joining us this morning. I really appreciate you taking time out, and we look forward to speaking to you again at our next quarterly call. Have a great day. Operator: This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.
Operator: Good morning. I'll now turn the call over to Scott Parsons, Alamos' Senior Vice President of Corporate Development and Investor Relations. Scott Parsons: Thank you, operator, and thanks to everybody for attending Alamos' Fourth Quarter 2025 Conference Call. In addition to myself, we have on the line today John McCluskey, President and Chief Executive Officer; Greg Fisher, Chief Financial Officer; Luc Guimond, Chief Operating Officer; and Scott Parsons, Vice President of Exploration. We will be referring to a presentation during the conference call that is available through the webcast and on our website. I would also like to remind everyone that our presentation will be followed by a Q&A session. As we will be making forward-looking statements during the call, please refer to the cautionary notes included in the presentation, news release and MD&A as well as the risk factors set out in our annual information form. Technical information in this presentation has been reviewed and approved by Chris Boswick, our Senior VP of Technical Services and a qualified person. Also, please bear in mind that all of the dollar amounts mentioned in this conference call are in U.S. dollars unless otherwise noted. Now John will provide you with an overview. John McCluskey: Thank you, Scott. So I'm going to start with Slide 3. Production for 2025 was 545,000 ounces, below our guidance as a result of severe weather in late December and other challenges at the Canadian operations. Our costs were above annual guidance, reflecting the same factors. Despite the setbacks, we delivered a number of financial records, including revenue of $1.8 billion and record free cash flow of over $350 million, while funding our high-return growth projects. Supported by strong free cash flow generation, we doubled our shareholder returns, further strengthened our balance sheet by reducing our debt and eliminated more of the hedges inherited from the Argonaut Gold transaction, giving us increased exposure to higher gold price. Looking ahead to 2026, we expect a meaningful improvement in operational performance to drive a 12% increase in production. This will be driven by ramp-up of mining rates at Island Gold as part of the Phase 3+ Expansion as well as higher mining rates at Young-Davidson. We expect further growth in production at lower costs in the coming years as we deliver on the larger Island Gold District expansion by 2028 and bring Lynn Lake into production by 2029. Our longer-term outlook remains firmly on track to nearly double our annual production of approximately over 1 million ounces a year at lower costs. Now turning to Slide 4. Over the past month, we outlined the key drivers of our strong outlook. As detailed in our updated 3-year guidance, we expect to deliver a 46% increase in production at approximately 20% lower all-in sustaining costs by 2028. We also provided exploration updates on our mines and exploration projects, highlighting significant upside potential across our portfolio. Our successful exploration program in 2025 contributed to a 32% increase in year-end mineral reserves to 16 million ounces, making the seventh consecutive year of growth. This included a near doubling of reserves at Island Gold District to over 8 million ounces. As announced earlier this month, this growth is being incorporated into a larger expansion of the district, which is expected to create one of the largest, longest life and most profitable gold operations in Canada. This is a high-return expansion that the Island Gold District can fund on its own while contributing to our increasing free cash flow. Reflecting this strong outlook and growing free cash flow, we are pleased to announce a 60% increase in our dividend commencing this quarter. As outlined in the expansion study, we will be expanding milling rates to 20,000 tonnes per day. The higher rate is supported by increased mining rates of 3,000 tonnes per day from underground and 17,000 tonnes per day from the open pit. With the completion of the expansion in 2028, annual production from the Island Gold District is expected to average 534,000 ounces of gold for the initial 10 years at lower mine site all-in sustaining costs of $1,025 per ounce. This is more than double the 2025 production and at 30% lower costs. At a conservative $3,200 per ounce gold price, the operation will generate in excess of $800 million of annual free cash flow and have an after-tax net present value of $8.2 billion. At a gold price of $4,500 per ounce, the after-tax NPV increases to $12 billion, making the Island Gold District one of the largest and most valuable gold operations in Canada. Now turning to Slide 6. Our 3-year guidance outlined a clear path to reach 800,000 ounces of gold production by 2028 at nearly 20% lower all-in sustaining costs of approximately $1,250 per ounce. Longer term, the completion of the Island Gold District expansion in 2028 and initial production from Lynn Lake in 2029 is expected to drive our production to approximately 1 million ounces per year by the end of the decade with a further decrease in costs. We have one of the best growth profiles in the sector, and we can fund all our growth internally while we continue to generate increasing free cash flow. So I'll now turn the call over to our CFO, Greg Fisher, who will review our financial performance. Greg? Greg Fisher: Thank you, John. Moving to Slide 7. We sold 142,000 ounces of gold in the fourth quarter at an average realized price of $3,998 per ounce for record quarterly revenues of $575 million. For the full year, we sold 531,000 ounces at a realized price of $3,372 per ounce for record annual revenues of $1.8 billion, up 34% from 2024. Our full year total cash cost of $1,077 per ounce and all-in sustaining costs of $1,524 per ounce were above annual guidance, driven by higher costs in the fourth quarter and the temporary challenges at our Canadian operations. Operating cash flow before changes in noncash working capital was $285 million in the fourth quarter or $0.68 per share. This was reduced by $63 million or $0.15 per share, reflecting the cash utilized to eliminate the legacy Argonaut Gold hedges prior to maturity. For the full year, operating cash flow before changes in noncash working capital increased 27% to a record $924 million or $2.20 per share. Our reported net earnings were $435 million in the fourth quarter or $1.03 per share. This included $227 million after-tax gain on the sale of noncore assets, loss on commodity hedge derivatives of $35 million and other adjustments of $16 million. Excluding these items, our adjusted net earnings were $228 million or $0.54 per share. Our full year adjusted net earnings were $587 million or $1.40 per share. Capital spending in the quarter totaled $158 million and include $50 million of sustaining capital, $97 million of growth capital and $11 million of capitalized exploration. For the full year, total capital expenditures were $507 million, including growth capital of $318 million. We continue to fund our high-return growth internally while generating strong free cash flow. This included a record $157 million of free cash flow generated in the fourth quarter and a record $352 million for the full year. Reflecting our growing free cash flow and strong financial position, we returned $81 million to shareholders in 2025, double the amount returned in 2024. This includes the repurchase of 1.3 million shares at a cost of $39 million and dividend payments totaling $42 million. With additional free cash flow growth ahead, we expect further increases in our shareholder returns, starting with a 60% increase in our dividend this quarter. We also paid down $50 million of debt and eliminated half the 2026 legacy hedges inherited from Argonaut Gold. To date, we have now repurchased and eliminated 230,000 out of the 330,000 ounces hedged by Argonaut prior to maturity, providing increased exposure to the rising gold price. We will continue to look for opportunities to eliminate the remaining 100,000 ounces subject to hedges across the second half of 2026 and first half of 2027. Given our strong free cash flow, our cash position grew 90% from the end of 2024 to $623 million, while reducing our debt to $200 million. We expect growing production and declining costs to drive increasing free cash flow over the next several years, while we continue to fund our organic growth plans. With that, I'll turn the call over to our COO, Luc Guimond, to provide an overview of our operations. Luc? Luc Guimond: Thank you, Greg. Over to Slide 8. Fourth quarter production from the Island Gold District totaled 60,000 ounces, a 10% decline over the previous quarter due to lower underground mining rates as well as reduced mill throughput. For the full year, production totaled 250,400 ounces, a 33% increase over the previous year, but slightly below the low end of revised annual guidance. During the fourth quarter, underground mining rates of 1,160 tonnes per day were impacted by additional rehabilitation work related to the seismic event that took place in October as well as downtime in late December due to severe winter weather. This prevented the delivery of supplies and access to site by personnel and emergency services, thus requiring a 3-day standdown of underground operations. The Island Gold mill averaged 1,180 tonnes per day in the fourth quarter, consistent with underground mining rates. The underground rehabilitation work required to ramp up mining rates as part of the Phase 3+ shaft expansion is substantially complete. Mining rates are on track to increase to an average of 1,400 tonnes per day in the first quarter of 2026 and gradually increase to 2,000 tonnes per day in the fourth quarter, driving growing production through the year. The open pit portion of the operation continues to perform well with mining rates averaging 16,600 tonnes per day of ore in the fourth quarter and 15,000 tonnes per day for the full year, in line with guidance. Magino milling rates averaged 8,625 tonnes per day in the fourth quarter, a modest improvement over the third quarter, but below expectations, in part reflecting weather-related disruptions late in the quarter. With a number of initiatives being implemented through the first quarter of 2026, milling rates are expected to improve substantially in the second half of the year. Total cash costs and mine site all-in sustaining costs were above annual guidance, driven by lower mill throughput at Magino and lower mining rates at Island Gold. The Island Gold District generated mine site free cash flow of $61 million in the fourth quarter and a record $205 million for the full year, net of significant capital investment related to the Phase 3+ shaft expansion and exploration. At current gold prices, the Island Gold District is expected to continue generating strong free cash flow while funding its expansion plans and a robust exploration program. We are expecting a significant improvement from the Island Gold District in 2026 with production expected to increase 24% to between 290,000 and 330,000 ounces, driven by the ramp-up of underground mining rates and improved milling rates at Magino. Moving to Slide 9. To improve processing rates within the Magino mill, we have added a temporary crusher to provide supplemental crushed ore feed downstream from the existing secondary crusher. This is expected to help sustain the flow of crushed ore into the mill and support higher milling rates of 10,000 tonnes per day by the end of the second quarter. Additional improvements we are implementing include ongoing work with third-party specialists to optimize and improve the reliability of the circuit and the restructuring of maintenance and mill operating management teams, which will ensure constant senior level oversight. Longer term, the addition of the gyratory crusher, new truck dump configuration and ore bins as part of the larger expansion of 20,000 tonnes per day will support further improvements to the performance of the existing circuit. Moving to Slide 10. Substantially, all the capital related to the Phase 3+ expansion has been spent or committed with the shaft infrastructure and paste plant commissioning expected in the fourth quarter. This will be the catalyst to increase mining rates to 2,400 tonnes per day in 2027 and ultimately, 3,000 tonnes per day in 2029 as part of the larger expansion. The photo on the right highlights the progress on the 1,350 shaft station. Once the station is completed, the remaining 29 meters to shaft bottom will be sunk by the end of the first quarter. Over to Slide 11. As John previously noted, the Island Gold District expansion to 20,000 tonnes per day is expected to create one of the largest, lowest cost and most valuable gold mines in Canada. Following the completion of the expansion in 2028, production is expected to increase to average 534,000 ounces per year over the initial 10 years at mine site all-in sustaining cost of $1,025 per ounce. This represents more than double the production from the district in 2025 at 30% lower all-in sustaining costs. At a $4,500 per ounce gold price, the expansion has an after-tax IRR of 69% and net present value of $12 billion. The Island Gold District is quickly evolving into one of Canada's largest, most profitable and valuable operations. And as Scott will touch on later, we believe there is more upside to come given the significant exploration potential. Over to Slide 12. As detailed in the photos, the expansion to 20,000 tonnes per day is well underway. As part of the Phase 3+ shaft expansion, we already started construction on a new mill building that was sized to accommodate the larger expansion. The new circuit will blend -- we'll process a blend of high-grade underground ore as well as open pit ore at a rate of 10,000 tonnes per day, while the existing circuit will process only open pit ore at only -- at also 10,000 tonnes per day. Construction of the open pit truck shop is well underway, which will follow for timely and cost-effective maintenance of the mobile fleet. With all the earthworks and concrete foundations complete and structural steel already erected, the larger expansion of the operation has already been significantly derisked. Over to Slide 13. Young-Davidson produced 41,400 ounces in the fourth quarter, a 9% increase over the previous quarter, but below expectations. Mining rates were impacted by severe weather conditions in late December, rehabilitation work required on 1 of 3 ore passes and the failure of a small portion of a paste plug underground. Production for the full year totaled 153,400 ounces, below revised guidance due to lower-than-expected mining rates and grades. With rehabilitation work completed on the impacted ore pass and an additional ore pass being commissioned this quarter, the total number of ore passes will increase to 4, providing additional operational flexibility. This is expected to support improved mining rates of approximately 7,600 tonnes per day in the first quarter and 8,000 tonnes per day in the second quarter and through the rest of the year. Cost per ounce were above guidance for the full year due to lower mining rates and grades processed. Despite the temporary challenges, Young-Davidson generated record mine site free cash flow of $250 million in 2025. In 2026, improved mining rates are expected to drive an increase in production from Young-Davidson to between 155,000 and 175,000 ounces, supporting strong ongoing free cash flow at current gold prices. Over to Slide 14. Production from the Mulatos District totaled 40,100 ounces in the fourth quarter, an 8% increase over the previous quarter, reflecting higher stacking rates and the recovery of previously stacked ounces on the leach pad. Production for the full year was 141,600 ounces, in line with annual guidance, which was revised higher in October. For the full year, costs were also in line with guidance. The Mulatos District generated record quarterly mine site free cash flow of $92 million and $222 million for the full year, net of $100 million in cash tax payments. The district remains well positioned to continue generating strong free cash flow while fully funding construction of the PDA project. For 2026, production from the Mulatos District is expected to be between 125,000 and 145,000 ounces at similar costs to 2025. I will now turn the call over to our VP of Exploration, Scott Parsons. Scott R. Parsons: Thank you, Luc. Over to Slide 15. We continued our track record of growth with a 32% increase in mineral reserves to 16 million ounces at the end of 2025. This marked the seventh consecutive year of growth over which reserves have increased 64% with grades also increasing 24% as our reserve base continues to grow in both size and quality. This year's growth was mainly driven by the Island Gold District, which added nearly 4 million ounces to reserves in 2025. Measured and indicated resources increased 6% with growth at Young-Davidson, the Mulatos District and Lynn Lake more than offsetting resource conversion at Magino. Inferred resources decreased 63%, reflecting the successful conversion of Island Gold District resources to reserves. We recently announced exploration updates for all of our mines and projects, highlighting the significant upside potential across our asset base. This led to an increase in our 2026 exploration budget to nearly $100 million, 37% higher than in 2025. Over to Slide 16. The big driver of the year-over-year increase in reserves was the impressive growth at the Island Gold District. Underground reserves more than doubled, increasing 125% to 5.1 million ounces, while open pit reserves increased 56% to 3.1 million ounces. The increase was driven by a successful delineation drilling program at both deposits, which resulted in the conversion of a large portion of mineral resources into mineral reserves. Despite the focus on delineation drilling, we are successful in increasing our overall mineral inventory at Island Gold for the 10th consecutive year with mineral reserves and resources increasing to 6.8 million ounces. Over to Slide 17. Drilling continues to extend high-grade mineralization across the Main Island Gold structure as well as within several hanging wall and footwall structures. This includes in the Lower Island East area, where reserves have grown to include 1.6 million ounces, grading 15 grams per tonne of gold. This represents one of the highest grade portions of the ore body, containing some of the deepest and best drill hole intersections to date. Based on our ongoing success and with the deposit open laterally and at depth, we expect the Main Island Gold deposit will continue to grow well into the future. Over to Slide 18. At the regional scale, drilling at the past producing Cline-Pick and Edwards Mines continues to extend high-grade mineralization beyond the limits of historic drilling. This included intersecting the highest grade hole ever drilled at Cline-Pick at 178 grams per tonne over 3.5 meters. These regional targets are located within 7 kilometers of the Magino mill and represent potential future sources of higher-grade supplemental feed as part of a larger district expansion. Over to Slide 19. The deepest holes drilled to date at Cline-Pick have intersected high-grade mineralization at depth of 540 meters. By comparison, drilling at Island Gold has intersected high-grade mineralization down to depths of over 1,600 meters. Both deposits remain open at depth and with similar deposits in the Canadian shield extending well beyond depth of 3,000 meters, there's significant potential for further growth and upside to the Island Gold District expansion study. Additionally, limited drilling has been completed within the 7-kilometer gap between Island Gold and Quin Pick and further along strike to the Northeast across our broader 60,000-hectare land package, highlighting the district scale potential. With that, I'll turn the call back to John. John McCluskey: Thank you, Scott. And I'll turn the call over to the operator who will open up for your questions. Operator: [Operator Instructions] Your first question comes from Cosmos Chiu with CIBC. Cosmos Chiu: Maybe my first question is on exploration here. Good to see that you're targeting some of the higher-grade mineralization at Young-Davidson and some of the newly defined hanging wall zones. I guess my question is, some of these new targets, are they still associated with the historic kind of cyanide intrusive rock? Or are you actually finding stuff in some of the sediments and ultramafic stratigraphy? And if it is still associated with cyanide, what makes it so that this is potentially higher grade? Scott R. Parsons: Thanks for the question, Cosmos, this is Scott. So to start, I guess, what got us really excited initially about the hanging wall mineralization that we're intersecting at YD in 2024 initially was that it was a different style of mineralization. So it was in the hanging wall in a different lithologies. So we're seeing this in conglomerates, volcanics and the cyanides out there as well, but the higher grades we were seeing were associated with the conglomerate units. And that's what we've been focusing on drilling with our hanging wall drift and do see potential for higher grade mineralization in that conglomerate. The second hanging wall target that we had highlighted in our press release on exploration for 2025 was something called the South cyanide. So it's a similar lithology to what hosts the main reserves at Young-Davidson, but this is offset 300 meters south. So it's a different cyanide body, we think, at this time. And we are seeing locally higher grades within that and we are working as we speak on drilling that to understand what's controlling the higher grade in that south cyanide body. Cosmos Chiu: That's good to hear. And then I guess, another sort of deposit we don't talk enough about the PDA. And I know you talked about that a little bit -- quite a bit actually at the Investor Day. But can you remind me, as you mentioned, initial production is targeted for mid-2027. What kind of key deliverables are there in 2026? What are some of the kind of critical path items that you need to target in 2026 in order to get to your mid-2027 initial production? Luc Guimond: Cosmos, it's Luc here. I'll take that question. So I mean, there's 2 key components there. Obviously, one is on the mining side, establishing the port entrances, which is what we're currently working on right now. So there'll be 2 port entrances into the PDA underground workings. And then obviously, over the next -- over the life of the mine, but certainly over the next 12 months as we're looking to prepare for -- sorry, for the next 18 months to be able to prepare for commissioning of the mill complex to bring that online will be development work and still preparation as far as being able to maintain and sustain our mining rates at 2,000 tonnes per day. So that's the key aspect is really get the portals commissioned this year, established and start on the development work over the next 18 months and the rest of that life of the mine of that operation. The other key component is related to the processing plant. So we've already -- we're well advanced on that as well. Most of the earthworks have been completed for the crushing station locations as well as the -- where the -- sorry, where the ball mill is going to be located for the mill complex. And we've already procured the long lead items that we need with regards to that construction schedule. And everything is well advanced to be able to have most of the work will get completed through the 2026 period. And then by mid-2027, we'll be wrapping up some of the construction-related activities related to the processing plant itself. But everything is tracking online, on schedule and certainly on budget for mid-2027. Cosmos Chiu: Great. And then maybe one last question, bigger picture here. And it was certainly good to see that you've increased your dividend by 60%. But I guess my question is, do you feel like you're getting fully rewarded for this dividend by the market? Or do you think you need to target a higher yield before you can get fully rewarded by the market for this dividend? And maybe broader, John, if you can talk about kind of your capital return strategy. John McCluskey: We've done -- historically, we've paid this dividend going back to 2010. We've always done a combination of dividends and share buybacks. Last year, we almost returned as much by way of share buybacks as we did through the dividend. And we're always going to keep that in balance. We're very opportunistic with respect with the share buyback. But the dividend itself, I think there's further room for growth, but this is a good indicator of our intentions. And despite the fact that we're going through a heavy capital spend schedule over the next couple of years as we effectively double our production between now and the end of the decade, the gold prices are strong. We're generating phenomenal free cash flow. There is -- there was room to increase the dividend, and we did so. But I think investors should expect more dividends to come. Operator: There are no further questions at this time. This concludes this morning's call. If you have any further questions that have not been answered, please feel free to contact Mr. Scott Parsons at 416-368-9932, extension 5439.
Andreas Spitzauer: Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, Head of Investor Relations, and I want to welcome you to Knorr-Bremse's presentation for the full year preliminary results of 2025. Today, Marc Llistosella, our CEO; and Frank Weber, our CFO, will present the results followed by a Q&A session. The event will be recorded and is available on our homepage in the Investor Relations section afterwards. It is now my pleasure to hand over to Marc Llistosella. Please go ahead. Marc Llistosella Y Bischoff: Thank you, Andreas. Ladies and gentlemen, I'm pleased that you are participating in the capital market call on our preliminary results for 2025. The most important news first. Despite geopolitical uncertainties, we were once again able to steer Knorr-Bremse successfully through a challenging year. Thanks for the stringent execution of our BOOST measures and the dedication and expertise of our colleagues worldwide; we strengthened existing businesses, developed new areas of growth during demanding times. Let's go to Page #2. We are reporting strong financial results today. Fiscal year 2025 clearly demonstrates Knorr-Bremse's excellence and resilience once again. With our BOOST strategy, we have delivered what we have announced. Phase 1 is almost completed, creating a more stronger and cleaner cost base. This now enables us to clearly shift the focus towards accelerating margin accretive growth. BOOST Phase 2 centers on growth and expansion while maintaining strict cost discipline. This means BOOST and the regained efficiency are not over as management culture is here to stay and a permanent part of how we run and steer our business. Our Rail Division delivered strong margin accretive growth and reached its midterm target margin 1 year earlier. We promised the numbers and we see it already 1 year ahead. RVS now represents around 55% of total group revenues so we've become more railish as indicated in the past. At the same time, CVS showed disciplined cost management, solid performance despite a tough truck market backdrop. A great achievement by our truck colleagues. In total, we achieved our full year '25 guidance and have issued a solid '26 outlook in line with our existing midterm targets from the past. We will provide an update on new midterm targets together with the release of our quarter 2 results end of July this year. Ladies and gentlemen, let us now take a quick look at our guidance for last year on Page 3. We were able to achieve all of our targets; including revenues, EBIT margin and free cash flow. The strong order book, the strong cash conversion rate and the low leverage underpin these results and confirm our strong resilience. We are in top financial shape ready to continue with our BOOST strategy from a position of strength. I'm very pleased that we are able to present such convincing results today. They are a clear proof that our collective efforts over the past years have paid off. Let me continue with more details of our BOOST program on Page 4. When we launched BOOST in the summer of 2023, our ambition was clear: to make Knorr-Bremse faster, more efficient and structurally stronger again. Two years later, the benefits of the program have become clearly visible in our financial results. The consistent execution of sell-it and fix-it measures have delivered tangible margin expansion driven by a lower breakeven. BOOST is firmly anchored in value creation. Every initiative is designed to contribute to profitability, which remains our top priority. With the brownfield part very well advanced, we are now transitioning into the next stage of BOOST. In 2026 and beyond, the focus of the whole management team will clearly shift towards greenfield initiatives, accelerating margin accretive growth and expansion while maintaining the operational discipline we have built. As a result, we expect the company to continue benefiting strongly from BOOST in '26 both through sustained efficiency gains and an increasing contribution from margin accretive growth initiatives. Let me now turn to our sell-it program on Page 5. Overall, we are close to complete all key actions. The sales process for our HVAC business is advanced and we are fully committed to sell the business if we can realize a fair value. Therefore, we prefer a long-term and sustainable solution instead of a hasty action. We are not a forced seller and we will never be. HVAC is classified as an asset held for sale on the balance sheet. The sell-it program is only 1 side of the coin. Over the past years, we have so far divested businesses and units with revenues of more than EUR 400 million and an average EBIT margin of well below 5%. Once the HVAC business is sold, it will make up to EUR 750 million in total as promised and as said in 2023. On the other side, we have added businesses with revenues of roughly EUR 600 million, generating margins of 15% or above. This is our definition of portfolio optimization, respectively, portfolio rotation. In other words, we have deliberately exited lower margin activities and reinvested capital into higher quality, more profitable growth platforms. Our motivation behind this strategy is very clear and remains a top priority, creating shareholder value by continuously improving the quality, profitability and growth profile of Knorr-Bremse. Let me now turn to fix-it and our efficiency measures on Page 6. Over the past years, we have made very solid progress in improving key financials. For me and the whole management team, keeping fixed costs under tight control remains and is very important. This is not a one-off exercise. It is a permanent discipline for us. We are permanently monitoring our fix-it businesses and drive them into improved performance. The breakeven, respectively, the control of our fixed cost is particularly important to me. In the past, it suffered from revenue headwinds in countries like China, Russia and it was impacted by high inflation. This is, therefore, very important to us as a management team to regain this financial flexibility and strength. So far, we have already been able to improve the breakeven by 4 percent points or 400 basis points. In our internal business reviews, I therefore explicitly challenged the operating units on cost structures and efficiency. Frank in parallel places a strong focus on cash flow generation. This combination has proven to be very effective. Our persistence has clearly paid off. Over the last 3 years, we have reduced headcount by more than 2,400 people, of which only 1/4 was achieved through divestments and the majority through real reduction measures with particularly strong progress in the CVS division so far. In addition, the migration of operating activities to lower-cost countries in our major regions such as Hungary, Poland and India is already well advanced. Importantly, cost optimization goes far beyond administrative functions. We are systematically adjusting our operational footprint across engineering, production, R&D, service activities and purchase in order to achieve an optimized strategic global footprint. At the same time, we have established global shared service hubs in all major regions and are doubling down on those. These hubs are already delivering tangible benefits. Overall, fix-it has made a meaningful contribution to margin expansion, cash flow improvement and return on capital employed enhancement of 20.2% -- at 22.8% of Knorr-Bremse. And let me be very clear, fix-it is not finished. Efficiency and cost discipline will remain an integral part of how we run Knorr-Bremse going forward. Let me briefly outline the strategic logic behind how we intend to develop Knorr-Bremse in the coming years. The main focus of our greenfield strategy is to drive revenue growth and margin expansion beyond historical levels. Our portfolio strategy remains clearly anchored in rail and truck combined with opportunities in adjacent and other existing growth areas. The rail industry provides very attractive profit pools. As a result, future organic and inorganic investments will take place more in rail going further. Wayside signaling is an interesting segment strengthening our sustainable margin accretive growth. In truck, mobility as a service via our CVS service platform represents another greenfield pillar. Here, we are evolving towards a technology-enabled solution partner and we are systematically expanding digital and service-based aftermarket solutions, a market that is just emerging in trucks. In energy technologies, we are building on our existing nucleus to explore attractive opportunities in intelligent grid solutions and the field of energy distribution not in a rush, but step-by-step and accretive. Beyond our core, we are selectively analyzing and developing additional growth fields like dampers and electronics business. Green technologies are still at a very early stage for Knorr-Bremse, for example, supporting our existing but small Reman business. Overall, our ambition is to put Knorr-Bremse on several strong profit pools to reduce cyclicality and grow profitability. Let me be very clear. To be part of Knorr-Bremse, every business must meet its target margin. This discipline is central to create long-term shareholder value, an important part of our financial guardrails regarding M&A. Let me now turn to signaling on Page 8. Signaling itself is clearly a success story for Knorr-Bremse so far. We acquired a good asset and made it even stronger. KB Signaling is well integrated and it is a market leader in an attractive segment, which can be seen in the favorable growth prospects. Over the past year, our focus was deliberately on cleaning up the project portfolio of KB Signaling. This led to a slight decline in revenues, but significantly improved the quality and risk profile of the business. At the same time, we reduced the cost base through targeted staffing optimization. With this groundwork completed, our focus is now firmly on profitable growth. We aim to defend and further strengthen our market leadership in the United States and to expand into markets that have adopted U.S. rail standards such as Australia and South America. In Europe, we have extended our signaling footprint through the acquisition of duagon, strengthening our electronics and system capabilities. Beyond organic growth, we also remain open to selective nonorganic investments to further expand our European activities in signaling. Overall, our objective is clear to build a global high-quality wayside signaling portfolio and to fully capture the attractive growth potential of this market. Moving please to Page 9. Let me now turn to energy, which at first glance may appear less obvious for a company noted and rooted in rail and truck braking systems. However, there are 2 very clear reasons why this field is highly relevant and interesting for Knorr-Bremse. First, energy is not new to us. For Zelisko, we have been active as a Tier 1 supplier in the European and American energy distribution market for more than 50 years. Together with Microelettrica in Milan, we already generate meaningful revenues in this segment today and the business is both growing and highly profitable. Second, the European energy market is currently undergoing profound changes. Investments in grid modernization, intelligent power distribution and network management are increasing and demand for smart reliable solutions is high. Given our long-term standing, customer relationships and technical expertise; we see a clear opportunity to benefit from this development. Currently, we are screening this market globally and are interested in opportunistic moves. We are responding to increasing demand and concrete requests from our existing customers in the areas we are already in. Our approach is, therefore, deliberate and disciplined. We intend to expand our positioning in energy technologies step-by-step through organic investments and being open to selective M&A opportunities, always fully aligned with our strict financial guardrails. In this way, energy represents a value-accretive extension of our portfolio by reducing cyclicality and cyclical dependency and support sustainable margin accretive growth over time. Our CVS service platform addresses the truck aftermarket for primarily digital solutions, a segment that is structurally outgrowing the OE market and offers a more attractive margin profile. We call it the truck aftermarket ecosystem. We are already well positioned with Cojali providing a strong base in diagnostics, data and workshop solutions. Cojali generates annual revenues of more than EUR 130 million with a very, very attractive EBIT margin. We are now accelerating our expansion in truck services with TRAVIS at the core of the CVS service platform. We are bundling services that are essential for fleet operators, but which are not part of their core transportation businesses. Over time this will include services such as repair, parking, charging enabled by TRAVIS as an asset-light data-driven platform. Together with TRAVIS [indiscernible], we are at the start of being a digital solution partner in the truck aftermarket, strengthening the CVS ecosystem and expanding Cojali's opportunities. Overall, this is a strong strategic fit for our Truck Division; high growth, attractive margin, asset light, scalability and a higher share of revenues less depending on cycles. And this is exactly what BOOST Greenfield stands for: building new growth platforms in structurally attractive markets that enhance the quality, resilience and growth profile of Knorr-Bremse's portfolio. 2025 was a good year for Knorr-Bremse. Let me briefly highlight the key points. In Rail, we secured several important contracts. Siemens Mobility awarded us an order covering braking systems and for the first time a coupling system for 90 lightweight trains for the Munich SVA. In China, we contributed to growth with CRRC, supplying equipment for more than 1,000 metro cars in major cities as well as technologies for around 150 trains complemented by export orders, including braking systems for over 100 locomotives for Kazakhstan. We also entered India first high-speed rail project for an equipment initially with BEML initially equipping 2 prototype trains. Beyond that, with the opening of our new artificial intelligence center in Chennai, we are continuing our global digitalization strategy and also strengthening our presence in India. Just a few days ago, we laid the foundation stone for a new site there, which will be built over the next 1.5 years. In the future, we will bundle engineering production capacities here for both divisions together with a capacity of more than 3,500 people long term. Digitalization in rail freight was another highlight. In the U.K., we signed a long-term agreement with VTG Rail U.K. for the supply of at least 2,000 freight control sentinel wagon sets; improving safety, availability, efficiency and infrastructure use. In simple words, we make freight trains smart. We make them smart for the first time and after more than 100 years. In Truck, we extended a major contract with a leading OEM for 200,000 electronic leveling control system while continuing to expand our digital aftermarket business. The extension of Nico Lange and my personal contract are further strong signals of continuity and stability. It reflects the confidence in the leadership team together with all my colleagues, a strong collaboration across the organization and a shared commitment to long-term value creation. Together, this provides a solid foundation for Knorr-Bremse continued success and a very promising future. Deliberately leverage the benefits of artificial intelligence, we are now further advancing our AI transformation together with strong partners like Amazon Web Services. Our objective is to build a new operating model for the company over the long term powered by high-performance AI agents. This is an exciting initiative for which we are shaping the digital future of Knorr-Bremse, enabling us to become faster, more agile and more efficient. Let us now take a look at the current market situation for rail and truck as well as our market expectations for the current year. Starting with rail. The overall picture remains very robust and continues to be our least concern within the group. Underlying demand is strong across all regions supported by high order books at OEMs and our customers. There has been no material change in market fundamentals and we expect a full year book-to-bill ratio around 1 or slightly higher. In Europe, demand remains solid with passenger rail continuing to outperform freight, which is still somewhat softer. Same picture for North America where the passenger business continues to more than compensate for the still subdued freight environment. The APAC region continues to develop at a high and stable level. After good growth driven by increased ridership and pent-up demand, the Chinese rail market should normalize this year. On the other hand, we are quite convinced and we get clear indications to be part of a new rail platform in China in the future. Turning to the truck markets. The market picture overall has improved compared to 3 months ago although regional differences remain pronounced. In North America while the market is still at a low level, we are now seeing first signs of stabilization. Orders activities and customer sentiment have improved sequentially suggesting that the market may be starting to bottom out. For 2026, we expect slightly increasing demand year-over-year. That said, uncertainties remain and we continue to assume a gradual recovery rather than a sharp rebound with half year 2 expected to develop better than half year 1 in North America. The European truck production rate should continue its positive momentum seen in '25 and it should slightly grow in '26. I would now like to hand over to Frank, who will outline the preliminary financial figures for you. Frank Weber: Thanks, Marc. A big welcome also from my side. I would say let's first turn to Chart 13 to discuss the financials for the full year at first. Knorr-Bremse generated total revenues of almost EUR 8 billion, a strong figure and slightly up in organic terms. On a divisional level, RVS more than compensated for the tough truck market development especially in North America this year. From a regional point of view, Europe and APAC contributed to the organic revenue increase while North America reported a decline. The improvement in our operating EBIT margin was driven by a strong contribution from Rail supported by an attractive regional mix and good aftermarket in general. Together with our operating leverage and structural initiatives from the BOOST efficiency program, this led to a 70 basis points increase in the group operating margin to 13%. Rail achieved its midterm target ahead of schedule with 16.5% while CVS successfully fought against the very challenging truck market and achieved a resilient and stable EBIT margin of 10.4% despite the weak market situation in our stronghold North America. Order intake and backlog also achieved great results, 6% and 8% up year-over-year on organic level. These developments once more demonstrate KB's outstanding position in both markets and provide a great backbone for future growth. The very strong cash flow is again one of the major highlights of '25. We were able to generate EUR 790 million in free cash flow, a new record on operating level, which resulted in an improved cash conversion rate of 131%. Looking at these superior full year results, I would like to also thank all our colleagues, business partners and customers for their great collaboration and dedication in '25. Let's continue this year and support KB to become even stronger. Let's now focus on our balance sheet on Chart 14. A core pillar of our financial policy is and remains the fostering of our superior financial profile. This strong financial foundation has proven its value over recent years and continues to provide a high degree of flexibility. This enabled us to achieve our strategic objectives and operational needs while managing -- at the same time, managing the cycles of the market dynamics. A robust equity base continues to be a key priority for us. At year-end '25, Knorr-Bremse reported an equity of almost EUR 3.2 billion corresponding to an increase and very solid equity ratio of 36%. Our liquidity decreased to around EUR 1.7 billion solely driven by the repayment of our last year's bond maturity of EUR 750 million. Looking at the real operational effect, liquidity increased by nearly 15%. Our net debt, therefore, declined by 31% to a very healthy EUR 627 million. This was strongly driven by the repayment of the beforementioned bond translating into a strong and comfortable net debt-to-EBITDA ratio just below 0.5. As a result, KB's credit ratings of A3 and A- remain at a very solid level with stable outlooks underscoring the resilience and strength of our financial balance sheet. Let's move to Chart 15. CapEx amounted to EUR 319 million corresponding to 4.1% of revenues. In absolute terms, capital expenditures declined by EUR 30 million year-over-year. This development is fully in line with our strategy to optimize CapEx spending to a level of 4% to 5%. Net working capital in operating terms declined by EUR 85 million year-over-year with an annual reduction of more than 3 days resulting in a once again improved net working capital efficiency year-over-year. This sustained progress reflects the continued success of our collect program, delivering improvements across all key net working capital drivers, especially inventories and trade receivables. Importantly, these efficiency gains were achieved while maintaining the highest level of supply reliability for our customers, which is our clear priority. Since end of last year, we have accounted HVAC under IFRS as asset held for sale. Driven by higher EBIT and continued improvements in capital efficiency, ROCE increased by 200 basis points to 22.8%. This demonstrates disciplined asset input and utilization while simultaneously increasing our profitability in absolute terms. I would like to provide more details regarding our free cash flow on Chart 16. We improved the free cash flow sequentially last year reaching EUR 471 million in the last quarter alone. Overall, the free cash flow came in at EUR 790 million on a full year level, a new record and the best operating figure in 120 years of KB. The increase was supported by stronger EBIT generation, disciplined capital expenditures and the successful execution of our persistently lowering net working capital. As a result, we delivered broad-based improvement across all the key drivers. The cash conversion rate remained at a superb level reflecting our ability to effectively translate earnings into cash once more. In '25, it reached 131% in operating terms, which is an extraordinary figure even well above last year's level. If you include the one-off effects of around EUR 80 million for the severance packages in '25, the cash conversion rate would have even been at 138%. Let's move to Chart 17. We continued our way to strengthen KB's sustainability performance to identify efficiency potentials and increase resilience in our operations and supply chain. Our sustainability strategy continues to deliver measurable progress across all dimensions. Since 2018, we have reduced Scope 1 and 2 CO2 emissions by 79%, keeping us fully on track to achieve our 2030 climate target of 75% reduction. Despite market-driven revenue headwinds, our emission intensity has slightly improved year-over-year while self-produced renewable power increased by 41%, further strengthening our energy resilience. From both a regulatory and financial standpoint, EU taxonomy aligned revenues show a slight increase primarily driven by comparatively higher RVS business. This progress is supported by a very strong external validation, including the first allocation and impact report for our green bond, the leading ESG ratings and multiple sustainability awards we achieved. Let's turn to Chart 18 to discuss the financial highlights of the fourth quarter. Order intake was strong with almost EUR 2 billion with a strong organic growth of almost 6%, which was well supported by trucks. A book-to-bill ratio of 1 again is important and good support for our future capacity utilization. Our revenues almost amounted to EUR 2 billion with a strong organic growth of more than 6% driven by both divisions. Operating EBIT margin increased to 13.5%, which is a very strong improvement year-over-year. Both divisions contributed to this development. As already outlined, free cash flow improved to EUR 471 million and followed the typical seasonal pattern over the course of the year, which we also expect for '26. Let's take a closer look at the RVS performance on Chart 19, therefore. In terms of order intake, RVS again recorded more than EUR 1 billion, but showing a decline of 10% year-over-year which was driven by all regions except for China and needless to say, including significant FX headwinds. In quarter 4, we had expected a larger order in North America in the mid-double-digit million euro range, which was shifted into '26. Global rail demand is very strong and will continue, but sometimes as regularly mentioned, does not really fit into quarterly reporting. In general, we expect order intake in '26 to be in the range of EUR 1 billion to EUR 1.2 billion each quarter. For the year as a whole, the book-to-bill ratio should be around 1 or slightly above 1 after also consistently recording a value well above 1 in recent years. As in '25, we expect order intake to be stronger in the first half of the year than in the second half. In the fourth quarter, the book-to-bill ratio stood at 0.91. Order book at year-end with almost EUR 5.6 billion came close to our existing record level. Organically, the backlog grew by around 9% year-over-year. This high order backlog underpins strong visibility and provides a solid basis for growth well into 2026 and beyond. Let's move to Chart 20. Quarter 4 revenues from RVS amounted to nearly EUR 1.1 billion, which is an increase of 3% year-over-year. Especially pleasing was the growth in organic terms accelerated now to more than 7%. Our aftermarket business was almost flat year-over-year with all regions except Europe showing declines. OE business on the other side grew nicely year-over-year by almost EUR 30 million. From a regional point of view, revenue growth was fueled by Europe while APAC remained stable and North America and China very slightly declined. In Europe, aftermarket business and OE sales grew nicely. North America recorded almost stable aftermarket business, but a decrease in OE business. The APAC region saw a stable development with OE overcompensating slightly lower aftermarket figures. China also saw flat OE revenues while aftermarket business slightly declined after some catch-up demand has been satisfied. Please keep in mind that we have had very strong China business in '24 and '25, which benefited from a meaningful increase in ridership. As a result, we expect that our China business could slightly normalize in '26, but still being well above our long-term expectation that we shared with you in the past. Operating EBIT margin recorded an increase of 140 basis points to 17% driven by operating leverage and our efficiency measures within BOOST. In addition, we worked off all remaining legacy projects meaning the inflation burdened order backlog. In quarter 1, normally a rather weaker market quarter due to the seasonality of aftermarket business and the impact by Chinese New Year, we expect the profitability of RVS should be slightly up year-over-year. For the full year '26, the operating margin of RVS should be only slightly below 17.5% including HVAC. Therefore, and as in '25, we expect the operating EBIT margin in the second to fourth quarter of this year to be higher than in the current quarter. Let's continue with our Truck Division on Chart 21. Order intake in CVS amounted to EUR 977 million representing an increase of around 10% year-over-year and around 20% compared to the third quarter. The very strong year-over-year organic growth of 20% was partly offset by M&A and FX headwinds. From a regional point of view, Europe was very strong and also the APAC region posted growing orders. In contrast, North America recorded significant declines due to market and FX factors. The strong development quarter-over-quarter in all regions is quite promising. Especially in North America, we feel reassured that we have seen the bottom. Nevertheless, we still expect no sharp increase in market demand from this level. Our book-to-bill reached 1.1 in the past quarter and therefore, the order book with almost EUR 1.8 billion at the end of December remains on a good level. Order intake in the current quarter should be good as well and only slightly lower quarter-over-quarter. Nevertheless, the start into '26 was very solid so far. Let's move on to Chart 22. Revenues decreased nominally by 4% to EUR 881 million. A rather good organic growth of over 5% could unfortunately not fully compensate for the headwinds driven by M&A and FX. Against the backdrop of a continuously challenging U.S. market, especially in the U.S. this development reflects a very resilient and solid operational performance by our Truck Division. Our OE business decreased by around EUR 30 million compared to the prior year. This was driven by a significant decline in North America as anticipated while Europe showed good growth and the APAC region recorded solid momentum as well. The aftermarket business, on the other hand, was overall robust and saw a more or less stable development driven by Europe and China despite FX headwinds. North America was down by 10%, but slightly up in organic terms. Turning to the bottom line. Our operating EBIT amounted to EUR 99 million in the past quarter representing a strong increase of 14% year-over-year. Consequently, the operating EBIT margin improved by 180 basis points to 11.3%. This margin expansion was driven by a quick and consistent adjustment of workforce and the continued reduction of structural cost as well as the support of our accretive aftermarket business. Looking ahead to '26, we anticipate organic revenue growth in the range of low to mid-single digit versus '25 driven by a slightly positive development of truck production rates in our major regions, Europe and North America. Based on the related operating leverage by the already lowered and continuously further optimized cost base, we expect to improve the operating EBIT margin towards 12%. We also believe that the profitability of CVS should improve step by step throughout '26. In the current quarter, we expect a slightly lower operating EBIT margin quarter-over-quarter, which will increase in the quarters ahead. With that, I hand over to Marc again. Marc Llistosella Y Bischoff: Thanks, Frank. So let's have a look at our guidance for '26 on the next page. Based on the assumptions outlined on the right side of the chart, we expect the following for full year '26. Revenues in the range of EUR 8 billion to EUR 8.3 billion, an EBIT margin of 14% and a free cash flow between EUR 750 million and EUR 850 million. We will give you an update of our new midterm targets with the publication of our quarter 2 results on the 30th of July. Ladies and gentlemen, as you can see, we continue to deliver and especially what we have told you and what we have announced. KB is well on track to all strengths and beyond. Be assured that we are setting the path for further growth and value creation. In '26, we want to enter into the next area of KB, which clearly focuses on sustainable and margin accretive growth. Thanks a lot for your attention. Looking forward to your questions. Andreas Spitzauer: We will start the Q&A session shortly. In case you would like to ask questions, please dial in via the provided telephone number. Mute the webcast and ask the question via telephone. Please limit yourself to 2 questions. All other participants can stay in this webcast in the listen-only mode. Operator: [Operator Instructions] And the first question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: Two questions, please. Maybe 1 at a time. So firstly on your growth initiatives, what makes you think that you can win in the electrification market? I mean the grid and electrification markets are characterized by well-established very large players with extensive distribution network. So what's your positioning exactly? Are you a sub-supplier for the likes of ABB and Schneider or do you compete directly against these guys? And I'm also curious to understand if your focus area is just around the grid side or whether you also see opportunities to supply data center customers as well? Marc Llistosella Y Bischoff: I think I take this. So saying about energy market, for us there's 2 vectors of potential growth. The one is that we go in the supply of components like instruments, transformers, like protection relays, circuit breakers. That's where we are very, very interested in because these are Tier 1 and Tier 2 suppliers to the Project TRS. Number two, are we aiming to get into direct competition with Schneider, Siemens or others of this size? No, that's exactly where we are not because the market has such a size, roughly EUR 480 billion, that's our definition of the market where we see absolutely a massive growth area especially when it comes to key components. These key components, some of them we have already. We have never focused on them, but we see now that there is a massive growth in our internal units already. So we see here a growth between 25% and 30%. And this is where we say there is granularity in the market currently and we see a massive potential that we can be a creator of a new market structure. That means we accept absolutely the big guys. We will not get in competition with them. Furthermore, we are more interested to be a competent partner for this kind of customers, which so far are seen in the fragmented granularity of market. This is our strategy. And number two, when we speak about the next vector, then we see also midsized projects and there we see Project TRS, which could be interesting for us. You know better than me that we have seen in the recent past someone -- some American went public and this is exactly where we are interested to step into. Gael de-Bray: Okay. And the second question is around the communication of the new midterm targets. I mean any color around this, maybe around the time horizon that you've said? Is it 2030? And I suspect we will hear from you around growth and margins, but any view on maybe the targeted net debt-to-EBITDA at this stage would be useful. Maybe a theoretical maximum debt-to-EBITDA level that you don't intend to exceed. Frank Weber: Gael, I take this one. As we outlined and Marc outlined precisely, we will shed definitely more light on that on the 30th of July. We are prepared to take it. It will be not hugely surprising for you that we are striving for more at Knorr-Bremse. I will not take any figures now in my mouth. We occasionally drop the one or the other elements of what we are pursuing going into the future. We will also not give you a 5 to 10 years midterm guidance range, but rather focus towards -- like you always knew it from us, towards the next 2, 3 years kind of. That's the way we are thinking. And as I said for some businesses, we have already here and there shared with you in the quarterly call some expectations what we can think of the businesses to achieve in the future. But let us wait for July, please. Let us first bring home all the targets that we have still at hand to be achieved. Operator: And the next question comes from Sven Weier from UBS. Sven Weier: First one is also a follow-up on the new midterm targets. I mean in a way, don't we know some of the targets already; the 19% in rail, 13.5% in trucks. Now you said this is like on a 2-, 3-year view. So is the focus then end of July more around the expected growth that you see because the margins we kind of know already? Frank Weber: We have not fully talked about CVS for example and we have, as you rightfully said, not really talked about the clear time horizon for RVS and whether the 19% will be there. Let's see, maybe it's even a bit more. So let's see what we are talking about then in July. But of course for sure, there is some further need to discuss on our strategic revenue path going into the future and how we operationalize ultimately our greenfield ideas that Marc outlined nicely regarding the business areas and we can also shed some more light on this or we will definitely shed some more light on this. So I would say you're rather right. It will be a bit more focused on the revenue side, maybe how to generate accretive growth for this company, but also the margins of course. Sven Weier: And the other question I had was just on the greenfield side. First one there being on the CVS side because obviously recently we heard a lot about the truck fleet management powered by AI, that the load of the truck fleets could be much, much better in the future. And I just wonder with the products you have there, I mean would you have any inroads into that helping the truck fleets on that end or is that not going to be your focus? Marc Llistosella Y Bischoff: Yes, it's less product in terms of hard assets, it's more services. And what now is the time is -- and this is why TRAVIS is so important because their customer leads are important. As you know, the captives are trying their best to cover the new areas. The problem with most of the fleets, they don't want to be only covered by 1 captive. They want to have a brand independent approach. And for us, this is a the chance to step in and this is where we stepped in already. We have with our PleaseFix a massive real connection to hundreds, close to thousands of independent dealerships where there is no brand dedication and which is for us very important because that's what the customer wants. So we follow the customer and they want to have a free choice of services and exactly this is where we step in. So it's more a service. It's more a transaction-based service than it is a form of asset transfer. This is the product, this is the part. This is not where we see our trade going on. What we see is that I sometimes refer to it like Amazon for trucks. It doesn't depend what you buy, it depends where you buy it. It doesn't depend what kind of service you ask for, it depends only on which platform. And the time of this platform is only one thing; size, speed, agility and services. And this is why we think it's a game of speed. The faster and the quicker you have a network connected on this platform, the more it is very hard to reach your position. So here, speed is the name of the game. This is why we were very happy with TRAVIS. It's a Dutch company as you know, very agile, very aggressive and this is what we need. And everywhere where we as Knorr-Bremse, a little bit located by ourselves in terms of an old German company, we need different ingredients of entrepreneurship. Cojali is another good example because their form of business is not brand dedicated. It's not 1 brand they serve. They serve everything what is in the market. So it's a very, very indiscriminative approach to the market, which I think and we think that's where the growth will be. That's where the margins will be. And that is we have to take the place because if we don't be quick and fast, others could be tempted to do so. So far we are in a relatively good position and we want to keep this position and we want to build it up. Sven Weier: And on the energy side, did you say that you have data center exposure or not because I didn't fully capture that on Gael's question? Marc Llistosella Y Bischoff: The data center exposure from our side is relatively limited, but we are already supplying Project TRS who are equipping data center. So what we will -- currently not in a position to give data center the full-fledged program, but what we do already is that we provide with the ingredients, with the components, with the systems which you need to give this kind of service to data center. And this market we see also absolutely not only in America, we see it also in Europe and we see it also in Asia. And as I said, currently the market of component suppliers is extremely granularized. So we have a lot of little ones, small size, midsize providers of components and that's exactly our chance. We could scale it and we will scale it. Operator: And the next question comes from Meihan Yang from Goldman Sachs. Meihan Yang: Just the first one, you mentioned there was an order shift into 2026 on the RVS side. Could you give us a bit more color on this and do you expect it to be signed in 1Q '26 or any color would be helpful. Frank Weber: I would say it's just an example of how things go usually on a regular basis in quarters. When it comes to the bigger project business of RVS, sometimes orders are outspoken or signed kind of sometimes it doesn't happen on a last-minute notice. So it's just a EUR 50 million to EUR 100 million order in North America. It's the regular thing that you would expect. It's not signaling. So it's just happening and with that, we would be pretty close to EUR 1.1 billion and that's what we wanted to indicate with this message kind of that's how things go when it comes to quarterly reporting. But it's not a spectacular kind of all of a sudden order that's coming. It's something that's pushed out from one quarter to another and that's an example. Nothing more I think to add. Meihan Yang: Got it. And on the second question, you talk about how you could expand the aftermarket services to your customers from AI. On your internal operating leverage, is there anything that you're seeing big benefits -- like for example you're doing your R&D or your software development much more quicker and do you see any benefits coming through in '26 already? Marc Llistosella Y Bischoff: I think you're on the right track when you say especially in software engineering, we can accelerate massively and this is exactly what we are going to do. You remember when I said that the output per person, the output per employee has to be improved and increased. For 22 years, the output per person in this company was stable and it was not improving in terms of output and this is exactly where we are focusing for the next 3 to 4 years. We have a clear target and that includes purchasing, that includes accounting, that includes controlling, that includes HR, that includes every form of legal and compliance. It includes every functionality, which can be seen as repetitive. 80% to 90% of the software coatings are repetitive. So we have to focus with our people, human people. We have to focus on the 10%, 15%, which are really creative. The rest has to be done by AI or I would call it by algorithms because that is not the differentiating part. So we focus on the differentiating part where we put our engineerings in and everything what is repetitive is being more and more handled by algorithms and we call it the agents. And this kind of agents when the first impact is, we are starting now. We have started already a project in accounting and controlling. We see here effects, real effects not just a vision or so, we see real effects of 30% to 40%. That means you can say 30% to 40% of more output per person or in reduced workforce. That's the call and that is why we say so far we have a very clear plan that the output per person has to reach in, I would say, visible time 300,000. And either we grow or if we don't grow, we have to shrink our workforce. With shrinking workforce, that means we have the breakeven in mind and with that, we have the personnel expenses in mind. And you know that our personnel expenses, especially in rail, they are now in a reach of EUR 1.2 billion. There we are not happy, I tell you this very clear because the output has to be improved. In truck, we are already on a much better way because we are here in the range of EUR 700 million coming from EUR 800 million. So we reduced our personnel expenses around EUR 100 million within 1 year in CVS. This is a potential where we have to leverage everywhere not only with trucks. And now the question is how do we get it? We get it by standardization of processes, we get it also by automation of processes and we get it also by using agents more and more in some areas. Operator: And the next question comes from Ben Uglow from Oxcap Analytics. Benedict Uglow: I had a couple. The first was just about the kind of qualitative view, the sentiment around the CVS outlook, particularly for North America. I guess some of the truck OEMs that have reported seem to have been a little bit more optimistic, mid- to high single-digit growth in truck production rates. What I kind of wanted to know was do you see anything fundamentally different from them or are you just being sort of naturally conservative? That was my first question. Marc Llistosella Y Bischoff: So thanks for the question. We are naturally more conservative. Why? Because you know better than me what happened in the years '21, '22. We were eventually a little bit erratic with our predictions and since that, we are more conservative and we are only claiming what we can really achieve. That's number one. Number two is for us, the best indicator for the truck American market in North America is PACCAR. PACCAR is known to be the most agile one when it comes to layoffs. It's the most agile one when it comes to production capacities. PACCAR is Champions League, absolutely Champions League when it comes to reacting to the market's ups and downs. We see that there is some upside. But I would say the results what we have in truck -- and it's just a mathematical calculation. We have managed to make in the fourth quarter 11.5% in a market which was still very sluggish. Now you can imagine what happens when the market is going up and you know also that we are generating roughly USD 1.3 billion to USD 1.5 billion in America alone with Bendix. So it's one of our biggest markets and it's one of the most profitable market. So that is for us the significant upside which we see, but we stay conservative. We say everything what we have predicted so far is based on the cost by slightly stable market size. So if the market goes up, you know exactly what that means. There's a potential and this is what we are not claiming, but we are preparing. Benedict Uglow: Understood. And then coming back, I guess we're all excited about this energy technologies business that, frankly, I certainly didn't know existed. Can you talk a little bit more about Zelisko and the production setup? I mean presumably you've got 1 large facility or something like that. Are you expanding capacity? What are you doing organically to build that business? And I guess my follow-up question is if you think about M&A in that segment, are we talking about sort of bolt-ons, i.e., EUR 50 million, EUR 100 million type transactions or are you more ambitious in your thoughts there, i.e., there are certain assets available, which are bigger. But the question is is that what you're sort of signaling or not? Marc Llistosella Y Bischoff: Ben, you're very curious, I have to admit that. Very smart questions, exactly the same questions which we have discussed for the last 7, 8 months. I try to do my best not to spoil our own story because otherwise everybody would know where we go and what we do. We are not -- I make it simple from the beginning. We are not shying away from a bigger ticket, number one. Number two, as long as we don't have the perfect big ticket in sight, we are going step by step. And as I said, the granularity of this market is very interesting and we see here a lot of opportunities of, let me say, smaller size tickets. The problem is -- not the problem. The opportunity is that with 2 or 3 assets, you can already have a very, very really good market position worldwide. So for us, it's very important to do both. We are not choosing left or right. We're not saying the big bang is the only thing what we search. We go absolutely both ways. The one is we go components for components, markets increase, market share increase wherever possible. This is permanent. This could include also smaller-sized businesses, what you said, EUR 50 million to EUR 100 million tickets. But parallel to that, we are ready and we are scaling ourselves up to have expertise in this regard so that we could imagine also a bigger ticket. So this was #3 and #2 of your question. Number one of your question was what is the current size and where are you located? We are located in Vienna, we are located in Milano and we have now a massive aggressive turn that we go to Americas with our existing business partners. That means Zelisko and Microelettrica. Zelisko is now your question is and I think it was also a little bit of a critical hint what you gave. We didn't know that it is existing. The funny thing is 3 years ago nobody took care of this business so much. It was a little bit like a bifung in Germany, to say and this company was staying very, very solid alone, but very profitable, very small with EUR 50 million. Now within exactly 2.5 years, they doubled their revenue to EUR 100 million to EUR 110 million. Their profitability is in the range of 18% to 20%. So it's a very, very promising business and the competence is also enlarged and increasing. So we have the nucleus. The same with Microelettrica. The business is doing quite, quite well. We have already organic growth areas not only for Europe, but also for America. But as we are not that patient and I think you are also not that patient, we say organic growth would take us too long. This is why we are very open for inorganic growth in this area. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: My first one goes to the Rail business and quite similar or aligned with Gael's question around energy. I mean signaling is clearly another target for your greenfield. But when we look at the signaling industry, it's typically dominated by the likes of Siemens, Alstom or Hitachi that treat signaling as the brain of the train and a core part of their expertise. So when you look at growing within that marketplace with a focus on profitability, what structural evidence is there that a component-led player can actually capture premium margins within the signaling industry? Marc Llistosella Y Bischoff: Okay. With signaling, superior margins, we stepped in. It was an occasional opportunistic step and we did it. And now, excuse me, I would love to do that. I have a list of 5 assets which we have in mind; 2 of them would be very significant, 3 of them would be additional. Of course you understand that I can't give it to you. But the second of your question -- the first was more where do you see yourselves competing with Siemens, competing with ABB, competing with others, Hitachi. Yes, you're right. This is eventually not what we want. We want to be a brand independent offerer of services and the market is really interested because before we step into the market, we always ask is there a market for us? So we ask potential customers, we ask competitors, is there an area or are we just a me-too into an existing market where you differentiate yourself with pricing or whatever. This is never going to happen with us. We are not interested in a price war. We are not interested in competing with something which is not differentiating. So we see differentiators. We see different sizes. We see sizes which eventually for the big players are insignificant because the big players are now overrun by demand and also in energy and that gives us a massive opportunity. It's a time -- a window of opportunity for the next 3 years to go. In the next 3 years this kind of games will be decided and after that, it will be very, very hard to get into. So this is why we decided in signaling and also in energy to be very quick now. We need to make our mind. We have to be very clear what is an asset which is helping us and what is an asset which eventually is not helping us at all. The profitability of these 2 markets and especially in signaling is different. We have here very, very profitable market players and we have very average market players. This is where we have to focus on the ones which we manage to improve and this is why we always refer to this accretive growth. It can be that in 1 year we excuse you. In the second year, we don't excuse you any longer. In the third year, you have to be at our level otherwise it is a wrong move to do. And before we acquire any asset and if we touch any asset, this growth and accretive EBIT margin plan has to be secured. If it's not secured, we don't touch it. It's very clear. And to your question, what is the evidence of your success? The evidence of our success is whatever we said the last 3 years happened, whatever we said happened. And the evidence in the future is never given by any evidence of the past. It is also the -- yes, you can only say it's the players and it's a probability and it's a logic. If the logic is clear, then it is very unprobable the logic will be broken. If the logic is not clear, then I'm with you, then you need evidence. Future has no evidence. It has only a track record. And our track record -- and this is why it was so important that Frank and the whole team, we have now delivered everything by the number, by the number. Remember when we came in 2023; you were shattered, you were absolutely out of trust, you were not believing anything because everything what we said was perceived as an excuse. Now for the last 3 years, we delivered every number what we have promised. Even when markets were tough in CVS last year, we delivered the double-digit number. We delivered it. We never deviated from our targeted numbers and that's exactly what we do in the future. What we have done the last 3 years will follow the next 3 to 5 years. That's what we stand for. This is what we go for and this is exactly the logic which we follow. William Mackie: My second question and there's a short follow-up relates to CVS. And when we think about the fact that the future is based -- is going to be different, you've done a lot to demonstrate the cost flexibility of the business. You've highlighted the opportunity to drive out some of the structural costs in the business and you've allocated capital to enhance the profit profile of the business as a whole. So with those structural factors in mind, how should we start to think about the through cycle ability for CVS to generate returns? Should we look at the past and think actually you could achieve more as you develop around the service activities and structurally change the mix? Frank Weber: As we have a historical meeting where more questions addressed to the CEO, he just pointed at me so I take this one. Yes, I mean very well described. So that's why we believe we have created or will be having created a cost structure in CVS towards the end of the year of '26 where the truck business can run in a rather weaker market environment on an operating margin basis of around 12% kind of. And if the markets get then overall a bit more normal than the weak situation, then they should be able to come along with close to 13% maybe. And if the markets are even good, they can come to the 13%, 14% of margin. That's what we believe in and that's, by the way, also the way how we on a daily basis kind of steer the truck business according to those kind of 3 inherent scenarios. And please keep in mind that the 13.5% we took already in our mouth some time ago when we had the expectation originally that markets could be quite nice, not strong, super strong, but quite nice and we still stick to that. This is what's possible with the truck business given that cost measurements that we have been taking over time. That's the way to think about the truck ambition going into the future depending on a certain market specification; weak, normal and good markets. That's the way we think. William Mackie: If I can ask one short follow-up related to the new business operating model. When you described the application of AI, it was with many references to indirect functions in the business. What type of direct value-creating functions such as R&D or operational performance do you see the opportunities in as you develop a new business model? Marc Llistosella Y Bischoff: So in this context, AI is not a cost cut. It's an accelerator. It's faster. It's quicker. In our case, it's relatively simple. We have here more than 6,000 engineers. These engineers are occupied with repetitive work, which from our point of view is not the most substantial added value work they could do. The more we get them liberated from this repetitive work, the more output they will generate and that's exactly where we see AI. At the current level of AI, there is where we see. I'm pretty sure you have seen what happened the last 5 days. We spoke about large language models and we spoke about Claude and we spoke about a lot. And now we see OpenClaw coming into the game, relatively cheap, relatively interesting. So it is a completely disruptive approach when it comes to AI. This we have not still incorporated. But what we do, and this is why it's so important that we go to a greenfield approach like GenAI, we let it go. We let it just try it out because one thing is for sure. If you use an algorithm for your existing business, you are limiting already the opportunities for the algorithms. If you let the algorithm do things which normally are not foreseen to be done, not only repetitive work, but eventually also generating work, accelerating work, that is something where you sometimes need a new environment and a new spirit. And this is why we have chosen Chennai because there we have absolutely -- we are ensured also that these guys and these girls who are working in there have a completely different view on it. They make it happen instead of excusing and telling us why it does not work and they will be more risk taking. So what we will not do is that in our current processes especially when it comes to safety and security relevant assets, we will not step into it directly with AI. But in terms of services, in terms of new ideas, new services and especially new applications, which eventually are not that safety relevant, we can see whether the algorithm can accelerate us and give us also new solutions. So that is where we go. We don't go full fledged now in AI and say blindly that's it. We utilize it as a tool and when the tool gets better, it has the right environment to accelerate and to leverage. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: Most of my question has been asked. Just 1 left and that is on China. Can you talk about what are you seeing in China? I think when we look at your Q4 orders, you had some growth in both of the segments. But in general when we look at for the year 2026, what have you embedded in your outlook? And particularly in rail, how do you see the business overall between high-speed and metro and services? Frank Weber: Akash, I would say nothing is rocking the boat here in very general regards to China. We still see quite better numbers than we have initially guided you with for China some kind of 2 years, 3 years ago. We should be slightly weaker maybe in absolute terms in revenues than in the year '25. That's the only thing. We see a bit of weaker metro demand. It's market driven. It's not market share driven. It's solely market driven, maybe a bit less metros in the year '26 to be built than in the year '25. So maybe even below 4,000 metros overall. So I would say a small or below EUR 50 million year-over-year reduction in China could happen, maybe EUR 30 million less next year compared to '25. So nothing spectacular, but it's 1 aspect of the business developing into '26. High speed: number of high-speed trains always a bit unclear, but we expect a similar amount, maybe 10 less also, like we had in '25; but similar amount, stable market share for us. Metros is the point maybe a bit less. That's all. Marc Llistosella Y Bischoff: There's one thing which is not based on our recent years. Eventually you know that for the last 8 years, we were excluded -- 9 years, we were excluded for the newest latest platform of high-speed trains as a system component supplier. So we lost our position from -- in 2014, '15, we were the one, the one which were equipping the high-speed trains in China. For the last 8, 9 years we were not discriminated, but we were set back. So we were excluded in the latest new forms. Since September last year, there is a massive shift that Knorr-Bremse is reconsidered to be a potential system component supplier to the Chinese CRRC in terms of high-speed trains. So that is something which it was hard work, it was very, very hard to reach that and it is an opportunity for us to compete currently with the best and that is in China for high-speed trains. And if we are perceived as a full-fledged provider of services for the high-speed train, that would be and that is exactly what we were fighting. And since September, we have indications that we are back in the game which we were out for 8 years. And that makes us very, very proud because it was hard work to get there back and there's a potential that not only for metros, you know it better than me, but also for high-speed trains, we could get back to be seriously a contender in this business. Frank Weber: No order yet, Akash. Operator: And we have 1 last question from Alexander from BofA. Unknown Analyst: Maybe I can follow up, first of all, on that last question. You talked about the exciting opportunity for the latest generation of high-speed trains. Could you give any idea of the sort of magnitude that could add to your Chinese rail business in due course if that comes through? Marc Llistosella Y Bischoff: Yes, it's more repetition than immediately in orders because when I came here on board in 2023, everybody told me the story is over and the party is over and we have a defense to make and it is like a long tail, which we have to defend. If this comes true and if we are really a contender and if we will succeed, this story is no longer valid. It's a game changer. I can't give you the numbers in terms of quantities for the next 2 or 3 years, but it would be a completely repositioning of Knorr-Bremse in the Chinese environment. And you know we have done a lot for the last 2, 3 years to be seen more and more as a contender, as a market player who takes the Chinese specifics very, very serious. And sorry to tell you and you know it; you can Google it, you can search it; more than 65% of high-speed train in the world is China. So China is the place to be and high speed is the grail of the rail industry. Everything else is very important. Nothing to say about it, but that's the grail. That's the S-Class, that's the top. And if you're out of that, if you're no longer a serious contender in these kind of tenders, then you have a reputational issue and this reputational issue of course for a world market leader as us. We want to stay not only there. We want to be back in the game. That is what we tried the last 2, 3 years. You haven't seen it in the numbers because the numbers which we have seen in rail, sorry to say, that was we were providing the services of the past and we did it well and we did it very, very well. In metro, we are very absolutely competitive. We are very good. We are good. But the grail of the rail industry is the high-speed trains in China. If there you make it, you have an excellent position for the future. Unknown Analyst: Understood. And then maybe if I can squeeze in 1 more on M&A. You've talked about it several times as a sort of key part of the greenfield strategy. Could you share a little bit about the pipeline you're seeing there and whether valuations appear acceptable? And linked to that, remind us of the sort of financial thresholds you're using to assess those deals in terms of return on capital or otherwise? Frank Weber: Yes. I mean I've told you several times that we have a very healthy balance sheet and we are not shying away from net debt-to-EBITDA ratios of 1, absolutely no issue. And if good or great market or business opportunities would come along, we could even go higher with a clear path to bring margin accretive revenues to this company and to help us profitably grow into the future. So that's definitely something we will -- we have our clear financial guardrails. We are searching basically only for businesses that fulfill those criteria. We have businesses with 14% of return on sales. Given ourselves as a hurdle rate we said should be on the cash side accretive and return on capital employed above 20%. All those 3 will be measured rightfully, as Marc said, after we have a clear plan that within at least 2, 3 years, those businesses should be able to achieve this. If there is no clear visible plan for us, recognizable, we wouldn't touch it. So that's pretty clear. I would say, a clear set of criteria. Marc Llistosella Y Bischoff: And to add on this and to finalize it, there is 1 thing and I think you're all aware of the club of the 25%. Growth and EBIT margin together has to exceed the number of 25%, capital goods. That's the Champions League. We are currently not in this Champions League. Rail is close, truck is not. And our aim is that the whole company, including truck, rail and whatever, is a significant part of this Champions League Top 25% club. That's our aim. That is not a forecast for the 30th of July. This is what we aim. This is what we want. This is where we have been in the past. We haven't been there for the last 5, 6 years, but now our aim is to get back on this Champions Club League. We will not be the top of that not at the beginning, but we have an aim. There we want to get back. Andreas Spitzauer: Okay. Thank you very much for your questions. We wish you a great springtime and happy to talk to you next time most likely in May. Thank you very much.
Satoshi Ito: Hello. This is Ito from IR Department of T&D Holdings. Thank you very much for coming to the Telephone Conference of our financial results. Our materials are under our website on the Investor Relations under IR Events tab. First of all, I will be making approximately 10 minutes of presentation, after which we would like to move on to the Q&A session. So we'd like to move on with the presentation. Please turn to Slide 3. First of all, I would like to present the key highlights of the financial results for the third quarter. Group adjusted profit amounted to JPY 122.5 billion against the full year forecast of JPY 146 billion with a progress rate of 83.9%, demonstrating a steady progress. Sales results of new policies of all 3 life insurance companies progressed smoothly against the plan. Surrender and lapse rate increase in Taiyo Life remained at the same level year-on-year in Daido Life and a decline in T&D Financial Life. Value of new business as a combined total of the 3 life insurance companies amounted to JPY 144.3 billion, with full year forecast is JPY 168 billion and a progress rate of 85.9%. Group MCEV amounted to JPY 4.3974 trillion. ESR was 225%. There is no change in full year earnings forecast as well as for dividends. Please turn to the next page. The key revenue and profit items of each company are shown in the table. The 3 life insurance companies recorded increase adjusted profits, but T&D United Capital decreased. Page 5 shows you the breakdown of group adjusted profit and difference from net income. Please turn to the next page. This page shows the key performance indicators of the 3 life insurance companies. The 3 life insurance companies saw an increase in their core profits. Taiyo Life and Daido Life recorded capital gains on sale of domestic and foreign equities. Meanwhile, Taiyo Life recorded mainly losses on sales associated with the reduction of its foreign bond holdings. Daido Life posted losses on sale of bonds, mainly due to replacement as part of its cash flow matching strategy. T&D Financial Life recorded a profit increase mainly due to an improved insurance margins resulting from growth in policies in force. Please turn to the next page. The charts describe factors contributing to changes in core profit for both Taiyo Life and Daido Life, decreased currency hedge costs and increased interest dividend income contributed to an increase in core profit. This effect was partially offset by an increase in operating expenses. Please turn to the next page. Average assumed investment yields of Taiyo Life and Daido Life were 1.35% and 1.21%, respectively. Please turn to the next page. T&D United Capital's adjusted profit decreased by JPY 5 billion year-on-year to JPY 5.4 billion. Please turn to the next page. This page describes the quarterly trends in the profit and loss of closed book business. In its consolidated results for the third quarter, the company recorded approximately JPY 8.9 billion as adjusted profit, equity and gains and losses of affiliate related to Fortitude Re's financial results for the third quarter, July to September. The adjusted profit related to Fortitude's fourth quarter, October to December, earning is under calculation. Please turn to the next page. Viridium's fourth quarter results, October to December will be incorporated into the company's Q4 financial results. In our consolidated financial results, profit and loss based on IFRS will be recognized for financial accounting purposes. While for group adjusted profit and loss equivalent to Luxembourg GAAP will be included. Due to the acquisition of Viridium, JPY 75 billion of goodwill was recognized under financial accounting. However, as an amortization of goodwill is excluded from the group adjusted profit, it has no impact on adjusted profit. Next page, please. At Taiyo Life, annualized premiums of new protection-type policies remained at the same level as the same period of the previous year, while surrender and lapse rate increased mainly due to increased surrender and lapse in the agency channel, annualized premiums of in-force protection-type policies increased from the end of the previous fiscal year. Please turn to the next page. New policy amount of Daido Life continue to be strong and achieved a year-on-year growth. Surrender and loss rate was broadly in line with the same period last year and policy amount in-force increased from the end of the previous fiscal year. Please turn to the next page. Annualized premiums of new policies at T&D Financial Life declined year-on-year mainly due to the lower sales of foreign currency linked products. In addition, the surrender and lapse rate declined due to a decrease in policies reaching their target values for foreign currency-linked products, resulting in an increase in annualized premiums of policies in force compared to the end of the previous fiscal year. Next page, please. Group MCEV increased by JPY 451.7 billion from the end of the previous fiscal year to JPY 4,397.4 billion, driven by the accumulation of new business value, the rise in domestic/foreign stock prices and the adoption of LDTI at Fortitude Re. The combined new business value of the 3 life companies increased by JPY 5.3 billion year-on-year to JPY 144.3 billion, mainly due to higher new policy amount and rising domestic interest rates. The new business margin was 9.3%. A breakdown of MCEV by company is provided on Page 16. The factors impacting the group MCEV is on Page 17. Next page, please. This page shows you the status of investment at Taiyo and Daido Life. The combined amount of the domestic and foreign equity sales by the 2 companies was approximately JPY 209 billion, exceeding the full year sales plan of JPY 180 billion that was set at the beginning of the fiscal year. We intend to continue making progress on sales in the fourth quarter as well. Daido Life's interest rate matching ratio reached 86.4%. And for Taiyo Life, it reached 96.6%. And Page 19 shows you the status of foreign currency denominated bonds. Please turn to Page 22. This page is the status of net valuation gains and losses on general account assets. Unrealized foreign and domestic bonds have increased due to rising domestic interest rates. Page 24, please. As of the end of December 2025, the ratio of strategic equity holdings to net assets stood at 19%, reflecting an increase in the market value of the holdings. The ratio of strategic shareholdings to net assets, adjusting for roughly JPY 100 billion already agreed for sale is around 13%. We'll continue to work on reducing the strategic shareholdings to 0 by the end of March 2031, setting aside those for business partners and collaborators. Please turn to the next page. Sale of stock reclassified from strategic shareholding to pure investment is in process as part of our effort to reduce equity risk. As of the end of December 2025, 57% of such shareholdings was divested on an accumulative basis. Next page, please. As of the end of December '25, ESR declined to 225% from the end of the previous fiscal year. While surplus increased, this reflects the investment in Viridium along with increased mass surrender risks due to higher domestic interest rates. Next page, please. There are no changes to the full year earnings forecast for the fiscal year ending March 31, 2026. For the remaining 3 months of the fiscal year, the group adjusted profit is expected to decrease by approximately JPY 0.2 billion for every JPY 1 of appreciation. A breakdown of each life insurance company is provided on Page 28, significant subsequent events on Page 30 and change in presentation of financial data on Page 31. This concludes the briefing of financial results for the 9 months ended December 31, 2025. Unknown Executive: I would now like to move on to the Q&A session. We would like to introduce the first question from SMBC Nikko Securities, Mr. Muraki. Masao Muraki: So this is Muraki from SMBC Nikko Securities. I'd like to post two questions. The first question relates to Page 4 of the materials. The progress rate is 84%, slightly high as of this moment. If you can give us an update on the full year forecast. So I'm pretty sure you have some loss in the sales of JGB and also gains from the sales of equities in Q4. So what are your assumptions right now? That is the first question. Satoshi Ito: Mr. Muraki, thank you very much for the question. I would like to answer that question. So in terms of the performance up until Q3, it has been quite brisk vis-a-vis the full year guidance. So the group adjusted profit of JPY 146 billion, we are confident that we can achieve this. However, there are certain factors we'd like to confirm as of this moment. The first point relates to Fortitude and Viridium. So the Q4 results has not been closed right now. So we'd like to confirm the results for Q4. And next is Taiyo and Daido. So in order to improve the investment portfolio, we are selling the equities and conducting the bond replacement for the asset liability cash flow matching. So we'd like to see the progress. Because in terms of the loss in the sales and also the gains from the sales will be impacted by the market. So we'd like to assess this correctly. So of course, in terms of bond replacement that will contribute to reduction in the interest rate risk and also enhancement of the portfolio yield. But as of the current interest rate level, we will incur some loss in the sales. So in terms of group adjusted profit of JPY 146 billion, it is not likely that we may see a significant upside given the current situation. To summarize, we'd like to confirm the Q4 results for Fortitude and Viridium; and also, we like to see the progress of the sales of the equities and bond. So within the fiscal year, we'd like to have a highly probable forecast and try to assess whether revision is necessary. And if it's necessary, we'd like to disclose that at the earliest stage possible. That is all. Masao Muraki: And the second question relates to Page 12 about Taiyo Life's surrender. So the third quarter appears to be high. So in comparison to the initial assumption, how do you assess the current state of surrender? Also what sort of impact would it pose on EV at the end of the fiscal year. If you have the calculation, please let us know. Satoshi Ito: Thank you for that question. In terms of Taiyo surrender, we've seen an increase in the bancassurance OTC channel. With the rate hike, the surrender is actually increasing more so than initially anticipated. Now in terms of the surrender, so we've actually conducted some risk transfer with the feeding. So the risk on the financial basis, the risk is limited. But in terms of EV, if you look at Page 17, we have as one of the various factors. So the variance between assumptions and results, you can see the number here, JPY 33.1 billion, and Taiyo accounts for minus JPY 17 billion or so. So in terms of the assumptions, we intend to update and review that at the end of this fiscal term. But in terms of its magnitude, we haven't conducted the calculation yet, so we don't know that. But on the 3-quarter cumulative basis, it's JPY 17 billion. And this product has been on sales for 3 years up until the year 2022. So that should give you some idea. Now in terms of the investment, given the current state of surrender and also the anticipation of the interest rate hike as a way to conduct ALM on a forward-looking basis, we have been shortening the duration on the asset side. Specifically, we are selling the 10-year or longer bond sales and replacing those with short-term bonds or cash. So basically, that is how we're addressing the surrender situation. That is all. Operator: So next question is from Ms. Tsujino of BLA Securities, please. Natsumu Tsujino: I have one question. To date, by reshuffling your JGB portfolio, how much benefit did you read in terms of the increase in positive spread? What will be the impact for this fiscal year and the subsequent impact for next fiscal year. Can you share your view? Satoshi Ito: Yes. Thank you for your question, Tsujino-san. The impact on positive spread stemming from reshuffling the JGB portfolio is projected to be JPY 3.1 billion for next fiscal year. The final yield on EM bond on book value basis is improving significantly, and this is supporting the growth in positive spread. Natsumu Tsujino: And looking at your results, you are enjoying a very good progress on booking the investment gains. Strong distribution from the alternative investment, good dividend stream on equity holdings, lower hedging costs and growing positive spread. So there are multiple positive factors. And I think this will make it difficult to project for next fiscal year. My impression is that the actual investment gain driven mainly by our alternative investment was much stronger than expected. May I ask the magnitude of that impact? Satoshi Ito: Thank you, Tsujino-san. That is actually a tough question to answer, but I can comment on how much upside we had against the plan for this fiscal year. At the end of Q3, we see alternative investment. The upside was roughly JPY 20 billion. And I will not be able to reveal much more than that. We don't have the projection for next fiscal year. But the upside from our alternative exposure for this fiscal year was JPY 20 billion pretax. Operator: We'd like to move on to the next question. From Daiwa Securities, Mr. Watanabe. Kazuki Watanabe: This is Watanabe from Daiwa Securities. I also have two questions. The first is related to Page 30, Taiyo Life, the transfer of the loan receivables and credit guarantee company. So what is the impact on Q4? Satoshi Ito: Mr. Watanabe, thank you very much for the question. So in terms of the transfer of loan receivables, this has already been factored into the budget at the beginning of the year. So if you look at the question, if you look at the recurrent -- the profit and the net profit, there is a variance. So that is because we anticipated this transfer. So we don't know the actual amount as of this moment, so we cannot comment on that. In terms of the transfer of loan receivables, in terms of the economic impact, it is quite similar to the sales of bonds. So we may see some recurrence of bonds. But beyond that, we shall see improvement in the yield. And of course, Daido Life will continuously sell the equities after. So in terms of the loss incurred from the transfer of loan receivables, we should be able to offset that with the gains from the sales of equities. Kazuki Watanabe: I'd like to move on to the second question. This is Page 11 related to Viridium. So Luxembourg GAAP will be included for the group adjusted profit. So what sort of impact would it pose, any difference in the definition with the Japanese GAAP, for instance, related to fair value measurement due to market fluctuations. Satoshi Ito: Mr. Watanabe, thank you very much for the question. First of all, as related to Luxembourg GAAP method. Basically, it is very similar to J-GAAP. So the bonds, it will be treated under amortized cost method and the policy reserve is under lock-in method. In comparison to J-GAAP, it is somewhat more prudent. So first point in terms of the unrealized gains from securities, it would not be recognized on the balance sheet. However, the loss for the lower [indiscernible] cost method, it will be recognized. Also at the time of rate decline, there will be a mandatory provisioning of policy reserve required. So in comparison to J-GAAP, it is somewhat more prudent. However, in terms of the fluctuation in economic value, that will not be reflected on the profit. So in comparison to IFRS, there's not much less variance in comparison to IFRS. So in other words, it's quite similar to the J-GAAP method. Operator: We'd like to move on to the next question. Mr. Sakamaki from Mizuho Securities. Naruhiko Sakamaki: Yes. This is Sakamaki from Mizuho Securities. I have one question. And it is something that happened during the quarter. With a significant rate spike in January, how much was your ESR push down? And under a scenario where the long-term rate remains high, what are the things that you are paying attention to. Can you update me on your risk management framework. Satoshi Ito: Thank you for your question. We don't have the impact on our ESR stemming from the yen rate spike in January. So I will have to point to the sensitivity disclosure we made in November at the IR meeting. So with every 50 basis increase in domestic rate, the ESR goes down by 7 points. And to elaborate on the rate impact, basically, for the bond exposure matched against the policy reserve, as long as we maintain level and ability to hold, there is no need for asset impairment and hence, we intend to hold. That said, as long as we are not confronted by mass surrender, which would force us to sell our bond holdings, the impact will be minimal. On the other hand, we would benefit more by capturing higher yield by reshuffling the portfolio and making new investments. So that's all for me. Naruhiko Sakamaki: I see. So just to confirm, the rate spike in January and that level would not require you to do asset impairment. Is that correct? Satoshi Ito: Yes, your understanding is correct. Operator: Next, I would like to move on to the next question. Mr. Takemura from Morgan Stanley MUFG. Atsuro Takemura: This is Takemura from Morgan Stanley MUFG. I have two questions. I also would like to understand the impact of the rising ultra-long rate. I understand that the bancassurance products offered by T&D Financial come with [ MBA ] clause. Do that mean that even under the environment where the ultra-long end rate goes up, the MBA will be effective to prevent a surrender rate to rise. What are your thoughts around the surrender risk for your bancassurance channel when the ultra-long rate is rising. So that's my first question. My second question is also related to your investment activities, namely your PE exposure. I understand that for Taiyo and Daido, the PE exposure is 2.9% or slightly less than 3%. And nowadays on the media reports on the [ death ] of the SaaS business model, and that seems to be dampening the performance of the overseas PE fund. What is the exposure to SaaS companies or IT sector in general? And how do you manage that risk. So those are my two questions. Satoshi Ito: So thank you, Takemura-san, for your question. For the products with MBA clause, basically, there will not be impact on the earnings, but there are some risk of surrenders in a rising rate environment. And regarding our exposure to SaaS companies, for foreign equities, we basically invest in ETFs, so it's part of index investment. So our exposure will be similar to market rating. As for the private equity exposure, to the extent that we can confirm, there is no concentration to a specific sector, and we have a diversified portfolio that would assure the impact to be limited. At this point, we have not been reported on any major loss. Atsuro Takemura: I see. I have a follow-up to my first question. And apologies for the lack of my understanding, but is there a cap on the MBA coverage regarding the magnitude of the bond value decline? So if it crosses that threshold, the quality for the policy holders would be limited and we may see a rise in surrender. Is that the case? Satoshi Ito: Thank you for the question again. Basically, MBA defines the change in surrender amount subject to the right movement. And there is no concept of a cap in the coverage. Atsuro Takemura: I see. Thank you very much.
Operator: Now we would like to open for questions. Unknown Analyst: So the first question is on the new guidance on Page 9. The revenue guidance on constant currency basis was revised down by 2%. So we understand the ship hold in the SIS division was kind of unfortunate. But I think, as Bob said, it is a one-off. So -- but looking at Page 35, it also looks like the GIS division forecast has been revised down. And I'm assuming the weakness is mainly in the U.S., maybe a little bit in Japan, but Olympus launched a really competitive GI scope that no other player has in the U.S. market, yet the third quarter came in flattish on a constant currency basis in the U.S. So could you talk to us about what went wrong in the third quarter that you had to revise your forecast? Was there the -- why was there a delay in the demonstration scopes or possibly is a certain competitor offering price to gain share as the other competitors suggested on their call? And are we sure we're going to see growth in the U.S. in the fourth quarter? I'm asking this because I'm really struggling with how this downward revision reconciles with the disciplined execution that Olympus has repeatedly stressed in the recent quarters? That's my first question. Robert White: Thank you for the question. This is Bob. I'll start, but then I'll ask Keith actually to comment both what we saw in GI in Q3 in the U.S. and then what gives us confidence in Q4 moving forward. But before I do, you were right to frame it that ship hold, and I'm sure we'll talk about that dramatic impact on the SIS business. There was some ship holds as well in GI, not nearly as significant. And we saw good GI growth around the globe. So we've got confidence in Q4. But Keith, why don't you talk about execution in Q3 and then what gives us confidence in Q4? Keith Boettiger: All right. Thanks, Bob, and thanks for the question. So first, I'll start with, we're not satisfied with the performance in Q3 out of the U.S. And the performance is not about declining competitiveness or clinician preference. We still see strong engagement with Olympus products and our sales teams. And we continue to see interest across our portfolio, including new technology, like you stated, like EDOF and EUME3. The issue here is really commercial execution. We had a pipeline and we didn't convert that pipeline. So we need to be sharper in how we position the value of the portfolio. We need to do a better job managing that pipeline, and we need to convert opportunities with much greater discipline in the United States. And I just want to draw one example, and I'm going to draw an example of China. And I think this is a pretty good a pretty good example of kind of how we approach this. Last summer, when we saw sustained underperformance in China, we really tightened our go-to-market focus, but we also improved our discipline around managing the pipeline with weekly oversight calls with the sales team and the sales leaders. And we got a really good idea of what that pipeline looked like and how we could better manage that pipeline to conversion. And what you saw in Q3 in China, after several quarters of double-digit decline, we saw 6% growth. And I'm not going to -- I'm not saying that every region will react the same and everything is going to happen similarly. But when we see declines like this in the market, and we can diagnose the execution issues and we can put tighter oversight in place. And as Bob stated earlier, we have KPIs that we track. We can put in place -- can put -- we'll put in place things to make sure that we're doing better execution with the sales team. So again, I wouldn't say that every region is the same. But in the U.S., this is clearly an execution issue, when we've put things in place to make sure that this won't happen again, and we expect to see Q4 growth return in the U.S. Unknown Analyst: The second final question, the FDA inspection. So it looks like you received multiple observations from the FDA. Could you elaborate again on the observations that were found? I may have misheard you, but it sounded like these observations were in areas that weren't anticipated. So are the observations set addressable in a reasonably short period of time? Or should we not assume that the JPY 10 billion in other costs for Elevate will go away in 2027? This is my final question. Robert White: Yes. Thank you. A really good question. And let me frame the FDA inspections and observations. Again, the FDA conducted inspections at 8 of our facilities across U.S., Europe and Japan late in the last calendar year. Some of those inspections, in fact, resulted in observations. And many of those observations predated the work we had done in Elevate. That's okay. We own that. Others reflect where we've got to advance the maturity and consistency in the integration of our quality systems. But importantly, it's very much of an open matter with the FDA because the FDA is still completing their evaluation of the observations and the actions. And importantly, we're taking proactive actions. So the steps I outlined in my opening remarks. So -- and importantly, and this is such an important point you raised in the last part of your question, which is I've committed to 100-plus basis points of margin expansion for Olympus in our midterm plan beginning in FY '27. So I wouldn't put this on the same category of cost that was in the Elevate thing. And regardless, I'm committing to making sure we handle that. So the observations reflect areas where we need to get better, advance the maturity, the consistency, the integration of our quality systems and processes. Like I said, it's an open matter, but we're direct active conversation with the FDA, but I wanted to share it on this earnings call to put it in context for you because we proactively put a number of products on ship hold, as I mentioned. And then through the quarter, worked through those, not all of them, but we're still working through those. So I believe we have a very clear set of actions in place to address this. Thanks for the question. Unknown Analyst: My first question is about the situation in China. So the third quarter last year, with a 10% high single-digit level of decline. But for the fourth quarter, is it going to be the positive trend is going to continue? I want to confirm, many med tech companies and the endoscope competitors, they're taking a tough outlook of the China market. But you are expect -- can you expect a strong recovery? So from January and the -- in terms of the -- there's a pressure in terms of CapEx for new building of the hospitals. Is it a headwind for your business in China? What type of risk do you see in the China market? Robert White: Thank you very much for the question. And let me frame how we think about China very specifically. So China moved from a very significant growth driver for Olympus to more recently a double-digit decline, as you mentioned. During that process, Olympus pivoted our strategy very clearly, local manufacturing, dedicated resources, continue to invest in physician training and service capabilities in the China marketplace, better government relations. So while risks exist in China, what you're seeing us believe is that we have a strategy that gets China to where we think the market is growing in China for mid-single digits. So we're coming from a position where China was underperforming, and this is gradual. I mean, the reason we highlighted China in this quarter is we see the specific strategies that we put in place begin to show signs of growth, small signs, but positive growth, 5% growth from double-digit declines. But we're very mindful of the dynamics in the China marketplace. As I mentioned, we're very excited to have a new President of China, Rosa Chen, starting in March. Rosa has demonstrated exceptional leadership in China in health care, most recently coming from Danaher, China. So I believe we've got the right strategy to win in China. But please understand, I also view it as gradual, but it's one that we believe we've turned the corner on. So thank you for the question. Unknown Analyst: So this is my follow-up question. This is about optimization of the headcount. We have talked about the net reduction, 2,000 positions. So it is an increase of the cost of JPY 31 billion. Have you gone ahead in this initiative? And if we look at next fiscal year, in terms of the cost and effect, how much should we put in? Robert White: That's great. Izumi-san, why don't you take that question, talk about the spend. Izumi Tatsuya: Hello, this is Izumi. I would like to explain. Initially, in terms of the structural form-related cost, JPY 12 billion has been in other costs, but we have revised that to a JPY 31 billion of cost. Because the -- rather than the progress has been accelerated, rather than that, it's more of an accounting procedure. There are items that we can provision it as cost from an accounting perspective. So that is the reason why we have put JPY 31 billion. So maybe this JPY 12 billion of outlook has been conservative in the first place, this JPY 31 billion, that is about 90% of overall cost for the cost that's going to spend for this fiscal year, the remaining 10% is going to be allocated next fiscal year. So the reduction of JPY 24 billion effect, that outlook is unchanged. But how much is going to be generated next fiscal year? That will be explained in May in the next year's business plan. That's all from me. This is a confirmation. So next year, has been provisioned and that has been -- we can provision that for this fiscal year. Yes. It's not the overall cost has increased because initially in total, this JPY 31 billion plus is the cost that we have anticipated in these 2 years. We thought that JPY 12 billion would be generated this year, but we have been able to accelerate the provisioning of this. That's all for me. Unknown Analyst: Slide 8, about the actions for ships and the impact of JPY 9 billion. I would like to ask once again about this. FDA inspection, while it was -- it's still going on. Should we expect more of the ship holds because I believe that the reinspection will continue to happen. So should we expect the risk of this expense occurring in the next fiscal year as well? And also, 4 different areas were impacted. And I think there's some overlap with the products that was basically export banned in June. But is the GI not affected or is it affected? Can you please give us more details? Robert White: Yes. Thank you very much for your question. And I hope my answer will be very clear. First, of course, there could always be more inspections because there were facilities that were not inspected. I mentioned there were 8 facilities across U.S., Europe and Japan that were inspected. As I mentioned, yes, some of those observations during some received observations. During this process, we proactively out of an abundance of caution, put a number of products on product hold for patient safety. We then went through a very thorough process of evaluating patient safety. And then we've begun to release, as I mentioned, those products back into the markets, about 70% of that. There's still 30% that we're still remediating. But importantly, as you mentioned, while cost continues, what my commitment to you is that we're going to handle that largely with inside of SG&A. So as we delivered 100 basis points of improvement plus year-on-year, your mid-range modeling should be what I offered to you back in November, which is 3, 4, 5 with 100-plus basis points of margin improvement. Now this remains an open matter with the FDA, as I mentioned. So they're still both completing their evaluations of our -- of the observations, but also our proactive actions that we took, which included, as I mentioned, a risk-based review of our product portfolio, continued global harmonization of our quality systems, targeted strengthening of our quality and regulatory capabilities. So we're moving through this. And then the last part of your question was -- these actions did specifically address 4 areas: GI-ET, urology, respiratory and surgical. So GI, to your point, did have a products that were impacted. And again, I won't go through the specifics because they were across all of the products, but some of those have already been released and some of those were continuing to remediate at this point. So hopefully, that provides a great deal of clarity both on where we are and what we're doing about it. Thank you for the question. Unknown Analyst: A follow-up question. You're showing us a range now. And is this range based on expected additional ship holds? Or is this range based on something completely different? And for the next fiscal year, will we see another kind of range forecast based on remediation or related to remediation? Robert White: Yes. So thank you for the question. I actually -- and we believe that ranges are a more transparent and accurate framework to express the outlook considering both internal and external factors. They don't anticipate any additional ship holds. It just -- as I mentioned, as we move these products back into the marketplace throughout Q4, there's a dynamic nature of that. And also, which you're undoubtedly familiar with, range is the common practice for our peers in the industry, in the med tech industry. So I would anticipate continuing to do ranges going forward, but it has nothing to do with less confidence and more about providing transparency in terms of the dynamic nature of what's happening. I would like Tatsuya to comment as well on that. Izumi Tatsuya: Yes, I would like to add. Providing guidance within range. Well, I think the investors that follow us would compare us against the U.S. med tech companies. And we believe that this range would make it easier. And as Bob has just mentioned, ship hold products, we expect the ship hold to resolve in the fourth quarter for these products. And depending on the timing of the release, the sales could be higher or lower depending on the situation. So we wanted to include that in this range. That's all from me. Unknown Analyst: So I would like to talk about the core operating margin for the mid- to long term and what your idea is about that. The core -- the adjusted core operating margin, you have been reduced that from 2 to 3 percentage points. In the previous announcement for next fiscal year onwards, more improvement from 1 percentage point or more for the adjusted core operating margin. Is that the baseline that I should use and what is your future outlook of your adjusted core operating margin? Robert White: Thank you for the question, and it's a really important question. We are not lowering margin expectations in our 3, 4 and 5 plan. So while the first step is a bit of a longer step from FY '26 to '27, we're not suggesting that you reset your models for the next 3 years. We simply have -- and there were some conservatism. The bottom line is it needs to be more than 100 basis points per year in annual profit improvement, and those are the steps that we're putting in place. And hopefully, that's very clear. So this is just the first year, we've got a little more work to do to get there, but we've not changed our destination nor our timing to be a mid-single-digit revenue growth player and a 20-plus percent operating margin company. Thank you for the question. Unknown Analyst: This is a follow-up question. One thing I want to follow up is that in terms of your revision, the core base gross margin has been reduced. So is it based on the ship hold? Is there's no change in the profitability of the products because there's a single-use products and the contribution of new products that are being talked about. I just want to ask that this is due to the change in the product mix. Can I confirm about that point? Robert White: It's another good question. Now this has less to do with mix shift and more to do with the specific dynamics related to the product holds that hit us in the COGS line from the field corrective action, some of the inventory work that was done. So it's -- that's why on a go-forward basis, we're not resetting our gross margins at all. We've got to deal with these proactive actions that we've taken, but we believe our fundamental mix has not shifted. We're excited about single-use, but think about that as market expansion as opposed to replacing or cannibalizing some of the reusable scopes that we had. So that's -- we think the pie gets bigger for that. Izumi-san, anything to add on the gross margin profile, please? Izumi Tatsuya: I think Bob has explained this clearly. But this time, the decline in gross margin, the increase in COGS basically is due to ship hold and due to the disposal that we go to the inventory or the -- some costs for the recalls that we conducted. This is one-off factors. In terms of the fundamental product mix impact, it is very, very limited. That's our understanding. Unknown Analyst: Slide 15, leadership team. And Izumi-san is leading the organization. And I see most of these people on this slide being non-Japanese. Manufacturing and R&D are more Japan-centric. So I'm wondering how can they motivate the Japanese employees. I'm not talking about sales activities. I'm talking about manufacturing and R&D. How can they motivate the employees to really drive the product development for the future? Robert White: Thank you for the question. We believe firmly that leadership is not a function of one 's passport, but leadership comes down to the experience and authentic approach that one has. So specifically, with the new leader who will be responsible for global operations, David Shan. David Shan has operated globally in many factories around the world and has a very wonderful track record of connecting and building great relationships across culture. And I believe fundamentally, in Olympus, people want to be on a winning team, and they want to continue to get better and better. So I'm excited about our global operations transformation. I want to be really clear, though, the heart of Olympus will always remain in Japan, and we have tremendous factories here in Japan. And we know that we also can do a better job driving sustained cost improvement year-over-year by doing things better and more efficiently in digitization. So I'm really excited about the experience and the expertise that David brings. Similarly, with R&D, Syed has been the Chief Technology Officer for a while. But importantly, leaders surround themselves with great people. And when I look at both the leadership teams surrounding David and Syed, they're made up of exceptionally talented Japanese leaders. And we continue to work on the development and succession planning as well. So I'm excited about the team that's here, but please note that intentionally, we are developing amazing Japanese talent within each one of these functions as well. So thank you for the question. Unknown Analyst: So SIS voluntary recall, so for Izumi-san, in terms of the ship hold, the cost of ship hold for the first quarter onwards, it will not appear. I just want to confirm that. Another point is that to Bob, so this voluntary recall, you consider the patients, I think it has been a good move. But Olympus in the past, in the SIS area, you have been continuously conducting these recalls. And after a ship hold, then another product will have to be voluntarily recalled from the market. I think you have repeated that cycle. So for that point, fundamentally, this -- is there any way to change that culture, so to speak? Do you have any thoughts about that? Robert White: I'll take the question second. Izumi-san, you want to take the first question? Izumi Tatsuya: I would like to first answer from my side. In terms of the impact of the ship hold in itself, it will continue into the fourth quarter because of the ship hold, because we're going to lose the revenue, that is about JPY 18 billion impact in the fourth quarter is going to appear. On the other hand, the costs related to ship hold, for instance, disposal of inventories, basically, that will be ended in the third quarter. There's no additional cost that will appear in the fourth quarter related to those types of costs. Robert White: Pick up your question on surgical, and I'll ask Seiji to comment here as well. He's right next to me. Importantly, you correctly pointed out that patient's safety is fundamental to Olympus, and it's my personal top priority as Chief Executive Officer. So we will proactively in an abundance of caution when we see a signal, take a product temporarily off the market to make sure, and that's what you saw us do in Q3. Your question though gets deeper than that, which is, is there a fundamental cultural issue here with inside of surgical? I don't believe so. When I think about where we're at in our quality journey of strengthening the global harmonization of our quality systems, strengthening our quality capabilities, advancing the maturity and consistency of our quality systems and processes. We're doing that across. And Seiji, I'd like you to comment on how you feel about the quality of the products and your approach within side of SIS. Seiji Kuramoto: I'm Kuramoto from SIS. I would like to respond to your question. So as Bob has just mentioned, specifically in SIS, I do not think that there is a fundamental issue in SIS because we are always putting patients first and the products that I sell in SIS, like energy devices, therapeutic devices, there are some products that have a higher risk. So we put patient's safety first. And we have taken proactive actions to put some products off the market. Going forward, from our point of view, for the therapeutic devices, because we want to grow in this area, we want always to put patients front and center and enhance the quality to be able to answer this. So this is essential. This is a thing that we have to go do for growth, and we want to go forward on this initiative. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to fourth quarter 2025 CVR Partners LP Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Richard Roberts, Vice President, FP&A and Investor Relations. You may begin. Richard Roberts: Thank you. Good morning, everyone. We appreciate your participation in today's call. With me today are Mark Pytosh, our Chief Executive Officer; Dane Neumann, our Chief Financial Officer; and other members of management. Prior to discussing our 2025 fourth quarter and full year results, let me remind you that this conference call may contain forward-looking statements as that term is defined under Federal Securities Laws. For this purpose, any statements made during this call are not statements of historical facts may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by important factors set forth in our filings with the Securities and Exchange Commission and in our latest earnings release. As a result, actual operations or results may differ materially from the results discussed in the forward-looking statements. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise, except to the extent required by law. This call also includes various non-GAAP financial measures. The disclosures related to such non-GAAP measures, including reconciliation to the most directly comparable GAAP financial measures, are included in our 2025 fourth quarter earnings release that we filed with the SEC on Form 10-K for the period and will be discussed during the call. Let me remind you that we are a variable distribution MLP, and we'll review our previously established reserves, current cash usage, evaluate future anticipated cash needs and may reserve amounts for other future cash needs as determined by our general partner's Board. As a result, our distributions, if any, will vary from quarter to quarter due to several factors, including, but not limited to, operating performance, fluctuations in the prices received for finished products, capital expenditures and cash reserves deemed necessary or appropriate by the Board of Directors of our general partner. With that said, I'll turn the call over to Mark Pytosh, our Chief Executive Officer. Mark? Mark Pytosh: Thank you, Richard. Good morning, everyone, and thank you for joining us for today's call. Before we get into the results, I would like to introduce our new Chief Operating Officer, Mike Wright. Mike also serves as COO of CVR Energy, a position he's held since January of 2022. Mike is nearly 35 years of experience in the refining and petrochemicals industries in a variety of operations and commercial roles, and we are excited to have him leading our fertilizer operations teams. Turning to the results for the fourth quarter of 2025. We reported net sales of $131 million, a net loss of $10 million, EBITDA of $20 million. The Board of Directors declared a fourth quarter distribution of $0.37 per common unit, which will be paid on March 9, to unitholders of record at the close of the market on March 2. For the full year 2025, we reported EBITDA of $211 million and distributions of $10.54 per common unit. We had another year of solid operations from our facilities with an ammonia utilization rate of 88% for the year. For the fourth quarter of 2025, our ammonia plant utilization was 64%, which was impacted by the planned turnaround and subsequent delayed start-up at the Coffeyville facility. While the turnaround was completed in early November as scheduled, we experienced additional downtime following approximately 3 weeks of start-up issues at the third-party air separation plant. Although production and sales volumes were lower than we expected, pricing for nitrogen fertilizers remain strong throughout the quarter, and we continue to be optimistic about the spring planting season, which I will discuss further in my closing remarks. I will now turn the call over to Dane to discuss our financial results. Dane Neumann: Thank you, Mark. Turning to our results for the full year 2025. We reported net sales of $606 million and operating income of $129 million. Net income for the year was $99 million or $9.33 per common unit and EBITDA was $211 million. For the fourth quarter of 2025, we reported net sales of $131 million and an operating loss of $3 million. Net loss for the fourth quarter was $10 million or $0.97 per common unit and EBITDA was $20 million. Relative to the fourth quarter of 2024, EBITDA decreased primarily due to lower production and sales volumes and higher direct operating costs associated with the planned turnaround of Coffeyville. Total ammonia production for the fourth quarter was 140,000 gross tons, of which 62,000 net tons were available for sale and UAN production was 169,000 tons. During the quarter, we sold approximately 182,000 tons of UAN at an average price of $355 per ton and approximately 81,000 tons of ammonia at an average price of $626 per ton. Relative to the fourth quarter of 2024, UAN and ammonia sales volumes were lower as a result of the planned turnaround and subsequent start-up issues at Coffeyville that Mark discussed previously. Fourth quarter prices for UAN increased approximately 55% and ammonia prices increased approximately 32% relative to the prior year period. Direct operating expenses for the fourth quarter of 2025 were $81 million, which included turnaround expenses of approximately $14 million. Excluding inventory and turnaround impacts, direct operating expenses increased by approximately $9 million from the fourth quarter of 2024, primarily related to higher repair and maintenance and personnel expenses. Capital spending for the fourth quarter was $27 million, of which $17 million was for maintenance capital. Capital spending for the full year 2025 was $57 million, of which $35 million was maintenance capital. We estimate 2026 maintenance capital spending to be $35 million to $45 million and growth capital spending to be $25 million to $30 million. As a reminder, we expect a significant portion of the 2026 growth capital spending will be funded from the cash the Board elected to reserve over the past several years. We ended the quarter with total liquidity of $117 million which consisted of $69 million in cash and availability under the ABL facility of $48 million. Within our cash balance of $69 million, we had approximately $3 million related to customer prepayments for the future delivery of product. In assessing our cash available for distribution, we generated EBITDA of $20 million and had net cash needs of approximately $16 million for interest costs, maintenance CapEx and other reserves. As a result, there was $4 million of cash available for distribution and the Board of Directors of our general partner declared a distribution of $0.37 per common unit. Looking ahead to the first quarter of 2026, we estimate our ammonia utilization rate to be between 95% and 100%. We expect direct operating expenses to be $57 million to $62 million, excluding inventory impacts, and total capital spending to be between $25 million and $30 million. With that, I will turn the call back over to Mark. Mark Pytosh: Thanks, Dane. In summary, although we were disappointed about the extended downtime associated with the third-party air separation unit during the quarter, nitrogen fertilizer market conditions continue to be constructive and pricing has remained robust. With the 2025 harvest complete, the USDA is now estimating a record crop year with corn yields of nearly 187 bushels per acre on nearly 99 million acres of corn planted. Soybean yields are estimated to be 53 bushels per acre on over 81 million planted acres. U.S. inventory carryout levels are expected to be above the 10-year average for corn and below for soybeans. Despite the record harvest, May, corn prices remain around $4.45 per bushel, and current expectations are for approximately 95 million acres of corn to be planted in 2026. At this level of planting, we expect to see continued strong demand for nitrogen fertilizers through the spring. On the supply side of the equation, inventory levels around the world continue to appear tight. Geopolitical tensions remain a key risk to nitrogen fertilizer supplies, given the significant production capacity reside in countries across the Middle East, North Africa and Russia. We continue to monitor developments in the Middle East that could impact energy and fertilizer markets, and we expect 2026 will likely be a continued period of higher than historical volatility in the business. Natural gas prices in the U.S. saw a sharp increase earlier this year due to extreme cold weather across several regions of the country. However, prices have since declined and have been trending between $3 and $4 per MMBtu. Meanwhile, natural gas prices in Europe averaged over $10 per MMBtu for the fourth quarter and had been over $13 since the beginning of the year. The cost to produce ammonia in Europe has remained durably at the high end of the global cost curve. And production remains below historical levels, which creates opportunities for U.S. Gulf Coast producers to export ammonia to Europe for upgrade. We continue to believe Europe faces a structural natural gas supply issues that will likely remain in effect through 2026. We continue to execute certain debottlenecking projects at both plants that are expected to improve reliability and production rates. The goal of these projects is to support our target of operating our plants at utilization rates above 95% of nameplate capacity, excluding the impact of turnarounds. For 2026, we are focused on water and electricity reliability and quality at both plants and expanding our DEF production and load-out capacity among other projects. We also continue working on construction and design plans for the feedstock diversification and ammonia expansion project at the Coffeyville facility. As a reminder, this project should provide us the ability to choose the optimal mix of natural gas and third-party pet coke depending on prevailing prices. The Board elected to continue reserving capital for these projects in the fourth quarter that we expect to spend over the next 2 years. Our focus is on improving reliability and redundancy at the 2 plants in efforts to provide better production rates and lower downtime in the future. The funds needed for the 2026 projects are coming from the reserves taken over the last several years. The fourth quarter demonstrated the benefits of focusing on reliability and performance. In the quarter, we continue to focus on all of the critical elements of our business plan, which include safely and reliably operating our plants with a keen focus on the health and safety of our employees, contractors and communities, prudently managing costs, being judicious with capital, maximizing our marketing and logistics capabilities and targeting opportunities to reduce our carbon footprint. In closing, I would like to thank our employees for all their hard work during the Coffeyville turnaround and continuing to deliver on our marketing and logistics plans, resulting in a distribution of $0.37 per common unit for the fourth quarter. With that, we're ready to take any questions. Operator: [Operator Instructions] Your first question comes from the line of Rob McGuire of Granite Research. Robert McGuire: Just a few questions. One is, what are you seeing in terms of UAN imports out there? Are you seeing a dearth of imports from Trinidad? And in particular, what are you seeing from Russia and any other color you can give to us? Mark Pytosh: I wouldn't say that we are seeing anything outside the norm. We're still importing some tonnage. The one big item in Trinidad is obviously the Nutrien plant is down, an upgrade is down. So there's less tonnage coming in from Trinidad. So I think that's keeping the market tight for UAN in particular, in the states. And I just -- I've seen some of the commentary from Nutrien and it doesn't feel like that plant is likely to return to service soon. So there's a combination of ammonia and UAN tightness that was a product that was being imported here. The Russian product has been -- that's been pretty consistently flowing. And I wouldn't say there's any new up or down. The market is watching closely. There have been some drone strikes on either Russian fertilizer plants or export terminals. And so that -- the market is watching that to see. And -- but I would say, generally, it feels like the supply-demand balance in UAN is pretty, I would say, on the tight end of the curve. Robert McGuire: Switching topics. The current deferred revenue was $23 million at year-end, and that was down from $51 million year-over-year. Does that mean there was less product presold this year rather than relative to last year? Mark Pytosh: Yes. And I would just say it was a timing issue because it was not -- we typically would see more activity in December for tax planning purposes by the customer base, but we didn't see as much this year, but that's all been picked up in January and first part of February here. So we're, I'd say, normal, if anything, maybe a little bigger book or for the spring than we typically see. So it was just -- it didn't fall in December like normal, but the customers were in buying product, and we've got a big book on for the spring. Robert McGuire: And then is it safe to assume that ammonia and UAN pricing will increase sequentially, heading into the first quarter of 2026? Mark Pytosh: Yes. If you look at our book of business today, it's at higher prices than the fourth quarter. And so yes, there will be an uptick. It won't be dramatic, but there'll be an uptick from the fourth quarter to the first quarter. Robert McGuire: Great. And then do you feel confident about the air separator issue at Coffeyville being resolved at this point? Might you receive compensation from the operator for downtime and related shortfall on that? Mark Pytosh: So let me start -- I'm confident that the issues that caused the delayed startup have been dealt with. We are not happy with the performance. And we are in discussions with that service provider about the go-forward strategy for the operations and maintenance of that facility. So we're working on, I'd call it not an amended contract, but an amended business plan which would involve us being more active with the ongoing activities there. And so we're not going to just sit by and just accept those events. We're going to engage and work on a different approach than what happened in November. The contract does have penalties and there were some penalties paid for that, but it's a fraction of our lost production level at the facility. So -- it is a thorn in the side, and it's meant to incentivize the provider to provide us really good service and onstream, but it can't make up for the shortfall of lost production. So -- but again, we're revisiting our -- how we do business together. And in the coming quarters, we'll talk more about what the go-forward strategy is there, but it won't be status quo. Robert McGuire: I appreciate that. And then last question, Mark. I always appreciate your commentary on the market acreage is supposed to be down for corn this year, as you mentioned in your opening remarks. And I'm just kind of curious I would think that would hurt demand just a little bit, then again, there are more supply constraints. So can you kind of just give us how you feel the spring is going to work out? And why are you feeling so optimistic about it? Mark Pytosh: Sure. Well, if you asked me 3 years ago and said it was going to be 95 million acres of corn, we'd be thrilled. 95 million acres is really at the top end of -- except for last year. And so that's a large amount of acreage and it's going to -- because of the 99 million acres and how much we planned, we've -- corn consumes nitrogen from the soil, so you have to replenish it. So the soil has been depleted of nitrogen and you got to come back in and fertilize it. And so to your point, it's going to be a really good demand season. Last year was peak. And we don't -- I would say, even when 99 million acres are planted, sometimes the application rates can be lower. So it's not apples-to-apples. So you can't just take 99 million and 95 million and compare them because if on the acreage that you plant, if you plant more productive acreage and you want higher yields, you're going to put more fertilizer on. So it's hard to -- the nuance there is the apples-to-apples. But the supply side of the equation continues to be and we can talk about every region of the world. There are reasons why the supply is constrained. There's been natural gas availability issues in certain countries. There's still ongoing conflicts in certain areas. We're watching what's going to happen with Iran. Iran is a big producer of nitrogen, big exporter. If there's some activity in the Strait of Hormuz or some activity with that constrains Iran's ability to produce, that can have a -- we're right on top of the spring coming up here in 6 weeks. So that's going to -- we got to keep our eye on that. But the supply side has really been even a bigger issue. Demand side has been super solid, but the supply side is not able to keep up with the demand side. I would just tell you, suggest, we're seeing -- I know it was cold a few weeks ago, but -- if you look in the Midwest, we're already seeing ammonia movement across a pretty broad swath of up into even Iowa and Illinois to a degree but all the way down into the Southern Plains. And so that's a good omen for the spring when we have the ammonia running this early. We're only -- we're third week of February. So really feel -- I think, generally, the optimism is high for the spring, and we've got a good jump on it. When you get a good start to it, it really could lead to a much better spring. So we feel really good about where we are. We have a good book of business for the company. We've got a good order book, and we just need to run like we normally have, except for the last quarter. So they will run at a high utilization and move the product for our customers. Robert McGuire: That was really helpful. And just one other follow-on is just with product moving at this point, is there a change in trend in terms of the farmer living food-to-mouth? Or are they starting to plan early at this point in time or it's just that the application is starting earlier given the weather opportunities. Mark Pytosh: I think it's your last comment there, the conditions have come into place here in February rather than March. So I would say it's probably pulled up by maybe a couple of weeks or 3 weeks. I mean, it doesn't seem like a lot, but in farming -- in farmland, that's a lot. And so if you can get a jump on -- if you're a farmer and you can get a jump on your ammonia application, that really helps you get prepared for the spring. And so that always makes everybody feel better when the ammonia runs starts earlier because then you can have a longer process of getting it applied and planting behind it. So just a lot of optimism around conditions. We started the year with super cold everywhere, all the way to the Canadian border, but we've turned the corner here from a weather perspective. And so we are able to -- been able to move -- we've been moving product from our plants out to the field. Operator: There are no questions at this time. I will now turn the call back over to Mark Pytosh for closing remarks. Mark Pytosh: Again, I'd like to thank all of you for your interest in CVR Partners and being on the call today and our employees for their hard work and commitment towards safe, reliable and environmentally responsible operations. And we look forward to reviewing our first quarter results here in a couple of months. Thank you for being here today. Thanks. Operator: Ladies and gentlemen, that does conclude our conference call for today. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Ladies and gentlemen, thank you for standing by. My name is Jericho, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Taseko Mines 2025 Q4 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Brian Bergot, Vice President of Investor Relations. Please go ahead. Brian Bergot: Thank you, Jericho. Welcome, everyone, and thank you for joining Taseko's 2025 Fourth Quarter and Annual Results Conference Call. The news release and regulatory filing announcing our annual financial and operational results was issued yesterday after market close and is available on our website at tasekomines.com and on SEDAR+. I am joined today in Vancouver by Taseko's President and CEO, Stuart McDonald; Taseko's Chief Financial Officer, Bryce Hamming; and our COO, Richard Tremblay. As usual, before we get into opening remarks by management, I would like to remind our listeners that our comments and answers to your questions will contain forward-looking information, and this information, by its nature, is subject to risks and uncertainties. As such, actual results may differ materially from the views expressed today. For further information on these risks and uncertainties, I encourage you to read the cautionary note that accompanies our fourth quarter MD&A and the related news release as well as the risk factors particular to our company. These documents can be found on our website and also on SEDAR+. I would also like to point out that we will use various non-GAAP measures during the call. You can find explanations and reconciliations regarding these measures in the related news release. And finally, all dollar amounts we will discuss today are in Canadian dollars unless otherwise specified. Following opening remarks, we'll open the phone lines to analysts and investors for questions. I'll now turn the call over to Stuart for his remarks. Stuart McDonald: Great. Okay. Thanks, Brian, and good morning, everyone. Thanks for joining our call today to discuss our fourth quarter and 2025 annual results, which were released yesterday. As usual, I'll start by providing some comments and additional detail on the operational aspects of our business, and then Bryce will review the recent financial performance. So I'm going to jump straight to the exciting news that we announced yesterday. Florence Copper is now producing copper as of just a few days ago when we turned on the electrowinning circuit. Copper is now being plated, and we're just a few days away from harvesting the first cathodes. This is a great achievement for everyone at Taseko and especially the construction and operating teams at Florence. As we've talked about, wellfield operations commenced in the fourth quarter, so we've actually had solutions flowing in the commercial wellfield for about 3 months now. Initial results from the wellfield have been very positive as we've been able to achieve higher injection flow rates than expected in these first few months. As a result of those higher flows, the acidification of the ore body has been faster than planned and the grade of copper recovered in solution or PLS has actually ramped up faster than expected. So it's still early days, but the initial leaching results have been quite positive. And actually, our PLS grade was high enough to begin copper production several weeks ago, but the commissioning of the SX/EW plant took a few weeks longer than planned. We're expecting Florence to produce approximately 30 million to 35 million pounds of copper this year. And by the time we report first quarter earnings, we'll be in a good position to provide some operating metrics in terms of flow rates, PLS grade and production from the initial wells. A key factor in the ramp-up will be our ability to expand the wellfield and bring on new wells through the year. Drilling resumed in the fourth quarter, and there are now 3 drill rigs running. It's taken some time for the new drilling crews to get ramped up. We have a fourth drill rig being added in the next week or so and expect to see improved drilling productivity going forward. Before we turn to Gibraltar, I'd like to start by commenting that safety is a core value at Taseko. Nothing is more important than ensuring that the people who work at our operations go home each day the same way they arrived. In November, a tragic accident occurred at Gibraltar that resulted in the death of a contract worker. We're deeply saddened by the loss of a colleague and again, offer our condolences to the coworkers, friends and family of the individual. Findings from that incident are in the process of being reviewed with employees on site. In terms of production at Gibraltar, in the fourth quarter, we saw copper head grades increase to 0.26% and recoveries of 81%, which led to 31 million pounds of copper production. So it was a strong production quarter. The higher grades and recoveries were slightly offset by throughput, which was about 8% under design capacity for the period due to unscheduled mill downtime. Molybdenum production was 800,000 pounds and also benefited from higher grades and recoveries. Copper and moly production for the quarter was the highest level of 2025 as we expected it would be. And for molybdenum, it was actually the best production quarter in the history of the mine. With higher production, our total operating costs dropped to USD 2.47 per pound in Q4. For the year, Gibraltar produced a total of 98 million pounds of copper and 1.9 million pounds of molybdenum at a cost of $2.66 per pound. Production was heavily weighted to the second half of the year as we mine deeper into the connector pit to access higher grades and better ore quality in the third and fourth quarters. Looking ahead to 2026, mining operations are much better situated in the Connector pit, so we expect higher annual production and much less quarterly variability than last year. We are, however, taking a more conservative view on copper grades due to the impact of small higher-grade zones that have not been realized through our mining so far in the Connector pit. Over the last 18 months, we've also encountered more oxide and supergene and transitionary ore in the Connector pit than we originally expected. The oxide ore has been stacked on leach pads and would be processed through the Gibraltar SX/EW plant. But the supergene ore goes through the concentrator with lower recoveries. For 2026, we're expecting average recoveries between 75% to 80%. And that's really a similar level to what we saw in the second half of 2025. Taking all of this into account, we're expecting Gibraltar to produce 110 million to 115 million pounds of copper this year. And given that the Connector pit will be the primary source of ore for the next 3 years, we expect annual production will remain in the same range, plus or minus 5% through the end of 2028. With copper prices now roughly 25% higher than last year's average price, we are well positioned to benefit from our copper price leverage supported by higher production from Gibraltar and production growth at Florence. Tight supply due to global mine disruptions, combined with strong demand from traditional end users and new demand from AI data centers and grid modernization all support continued strong copper prices. So Taseko is very well positioned for cash flow growth in the future. We also have significant long-term optionality and value in our other projects. And in 2025, we achieved some significant milestones at both Yellowhead and New Prosperity. The new technical report from Yellowhead confirms strong economics, and we will continue to advance the project towards an ultimate construction decision and begin unlocking the net present value. And talking about leverage to copper, that NPV also benefits from a strong copper price environment. When we published our report in June, we used a price of $4.25 per pound, which gave us a $2 billion NPV. At today's pricing, that's more like $4 billion after-tax NPV or even higher. So the project is getting a lot of attention from potential partners. And when you consider the lack of large-scale open pit copper projects in North America that can be brought online in this time frame, these opportunities are very rare. So it's a great asset, I think, for the company going forward. Permitting efforts are very active, and we continue to engage with the local communities and open houses in recent months with no major issues arising so far. Our Yellowhead project team is also preparing the detailed project description that will be filed later this year. So 2026 promises to be another busy and productive year on many fronts. And with that, I'll turn the call over to Bryce for some commentary on the financials. Bryce Hamming: Thank you, Stuart, and again, welcome, everyone. I'll give some further color on some financial details before we get into any questions. Total copper sales for the fourth quarter were 32 million pounds, including 800,000 pounds of cathode from Gibraltar's SX/EW facility at an average realized price of $5.13 per pound. Including $25 million of revenue from moly, we generated revenue of $244 million in the quarter. For the year, revenues of $673 million were recorded for the sale of 99 million pounds of copper and 1.9 million pounds of moly. The average realized copper price in 2025 was robust at USD 4.61 per pound, and we benefited from a generally weaker Canadian dollar. Both quarterly and annual revenue are the highest Taseko has ever recorded now that we own 100% of it. For the quarter, we recorded net income of $4.5 million or $0.01 per share. And on an adjusted basis, after removing unrealized marks on our liabilities, which are tied to the higher copper price and other unrealized items, it was $42 million or $0.11 per share of adjusted earnings. Adjusted EBITDA in the fourth quarter was $116 million as compared to $56 million in the same quarter in 2024 and $62 million in Q3. For the year, adjusted EBITDA was $230 million, slightly higher than the prior year. So production in Q4 contributed to half of our annual earnings. Also for the quarter, cash flow from operations was $101 million, which was significantly higher than previous quarters, with Gibraltar contributing free cash flow of $72 million. For the year, $220 million of cash flow from operations was generated from Gibraltar. Overall, financial performance was strong and definitely benefited from the higher copper pricing in the second half of the year with improved production and sales levels. I will remind everyone that we do have copper price collars in place that we put in place to support our Florence copper project development and project finance. It has a ceiling price of $5.40 per pound until the end of June, which had a mark at year-end of $22 million. For Q3 of 2026, we have added copper price collars that have secured a minimum price of $4.75 per pound for 8 million pounds per month in the third quarter, and that have much higher ceiling prices of $7.50 and $8.50 per pound. As we move beyond the ramp-up of Florence, we do plan to revert to our longer-term strategy of just buying copper put options over shorter-term time horizons and leaving the entire upside to copper price open with 2 mines running. Now on to Florence, where things have been going very well, as Stuart mentioned, we completed the capital project in the fourth quarter. Capital spending decreased dramatically from prior quarters to just USD 8 million in the quarter as construction activity started winding down. Final capital costs for the commercial facility were USD 275 million, which was approximately 3% over the revised budget from early 2024 when we started construction. In the fourth quarter, $60 million of site operating costs and commissioning costs were capitalized for Florence. With cathode production now underway, we will begin expensing operating costs, which to date have been capitalized significantly still in the first quarter. We ended the year with a cash balance of $188 million plus our undrawn revolving credit facility for USD 110 million. So that brings our total liquidity to a very strong $340 million. With strong cash flows expected from Gibraltar in 2026 and the development capital spending behind us at Florence, our balance sheet will improve throughout the year in the current copper price environment. As Florence Copper begins to provide cash flow as the second operating mine, our credit rating will naturally re-rate, and we will prioritize delevering the balance sheet with our excess cash later this year. And with that, operator, I'll open the lines for questions. Thank you. Operator: [Operator Instructions] Our first question comes from Ernad Sijercic from TD Securities. Ernad Sijercic: Congratulations guys on Florence. Just a quick question here. What should we expect for CapEx and stripping this year? Bryce Hamming: It's Bryce. Yes, I think with respect to CapEx, last year, we had $80 million of capitalized strip and we'll have slightly less this year as we're kind of in -- we're past some of the heavier strip sequences of Gibraltar. So we'll see that come down to some extent. I think we have on the sustaining CapEx side as well, the main thing is some additional tailings work that we're going to do this year, but that should also be contained. So nothing really unusual compared to some of the capital projects that we've had in prior years like the crusher move and so forth. Ernad Sijercic: Great. And just one follow-up. How should we think about grade and throughput this year as it relates to your guidance? Stuart McDonald: Well, I think -- I mean, I think throughput, we're always expecting to achieve something in the range of design capacity, which is 85,000 tonnes a day, just over 30 million tonnes for the year. That's always the goal. And I think we've been successful. I think last year, we achieved that. Grade, as I noted in my remarks, I think the reserve grade in the Connector pit is 0.25. But what we've actually seen is the impact to some -- of that reserve grade being skewed a little bit by some smaller high-grade zones. So we're being a little more conservative now in our expectations and expecting something potentially 5% to 10% lower than that. So yes, that's generally how we get to the guidance figures. Operator: Our next question comes from Dalton Baretto from Canaccord Genuity. Dalton Baretto: Congratulations on Florence. And maybe I'll start there. Stuart, as you're thinking about the ramp-up on a go-forward basis now, is -- how do you think about some of the risks? What are you keeping your eye on? Is it purely a function of wellfield expansion? Are you sort of concerned around homogeneity of the ore body? What are you keeping an eye on? Stuart McDonald: Yes. I think -- I mean, obviously, we're very pleased with the initial leaching results, right, and our ability to solidify new sections of the wellfield, get our PLS grade up. Obviously, we still have a lot of work to do to stabilize the whole process from wellfield through to actually plating the copper. So it's still very much a ramp-up, but early days, but so far, so good. One thing I would say on the ramp-up, as you noted, is definitely the drilling. We do need to add new wells. And in our mining plan, we plan to add 80 to 100 new wells essentially every year for the next decade or longer. So that's normal course, going to be normal course at Florence, and that's an important part of the ramp-up. So, yes, I don't know, Richard, if you have any comments. Richard Tremblay: Yes. No, that is exactly, Stuart. Really, the thing we're watching closely is just the drilling performance and how the drilling is moving forward to bring on the new wells that we know we need as the production profile increases. Dalton Baretto: That's great, guys. And then maybe switching gears to Gibraltar. Can you talk a little bit about some of these issues you're seeing at the Connector pit? I mean what happened? Why aren't you picking up some of those higher-grade zones? And maybe why some of the higher oxide and supergene material was maybe missed in the reserve? Richard Tremblay: Yes. I think the easiest way to explain the high-grade zone is there's very high -- there's a kind of isolated drill hole -- exploration drill hole results that are skewing the geological model, and we're in the process of kind of going through and I guess, reinterpreting those drill holes. And in turn, it's going to downgrade the grade that we're encountering because we've mined through a few of those areas and not realized the grade that we expected. So we know those, I would describe as ultra-high grade pockets that are in the model need to be adjusted, which we're in the process of doing, and that's why we provided the guidance we did today. Dalton Baretto: And what about on the supergene and oxide material? It sounds like you're seeing more of it than you anticipated. Richard Tremblay: Yes. The oxide has been a positive that's allowed us to go to the oxide dumps and will actually allow us to run the SX/EW plant longer than was originally envisioned. So it's actually a good case scenario from an overall cathode production perspective. The supergene hypogene kind of transition zone is there's interpretations of where that is. And in some places, we've seen it not be properly reflected where the supergene actually is more than we have in the model. And those things are -- we just need to adjust it to reflect the reality of what we're seeing. Dalton Baretto: Got it. And if I could just squeeze in another one here just on the portfolio. I mean, in this environment, clearly, Yellowhead and Prosperity are very valuable assets and niobium looks like it's going to have its day in the sun as well. Stuart, how are you thinking about next steps for each of those? Stuart McDonald: Well, Yellowhead is very much a permitting project now. We've got a lot of work underway. We have a big -- good solid team in place that's working closely with the regulators and with the community. We've got solid relationships, I think, there. I think in the coming -- over the next year or 2, I think we're going to probably advance some discussions with potential JV partners there. There's a lot of interest, as you would expect in this copper price market. And as I mentioned in my remarks, this is a pretty unique opportunity with a large-scale open pit greenfield project in North America. There are very few of these out there that could be brought on in the next 5 years, 4 to 5 years. So that's heading on a path, I think, on a good path to realize value. New Prosperity, obviously, the big news last year, we signed our agreement with the Tsilhqot'in Nation in BC. I think generally, look, we all know that is an incredibly valuable deposit. But to really unlock it and move forward, we need the consent of the Tsilhqot'in Nation, and that was clarified, obviously in our agreement last summer. So we're allowing their land use planning process to move forward, and we'll be patient and respect that process, obviously still in the future. Yes. And then niobium, you mentioned, it's obviously one that's a little bit off the radar perhaps for some of our investors, but it's a very large open pitable niobium deposit in Northern BC. It's one of the largest undeveloped niobium deposits in the world. And we continue to work on that in the background. We don't talk a lot about it, but we do have a strong technical team that is pushing forward on and doing some very good work. And we're also expanding our work and looking for potential offtake partners and partners to help us develop that project. So lots happening there. Yes, so it's good. We've got -- I think one thing about our company. We've got obviously immediate growth with Florence, but we've got a lot of longer-term options as well in our portfolio. So pretty exciting, we think. Operator: [Operator Instructions] There are no further questions at this time. That concludes the question-and-answer session. I would like to turn the call back over to the Taseko management for closing remarks. Stuart McDonald: Great. Okay. Well, thanks again, everyone, for joining. Yes, we will continue to keep you updated as the Florence ramp-up progresses and obviously look forward to talking again next quarter. Thanks. Operator: This concludes today's conference call. Thank you for joining. You may now disconnect.
Operator: Thank you for standing by. This is the conference operator. Welcome to the Pan American Silver Fourth Quarter and Full Year End 2025 Results Conference Call. [Operator Instructions] At this time, I'd like to turn the conference call over to Siren Fisekci, Vice President, Investor Relations. Please go ahead, ma'am. Siren Fisekci: Thank you for joining us today for Pan American Silver's conference call and webcast to discuss our fourth quarter and full year 2025 results. This call includes forward-looking statements and information and references non-GAAP measures. Please see the cautionary statements in our MD&A, news release and presentation slides for the period ended December 31, 2025, all of which are available on our website. I'll now turn the call over to Michael Steinmann, Pan American's President and CEO. Michael Steinmann: Good morning, everyone. I'm glad you could join us to discuss Pan American's 2025 results and our outlook for 2026. I'll start with the headline. We delivered record financial results across the board in Q4 and for the full year 2025, reflecting strong execution of our business and meaningful margin expansion from higher metal prices. Net earnings were a record $452 million in Q4 or $1.07 per basic share, which included $61 million of income from our investment in Juanicipio. For the full year, net earnings were a record $980 million or $2.56 per basic share. On an adjusted basis, earnings were $470 million in Q4 or $1.11 per share, and for the full year, $959 million or $2.54 per share. The record financial results reflect both the operating strength of our assets and the leverage we have to metal prices. Importantly, that translates into record attributable free cash flow of $553 million in Q4 and $1.2 billion for the full year. Cash and short-term investments increased by $408 million from Q3, totaling $1.3 billion at year-end or $1.4 billion, including our 44% interest in cash at Juanicipio. To allow shareholders to participate directly in rising net cash levels, we declared a dividend of $0.18 per common share, our third dividend increase in a row. Turning to operating performance. Attributable silver production of 22.8 million ounces in 2025 exceeded the top end of the guidance range we have increased in November, while attributable gold production of 742,200 ounces was within guidance. Silver segment all-in sustaining costs, excluding NRV inventory adjustments, were $9.51 per ounce in Q4 and $13.88 per ounce for the full year. Silver all-in sustaining costs in 2025 were below the decreased guidance. The key contributor here is Juanicipio, which has been performing better than expected since we acquired the mine in September 2025 through the MAG Silver transaction. For the gold segment, all-in sustaining costs, excluding NRV inventory adjustments, were $1,699 per ounce in Q4 and $1,621 per ounce for the full year, which was within our guidance for 2025. It's worth noting that both silver and gold segment costs in Q4 were impacted by higher royalties and worker participation expenditures reflecting the increase in metal prices. The silver segment is also affected by additional royalties at La Colorada related to mining and adjacent concession, where we paid the concession owner a share of net profits earned on ores from their concession, which we treat as a royalty expense. Royalties are also impacted at San Vicente to reflect profit sharing with the state-owned mining company, COMIBOL. In 2025, we made good progress on our major projects, investing $94 million, in line with our guidance, to advance several major projects. Most notably, at La Colorada, where the discovery of multiple high-grade silver zones and the segment expansion of mineral resources have led us to reevaluate the development plans for the Skarn project. We now see an opportunity to integrate the mine plans and infrastructure of the La Colorada vein mine with this current project to a phased approach to development. The phased approach would allow us to focus on higher grade, lower tonnage and less capital-intensive initial stage with the option to target lower grade material in a future expansion. We are aiming to release an updated technical report for La Colorada in the second quarter of 2026 to include a preliminary economic assessment of the new development approach for the Skarn project. There are also continuing discussions with our potential partners on this project to include the proposed changes. At Jacobina, our investment in 2025 were directed at strengthening operational reliability and to advance long-term growth initiatives. We have provided more details on these initiatives in our MD&A, so I won't run through them item by item. But at high level, they include plant upgrades, tailings filtration and filter stack and paste backfill plant. At Escobal, the Guatemalan Ministry of Energy and Mines continued meetings in Q4 2025 to advance the ILO 169 consultation process, and in December 2025, posted an update on progress for the October 2024 to November 2025 period. The ministry also conducted an inspection in Q4 and confirmed our activities are compliant with the court order and suspension of operations. As we have said previously, there is no time line for completion of the consultation process and no date for restart. Turning to 2026 guidance. For silver, we are guiding attributable production of 25 million to 27 million ounces and silver segment all-in sustaining costs of $15.75 to $18.25 per ounce. The year-over-year increase in silver production reflects, in part, the full year contribution from Juanicipio, along with mine sequencing into higher silver grade at Cerro Moro. For gold, we are guiding attributable production of 700,000 to 750,000 ounces and gold segment all-in sustaining costs of 1,700 to $1,850 per ounce. We expect higher grades at Timmins, plus the full year of production from Juanicipio, offset by a lower contribution from Dolores as residual leaching declines and at El Penon from the exhaustion of low-grade stockpiles and lower ore tonnes processed. Our all-in sustaining cost guidance for both the silver and gold segments reflects higher metal price assumptions, which flow through to royalties, worker participation payments and increased smelting and refining costs due to price participation. Needless to say, increased metal prices far outweigh these additional royalties and provide superior return to our business, as seen with record earnings and cash flow in Q4. Sustaining capital is expected to be similar to 2025 with the addition of capital for Juanicipio. We also plan increased project capital to advance La Colorada Skarn and Jacobina and at Timmins, with part of the increase directed toward satellite deposits, reflecting positive drill results and continued work on exploration and preliminary engineering. Please refer to our MD&A for further detail on our 2026 outlook, including an operating outlook by quarter. As we look ahead, we see several meaningful catalysts for 2026. First, with metal prices currently well above Q4 and last year's average, we see potential for strong free cash flow and high returns of capital to shareholders while also funding an expanded exploration program, internal growth projects and further strengthening of our balance sheet. Second, we expect to release an updated La Colorada Skarn PEA in Q2 2026, which we believe will demonstrate higher risk-adjusted returns than the original PEA for the project. And third, the Jacobina optimization study is advancing well, and we look forward to sharing findings and opportunities as the engineering work progresses. Before I wrap up my prepared remarks, I would like to provide a few thoughts on the metal price environment. This is an exceptionally fortunate period for Pan American Silver and our investors, as the increase in metal price coincides with increased silver production, driving higher levels of free cash flow. Gold strength has been driven by sustained Central Bank purchases and renewed investor interest and volatile geopolitical backdrop, U.S. policy uncertainty and weakening confidence in fiat currencies, particularly the U.S. dollar. Those underlying drivers are similarly supportive for silver, in addition to supply/demand fundamentals, with the silver market expected to remain in a deficit for the sixth consecutive year in 2026. We are well positioned in this environment, remaining unhedged on both gold and silver, and with a focus on delivering margin expansion. To close, 2025 was a record year for Pan American: record revenue, earnings and free cash flow, paired with strong operating execution and a stronger balance sheet. We are entering 2026 from a position of strength with a clear plan: Execute safely and reliably, generate strong cash flow, advance our high-quality growth pipeline and return capital to shareholders in a disciplined way. And with that, I'd like to open the call for questions. Operator: [Operator Instructions] Our first question today comes from Cosmos Chiu from CIBC. Cosmos Chiu: Maybe my first question is on Juanicipio. Michael, as you mentioned, very strong results so far. So it's been about half a year now. How would you describe your overall experience with the asset so far? And what has exceeded expectations? Is it throughput? Or is it grade? Or is it both? And is that sort of outperformance sustainable? Michael Steinmann: Yes, it's a bit less actually than half a year. I think we took over mid of September, somewhere around that, from MAG. Great experience so far. And as you can see in the results, I'm very, very happy, but I see -- continuously very happy, but I see what Juanicipio is producing. Of course, when you look at long-term production profiles and the geology of this kind of deposits -- and by the way, that's the same for like a deposit of La Colorada -- when you look at that geology, there's a clear zonation with metals. So you go from precious metals to more base metals. Lead, zinc, and deep down, you would go into copper really, really deep down. So that's kind of the geology of this kind of deposits. So over long term, that's change as you see, but exploration, of course, a good example is La Colorada [ again ] for that or the neighboring mines of Juanicipio as well. With exploration, you keep finding new veins as well, which, again, have higher precious metal content on the top and then go deeper down into base metals. So over the long term, you should obviously expect that the silver grades will be reduced and the base metal grades increase, but that's -- you can look that up in the technical report for it. But as you said, last year, this year, it looks like a very strong silver producer for us and very low cost. Cosmos Chiu: Perfect. And then good that you brought up La Colorada. I wanted to ask a question about La Colorada Skarn. As you mentioned, new technical report is coming out sometime in Q2 2026. But ahead of it, I don't know how much you can share with us, Michael. But what kind of -- in terms of that phased approach, what kind of different tonnages are you sort of evaluating? What kind of size are you sort of evaluating at this point in time? What's kind of like the cost/benefit analysis are you considering right now? And what can we expect when that comes out? Michael Steinmann: Sure, Cosmos. And yes, you need to be patient a little bit more. In a few more months here, it's coming soon. And it's a very exciting project. And that phased approach really has changed the project quite a bit. If you recall, the original PEA, that called for up to 50,000 tonnes a day. Very, very large bulk minable ore body. Of course, that's still the case. It's still a very, very large, even bigger now, bulk minable ore body. But over the last 2 years, we have discovered a lot of high-grade material inside the Skarn and also between the Skarn and the surface in additional structures. And that's really what we're going to mine in Phase 1. So it's going to be quite a long time for Phase 1. It's going to be way more than a decade. And when you look at tonnage, I don't have to file the numbers yet, but you should probably expect somewhere in the 10,000 to 15,000 tonne kind of range for Phase 1, but substantially higher grades than what we showed in the very large bulk kind of cave method in the first PEA. So it will be higher grade, less capital, and really, a focus on silver production for quite a long time before it will go to a more bulk minable, much bigger tonnage and more base metal rich production after that. Cosmos Chiu: And then maybe one last question. When I look at your 2026 guidance, I look at the asset level production compared to 2025 guidance. One asset that is expected to increase year-over-year is Cerro Moro. I guess this is your only asset in Argentina, but Argentina looks to be getting better as a country for mining. So I guess my question is, is this a country or an asset where you might be willing to commit more time and resources into it? Or how should we look at it? Michael Steinmann: Well, Cosmos, in general, I'm always happy to commit time on exploration to any of our assets. We have been incredibly successful over the last 20 years in replacing reserves and adding additional value through our brownfield exploration programs, and La Colorada Skarn is the best example in the company's history with a potential huge value creation through the drill bit. So I'm always happy to continue to drill and exploring our assets. And of course, in the current metal price scenarios, that's even more so. So you've probably seen that we assigned quite an increase of capital to our exploration programs for 2026, and that includes, for sure, Cerro Moro as well. So as you say, lots of positive changes in Argentina and a place that we are active and working for many, many years. And yes, looking forward to more positive exploration results from Cerro Moro as the year goes on. Operator: Our next question comes from Francesco Costanzo from Scotiabank. Francesco Costanzo: I just wanted to ask a follow-up on one of Cosmos' questions actually, just on La Colorada Skarn. Have discussions on a potential partner progressed in the last quarter? And is there any update you can provide us on what the economic terms might look like given the new phased approach or timing of when we might see a deal signed? Michael Steinmann: Yes. Look, the discussions have progressed. But as you can imagine, with the change we made here on this phased approach compared to the single approach we had before, there has to be quite some changes, how we look at that partnership and in that discussion on how that would fall out. So discussions are in full swing. So I don't really want to share right now, details yet on it. But we included that change on the approach and are in full discussions. Francesco Costanzo: Okay. Fair enough. And then just switching gears slightly. With record silver prices, there's obviously a lot of value sitting in the ground at Escobal. So I'm just wondering if you're able to provide us any insights on your view of how the consultation process has progressed in recent months? And whether you feel that things are beginning to reaccelerate compared to this time last year? Michael Steinmann: Well, in general, of course. And we see it worldwide, right, that there is much stronger emphasis on mining and mining projects. High metal prices, of course, helping that. A lot of declaration of critical minerals across the globe and countries that try to secure future metal production for their own use. So that will accelerate from now on, and I'm sure about that. And we'll bring additional projects into production across the globe. Let me have Sean giving us some more details on Escobal, especially. Sean McAleer: Yes. We've been meeting with the Ministry of Energy and Mines through Q4 and a few times earlier this year. And we're standing by for the next updates for meetings and schedules for activities. So there's not a change in the activity that we've seen in the past. But certainly, the engagement continues. And I think the report that was published by the Ministry of Energy and Mines at the end of the year is encouraging, that they are providing some information from the government on their commitment to the process and the status of the process and the fact that it's ongoing. So we're looking forward to meetings here in the coming months and progressing with the process. Operator: [Operator Instructions] Our next question comes from Don DeMarco from National Bank. Don DeMarco: Just a couple of financial bookkeeping questions. First off, how often are the Juanicipio dividends paid? I mean, I see that there was a line item in the Q4 financials, full year financials, but none on the Q3 financials. And I remember back in the MAG Silver days, where there were some agreements at the JV level just to pay out those dividends once a year, although there were some discussions to maybe change that more quarterly. But I'm just wondering what the current arrangement is at this point? Ignacio Couturier: Don, it's Ignacio here speaking. The dividend -- the payments from Juanicipio come in the form of dividends, and there was a payment in Q4. Pan American's share of that payment was around $44 million. Right now, the dividends are being paid out of tax paid retained earnings, and we're currently waiting for Juanicipio to pay its taxes and [ back ] and book its tax return, which will happen sometime in Q1. So soon after that, we're expecting another dividend from Juanicipio, which would be higher than the one we received in Q4. So right now, it's just being driven by just the regular cycle, the financial statements and the tax returns in Mexico. Don DeMarco: Okay. Got it. And Ignacio, also -- looking at -- you've got the senior notes maturing, $278 million at a 4.6% coupon. Obviously, with your free cash flow and cash balance increasing, would this be a consideration to potentially repay early? I mean, obviously, the August 31 have a very favorable interest rate. There'd be no motivation there, but wondering about these 2027s? Ignacio Couturier: Yes. So that's something that we look at from time to time. They are -- as you mentioned, they are coming up in 2027. The bonds aren't very liquid, we know that. So if an opportunity came where a bondholder was interested in potentially some, we would consider it for sure. But this comes down to bigger capital allocation questions which are coming up this year. So look, if the opportunity came up to buy some of those bonds back to 2027, we would consider it for sure. But as I said, our bonds have not been trading very -- with a lot of liquidity in the market. Operator: And with that, we'll be concluding today's question-and-answer session. I'd like to turn the floor back over to Michael Steinmann for any closing remarks. Michael Steinmann: Thanks, operator. Strong production and cost control in Q4 in combination with high metal prices resulted in record financial results across the board, as you have seen in the press release. And I'm really proud of what we have achieved in 2026, including the very swift and quick integration of the 44% of the low-cost Juanicipio mine. So please keep in mind that the average metal prices in Q4 were only around $58 for silver and I think a bit more than $4,100 for gold. So we have seen substantially higher metal prices in the new year so far. And additionally, we will be increasing our silver production again by about 14%, largely driven again by the low-cost production of Juanicipio. And to top that, we'll release the updated PEA in La Colorada Skarn in Q2 and further information on the Jacobina optimization as the year advances. So you can imagine, I'm really looking forward to 2026, and I'm looking forward to give you an update on Q4 in our May call. Until then, have a good time. Thanks, everyone, for calling in. Operator: This brings to a close, today's conference call. You may now disconnect your lines. Thank you for participating. Have a pleasant day.
Operator: Now we would like to open for questions. Unknown Analyst: So the first question is on the new guidance on Page 9. The revenue guidance on constant currency basis was revised down by 2%. So we understand the ship hold in the SIS division was kind of unfortunate. But I think, as Bob said, it is a one-off. So -- but looking at Page 35, it also looks like the GIS division forecast has been revised down. And I'm assuming the weakness is mainly in the U.S., maybe a little bit in Japan, but Olympus launched a really competitive GI scope that no other player has in the U.S. market, yet the third quarter came in flattish on a constant currency basis in the U.S. So could you talk to us about what went wrong in the third quarter that you had to revise your forecast? Was there the -- why was there a delay in the demonstration scopes or possibly is a certain competitor offering price to gain share as the other competitors suggested on their call? And are we sure we're going to see growth in the U.S. in the fourth quarter? I'm asking this because I'm really struggling with how this downward revision reconciles with the disciplined execution that Olympus has repeatedly stressed in the recent quarters? That's my first question. Robert White: Thank you for the question. This is Bob. I'll start, but then I'll ask Keith actually to comment both what we saw in GI in Q3 in the U.S. and then what gives us confidence in Q4 moving forward. But before I do, you were right to frame it that ship hold, and I'm sure we'll talk about that dramatic impact on the SIS business. There was some ship holds as well in GI, not nearly as significant. And we saw good GI growth around the globe. So we've got confidence in Q4. But Keith, why don't you talk about execution in Q3 and then what gives us confidence in Q4? Keith Boettiger: All right. Thanks, Bob, and thanks for the question. So first, I'll start with, we're not satisfied with the performance in Q3 out of the U.S. And the performance is not about declining competitiveness or clinician preference. We still see strong engagement with Olympus products and our sales teams. And we continue to see interest across our portfolio, including new technology, like you stated, like EDOF and EUME3. The issue here is really commercial execution. We had a pipeline and we didn't convert that pipeline. So we need to be sharper in how we position the value of the portfolio. We need to do a better job managing that pipeline, and we need to convert opportunities with much greater discipline in the United States. And I just want to draw one example, and I'm going to draw an example of China. And I think this is a pretty good a pretty good example of kind of how we approach this. Last summer, when we saw sustained underperformance in China, we really tightened our go-to-market focus, but we also improved our discipline around managing the pipeline with weekly oversight calls with the sales team and the sales leaders. And we got a really good idea of what that pipeline looked like and how we could better manage that pipeline to conversion. And what you saw in Q3 in China, after several quarters of double-digit decline, we saw 6% growth. And I'm not going to -- I'm not saying that every region will react the same and everything is going to happen similarly. But when we see declines like this in the market, and we can diagnose the execution issues and we can put tighter oversight in place. And as Bob stated earlier, we have KPIs that we track. We can put in place -- can put -- we'll put in place things to make sure that we're doing better execution with the sales team. So again, I wouldn't say that every region is the same. But in the U.S., this is clearly an execution issue, when we've put things in place to make sure that this won't happen again, and we expect to see Q4 growth return in the U.S. Unknown Analyst: The second final question, the FDA inspection. So it looks like you received multiple observations from the FDA. Could you elaborate again on the observations that were found? I may have misheard you, but it sounded like these observations were in areas that weren't anticipated. So are the observations set addressable in a reasonably short period of time? Or should we not assume that the JPY 10 billion in other costs for Elevate will go away in 2027? This is my final question. Robert White: Yes. Thank you. A really good question. And let me frame the FDA inspections and observations. Again, the FDA conducted inspections at 8 of our facilities across U.S., Europe and Japan late in the last calendar year. Some of those inspections, in fact, resulted in observations. And many of those observations predated the work we had done in Elevate. That's okay. We own that. Others reflect where we've got to advance the maturity and consistency in the integration of our quality systems. But importantly, it's very much of an open matter with the FDA because the FDA is still completing their evaluation of the observations and the actions. And importantly, we're taking proactive actions. So the steps I outlined in my opening remarks. So -- and importantly, and this is such an important point you raised in the last part of your question, which is I've committed to 100-plus basis points of margin expansion for Olympus in our midterm plan beginning in FY '27. So I wouldn't put this on the same category of cost that was in the Elevate thing. And regardless, I'm committing to making sure we handle that. So the observations reflect areas where we need to get better, advance the maturity, the consistency, the integration of our quality systems and processes. Like I said, it's an open matter, but we're direct active conversation with the FDA, but I wanted to share it on this earnings call to put it in context for you because we proactively put a number of products on ship hold, as I mentioned. And then through the quarter, worked through those, not all of them, but we're still working through those. So I believe we have a very clear set of actions in place to address this. Thanks for the question. Unknown Analyst: My first question is about the situation in China. So the third quarter last year, with a 10% high single-digit level of decline. But for the fourth quarter, is it going to be the positive trend is going to continue? I want to confirm, many med tech companies and the endoscope competitors, they're taking a tough outlook of the China market. But you are expect -- can you expect a strong recovery? So from January and the -- in terms of the -- there's a pressure in terms of CapEx for new building of the hospitals. Is it a headwind for your business in China? What type of risk do you see in the China market? Robert White: Thank you very much for the question. And let me frame how we think about China very specifically. So China moved from a very significant growth driver for Olympus to more recently a double-digit decline, as you mentioned. During that process, Olympus pivoted our strategy very clearly, local manufacturing, dedicated resources, continue to invest in physician training and service capabilities in the China marketplace, better government relations. So while risks exist in China, what you're seeing us believe is that we have a strategy that gets China to where we think the market is growing in China for mid-single digits. So we're coming from a position where China was underperforming, and this is gradual. I mean, the reason we highlighted China in this quarter is we see the specific strategies that we put in place begin to show signs of growth, small signs, but positive growth, 5% growth from double-digit declines. But we're very mindful of the dynamics in the China marketplace. As I mentioned, we're very excited to have a new President of China, Rosa Chen, starting in March. Rosa has demonstrated exceptional leadership in China in health care, most recently coming from Danaher, China. So I believe we've got the right strategy to win in China. But please understand, I also view it as gradual, but it's one that we believe we've turned the corner on. So thank you for the question. Unknown Analyst: So this is my follow-up question. This is about optimization of the headcount. We have talked about the net reduction, 2,000 positions. So it is an increase of the cost of JPY 31 billion. Have you gone ahead in this initiative? And if we look at next fiscal year, in terms of the cost and effect, how much should we put in? Robert White: That's great. Izumi-san, why don't you take that question, talk about the spend. Izumi Tatsuya: Hello, this is Izumi. I would like to explain. Initially, in terms of the structural form-related cost, JPY 12 billion has been in other costs, but we have revised that to a JPY 31 billion of cost. Because the -- rather than the progress has been accelerated, rather than that, it's more of an accounting procedure. There are items that we can provision it as cost from an accounting perspective. So that is the reason why we have put JPY 31 billion. So maybe this JPY 12 billion of outlook has been conservative in the first place, this JPY 31 billion, that is about 90% of overall cost for the cost that's going to spend for this fiscal year, the remaining 10% is going to be allocated next fiscal year. So the reduction of JPY 24 billion effect, that outlook is unchanged. But how much is going to be generated next fiscal year? That will be explained in May in the next year's business plan. That's all from me. This is a confirmation. So next year, has been provisioned and that has been -- we can provision that for this fiscal year. Yes. It's not the overall cost has increased because initially in total, this JPY 31 billion plus is the cost that we have anticipated in these 2 years. We thought that JPY 12 billion would be generated this year, but we have been able to accelerate the provisioning of this. That's all for me. Unknown Analyst: Slide 8, about the actions for ships and the impact of JPY 9 billion. I would like to ask once again about this. FDA inspection, while it was -- it's still going on. Should we expect more of the ship holds because I believe that the reinspection will continue to happen. So should we expect the risk of this expense occurring in the next fiscal year as well? And also, 4 different areas were impacted. And I think there's some overlap with the products that was basically export banned in June. But is the GI not affected or is it affected? Can you please give us more details? Robert White: Yes. Thank you very much for your question. And I hope my answer will be very clear. First, of course, there could always be more inspections because there were facilities that were not inspected. I mentioned there were 8 facilities across U.S., Europe and Japan that were inspected. As I mentioned, yes, some of those observations during some received observations. During this process, we proactively out of an abundance of caution, put a number of products on product hold for patient safety. We then went through a very thorough process of evaluating patient safety. And then we've begun to release, as I mentioned, those products back into the markets, about 70% of that. There's still 30% that we're still remediating. But importantly, as you mentioned, while cost continues, what my commitment to you is that we're going to handle that largely with inside of SG&A. So as we delivered 100 basis points of improvement plus year-on-year, your mid-range modeling should be what I offered to you back in November, which is 3, 4, 5 with 100-plus basis points of margin improvement. Now this remains an open matter with the FDA, as I mentioned. So they're still both completing their evaluations of our -- of the observations, but also our proactive actions that we took, which included, as I mentioned, a risk-based review of our product portfolio, continued global harmonization of our quality systems, targeted strengthening of our quality and regulatory capabilities. So we're moving through this. And then the last part of your question was -- these actions did specifically address 4 areas: GI-ET, urology, respiratory and surgical. So GI, to your point, did have a products that were impacted. And again, I won't go through the specifics because they were across all of the products, but some of those have already been released and some of those were continuing to remediate at this point. So hopefully, that provides a great deal of clarity both on where we are and what we're doing about it. Thank you for the question. Unknown Analyst: A follow-up question. You're showing us a range now. And is this range based on expected additional ship holds? Or is this range based on something completely different? And for the next fiscal year, will we see another kind of range forecast based on remediation or related to remediation? Robert White: Yes. So thank you for the question. I actually -- and we believe that ranges are a more transparent and accurate framework to express the outlook considering both internal and external factors. They don't anticipate any additional ship holds. It just -- as I mentioned, as we move these products back into the marketplace throughout Q4, there's a dynamic nature of that. And also, which you're undoubtedly familiar with, range is the common practice for our peers in the industry, in the med tech industry. So I would anticipate continuing to do ranges going forward, but it has nothing to do with less confidence and more about providing transparency in terms of the dynamic nature of what's happening. I would like Tatsuya to comment as well on that. Izumi Tatsuya: Yes, I would like to add. Providing guidance within range. Well, I think the investors that follow us would compare us against the U.S. med tech companies. And we believe that this range would make it easier. And as Bob has just mentioned, ship hold products, we expect the ship hold to resolve in the fourth quarter for these products. And depending on the timing of the release, the sales could be higher or lower depending on the situation. So we wanted to include that in this range. That's all from me. Unknown Analyst: So I would like to talk about the core operating margin for the mid- to long term and what your idea is about that. The core -- the adjusted core operating margin, you have been reduced that from 2 to 3 percentage points. In the previous announcement for next fiscal year onwards, more improvement from 1 percentage point or more for the adjusted core operating margin. Is that the baseline that I should use and what is your future outlook of your adjusted core operating margin? Robert White: Thank you for the question, and it's a really important question. We are not lowering margin expectations in our 3, 4 and 5 plan. So while the first step is a bit of a longer step from FY '26 to '27, we're not suggesting that you reset your models for the next 3 years. We simply have -- and there were some conservatism. The bottom line is it needs to be more than 100 basis points per year in annual profit improvement, and those are the steps that we're putting in place. And hopefully, that's very clear. So this is just the first year, we've got a little more work to do to get there, but we've not changed our destination nor our timing to be a mid-single-digit revenue growth player and a 20-plus percent operating margin company. Thank you for the question. Unknown Analyst: This is a follow-up question. One thing I want to follow up is that in terms of your revision, the core base gross margin has been reduced. So is it based on the ship hold? Is there's no change in the profitability of the products because there's a single-use products and the contribution of new products that are being talked about. I just want to ask that this is due to the change in the product mix. Can I confirm about that point? Robert White: It's another good question. Now this has less to do with mix shift and more to do with the specific dynamics related to the product holds that hit us in the COGS line from the field corrective action, some of the inventory work that was done. So it's -- that's why on a go-forward basis, we're not resetting our gross margins at all. We've got to deal with these proactive actions that we've taken, but we believe our fundamental mix has not shifted. We're excited about single-use, but think about that as market expansion as opposed to replacing or cannibalizing some of the reusable scopes that we had. So that's -- we think the pie gets bigger for that. Izumi-san, anything to add on the gross margin profile, please? Izumi Tatsuya: I think Bob has explained this clearly. But this time, the decline in gross margin, the increase in COGS basically is due to ship hold and due to the disposal that we go to the inventory or the -- some costs for the recalls that we conducted. This is one-off factors. In terms of the fundamental product mix impact, it is very, very limited. That's our understanding. Unknown Analyst: Slide 15, leadership team. And Izumi-san is leading the organization. And I see most of these people on this slide being non-Japanese. Manufacturing and R&D are more Japan-centric. So I'm wondering how can they motivate the Japanese employees. I'm not talking about sales activities. I'm talking about manufacturing and R&D. How can they motivate the employees to really drive the product development for the future? Robert White: Thank you for the question. We believe firmly that leadership is not a function of one 's passport, but leadership comes down to the experience and authentic approach that one has. So specifically, with the new leader who will be responsible for global operations, David Shan. David Shan has operated globally in many factories around the world and has a very wonderful track record of connecting and building great relationships across culture. And I believe fundamentally, in Olympus, people want to be on a winning team, and they want to continue to get better and better. So I'm excited about our global operations transformation. I want to be really clear, though, the heart of Olympus will always remain in Japan, and we have tremendous factories here in Japan. And we know that we also can do a better job driving sustained cost improvement year-over-year by doing things better and more efficiently in digitization. So I'm really excited about the experience and the expertise that David brings. Similarly, with R&D, Syed has been the Chief Technology Officer for a while. But importantly, leaders surround themselves with great people. And when I look at both the leadership teams surrounding David and Syed, they're made up of exceptionally talented Japanese leaders. And we continue to work on the development and succession planning as well. So I'm excited about the team that's here, but please note that intentionally, we are developing amazing Japanese talent within each one of these functions as well. So thank you for the question. Unknown Analyst: So SIS voluntary recall, so for Izumi-san, in terms of the ship hold, the cost of ship hold for the first quarter onwards, it will not appear. I just want to confirm that. Another point is that to Bob, so this voluntary recall, you consider the patients, I think it has been a good move. But Olympus in the past, in the SIS area, you have been continuously conducting these recalls. And after a ship hold, then another product will have to be voluntarily recalled from the market. I think you have repeated that cycle. So for that point, fundamentally, this -- is there any way to change that culture, so to speak? Do you have any thoughts about that? Robert White: I'll take the question second. Izumi-san, you want to take the first question? Izumi Tatsuya: I would like to first answer from my side. In terms of the impact of the ship hold in itself, it will continue into the fourth quarter because of the ship hold, because we're going to lose the revenue, that is about JPY 18 billion impact in the fourth quarter is going to appear. On the other hand, the costs related to ship hold, for instance, disposal of inventories, basically, that will be ended in the third quarter. There's no additional cost that will appear in the fourth quarter related to those types of costs. Robert White: Pick up your question on surgical, and I'll ask Seiji to comment here as well. He's right next to me. Importantly, you correctly pointed out that patient's safety is fundamental to Olympus, and it's my personal top priority as Chief Executive Officer. So we will proactively in an abundance of caution when we see a signal, take a product temporarily off the market to make sure, and that's what you saw us do in Q3. Your question though gets deeper than that, which is, is there a fundamental cultural issue here with inside of surgical? I don't believe so. When I think about where we're at in our quality journey of strengthening the global harmonization of our quality systems, strengthening our quality capabilities, advancing the maturity and consistency of our quality systems and processes. We're doing that across. And Seiji, I'd like you to comment on how you feel about the quality of the products and your approach within side of SIS. Seiji Kuramoto: I'm Kuramoto from SIS. I would like to respond to your question. So as Bob has just mentioned, specifically in SIS, I do not think that there is a fundamental issue in SIS because we are always putting patients first and the products that I sell in SIS, like energy devices, therapeutic devices, there are some products that have a higher risk. So we put patient's safety first. And we have taken proactive actions to put some products off the market. Going forward, from our point of view, for the therapeutic devices, because we want to grow in this area, we want always to put patients front and center and enhance the quality to be able to answer this. So this is essential. This is a thing that we have to go do for growth, and we want to go forward on this initiative. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Andreas Spitzauer: Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, Head of Investor Relations, and I want to welcome you to Knorr-Bremse's presentation for the full year preliminary results of 2025. Today, Marc Llistosella, our CEO; and Frank Weber, our CFO, will present the results followed by a Q&A session. The event will be recorded and is available on our homepage in the Investor Relations section afterwards. It is now my pleasure to hand over to Marc Llistosella. Please go ahead. Marc Llistosella Y Bischoff: Thank you, Andreas. Ladies and gentlemen, I'm pleased that you are participating in the capital market call on our preliminary results for 2025. The most important news first. Despite geopolitical uncertainties, we were once again able to steer Knorr-Bremse successfully through a challenging year. Thanks for the stringent execution of our BOOST measures and the dedication and expertise of our colleagues worldwide; we strengthened existing businesses, developed new areas of growth during demanding times. Let's go to Page #2. We are reporting strong financial results today. Fiscal year 2025 clearly demonstrates Knorr-Bremse's excellence and resilience once again. With our BOOST strategy, we have delivered what we have announced. Phase 1 is almost completed, creating a more stronger and cleaner cost base. This now enables us to clearly shift the focus towards accelerating margin accretive growth. BOOST Phase 2 centers on growth and expansion while maintaining strict cost discipline. This means BOOST and the regained efficiency are not over as management culture is here to stay and a permanent part of how we run and steer our business. Our Rail Division delivered strong margin accretive growth and reached its midterm target margin 1 year earlier. We promised the numbers and we see it already 1 year ahead. RVS now represents around 55% of total group revenues so we've become more railish as indicated in the past. At the same time, CVS showed disciplined cost management, solid performance despite a tough truck market backdrop. A great achievement by our truck colleagues. In total, we achieved our full year '25 guidance and have issued a solid '26 outlook in line with our existing midterm targets from the past. We will provide an update on new midterm targets together with the release of our quarter 2 results end of July this year. Ladies and gentlemen, let us now take a quick look at our guidance for last year on Page 3. We were able to achieve all of our targets; including revenues, EBIT margin and free cash flow. The strong order book, the strong cash conversion rate and the low leverage underpin these results and confirm our strong resilience. We are in top financial shape ready to continue with our BOOST strategy from a position of strength. I'm very pleased that we are able to present such convincing results today. They are a clear proof that our collective efforts over the past years have paid off. Let me continue with more details of our BOOST program on Page 4. When we launched BOOST in the summer of 2023, our ambition was clear: to make Knorr-Bremse faster, more efficient and structurally stronger again. Two years later, the benefits of the program have become clearly visible in our financial results. The consistent execution of sell-it and fix-it measures have delivered tangible margin expansion driven by a lower breakeven. BOOST is firmly anchored in value creation. Every initiative is designed to contribute to profitability, which remains our top priority. With the brownfield part very well advanced, we are now transitioning into the next stage of BOOST. In 2026 and beyond, the focus of the whole management team will clearly shift towards greenfield initiatives, accelerating margin accretive growth and expansion while maintaining the operational discipline we have built. As a result, we expect the company to continue benefiting strongly from BOOST in '26 both through sustained efficiency gains and an increasing contribution from margin accretive growth initiatives. Let me now turn to our sell-it program on Page 5. Overall, we are close to complete all key actions. The sales process for our HVAC business is advanced and we are fully committed to sell the business if we can realize a fair value. Therefore, we prefer a long-term and sustainable solution instead of a hasty action. We are not a forced seller and we will never be. HVAC is classified as an asset held for sale on the balance sheet. The sell-it program is only 1 side of the coin. Over the past years, we have so far divested businesses and units with revenues of more than EUR 400 million and an average EBIT margin of well below 5%. Once the HVAC business is sold, it will make up to EUR 750 million in total as promised and as said in 2023. On the other side, we have added businesses with revenues of roughly EUR 600 million, generating margins of 15% or above. This is our definition of portfolio optimization, respectively, portfolio rotation. In other words, we have deliberately exited lower margin activities and reinvested capital into higher quality, more profitable growth platforms. Our motivation behind this strategy is very clear and remains a top priority, creating shareholder value by continuously improving the quality, profitability and growth profile of Knorr-Bremse. Let me now turn to fix-it and our efficiency measures on Page 6. Over the past years, we have made very solid progress in improving key financials. For me and the whole management team, keeping fixed costs under tight control remains and is very important. This is not a one-off exercise. It is a permanent discipline for us. We are permanently monitoring our fix-it businesses and drive them into improved performance. The breakeven, respectively, the control of our fixed cost is particularly important to me. In the past, it suffered from revenue headwinds in countries like China, Russia and it was impacted by high inflation. This is, therefore, very important to us as a management team to regain this financial flexibility and strength. So far, we have already been able to improve the breakeven by 4 percent points or 400 basis points. In our internal business reviews, I therefore explicitly challenged the operating units on cost structures and efficiency. Frank in parallel places a strong focus on cash flow generation. This combination has proven to be very effective. Our persistence has clearly paid off. Over the last 3 years, we have reduced headcount by more than 2,400 people, of which only 1/4 was achieved through divestments and the majority through real reduction measures with particularly strong progress in the CVS division so far. In addition, the migration of operating activities to lower-cost countries in our major regions such as Hungary, Poland and India is already well advanced. Importantly, cost optimization goes far beyond administrative functions. We are systematically adjusting our operational footprint across engineering, production, R&D, service activities and purchase in order to achieve an optimized strategic global footprint. At the same time, we have established global shared service hubs in all major regions and are doubling down on those. These hubs are already delivering tangible benefits. Overall, fix-it has made a meaningful contribution to margin expansion, cash flow improvement and return on capital employed enhancement of 20.2% -- at 22.8% of Knorr-Bremse. And let me be very clear, fix-it is not finished. Efficiency and cost discipline will remain an integral part of how we run Knorr-Bremse going forward. Let me briefly outline the strategic logic behind how we intend to develop Knorr-Bremse in the coming years. The main focus of our greenfield strategy is to drive revenue growth and margin expansion beyond historical levels. Our portfolio strategy remains clearly anchored in rail and truck combined with opportunities in adjacent and other existing growth areas. The rail industry provides very attractive profit pools. As a result, future organic and inorganic investments will take place more in rail going further. Wayside signaling is an interesting segment strengthening our sustainable margin accretive growth. In truck, mobility as a service via our CVS service platform represents another greenfield pillar. Here, we are evolving towards a technology-enabled solution partner and we are systematically expanding digital and service-based aftermarket solutions, a market that is just emerging in trucks. In energy technologies, we are building on our existing nucleus to explore attractive opportunities in intelligent grid solutions and the field of energy distribution not in a rush, but step-by-step and accretive. Beyond our core, we are selectively analyzing and developing additional growth fields like dampers and electronics business. Green technologies are still at a very early stage for Knorr-Bremse, for example, supporting our existing but small Reman business. Overall, our ambition is to put Knorr-Bremse on several strong profit pools to reduce cyclicality and grow profitability. Let me be very clear. To be part of Knorr-Bremse, every business must meet its target margin. This discipline is central to create long-term shareholder value, an important part of our financial guardrails regarding M&A. Let me now turn to signaling on Page 8. Signaling itself is clearly a success story for Knorr-Bremse so far. We acquired a good asset and made it even stronger. KB Signaling is well integrated and it is a market leader in an attractive segment, which can be seen in the favorable growth prospects. Over the past year, our focus was deliberately on cleaning up the project portfolio of KB Signaling. This led to a slight decline in revenues, but significantly improved the quality and risk profile of the business. At the same time, we reduced the cost base through targeted staffing optimization. With this groundwork completed, our focus is now firmly on profitable growth. We aim to defend and further strengthen our market leadership in the United States and to expand into markets that have adopted U.S. rail standards such as Australia and South America. In Europe, we have extended our signaling footprint through the acquisition of duagon, strengthening our electronics and system capabilities. Beyond organic growth, we also remain open to selective nonorganic investments to further expand our European activities in signaling. Overall, our objective is clear to build a global high-quality wayside signaling portfolio and to fully capture the attractive growth potential of this market. Moving please to Page 9. Let me now turn to energy, which at first glance may appear less obvious for a company noted and rooted in rail and truck braking systems. However, there are 2 very clear reasons why this field is highly relevant and interesting for Knorr-Bremse. First, energy is not new to us. For Zelisko, we have been active as a Tier 1 supplier in the European and American energy distribution market for more than 50 years. Together with Microelettrica in Milan, we already generate meaningful revenues in this segment today and the business is both growing and highly profitable. Second, the European energy market is currently undergoing profound changes. Investments in grid modernization, intelligent power distribution and network management are increasing and demand for smart reliable solutions is high. Given our long-term standing, customer relationships and technical expertise; we see a clear opportunity to benefit from this development. Currently, we are screening this market globally and are interested in opportunistic moves. We are responding to increasing demand and concrete requests from our existing customers in the areas we are already in. Our approach is, therefore, deliberate and disciplined. We intend to expand our positioning in energy technologies step-by-step through organic investments and being open to selective M&A opportunities, always fully aligned with our strict financial guardrails. In this way, energy represents a value-accretive extension of our portfolio by reducing cyclicality and cyclical dependency and support sustainable margin accretive growth over time. Our CVS service platform addresses the truck aftermarket for primarily digital solutions, a segment that is structurally outgrowing the OE market and offers a more attractive margin profile. We call it the truck aftermarket ecosystem. We are already well positioned with Cojali providing a strong base in diagnostics, data and workshop solutions. Cojali generates annual revenues of more than EUR 130 million with a very, very attractive EBIT margin. We are now accelerating our expansion in truck services with TRAVIS at the core of the CVS service platform. We are bundling services that are essential for fleet operators, but which are not part of their core transportation businesses. Over time this will include services such as repair, parking, charging enabled by TRAVIS as an asset-light data-driven platform. Together with TRAVIS [indiscernible], we are at the start of being a digital solution partner in the truck aftermarket, strengthening the CVS ecosystem and expanding Cojali's opportunities. Overall, this is a strong strategic fit for our Truck Division; high growth, attractive margin, asset light, scalability and a higher share of revenues less depending on cycles. And this is exactly what BOOST Greenfield stands for: building new growth platforms in structurally attractive markets that enhance the quality, resilience and growth profile of Knorr-Bremse's portfolio. 2025 was a good year for Knorr-Bremse. Let me briefly highlight the key points. In Rail, we secured several important contracts. Siemens Mobility awarded us an order covering braking systems and for the first time a coupling system for 90 lightweight trains for the Munich SVA. In China, we contributed to growth with CRRC, supplying equipment for more than 1,000 metro cars in major cities as well as technologies for around 150 trains complemented by export orders, including braking systems for over 100 locomotives for Kazakhstan. We also entered India first high-speed rail project for an equipment initially with BEML initially equipping 2 prototype trains. Beyond that, with the opening of our new artificial intelligence center in Chennai, we are continuing our global digitalization strategy and also strengthening our presence in India. Just a few days ago, we laid the foundation stone for a new site there, which will be built over the next 1.5 years. In the future, we will bundle engineering production capacities here for both divisions together with a capacity of more than 3,500 people long term. Digitalization in rail freight was another highlight. In the U.K., we signed a long-term agreement with VTG Rail U.K. for the supply of at least 2,000 freight control sentinel wagon sets; improving safety, availability, efficiency and infrastructure use. In simple words, we make freight trains smart. We make them smart for the first time and after more than 100 years. In Truck, we extended a major contract with a leading OEM for 200,000 electronic leveling control system while continuing to expand our digital aftermarket business. The extension of Nico Lange and my personal contract are further strong signals of continuity and stability. It reflects the confidence in the leadership team together with all my colleagues, a strong collaboration across the organization and a shared commitment to long-term value creation. Together, this provides a solid foundation for Knorr-Bremse continued success and a very promising future. Deliberately leverage the benefits of artificial intelligence, we are now further advancing our AI transformation together with strong partners like Amazon Web Services. Our objective is to build a new operating model for the company over the long term powered by high-performance AI agents. This is an exciting initiative for which we are shaping the digital future of Knorr-Bremse, enabling us to become faster, more agile and more efficient. Let us now take a look at the current market situation for rail and truck as well as our market expectations for the current year. Starting with rail. The overall picture remains very robust and continues to be our least concern within the group. Underlying demand is strong across all regions supported by high order books at OEMs and our customers. There has been no material change in market fundamentals and we expect a full year book-to-bill ratio around 1 or slightly higher. In Europe, demand remains solid with passenger rail continuing to outperform freight, which is still somewhat softer. Same picture for North America where the passenger business continues to more than compensate for the still subdued freight environment. The APAC region continues to develop at a high and stable level. After good growth driven by increased ridership and pent-up demand, the Chinese rail market should normalize this year. On the other hand, we are quite convinced and we get clear indications to be part of a new rail platform in China in the future. Turning to the truck markets. The market picture overall has improved compared to 3 months ago although regional differences remain pronounced. In North America while the market is still at a low level, we are now seeing first signs of stabilization. Orders activities and customer sentiment have improved sequentially suggesting that the market may be starting to bottom out. For 2026, we expect slightly increasing demand year-over-year. That said, uncertainties remain and we continue to assume a gradual recovery rather than a sharp rebound with half year 2 expected to develop better than half year 1 in North America. The European truck production rate should continue its positive momentum seen in '25 and it should slightly grow in '26. I would now like to hand over to Frank, who will outline the preliminary financial figures for you. Frank Weber: Thanks, Marc. A big welcome also from my side. I would say let's first turn to Chart 13 to discuss the financials for the full year at first. Knorr-Bremse generated total revenues of almost EUR 8 billion, a strong figure and slightly up in organic terms. On a divisional level, RVS more than compensated for the tough truck market development especially in North America this year. From a regional point of view, Europe and APAC contributed to the organic revenue increase while North America reported a decline. The improvement in our operating EBIT margin was driven by a strong contribution from Rail supported by an attractive regional mix and good aftermarket in general. Together with our operating leverage and structural initiatives from the BOOST efficiency program, this led to a 70 basis points increase in the group operating margin to 13%. Rail achieved its midterm target ahead of schedule with 16.5% while CVS successfully fought against the very challenging truck market and achieved a resilient and stable EBIT margin of 10.4% despite the weak market situation in our stronghold North America. Order intake and backlog also achieved great results, 6% and 8% up year-over-year on organic level. These developments once more demonstrate KB's outstanding position in both markets and provide a great backbone for future growth. The very strong cash flow is again one of the major highlights of '25. We were able to generate EUR 790 million in free cash flow, a new record on operating level, which resulted in an improved cash conversion rate of 131%. Looking at these superior full year results, I would like to also thank all our colleagues, business partners and customers for their great collaboration and dedication in '25. Let's continue this year and support KB to become even stronger. Let's now focus on our balance sheet on Chart 14. A core pillar of our financial policy is and remains the fostering of our superior financial profile. This strong financial foundation has proven its value over recent years and continues to provide a high degree of flexibility. This enabled us to achieve our strategic objectives and operational needs while managing -- at the same time, managing the cycles of the market dynamics. A robust equity base continues to be a key priority for us. At year-end '25, Knorr-Bremse reported an equity of almost EUR 3.2 billion corresponding to an increase and very solid equity ratio of 36%. Our liquidity decreased to around EUR 1.7 billion solely driven by the repayment of our last year's bond maturity of EUR 750 million. Looking at the real operational effect, liquidity increased by nearly 15%. Our net debt, therefore, declined by 31% to a very healthy EUR 627 million. This was strongly driven by the repayment of the beforementioned bond translating into a strong and comfortable net debt-to-EBITDA ratio just below 0.5. As a result, KB's credit ratings of A3 and A- remain at a very solid level with stable outlooks underscoring the resilience and strength of our financial balance sheet. Let's move to Chart 15. CapEx amounted to EUR 319 million corresponding to 4.1% of revenues. In absolute terms, capital expenditures declined by EUR 30 million year-over-year. This development is fully in line with our strategy to optimize CapEx spending to a level of 4% to 5%. Net working capital in operating terms declined by EUR 85 million year-over-year with an annual reduction of more than 3 days resulting in a once again improved net working capital efficiency year-over-year. This sustained progress reflects the continued success of our collect program, delivering improvements across all key net working capital drivers, especially inventories and trade receivables. Importantly, these efficiency gains were achieved while maintaining the highest level of supply reliability for our customers, which is our clear priority. Since end of last year, we have accounted HVAC under IFRS as asset held for sale. Driven by higher EBIT and continued improvements in capital efficiency, ROCE increased by 200 basis points to 22.8%. This demonstrates disciplined asset input and utilization while simultaneously increasing our profitability in absolute terms. I would like to provide more details regarding our free cash flow on Chart 16. We improved the free cash flow sequentially last year reaching EUR 471 million in the last quarter alone. Overall, the free cash flow came in at EUR 790 million on a full year level, a new record and the best operating figure in 120 years of KB. The increase was supported by stronger EBIT generation, disciplined capital expenditures and the successful execution of our persistently lowering net working capital. As a result, we delivered broad-based improvement across all the key drivers. The cash conversion rate remained at a superb level reflecting our ability to effectively translate earnings into cash once more. In '25, it reached 131% in operating terms, which is an extraordinary figure even well above last year's level. If you include the one-off effects of around EUR 80 million for the severance packages in '25, the cash conversion rate would have even been at 138%. Let's move to Chart 17. We continued our way to strengthen KB's sustainability performance to identify efficiency potentials and increase resilience in our operations and supply chain. Our sustainability strategy continues to deliver measurable progress across all dimensions. Since 2018, we have reduced Scope 1 and 2 CO2 emissions by 79%, keeping us fully on track to achieve our 2030 climate target of 75% reduction. Despite market-driven revenue headwinds, our emission intensity has slightly improved year-over-year while self-produced renewable power increased by 41%, further strengthening our energy resilience. From both a regulatory and financial standpoint, EU taxonomy aligned revenues show a slight increase primarily driven by comparatively higher RVS business. This progress is supported by a very strong external validation, including the first allocation and impact report for our green bond, the leading ESG ratings and multiple sustainability awards we achieved. Let's turn to Chart 18 to discuss the financial highlights of the fourth quarter. Order intake was strong with almost EUR 2 billion with a strong organic growth of almost 6%, which was well supported by trucks. A book-to-bill ratio of 1 again is important and good support for our future capacity utilization. Our revenues almost amounted to EUR 2 billion with a strong organic growth of more than 6% driven by both divisions. Operating EBIT margin increased to 13.5%, which is a very strong improvement year-over-year. Both divisions contributed to this development. As already outlined, free cash flow improved to EUR 471 million and followed the typical seasonal pattern over the course of the year, which we also expect for '26. Let's take a closer look at the RVS performance on Chart 19, therefore. In terms of order intake, RVS again recorded more than EUR 1 billion, but showing a decline of 10% year-over-year which was driven by all regions except for China and needless to say, including significant FX headwinds. In quarter 4, we had expected a larger order in North America in the mid-double-digit million euro range, which was shifted into '26. Global rail demand is very strong and will continue, but sometimes as regularly mentioned, does not really fit into quarterly reporting. In general, we expect order intake in '26 to be in the range of EUR 1 billion to EUR 1.2 billion each quarter. For the year as a whole, the book-to-bill ratio should be around 1 or slightly above 1 after also consistently recording a value well above 1 in recent years. As in '25, we expect order intake to be stronger in the first half of the year than in the second half. In the fourth quarter, the book-to-bill ratio stood at 0.91. Order book at year-end with almost EUR 5.6 billion came close to our existing record level. Organically, the backlog grew by around 9% year-over-year. This high order backlog underpins strong visibility and provides a solid basis for growth well into 2026 and beyond. Let's move to Chart 20. Quarter 4 revenues from RVS amounted to nearly EUR 1.1 billion, which is an increase of 3% year-over-year. Especially pleasing was the growth in organic terms accelerated now to more than 7%. Our aftermarket business was almost flat year-over-year with all regions except Europe showing declines. OE business on the other side grew nicely year-over-year by almost EUR 30 million. From a regional point of view, revenue growth was fueled by Europe while APAC remained stable and North America and China very slightly declined. In Europe, aftermarket business and OE sales grew nicely. North America recorded almost stable aftermarket business, but a decrease in OE business. The APAC region saw a stable development with OE overcompensating slightly lower aftermarket figures. China also saw flat OE revenues while aftermarket business slightly declined after some catch-up demand has been satisfied. Please keep in mind that we have had very strong China business in '24 and '25, which benefited from a meaningful increase in ridership. As a result, we expect that our China business could slightly normalize in '26, but still being well above our long-term expectation that we shared with you in the past. Operating EBIT margin recorded an increase of 140 basis points to 17% driven by operating leverage and our efficiency measures within BOOST. In addition, we worked off all remaining legacy projects meaning the inflation burdened order backlog. In quarter 1, normally a rather weaker market quarter due to the seasonality of aftermarket business and the impact by Chinese New Year, we expect the profitability of RVS should be slightly up year-over-year. For the full year '26, the operating margin of RVS should be only slightly below 17.5% including HVAC. Therefore, and as in '25, we expect the operating EBIT margin in the second to fourth quarter of this year to be higher than in the current quarter. Let's continue with our Truck Division on Chart 21. Order intake in CVS amounted to EUR 977 million representing an increase of around 10% year-over-year and around 20% compared to the third quarter. The very strong year-over-year organic growth of 20% was partly offset by M&A and FX headwinds. From a regional point of view, Europe was very strong and also the APAC region posted growing orders. In contrast, North America recorded significant declines due to market and FX factors. The strong development quarter-over-quarter in all regions is quite promising. Especially in North America, we feel reassured that we have seen the bottom. Nevertheless, we still expect no sharp increase in market demand from this level. Our book-to-bill reached 1.1 in the past quarter and therefore, the order book with almost EUR 1.8 billion at the end of December remains on a good level. Order intake in the current quarter should be good as well and only slightly lower quarter-over-quarter. Nevertheless, the start into '26 was very solid so far. Let's move on to Chart 22. Revenues decreased nominally by 4% to EUR 881 million. A rather good organic growth of over 5% could unfortunately not fully compensate for the headwinds driven by M&A and FX. Against the backdrop of a continuously challenging U.S. market, especially in the U.S. this development reflects a very resilient and solid operational performance by our Truck Division. Our OE business decreased by around EUR 30 million compared to the prior year. This was driven by a significant decline in North America as anticipated while Europe showed good growth and the APAC region recorded solid momentum as well. The aftermarket business, on the other hand, was overall robust and saw a more or less stable development driven by Europe and China despite FX headwinds. North America was down by 10%, but slightly up in organic terms. Turning to the bottom line. Our operating EBIT amounted to EUR 99 million in the past quarter representing a strong increase of 14% year-over-year. Consequently, the operating EBIT margin improved by 180 basis points to 11.3%. This margin expansion was driven by a quick and consistent adjustment of workforce and the continued reduction of structural cost as well as the support of our accretive aftermarket business. Looking ahead to '26, we anticipate organic revenue growth in the range of low to mid-single digit versus '25 driven by a slightly positive development of truck production rates in our major regions, Europe and North America. Based on the related operating leverage by the already lowered and continuously further optimized cost base, we expect to improve the operating EBIT margin towards 12%. We also believe that the profitability of CVS should improve step by step throughout '26. In the current quarter, we expect a slightly lower operating EBIT margin quarter-over-quarter, which will increase in the quarters ahead. With that, I hand over to Marc again. Marc Llistosella Y Bischoff: Thanks, Frank. So let's have a look at our guidance for '26 on the next page. Based on the assumptions outlined on the right side of the chart, we expect the following for full year '26. Revenues in the range of EUR 8 billion to EUR 8.3 billion, an EBIT margin of 14% and a free cash flow between EUR 750 million and EUR 850 million. We will give you an update of our new midterm targets with the publication of our quarter 2 results on the 30th of July. Ladies and gentlemen, as you can see, we continue to deliver and especially what we have told you and what we have announced. KB is well on track to all strengths and beyond. Be assured that we are setting the path for further growth and value creation. In '26, we want to enter into the next area of KB, which clearly focuses on sustainable and margin accretive growth. Thanks a lot for your attention. Looking forward to your questions. Andreas Spitzauer: We will start the Q&A session shortly. In case you would like to ask questions, please dial in via the provided telephone number. Mute the webcast and ask the question via telephone. Please limit yourself to 2 questions. All other participants can stay in this webcast in the listen-only mode. Operator: [Operator Instructions] And the first question comes from Gael de-Bray from Deutsche Bank. Gael de-Bray: Two questions, please. Maybe 1 at a time. So firstly on your growth initiatives, what makes you think that you can win in the electrification market? I mean the grid and electrification markets are characterized by well-established very large players with extensive distribution network. So what's your positioning exactly? Are you a sub-supplier for the likes of ABB and Schneider or do you compete directly against these guys? And I'm also curious to understand if your focus area is just around the grid side or whether you also see opportunities to supply data center customers as well? Marc Llistosella Y Bischoff: I think I take this. So saying about energy market, for us there's 2 vectors of potential growth. The one is that we go in the supply of components like instruments, transformers, like protection relays, circuit breakers. That's where we are very, very interested in because these are Tier 1 and Tier 2 suppliers to the Project TRS. Number two, are we aiming to get into direct competition with Schneider, Siemens or others of this size? No, that's exactly where we are not because the market has such a size, roughly EUR 480 billion, that's our definition of the market where we see absolutely a massive growth area especially when it comes to key components. These key components, some of them we have already. We have never focused on them, but we see now that there is a massive growth in our internal units already. So we see here a growth between 25% and 30%. And this is where we say there is granularity in the market currently and we see a massive potential that we can be a creator of a new market structure. That means we accept absolutely the big guys. We will not get in competition with them. Furthermore, we are more interested to be a competent partner for this kind of customers, which so far are seen in the fragmented granularity of market. This is our strategy. And number two, when we speak about the next vector, then we see also midsized projects and there we see Project TRS, which could be interesting for us. You know better than me that we have seen in the recent past someone -- some American went public and this is exactly where we are interested to step into. Gael de-Bray: Okay. And the second question is around the communication of the new midterm targets. I mean any color around this, maybe around the time horizon that you've said? Is it 2030? And I suspect we will hear from you around growth and margins, but any view on maybe the targeted net debt-to-EBITDA at this stage would be useful. Maybe a theoretical maximum debt-to-EBITDA level that you don't intend to exceed. Frank Weber: Gael, I take this one. As we outlined and Marc outlined precisely, we will shed definitely more light on that on the 30th of July. We are prepared to take it. It will be not hugely surprising for you that we are striving for more at Knorr-Bremse. I will not take any figures now in my mouth. We occasionally drop the one or the other elements of what we are pursuing going into the future. We will also not give you a 5 to 10 years midterm guidance range, but rather focus towards -- like you always knew it from us, towards the next 2, 3 years kind of. That's the way we are thinking. And as I said for some businesses, we have already here and there shared with you in the quarterly call some expectations what we can think of the businesses to achieve in the future. But let us wait for July, please. Let us first bring home all the targets that we have still at hand to be achieved. Operator: And the next question comes from Sven Weier from UBS. Sven Weier: First one is also a follow-up on the new midterm targets. I mean in a way, don't we know some of the targets already; the 19% in rail, 13.5% in trucks. Now you said this is like on a 2-, 3-year view. So is the focus then end of July more around the expected growth that you see because the margins we kind of know already? Frank Weber: We have not fully talked about CVS for example and we have, as you rightfully said, not really talked about the clear time horizon for RVS and whether the 19% will be there. Let's see, maybe it's even a bit more. So let's see what we are talking about then in July. But of course for sure, there is some further need to discuss on our strategic revenue path going into the future and how we operationalize ultimately our greenfield ideas that Marc outlined nicely regarding the business areas and we can also shed some more light on this or we will definitely shed some more light on this. So I would say you're rather right. It will be a bit more focused on the revenue side, maybe how to generate accretive growth for this company, but also the margins of course. Sven Weier: And the other question I had was just on the greenfield side. First one there being on the CVS side because obviously recently we heard a lot about the truck fleet management powered by AI, that the load of the truck fleets could be much, much better in the future. And I just wonder with the products you have there, I mean would you have any inroads into that helping the truck fleets on that end or is that not going to be your focus? Marc Llistosella Y Bischoff: Yes, it's less product in terms of hard assets, it's more services. And what now is the time is -- and this is why TRAVIS is so important because their customer leads are important. As you know, the captives are trying their best to cover the new areas. The problem with most of the fleets, they don't want to be only covered by 1 captive. They want to have a brand independent approach. And for us, this is a the chance to step in and this is where we stepped in already. We have with our PleaseFix a massive real connection to hundreds, close to thousands of independent dealerships where there is no brand dedication and which is for us very important because that's what the customer wants. So we follow the customer and they want to have a free choice of services and exactly this is where we step in. So it's more a service. It's more a transaction-based service than it is a form of asset transfer. This is the product, this is the part. This is not where we see our trade going on. What we see is that I sometimes refer to it like Amazon for trucks. It doesn't depend what you buy, it depends where you buy it. It doesn't depend what kind of service you ask for, it depends only on which platform. And the time of this platform is only one thing; size, speed, agility and services. And this is why we think it's a game of speed. The faster and the quicker you have a network connected on this platform, the more it is very hard to reach your position. So here, speed is the name of the game. This is why we were very happy with TRAVIS. It's a Dutch company as you know, very agile, very aggressive and this is what we need. And everywhere where we as Knorr-Bremse, a little bit located by ourselves in terms of an old German company, we need different ingredients of entrepreneurship. Cojali is another good example because their form of business is not brand dedicated. It's not 1 brand they serve. They serve everything what is in the market. So it's a very, very indiscriminative approach to the market, which I think and we think that's where the growth will be. That's where the margins will be. And that is we have to take the place because if we don't be quick and fast, others could be tempted to do so. So far we are in a relatively good position and we want to keep this position and we want to build it up. Sven Weier: And on the energy side, did you say that you have data center exposure or not because I didn't fully capture that on Gael's question? Marc Llistosella Y Bischoff: The data center exposure from our side is relatively limited, but we are already supplying Project TRS who are equipping data center. So what we will -- currently not in a position to give data center the full-fledged program, but what we do already is that we provide with the ingredients, with the components, with the systems which you need to give this kind of service to data center. And this market we see also absolutely not only in America, we see it also in Europe and we see it also in Asia. And as I said, currently the market of component suppliers is extremely granularized. So we have a lot of little ones, small size, midsize providers of components and that's exactly our chance. We could scale it and we will scale it. Operator: And the next question comes from Meihan Yang from Goldman Sachs. Meihan Yang: Just the first one, you mentioned there was an order shift into 2026 on the RVS side. Could you give us a bit more color on this and do you expect it to be signed in 1Q '26 or any color would be helpful. Frank Weber: I would say it's just an example of how things go usually on a regular basis in quarters. When it comes to the bigger project business of RVS, sometimes orders are outspoken or signed kind of sometimes it doesn't happen on a last-minute notice. So it's just a EUR 50 million to EUR 100 million order in North America. It's the regular thing that you would expect. It's not signaling. So it's just happening and with that, we would be pretty close to EUR 1.1 billion and that's what we wanted to indicate with this message kind of that's how things go when it comes to quarterly reporting. But it's not a spectacular kind of all of a sudden order that's coming. It's something that's pushed out from one quarter to another and that's an example. Nothing more I think to add. Meihan Yang: Got it. And on the second question, you talk about how you could expand the aftermarket services to your customers from AI. On your internal operating leverage, is there anything that you're seeing big benefits -- like for example you're doing your R&D or your software development much more quicker and do you see any benefits coming through in '26 already? Marc Llistosella Y Bischoff: I think you're on the right track when you say especially in software engineering, we can accelerate massively and this is exactly what we are going to do. You remember when I said that the output per person, the output per employee has to be improved and increased. For 22 years, the output per person in this company was stable and it was not improving in terms of output and this is exactly where we are focusing for the next 3 to 4 years. We have a clear target and that includes purchasing, that includes accounting, that includes controlling, that includes HR, that includes every form of legal and compliance. It includes every functionality, which can be seen as repetitive. 80% to 90% of the software coatings are repetitive. So we have to focus with our people, human people. We have to focus on the 10%, 15%, which are really creative. The rest has to be done by AI or I would call it by algorithms because that is not the differentiating part. So we focus on the differentiating part where we put our engineerings in and everything what is repetitive is being more and more handled by algorithms and we call it the agents. And this kind of agents when the first impact is, we are starting now. We have started already a project in accounting and controlling. We see here effects, real effects not just a vision or so, we see real effects of 30% to 40%. That means you can say 30% to 40% of more output per person or in reduced workforce. That's the call and that is why we say so far we have a very clear plan that the output per person has to reach in, I would say, visible time 300,000. And either we grow or if we don't grow, we have to shrink our workforce. With shrinking workforce, that means we have the breakeven in mind and with that, we have the personnel expenses in mind. And you know that our personnel expenses, especially in rail, they are now in a reach of EUR 1.2 billion. There we are not happy, I tell you this very clear because the output has to be improved. In truck, we are already on a much better way because we are here in the range of EUR 700 million coming from EUR 800 million. So we reduced our personnel expenses around EUR 100 million within 1 year in CVS. This is a potential where we have to leverage everywhere not only with trucks. And now the question is how do we get it? We get it by standardization of processes, we get it also by automation of processes and we get it also by using agents more and more in some areas. Operator: And the next question comes from Ben Uglow from Oxcap Analytics. Benedict Uglow: I had a couple. The first was just about the kind of qualitative view, the sentiment around the CVS outlook, particularly for North America. I guess some of the truck OEMs that have reported seem to have been a little bit more optimistic, mid- to high single-digit growth in truck production rates. What I kind of wanted to know was do you see anything fundamentally different from them or are you just being sort of naturally conservative? That was my first question. Marc Llistosella Y Bischoff: So thanks for the question. We are naturally more conservative. Why? Because you know better than me what happened in the years '21, '22. We were eventually a little bit erratic with our predictions and since that, we are more conservative and we are only claiming what we can really achieve. That's number one. Number two is for us, the best indicator for the truck American market in North America is PACCAR. PACCAR is known to be the most agile one when it comes to layoffs. It's the most agile one when it comes to production capacities. PACCAR is Champions League, absolutely Champions League when it comes to reacting to the market's ups and downs. We see that there is some upside. But I would say the results what we have in truck -- and it's just a mathematical calculation. We have managed to make in the fourth quarter 11.5% in a market which was still very sluggish. Now you can imagine what happens when the market is going up and you know also that we are generating roughly USD 1.3 billion to USD 1.5 billion in America alone with Bendix. So it's one of our biggest markets and it's one of the most profitable market. So that is for us the significant upside which we see, but we stay conservative. We say everything what we have predicted so far is based on the cost by slightly stable market size. So if the market goes up, you know exactly what that means. There's a potential and this is what we are not claiming, but we are preparing. Benedict Uglow: Understood. And then coming back, I guess we're all excited about this energy technologies business that, frankly, I certainly didn't know existed. Can you talk a little bit more about Zelisko and the production setup? I mean presumably you've got 1 large facility or something like that. Are you expanding capacity? What are you doing organically to build that business? And I guess my follow-up question is if you think about M&A in that segment, are we talking about sort of bolt-ons, i.e., EUR 50 million, EUR 100 million type transactions or are you more ambitious in your thoughts there, i.e., there are certain assets available, which are bigger. But the question is is that what you're sort of signaling or not? Marc Llistosella Y Bischoff: Ben, you're very curious, I have to admit that. Very smart questions, exactly the same questions which we have discussed for the last 7, 8 months. I try to do my best not to spoil our own story because otherwise everybody would know where we go and what we do. We are not -- I make it simple from the beginning. We are not shying away from a bigger ticket, number one. Number two, as long as we don't have the perfect big ticket in sight, we are going step by step. And as I said, the granularity of this market is very interesting and we see here a lot of opportunities of, let me say, smaller size tickets. The problem is -- not the problem. The opportunity is that with 2 or 3 assets, you can already have a very, very really good market position worldwide. So for us, it's very important to do both. We are not choosing left or right. We're not saying the big bang is the only thing what we search. We go absolutely both ways. The one is we go components for components, markets increase, market share increase wherever possible. This is permanent. This could include also smaller-sized businesses, what you said, EUR 50 million to EUR 100 million tickets. But parallel to that, we are ready and we are scaling ourselves up to have expertise in this regard so that we could imagine also a bigger ticket. So this was #3 and #2 of your question. Number one of your question was what is the current size and where are you located? We are located in Vienna, we are located in Milano and we have now a massive aggressive turn that we go to Americas with our existing business partners. That means Zelisko and Microelettrica. Zelisko is now your question is and I think it was also a little bit of a critical hint what you gave. We didn't know that it is existing. The funny thing is 3 years ago nobody took care of this business so much. It was a little bit like a bifung in Germany, to say and this company was staying very, very solid alone, but very profitable, very small with EUR 50 million. Now within exactly 2.5 years, they doubled their revenue to EUR 100 million to EUR 110 million. Their profitability is in the range of 18% to 20%. So it's a very, very promising business and the competence is also enlarged and increasing. So we have the nucleus. The same with Microelettrica. The business is doing quite, quite well. We have already organic growth areas not only for Europe, but also for America. But as we are not that patient and I think you are also not that patient, we say organic growth would take us too long. This is why we are very open for inorganic growth in this area. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: My first one goes to the Rail business and quite similar or aligned with Gael's question around energy. I mean signaling is clearly another target for your greenfield. But when we look at the signaling industry, it's typically dominated by the likes of Siemens, Alstom or Hitachi that treat signaling as the brain of the train and a core part of their expertise. So when you look at growing within that marketplace with a focus on profitability, what structural evidence is there that a component-led player can actually capture premium margins within the signaling industry? Marc Llistosella Y Bischoff: Okay. With signaling, superior margins, we stepped in. It was an occasional opportunistic step and we did it. And now, excuse me, I would love to do that. I have a list of 5 assets which we have in mind; 2 of them would be very significant, 3 of them would be additional. Of course you understand that I can't give it to you. But the second of your question -- the first was more where do you see yourselves competing with Siemens, competing with ABB, competing with others, Hitachi. Yes, you're right. This is eventually not what we want. We want to be a brand independent offerer of services and the market is really interested because before we step into the market, we always ask is there a market for us? So we ask potential customers, we ask competitors, is there an area or are we just a me-too into an existing market where you differentiate yourself with pricing or whatever. This is never going to happen with us. We are not interested in a price war. We are not interested in competing with something which is not differentiating. So we see differentiators. We see different sizes. We see sizes which eventually for the big players are insignificant because the big players are now overrun by demand and also in energy and that gives us a massive opportunity. It's a time -- a window of opportunity for the next 3 years to go. In the next 3 years this kind of games will be decided and after that, it will be very, very hard to get into. So this is why we decided in signaling and also in energy to be very quick now. We need to make our mind. We have to be very clear what is an asset which is helping us and what is an asset which eventually is not helping us at all. The profitability of these 2 markets and especially in signaling is different. We have here very, very profitable market players and we have very average market players. This is where we have to focus on the ones which we manage to improve and this is why we always refer to this accretive growth. It can be that in 1 year we excuse you. In the second year, we don't excuse you any longer. In the third year, you have to be at our level otherwise it is a wrong move to do. And before we acquire any asset and if we touch any asset, this growth and accretive EBIT margin plan has to be secured. If it's not secured, we don't touch it. It's very clear. And to your question, what is the evidence of your success? The evidence of our success is whatever we said the last 3 years happened, whatever we said happened. And the evidence in the future is never given by any evidence of the past. It is also the -- yes, you can only say it's the players and it's a probability and it's a logic. If the logic is clear, then it is very unprobable the logic will be broken. If the logic is not clear, then I'm with you, then you need evidence. Future has no evidence. It has only a track record. And our track record -- and this is why it was so important that Frank and the whole team, we have now delivered everything by the number, by the number. Remember when we came in 2023; you were shattered, you were absolutely out of trust, you were not believing anything because everything what we said was perceived as an excuse. Now for the last 3 years, we delivered every number what we have promised. Even when markets were tough in CVS last year, we delivered the double-digit number. We delivered it. We never deviated from our targeted numbers and that's exactly what we do in the future. What we have done the last 3 years will follow the next 3 to 5 years. That's what we stand for. This is what we go for and this is exactly the logic which we follow. William Mackie: My second question and there's a short follow-up relates to CVS. And when we think about the fact that the future is based -- is going to be different, you've done a lot to demonstrate the cost flexibility of the business. You've highlighted the opportunity to drive out some of the structural costs in the business and you've allocated capital to enhance the profit profile of the business as a whole. So with those structural factors in mind, how should we start to think about the through cycle ability for CVS to generate returns? Should we look at the past and think actually you could achieve more as you develop around the service activities and structurally change the mix? Frank Weber: As we have a historical meeting where more questions addressed to the CEO, he just pointed at me so I take this one. Yes, I mean very well described. So that's why we believe we have created or will be having created a cost structure in CVS towards the end of the year of '26 where the truck business can run in a rather weaker market environment on an operating margin basis of around 12% kind of. And if the markets get then overall a bit more normal than the weak situation, then they should be able to come along with close to 13% maybe. And if the markets are even good, they can come to the 13%, 14% of margin. That's what we believe in and that's, by the way, also the way how we on a daily basis kind of steer the truck business according to those kind of 3 inherent scenarios. And please keep in mind that the 13.5% we took already in our mouth some time ago when we had the expectation originally that markets could be quite nice, not strong, super strong, but quite nice and we still stick to that. This is what's possible with the truck business given that cost measurements that we have been taking over time. That's the way to think about the truck ambition going into the future depending on a certain market specification; weak, normal and good markets. That's the way we think. William Mackie: If I can ask one short follow-up related to the new business operating model. When you described the application of AI, it was with many references to indirect functions in the business. What type of direct value-creating functions such as R&D or operational performance do you see the opportunities in as you develop a new business model? Marc Llistosella Y Bischoff: So in this context, AI is not a cost cut. It's an accelerator. It's faster. It's quicker. In our case, it's relatively simple. We have here more than 6,000 engineers. These engineers are occupied with repetitive work, which from our point of view is not the most substantial added value work they could do. The more we get them liberated from this repetitive work, the more output they will generate and that's exactly where we see AI. At the current level of AI, there is where we see. I'm pretty sure you have seen what happened the last 5 days. We spoke about large language models and we spoke about Claude and we spoke about a lot. And now we see OpenClaw coming into the game, relatively cheap, relatively interesting. So it is a completely disruptive approach when it comes to AI. This we have not still incorporated. But what we do, and this is why it's so important that we go to a greenfield approach like GenAI, we let it go. We let it just try it out because one thing is for sure. If you use an algorithm for your existing business, you are limiting already the opportunities for the algorithms. If you let the algorithm do things which normally are not foreseen to be done, not only repetitive work, but eventually also generating work, accelerating work, that is something where you sometimes need a new environment and a new spirit. And this is why we have chosen Chennai because there we have absolutely -- we are ensured also that these guys and these girls who are working in there have a completely different view on it. They make it happen instead of excusing and telling us why it does not work and they will be more risk taking. So what we will not do is that in our current processes especially when it comes to safety and security relevant assets, we will not step into it directly with AI. But in terms of services, in terms of new ideas, new services and especially new applications, which eventually are not that safety relevant, we can see whether the algorithm can accelerate us and give us also new solutions. So that is where we go. We don't go full fledged now in AI and say blindly that's it. We utilize it as a tool and when the tool gets better, it has the right environment to accelerate and to leverage. Operator: The next question comes from Akash Gupta from JPMorgan. Akash Gupta: Most of my question has been asked. Just 1 left and that is on China. Can you talk about what are you seeing in China? I think when we look at your Q4 orders, you had some growth in both of the segments. But in general when we look at for the year 2026, what have you embedded in your outlook? And particularly in rail, how do you see the business overall between high-speed and metro and services? Frank Weber: Akash, I would say nothing is rocking the boat here in very general regards to China. We still see quite better numbers than we have initially guided you with for China some kind of 2 years, 3 years ago. We should be slightly weaker maybe in absolute terms in revenues than in the year '25. That's the only thing. We see a bit of weaker metro demand. It's market driven. It's not market share driven. It's solely market driven, maybe a bit less metros in the year '26 to be built than in the year '25. So maybe even below 4,000 metros overall. So I would say a small or below EUR 50 million year-over-year reduction in China could happen, maybe EUR 30 million less next year compared to '25. So nothing spectacular, but it's 1 aspect of the business developing into '26. High speed: number of high-speed trains always a bit unclear, but we expect a similar amount, maybe 10 less also, like we had in '25; but similar amount, stable market share for us. Metros is the point maybe a bit less. That's all. Marc Llistosella Y Bischoff: There's one thing which is not based on our recent years. Eventually you know that for the last 8 years, we were excluded -- 9 years, we were excluded for the newest latest platform of high-speed trains as a system component supplier. So we lost our position from -- in 2014, '15, we were the one, the one which were equipping the high-speed trains in China. For the last 8, 9 years we were not discriminated, but we were set back. So we were excluded in the latest new forms. Since September last year, there is a massive shift that Knorr-Bremse is reconsidered to be a potential system component supplier to the Chinese CRRC in terms of high-speed trains. So that is something which it was hard work, it was very, very hard to reach that and it is an opportunity for us to compete currently with the best and that is in China for high-speed trains. And if we are perceived as a full-fledged provider of services for the high-speed train, that would be and that is exactly what we were fighting. And since September, we have indications that we are back in the game which we were out for 8 years. And that makes us very, very proud because it was hard work to get there back and there's a potential that not only for metros, you know it better than me, but also for high-speed trains, we could get back to be seriously a contender in this business. Frank Weber: No order yet, Akash. Operator: And we have 1 last question from Alexander from BofA. Unknown Analyst: Maybe I can follow up, first of all, on that last question. You talked about the exciting opportunity for the latest generation of high-speed trains. Could you give any idea of the sort of magnitude that could add to your Chinese rail business in due course if that comes through? Marc Llistosella Y Bischoff: Yes, it's more repetition than immediately in orders because when I came here on board in 2023, everybody told me the story is over and the party is over and we have a defense to make and it is like a long tail, which we have to defend. If this comes true and if we are really a contender and if we will succeed, this story is no longer valid. It's a game changer. I can't give you the numbers in terms of quantities for the next 2 or 3 years, but it would be a completely repositioning of Knorr-Bremse in the Chinese environment. And you know we have done a lot for the last 2, 3 years to be seen more and more as a contender, as a market player who takes the Chinese specifics very, very serious. And sorry to tell you and you know it; you can Google it, you can search it; more than 65% of high-speed train in the world is China. So China is the place to be and high speed is the grail of the rail industry. Everything else is very important. Nothing to say about it, but that's the grail. That's the S-Class, that's the top. And if you're out of that, if you're no longer a serious contender in these kind of tenders, then you have a reputational issue and this reputational issue of course for a world market leader as us. We want to stay not only there. We want to be back in the game. That is what we tried the last 2, 3 years. You haven't seen it in the numbers because the numbers which we have seen in rail, sorry to say, that was we were providing the services of the past and we did it well and we did it very, very well. In metro, we are very absolutely competitive. We are very good. We are good. But the grail of the rail industry is the high-speed trains in China. If there you make it, you have an excellent position for the future. Unknown Analyst: Understood. And then maybe if I can squeeze in 1 more on M&A. You've talked about it several times as a sort of key part of the greenfield strategy. Could you share a little bit about the pipeline you're seeing there and whether valuations appear acceptable? And linked to that, remind us of the sort of financial thresholds you're using to assess those deals in terms of return on capital or otherwise? Frank Weber: Yes. I mean I've told you several times that we have a very healthy balance sheet and we are not shying away from net debt-to-EBITDA ratios of 1, absolutely no issue. And if good or great market or business opportunities would come along, we could even go higher with a clear path to bring margin accretive revenues to this company and to help us profitably grow into the future. So that's definitely something we will -- we have our clear financial guardrails. We are searching basically only for businesses that fulfill those criteria. We have businesses with 14% of return on sales. Given ourselves as a hurdle rate we said should be on the cash side accretive and return on capital employed above 20%. All those 3 will be measured rightfully, as Marc said, after we have a clear plan that within at least 2, 3 years, those businesses should be able to achieve this. If there is no clear visible plan for us, recognizable, we wouldn't touch it. So that's pretty clear. I would say, a clear set of criteria. Marc Llistosella Y Bischoff: And to add on this and to finalize it, there is 1 thing and I think you're all aware of the club of the 25%. Growth and EBIT margin together has to exceed the number of 25%, capital goods. That's the Champions League. We are currently not in this Champions League. Rail is close, truck is not. And our aim is that the whole company, including truck, rail and whatever, is a significant part of this Champions League Top 25% club. That's our aim. That is not a forecast for the 30th of July. This is what we aim. This is what we want. This is where we have been in the past. We haven't been there for the last 5, 6 years, but now our aim is to get back on this Champions Club League. We will not be the top of that not at the beginning, but we have an aim. There we want to get back. Andreas Spitzauer: Okay. Thank you very much for your questions. We wish you a great springtime and happy to talk to you next time most likely in May. Thank you very much.
Operator: Welcome to the NiCE conference call discussing fourth quarter 2025 results, and thank you all for holding. [Operator Instructions] As a reminder, this conference is being recorded February 19, 2026. I would now like to turn this call over to Mr. Ryan Gilligan, VP, Investor Relations at NiCE. Please go ahead. Ryan Gilligan: Thank you, operator. With me on Today's call are Scott Russell, Chief Executive Officer; and Beth Gaspich, Chief Financial Officer. Before we start, I would like to point out that some of the statements made on this call will constitute forward-looking statements. In accordance with the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, please be advised that the company's actual results could differ materially from these forward-looking statements. Additional information regarding the factors that could cause actual results or performance of the company to differ materially is contained in the section entitled Risk Factors in Item 3 of the company's 2024 annual report on Form 20-F as filed with the Securities and Exchange Commission on March 19, 2025. During today's call, we will present a more detailed discussion of fourth quarter and full year 2025 results and the company's guidance for first quarter and full year 2026. You can find our press release as well as PDFs of our financial results on NiCE's Investor Relations website. Following our comments, there will be an opportunity for questions. Let me remind you that unless otherwise noted on this call, we will be commenting on our adjusted results of operations, which differ in certain respects from generally accepted accounting principles as reflected mainly in accounting for share-based compensation, amortization of acquired intangible assets, acquisition-related expenses, amortization of discount on debt and loss from extinguishment of debt and the tax effect of the non-GAAP adjustments. The differences between the non-GAAP adjusted results and the equivalent GAAP figures are detailed in today's press release. The information and some of our comments discussed on this call may contain forward-looking statements that are subject to risks, uncertainties and assumptions. I will now turn the call over to Scott. Scott Russell: Thank you, Ryan, and good morning, everyone. I am incredibly proud of what our team accomplished in 2025. We achieved our financial guidance each quarter and for the full year, delivered total revenue growth of 8%, cloud revenue growth of 13% and non-GAAP EPS of $12.30, all at the high end of our guidance range. Since I joined, we sharpened our focus on execution and speed. We leaned into the AI-first platform-led strategy and doubled down on international expansion and strategic partnerships. Our 2025 results reflect strong execution against that strategy. In 2025, we extended our CX AI market leadership with AI ARR increasing 66% to $328 million, representing 13% of cloud revenue. We set records for acquiring new AI logos, growing 300% year-over-year and closed a record number of seven-figure ACV deals for CXone with 100% including AI. We further strengthened our competitive position with the acquisition of Cognigy, the enterprise leader in agentic AI, making NiCE the only player in the CX market with a fully AI native CX platform. In our international markets, 2025 was a breakthrough year. We landed our largest international deal ever and ultimately grew international revenue by 16% with growth accelerating to 29% in the fourth quarter. We also expanded our strategic partner ecosystem through deals with ServiceNow, AWS, Snowflake, Salesforce, Deloitte Digital, PwC and RingCentral as well as several other international SI partners. Our partners continue to be an incredibly valuable and exciting part of our growing contribution, and we expect these partnerships to bring even more in the coming years. Coming out of Q4 with a strong booking momentum and retention, we are entering 2026 on track to reaccelerate cloud revenue growth, which Beth will, of course, cover in more detail shortly. None of this would be possible without a healthy core CCaaS business. We have the leading platform in a growing and healthy market. Seats and interactions on CXone continued to grow in 2025. And importantly, only about 40% of contact centers have migrated to CCaaS today, leaving a large and durable on-premise to cloud migration opportunity ahead. We are delivering real transformative value to our customers, and this is translating into strong performance in our core CCaaS business. In Q4, cloud revenue grew 14% year-over-year and excluding NiCE Cognigy, grew 12%. Q4 was a record quarter for new cloud ACV bookings, including and excluding Cognigy, driving cloud backlog growth to 25%, including Cognigy and 22% excluding it. Our win rates continue to improve against key CX competitors as customers increasingly favor holistic end-to-end CX platforms over fragmented point solutions. This is reflected in several key deals during the quarter, including a large enterprise win with a leading North American financial services firm. They selected NiCE in a competitive displacement of a legacy on-prem environment and will adopt NiCE's AI-powered CXone platform, including NiCE Cognigy to increase service automation, reduce low-value interactions and deliver more personalized client experiences. Additionally, we won a seven-figure ACV deal with a leading financial services group in EMEA, which selected NICE CXone to replace a legacy on-premise ACD and consolidate multiple platforms into a unified AI-ready CX foundation. With a strong core, we are positioned to capitalize on the significant CX AI opportunity in front of us. AI is expanding NiCE's CX market opportunity beyond the contact center, creating new use cases that are still early in adoption and driving faster expansion as customers scale AI across their organizations. NiCE Cognigy NICE strengthens that position. NiCE Cognigy is ranked #1 by industry analysts and was recently recognized as the only conversational AI platform to receive the customer choice distinction in the latest Gartner Peer Insights Voice of the Customer Report. That customer validation extends across our core platform as well with CXone also now recognized as the only CCaaS platform to receive the customer choice distinction. Combining the market leaders in CCaaS and agentic AI for CX into the only AI native CX platform that can operate seamlessly across voice, digital and AI at enterprise scale allows NiCE to be uniquely positioned to seize the significant CX AI opportunity ahead. Our platform owns the point of engagement and is built on the industry's largest CX data foundation. With decades of CX experience and a platform that supports 20 billion interactions annually, NiCE understands customer experience better than anyone, and this leadership is showing in the results. 2026 is the year that NiCE Cognigy begins to act as a force multiplier. We recently launched Cognigy Simulator, an AI performance lab that allows for faster, scalable and more reliable testing of AI agents. And soon, we will expand NiCE Copilot capabilities with Task Assist for agents powered by NiCE Cognigy. Later this year, we will complete the integration of NiCE Cognigy into a single fully native CXone platform, delivering a seamless AI native experience at enterprise scale. As we enter 2026, I am very excited about the significant pipeline growth from our NiCE installed base that we -- and we expect that pipeline to grow as we further integrate NiCE Cognigy into CXone. While we're incredibly excited about what the future holds for our seamlessly integrated capabilities, NiCE Cognigy is seeing strong momentum today. More broadly, we continue to see strong AI-driven enterprise software demand with customers prioritizing investments that deliver clear ROI and measurable outcomes. In Q4, seven-digit ACV wins included a leading North American consumer services company that expanded its relationship with NiCE by adding Cognigy for self-service to its existing CXone platform. This expansion will replace an AI solution from a CRM provider, providing -- delivering a compounding benefits of a unified platform with improved orchestration, deeper insights and more seamless experiences across channels. In another large enterprise win, a leading North American energy company and an existing CXone customer expanded its relationship with NiCE to accelerate AI-driven customer engagement. By adopting Cognigy for self-service and Copilot to support agents on more complex interactions, the customer aims to improve containment and call handle times while scaling efficiently during periods of elevated demand. The market is still in the early stages of AI adoption, yet it's already driving our growth. But as you heard me say in the Capital Markets Day, we need to make strategic, targeted and time-bound investments in 2026 to seize this opportunity. These investments will focus on innovation, including integrating NiCE Cognigy and advancing our agentic AI capabilities, while also expanding our go-to-market and delivery capabilities, so we're able to execute on the significant growth catalysts we see in 2026 and beyond. These catalysts, including driving AI-first growth across every customer touch point, automating end-to-end customer journeys with AI -- agentic AI on our platform, capitalizing on the CCaaS cloud migration, accelerating our international expansion and partner ecosystem and expanding beyond the contact center. Before handing it over to Beth, I want to emphasize two points. First, 2026 is all about speed, and we're moving quickly to seize the opportunity in front of us. And secondly, my conviction today is stronger than when I joined that AI is a clear tailwind for NiCE. Let me be really clear here. NiCE is an AI company. Enterprise CX AI requires deep domain expertise, unified data, orchestration and governance at scale, and that is what we do. We have the technology, the data, the domain expertise and the customer base to win, and we will seize this opportunity. With that, I'll now hand the call over to Beth. Beth Gaspich: Thank you, Scott. I'm pleased to close out 2025 by sharing our strong fourth quarter and full year results, which reflect continued disciplined execution across our business. Our fourth quarter performance has further strengthened our confidence in the recent financial targets we shared at our Capital Markets Day in November 2025. Later in my remarks, I will share our first quarter and full year guidance for 2026, which reflects the healthy momentum we experienced exiting 2025. 2025 was a transformative year for NiCE with Scott and our NiCErs across the globe laying the groundwork for accelerating top line growth in the years ahead. Before I dive further into the fourth quarter 2025 results, there are several financial accomplishments from last year that I would like to highlight. First, our full year 2025 results were impressive and came in at the high end of our previously communicated guidance ranges. Full year total revenue was $2.945 billion, representing 8% year-over-year growth. Full year cloud revenue grew 13% year-over-year and 12% excluding Cognigy. 2025 reflected consistent execution in our core cloud business with 12% cloud revenue growth delivered each quarter, excluding Cognigy. Operating margin tracked as expected, while free cash flow margin of 21% exceeded our guidance, reflecting disciplined execution while absorbing Cognigy starting in early September. Second, we completed the acquisition of Cognigy, which was financed entirely with cash on hand, supported by our strong balance sheet and robust organic operating cash flow. Third, we fully repaid $460 million of outstanding debt. Our balance sheet is now debt-free, providing us with significant financial flexibility to invest prudently in our business and return capital to shareholders. And fourth, we continue to return significant capital to our shareholders through our share repurchase program, underscoring our confidence in the durability of our cash flow generation and long-term value creation. In 2025, we repurchased $489 million of our shares, representing 32% growth year-over-year and 79% of free cash flow generation, ending the year with approximately 60.4 million shares outstanding. Shifting to fourth quarter financial results. Total revenue was $786 million, representing 9% year-over-year growth. Cloud revenue totaled $608 million, growing 14% year-over-year and represented 77% of total revenue, continuing the steady mix shift toward our cloud-first model. Excluding Cognigy, cloud revenue increased 12% year-over-year. Cloud growth in the quarter was driven primarily by continued momentum in our CX AI offerings with AI ARR of $328 million, up 66% year-over-year as customers increasingly adopt our AI-powered automation across both self-service and human-assisted workflows. Cloud growth also benefited from ongoing CCaaS migrations and a very strong international performance, including a modest incremental contribution for an earlier-than-expected go-live of a large international enterprise deployment originally planned for 2026 as well as a small foreign exchange tailwind of approximately 50 basis points in the quarter. As we've noticed previously, while AI is already a meaningful contributor to growth, we remain early in fully monetizing its long-term potential. That context is important as we continue to invest in this opportunity today while building operating leverage over time as our AI revenue compounds. Our cloud net revenue retention for the trailing 12 months was 109%, remaining healthy and stable with the prior quarter, reflecting continued customer retention and expansion activity. Turning to our business segments. Customer Engagement revenue was $658 million in Q4, representing 84% of total revenue and growing 10% year-over-year, driven by double-digit cloud revenue expansion across all geographic regions with strong performance internationally, reflecting increased enterprise adoption of CXone and growing demand for our AI-powered CX solutions. Financial Crime and Compliance revenue totaled $128 million, growing 2% year-over-year and represented 16% of total revenue. Actimize is the clear market leader and is benefiting from the positive momentum we are experiencing in shifting this segment to a higher recurring business with healthy cloud revenue growth. From a geographic perspective, the Americas region represented 82% of total revenue, growing 5% year-over-year, and this performance was supported by double-digit cloud revenue growth in the region alongside the continued evolution of our revenue mix from on-premise related revenue towards cloud-based solutions. EMEA revenue, which represented 13% of total revenue, grew 38% year-over-year or 32% on a constant currency basis, and APAC revenue representing 5% of total revenue grew 11% year-over-year, consistent on a constant currency basis. This strong growth is reflective of continued healthy demand in international markets, one of our key growth drivers. International revenue is now majority cloud, while cloud adoption internationally remains underpenetrated, supporting a significant growth runway in 2026 and beyond. Turning to profitability. Our total gross margin for the fourth quarter was 69.3%, consistent with our expectations. Our gross margin reflects our continued investments in scaling our global cloud infrastructure and supporting increased AI workloads, particularly as usage expands across regions and use cases. Operating income for the quarter was $301 million, resulting in an operating margin of 31%. Earnings per share for the quarter were $3.24, a 7% increase compared to last year. Cash flow from operations in Q4 was $180 million, underscoring the strength of our operating model and our ability to fund growth internally. Free cash flow was $156 million in Q4, and we ended the year with $417 million in cash and short-term investments. Our strong free cash flow and balance sheet are key strategic assets that provide us flexibility to invest in innovation, support strategic initiatives and continue returning capital to shareholders over time. We remain committed to disciplined and thoughtful capital allocation. To further enhance our financial flexibility, yesterday, we entered into a new $300 million revolving credit facility, which provides additional liquidity and optionality while maintaining our strong balance sheet. In addition, we are announcing that our Board has authorized a new $600 million share repurchase program, reinforcing our confidence in the durability of our cash flow generation and our disciplined approach to capital allocation. This brings our total remaining share repurchase authorization to approximately $1 billion. Before closing with guidance, I do want to spend a few minutes on how we are thinking about 2026, specifically around the cadence of investments and how that should translate into margins throughout the year. At our Capital Markets Day, we shared a midterm framework for growth, margins and cash generation. Today, we are confirming that framework with additional clarity on timing and cadence. 2026 will be a year of deliberate targeted investment to support our next phase of growth to capitalize on the immense CX AI opportunity. These investments are focused on three primary areas: cost of goods sold, R&D, and sales and marketing. As we've shared, near-term margin performance expectations reflect intentional investment choices. These investments are designed to optimize our AI market-leading position, drive durable growth, expand our competitive differentiation and position the business for long-term operating leverage. While we plan to increase organic investments during 2026, our margins remain industry-leading, outperforming our market peers even with the addition of the focused spend, and we expect to build on this strength with steady margin expansion in 2027. In tandem with investing for growth acceleration, we are investing in AI internally to enhance productivity and execution across the organization. Within our go-to-market operations, we are applying AI to accelerate customer quoting and surface key signals from customer interactions, enabling faster deal execution, improved forecast accuracy and reduced deal risk. Beyond go-to-market, we're using AI to improve internal operations, including applying AI to HR knowledge and deploying Cognigy within our internal help desk to resolve IT queries more quickly and with a more human-like experience. These are just a few examples where we're already leveraging AI internally to deliver long-term operational efficiencies. In 2026, we expect the pace of incremental margin investment to be highest in the first half of the year as we execute against our growth priorities, including integrating Cognigy and scaling its operations with operating margins improving in the second half. This positions us to exit 2026 near the upper end of our 25% to 26% operating margin range and sets the stage for margin expansion in 2027 and beyond, driven by the benefits of our 2026 investments, including stronger cloud revenue growth, continued scaling of our AI business and the increasingly accretive contribution from Cognigy. Cognigy remains on track to be accretive within 18 months of the acquisition close. Now I'll close with our total revenue and non-GAAP EPS guidance for the full year and first quarter of 2026. Full year 2026 total revenue is expected to be in a range of $3.170 billion to $3.190 billion, which represents an increase of 8% at the midpoint. We expect cloud revenue growth in 2026 to be in the range of 14.5% to 15% with Cognigy expected to contribute approximately 200 basis points. Turning to financial income. It's important to note that our cash and short-term investment balance was reduced by approximately $1.2 billion in 2025 as we financed the Cognigy acquisition and fully repaid our outstanding debt, which will naturally impact financial income in 2026. We expect our effective tax rate throughout 2026 to be in the range of 20.5% to 21% due to tax law changes in certain jurisdictions that became effective at the start of this year. Full year 2026 fully diluted earnings per share is expected to be in a range of $10.85 to $11.05. For the first quarter of '26, we expect total revenue to be in the range of $755 million to $765 million, representing an 8.5% year-over-year growth at the midpoint. We expect the first quarter 2026 fully diluted earnings per share to be in a range of $2.45 to $2.55. In summary, we exited 2025 from a position of strength. anchored by a stabilized and growing cloud business, a differentiated customer experience platform with embedded agentic AI and a strong balance sheet that supports investment and continued capital returns to our shareholders. Our large and expanding installed base reflected in healthy cloud net revenue retention, continued growth in cloud backlog from both customer expansion and new large enterprise wins and an increasing number of enterprise go-lives gives us confidence in the durability of our growth as we enter 2026. Our 2026 guidance reflects our excitement about the market opportunity ahead and our confidence in our ability to accelerate top line growth through our market leadership and unmatched assets. Together with Scott, we would like to thank all our dedicated teams across NiCE for their disciplined execution and focus throughout the past year, which drove our strong financial performance. We remain confident in our strategy, our execution and our ability to deliver durable shareholder value over the long term. With that, I'll turn the call back to the operator for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Rishi Jaluria with RBC. Rishi Jaluria: This is Rishi Jaluria. Nice to see solid execution to close out the year. Maybe two questions, if I may. First, look, looking at the market, it's pretty clear that the market is scared of AI disrupting and displacing your business. Clearly, that's spread to all of software and is something that we've all been dealing with really in a big way over the past couple of months. You made it clear over the past couple of years and at Analyst Day and now today that you're viewing AI as a real tailwind for NiCE and something that could pick up accelerating momentum in kind of the coming years. Can you maybe help us understand where is the disconnect? Where do you think that the market is wrong? And kind of where is your opportunity to kind of disprove those bear cases and kind of prove yourselves as an AI beneficiary? And then I've got a quick follow-up. Scott Russell: Sure. Thanks, Rish. So let me try to take that. So there is clearly a disconnect between the fears in the market and the reality of what we're seeing in the business. So let me try to break it down, if I can. First of all, there's a concern about competition from new AI point solution. And the reality is this, the CX AI market is expanding rapidly. And it's large enough actually to support multiple approaches. But our growth -- the growth of our business is not coming at the expense of those competitors. Actually, it's a beneficiary. If you look at NiCE's business, 13% of our cloud revenue is AI. We've already proven that we've embedded it into our core platform. We're able to deliver durable value to our customers. And why is that? Well, CX is complex, and we are domain experts in CX. You look at what is required from our customers, it requires orchestration, really rich and unified data governance. It requires deep domain expertise across the customer journey. And so whilst point solutions and some AI solutions can address use cases and narrow use cases, they don't actually fulfill the full customer journey. They're -- in fact, in some ways, they're actually complicating or creating more complexity. So a unified platform that is able to deliver across voice, digital and AI is what the market needs and expects. And that's where a combined platform that we offer, which is unique in that we've got the best-in-class in both cases helps us. And that -- and I guess, ultimately, we're showing that in the numbers. The growth rates, I indicated at Capital Markets Day, if you remember, Rish, that we expected our cloud growth in 2026 to be between 13% to 15%. We're already indicating at the high end of 14.5% to 15%. That's on the back of customer demand, real backlog that's growing at 25%, real pipeline that we're converting into ultimately revenue for NiCE, but ultimately, it's value for our customers. So I'm confident that our growth indicators reflect the tailwind that AI brings, and I'm sure the market ultimately will see NiCE in a favorable way. Rishi Jaluria: All right. That's super helpful. And maybe just a follow-up on that. In kind of the AI native space, we've obviously seen a lot of funding for voice AI start-ups. And it feels like maybe piggyback on that earlier point of conversation, the market is kind of viewed it as -- at least the stock market is viewed it as kind of an either/or. But it really feels like there might be opportunities for even partnerships and integrations and kind of focusing on customer success. Can you maybe talk about your opportunities? I know, Scott, you talked a lot about increasing partner ecosystem traction, et cetera, but maybe an opportunity to even just have deeper integrations and partnerships with some of these AI natives just to kind of leave the choice up to the customers even if it may sound potentially competitive. Because at the end of the day, they do need the pipes that you have, they do need the call routing piece. Maybe help us understand what could that kind of ISV or AI partnership look like? Scott Russell: Yes. It's a great question, Rish. I'll probably break it into two parts. The first is we're an open platform. We've made a very conscious decision to be a platform that allows the customers to utilize their data because it's their data that all of the billions of interactions that sits on our platform and being able to leverage it across not only the NiCE CXone, but an open stack that supports the use of other tools. And that's why the partnerships with Salesforce, with AWS, with ServiceNow and many others are essential to it. And we're -- at the enterprise, you're dealing with a complex technology landscape, and so we're able to use that to our advantage. But let me just zero in on the AI side. One of the questions that we often get is, hey, these new frontier models and what does it mean? And is that going to be a disruption to us? And actually, it's a benefit. It's actually a significant positive because if you look at it, the labs, these frontier models, they are tremendous advancements in agentic capability. But we leverage those models. We have partnerships with those AI players that we can use those models in our stack, but then we've built a purpose-built AI around customer engagement data. And so we differentiate by our specialization. Those models are really powerful, but then we process it on those billions of interactions, the specific learning loops, the optimization. So the specialization around the customer intent resolution, the compliance-heavy workflows, the guardrails that enterprise have, the real-time voice orchestration. So the reality is it's not replacing, it's enabling a more powerful and differentiated outcome with the combination of what we bring and what they bring to give a better outcome for our customers. So it's not replacement. It's actually expansion and extension from what we've already done, and it gives us more opportunity to deliver ROI. Again, that's why we're seeing the backlog and the bookings growth that we're getting because the customers are voting by their choice of NiCE, and we're benefiting that in our revenue outlook. Operator: Your next question comes from the line of Samad Samana with Jefferies. Samad Samana: Great to see the solid 4Q results. Maybe first, just one on the guidance. I think we're all happy to see the upward revision to the 2026 cloud revenue growth forecast. I was curious, Beth or Scott, if you guys could break down what led to the upward revision? Is it the core organic cloud revenue? Is it Cognigy doing better than expected? Because if we assume Cognigy is at 200 basis points of revenue growth contribution, that kind of implies an acceleration for the organic business. Just help us unpack that. And then I have one follow-up. Beth Gaspich: Yes. Thanks for the question, Samad. And I'll take that, and Scott, feel free to chime here. I think generally, as a starting point, we feel confident that both will contribute to that mix and give us that confidence as we step into 2026. Scott has already highlighted the strength of the backlog. We had a record in terms of new cloud ACV bookings in the fourth quarter that led to that strength of the 25% growth in our cloud backlog looking ahead. So that's a mix of both the strength of that AI force that we see, inclusive of both our own homegrown AI and of course, amplified by the addition of Cognigy. So when we look both at the core, which you've seen was consistent at a 12% growth throughout each and every quarter this year, we feel confident that there is opportunity to accelerate growth both in that core as well as continue to drive that growth through Cognigy, which had very strong fourth quarter showing as well. So it comes from a combination of both those places. Samad Samana: Great. And then, Scott, a follow-up for you. And I know that this topic came up at the Capital Markets Day as well. I think it's appreciated by investors that the company is putting the foot on the gas with AI being this massive opportunity, right? You guys are literally putting your money where your mouth is. I'm curious maybe as you think about deploying new investments and how that's going inside the organization? And are you starting to see a shift inside of the sales organization, whether it's win rates, whether it's productivity as maybe the accelerated investments drive enthusiasm in the organization as well? Scott Russell: Yes. It's good question. So first of all, there is, I guess, a positive energy and momentum that we're seeing in the business. And that's obviously on the back of the bookings and the backlog generated in Q4, the momentum that we've been able to generate, but also the pipeline and what we see. What was interesting is the Cognigy business continues to grow remarkably on a stand-alone basis, just acquisition of new market where NiCE has no footprint at all and our ability to be able to go and compete and win in that new marketplace where they don't have a need for a CCaaS, but they really want an AI CX platform as a leadership, that's given a real positive energy inside of our sales organization, combined with the obvious opportunity that we see with existing installed base, the large customer base that we have and our ability to be able to serve that. So I think first on the positive momentum, fantastic. The other point, and Beth touched on this in her opening comments, we're embracing the use of AI inside of our business as much as we expect our customers to. We're living and breathing that reality. So for our sales teams, being able to use it to be able to get better understanding of customer signals, intent, our ability to automate quoting and being able to do fast turnaround for business for our customers when we're competing, these were deployed and we're up and running. So I think our go-to-market are also seeing higher productivity that allows them to get more at bats to be able to get more customers engaged and ultimately improve our win rates. So you need to do both. You need to have a great capability that you take in a market, but you've got to walk the talk, and we're definitely doing that. Operator: Your next question comes from the line of Arjun Bhatia with William Blair & Company. Arjun Bhatia: Scott, maybe one for you to start out with. Obviously, it's good to see the continued traction in your AI and self-service ARR. I imagine the distribution of customers in that group of those that are advanced versus those that are still starting is quite wide. But when you're looking at your more sort of advanced customers, what are you seeing in terms of seat dynamics there? Has that changed at all over the past couple of quarters? Or is this still like something that's being contemplated for years or quarters in the future in terms of what they do with their seat counts and agent counts? Scott Russell: Yes. It's a great question, Arjun. So I think there's a couple of things to maybe highlight here. As I mentioned in my opening comments, our core CX CCaaS platform is really strong. And to Beth's earlier comment, we see reacceleration in our outlook for '26 and beyond. Why is that? Well, I guess I'll best answer it by discussions that I've been having. This week, I had a number of meetings with customers, CEO, CTO and we were just talking about their CX environment and their existing use of their contact center. And right now, they both had indicated that their contact centers are capacity constrained. They're not overstaffed. And so they plan to use AI to actually free up their agents for higher value engagement, proactive outreach, more revenue generation or more value orientated. So rather than elimination of roles, they're using it as an efficiency driver so their people can be driving more value-added activities. And so they had no plans, no plans to reduce agents in the short to midterm. Now that's not to say that as we continue to build out our platform that we don't see the opportunity to be able to reduce the human capacity as the AI picks up. But we -- that's why in these complex environments because remember, CX is tough. you've got to have accuracy of data at high volume, the guardrails, the domain expertise and ultimately, it's got to fulfill a great consumer experience for the brand. And so what they don't want is a point solution that gives them a bit of automation, but then increases the complexity when it has to interoperate with their AI agents. And I think we've really seized upon this. What we see at the top end is that customers value a unified customer engagement platform. We call it the front door. So whether it's voice, whether it's digital, whether it's AI or what is most likely to be a combination of all three at the same time, real time at enterprises at the top end, they need a platform that can give that in a scalable, reliable way. And obviously, we differentiate on that basis. So it's interesting about the, I guess, the perceived concerns that you're going to see this erosion of the seats. We -- the data does not support that assertion, but we're growing on both levers, and we continue to expect to do so. Arjun Bhatia: All right. Perfect. Yes, that's super helpful color. And then Beth, I had one for you. Just in terms of the investments that you're making, I think I fully appreciate, right, it's the right time to sort of lean in given the precipice of the tech change here. But how are you just monitoring that you're making the sort of the right investments and you're allocating capital appropriately? Like what are the ROI signals you're looking for? Or is it just continued sort of revenue reacceleration here? Beth Gaspich: Yes. Thank you. We're very excited about the opportunity ahead of us, and we absolutely believe this is the appropriate time to lean in. We really have at NiCE a fence investment approach where we are very closely monitoring a very tightly the exact areas that we plan to invest, which we've talked a lot about. It's around the go-to-market. It's bringing in more integration of Cognigy into the platform, agentic capabilities as well as using additional AI technologies internally, accelerating our delivery time line, all of those areas are very intentional, and we are very much closely monitoring that the dollars are being spent in the right places. In parallel, as a general muscle that we have in NiCE, we are constantly also driving initiatives that drive long-term operating leverage. Scott talked about the use of AI. There are other initiatives as well that we're always putting in place. So we're also monitoring the effectiveness and seeing that we get the ROI from those initiatives and investments through key specific metrics. And when you add all of those together, ultimately, the big test is that we see that we are delivering on the growth that we've signed up for on the top line. And so those are a combination of all of the things we monitor very, very closely to ensure we're on track and that we're getting the ROI from those investments. Operator: Your next question comes from the line of Tyler Radke with Citi. Unknown Analyst: This is Kyle on for Tyler. It was great to see the significant acceleration in international revenue. And I'd be curious to hear how you'd expect that trend to continue into FY '26? And what -- maybe any color on what would be embedded in the total revenue guidance on a constant currency basis? Scott Russell: So let me cover the international expansion. So first of all, I need to highlight. I've inherited a beneficiary from a significant investment that had been made in our international expansion. So the footprint of our data centers, the sovereign cloud, the capacity in key markets in U.K., Europe, in parts of Asia. So what we saw in '25 was a real breakthrough in terms of -- obviously, our bookings and the backlog, we saw in Q4 a significant acceleration of our revenue that you saw in those results. And so for '26 and beyond, what we see is expansion opportunity. And if I give you a couple of data points to color. First is the CCaaS shift in the international markets is not as progressed as what it is in North America. So there are more opportunities with our platform to be able to win the on-prem to cloud migration, leveraging those investments, leveraging our momentum. The second is they're doing it with AI from the get-go. They're not doing this in a two-part move or sequential. They're doing it at the same time. So the unified platform where we can embed Cognigy and our AI agentic capabilities in that -- in those deals gives us competitive edge, but it also allows us to be able to accelerate revenue because the AI adoption time frames are faster, whilst often the CCaaS migration is a complex onetime undertaking. And then the last, what I would say is those international markets are benefiting from our investments in the ecosystem. Practically, all of our go-to-market in international is through our partners. And so the strategic ecosystem is part of the reason why our international expansion is performing strongly because we've really made sure our go-to-market motions with both SI partners, resellers, technology partners internationally be the core vehicle that we use. And that gives us reach that goes beyond the 4 walls of the NiCE capability. We really do leverage their breadth and strength in those international markets. So it is -- you can expect to see continued momentum in that area. Beth Gaspich: And then I would just quickly, Kyle, address on the currency side. I think, first of all, I'll start with the overall outlook for NiCE in totality. I think it's important to highlight that in total, NiCE is still predominantly concentrated in terms of mix out of the Americas, which is mostly USD denominated. So 82%, for example, of our revenue in the fourth quarter was coming from the Americas, mostly USD. Any impact that we may see within the international business, which is thriving and growing for us, has been considered and is factored in. We're always looking at the environment generally on a macro for exchange rates and other factors as well that is inclusive in the expectations that we're looking at. Again, you may see that more noticeable as you've seen in the fourth quarter in terms of the impact on the international markets, but not any expectation that is not already baked into our expectation for the full year. Unknown Analyst: Understood. And then regarding the Better Together story with NiCE and Cognigy, the ability to win more deals as a combined CCaaS and AI domain expert. How did the joint go-to-market motion play out in 4Q? I know it's early, but also how to think about the Cognigy opportunities from current CXone customers versus sales to customers on competitor CCaaS platforms as well? Scott Russell: Let me take that one. So I was really pleased. I've got to say that despite it being -- with Cognigy coming into the NiCE family at the -- in September, coming into our busiest and most hectic quarter of the year, it was remarkable to see two things. One, Cognigy and our ability to win and grow as a stand-alone AI market-leading platform, it was fantastic. But then secondly, our -- I've got to give it to our -- the NiCE go-to-market team, we were able to quickly pivot. And so the fourth quarter performance also on a Better Together where we were able to embed it into our big wins and the strong performance we had in fourth quarter, Cognigy was well and truly a part of that, which is why, by the way, 100% of our seven-digit deals included AI and that pretty much nearly all of them was inclusive of Cognigy. So the early collaboration was really strong. What we're really now focused on is how do we then capitalize and expanding on that rapidly in '26. So we're very early days in the AI expansion. We see obviously new competitors with AI point solutions. We've got a differentiated offer. So really, we're doubling down on the Better Together, unified platform, but also winning and competing in the AI-only market where the situation exists and being able to win and win well. So competitive win rates were good. I feel very good about the fast integration, and it's a credit to Phil Heltewig and the Cognigy team and the way they've really embraced and coming to the NiCE team and led the way. Operator: Your next question comes from the line of Siti Panigrahi with Mizuho. Sitikantha Panigrahi: Great. If I look at your cloud backlog that excluding Cognigy, it's organic cloud backlog, now 22% growth, that is quite a step-up from 13% in Q3. So a few things, like what's the composition like for that step-up? And you guys earlier talked about it takes longer to convert to recognized revenue. So how should we think about the lag from the backlog to cloud revenue growth over the next 2, 3 years? -- 2-3 quarters? Beth Gaspich: Yes. Thanks, Siti, for the question. I would start and just say that when you think about the 25% growth we had in the backlog, you highlighted the 22% growth that we had, excluding Cognigy. When you think about how that will play out in the coming years and months, essentially, the substantial majority of that will actually be recognized in the next 24 months. It is not, however, linear. Of course, it is dependent upon various go-lives that happen throughout that period. So the expectation and as we continue to shift that from the backlog over into recognized revenue, you should see that gradual expansion playing out in the cloud revenue growth over that period. Sitikantha Panigrahi: Okay. And then on the Cognigy side, Beth, you talked about before exiting Q4, $85 million ARR. Is that still -- does that still holds good based on what you're guiding for the year? Beth Gaspich: It is. We had a very nice performance of Cognigy since the start of the acquisition and the close. So yes, very much on track and looking forward and excited about our ongoing opportunity during the course of '26. Operator: Your next question comes from the line of Jamie Reynolds with Morgan Stanley. James Reynolds: This is Jamie on for Elizabeth. And congrats on the strong quarter. It's just the first question. It'd be great to just unpack a little bit more about how that displacement with the CRM vendor materialized. What capabilities did NiCE bring where that vendor fell short? Scott Russell: Yes. I'll answer this one, Jamie. So there's a couple of factors here. First of all, customers -- the customer that we're referring to had a need of an integrated customer engagement platform. What they didn't want is one platform to handle the AI piece, another platform to handle digital and another platform to handle voice because what it did was it created friction in their engagement, and it was actually impacting a positive customer experience. What they wanted was the data, the operational flows, the process to be orchestrated end-to-end. So it was more about clear conscious strategy for customers. And we're seeing this more and more where they're distinguishing a customer engagement platform, the front door to the enterprise by their customers in a unified single approach rather than fragmented through differing technologies. Now that's not to say that they don't need and orchestrate with the CRM because you still want your sales data, your commerce data, your other information, your customer data that you've got there. But when it comes to the interaction and understanding the customers' intent and then having a simple way of being able to orchestrate between a human agent, an AI agent, synchronous, asynchronous, inbound and outbound, they wanted it on a single stack. And obviously, we see the benefits of that. Ultimately, they chose it because it will deliver better ROI, better customer experience. And it was one customer example. We've got many others that are doing the same journey. James Reynolds: Got it. That's helpful. And then just as a quick follow-up, it'd be great to get any color on how the performance among the more seasonal customers kind of trended in the fourth quarter relative to your expectations? Beth Gaspich: Yes, thanks. When we looked at the seasonality, we had highlighted that we had a strong bar to climb when compared to the fourth quarter of 2024, but we were quite pleased with the seasonality that we experienced in the fourth quarter this year. I did highlight a couple of things in my formal remarks around we had about a 50 basis point tailwind coming into the cloud revenue in the fourth quarter coming from foreign exchange that was included there. We also ended up having a go-live of a very large international deal earlier than anticipated that came into that. So those also kind of triggered some health in the quarter. But generally, we were pleased with the seasonality that we saw, which was healthy for our fourth quarter across our diversified vertical customer base. Operator: Your next question comes from the line of Michael Funk with Bank of America. Michael Funk: So Scott, earlier you mentioned -- I think you mentioned that only 40% of enterprise have moved from on-prem into the cloud. So I'd love to hear more color around the pace of that migration and then net new versus migration internally and the increase that you see in TCV when customers do migrate internally? Scott Russell: Yes. So as I mentioned, there's a significant market in front of us. Now the international side, Michael, is particularly strong because they've not progressed in the migration compared to the Americas. So just from a geographic standpoint, we see real momentum on the international side and obviously, we're benefiting from it. I think what -- if I take a step back, what's happening in the market is customers were previously forced to choose, do they do the on-prem, the cloud migration? Do they do an AI move? They had to distinguish between their methods. Now we give them the choice to do that as well. But what we've now seen and the results are undeniable around all of our big wins, all of our CCaaS moves are embedding AI in. So what we're seeing now is they're using AI to be able to drive the automation capability, give them fast return, early deployment while they're still doing their CCaaS shift, and that is able to help make sure that they've got early return on investment. It gives us a competitive differentiation because we unify the journey of not just the on-prem to cloud and the AI, but it's combined together. So it actually has given us a really significant differentiation compared to where we were a year ago, where we were obviously able to still capitalize on that. The last comment I would make is the routes that customers are choosing will -- that they will -- migration paths will continue to be a key part of the differentiator. What customers aren't prepared to do on the CCaaS migration is long time to transition. So the other thing that we've really focused on is reducing the time to turn up or the time to value. We improved our delivery time frames by 20% during 2025. I mentioned that, that was a focus area at the beginning of last year. And I think the more we're able to show that we can do a time-bound, efficient migration while capitalizing on the AI capability, we're going to be able to seize an acceleration of those CCaaS moves as the customers evaluate the use of this technology in their landscape. Michael Funk: Maybe one more, if I could, quickly. Financial crime and compliance business, love to hear your thoughts on the operating and strategic benefits of owning that business versus maybe some strategic alternatives? Scott Russell: Yes. It's such a great business. What makes me smile is it continues to be seen and perceived and understood as the market leader. We serve the most sophisticated financial institutions with a level of trust that, honestly, it is a joy. I meet with banking executives and our clients. And the first thing they tell me is, we trust Actimize, we rely upon it. We need your help to continue to support our ability to fight financial crime, fraud and compliance factors. So from a brand point of view and from a trust point of view of that segment, which is also a big segment inside of our CX business, it really does enhance our -- the trust position that we have as a company. So great business, strong performance, really profitable. And yes, we're proud for it to be a part of the NiCE family. Operator: Your next question comes from the line of Thomas Blakey with Cantor Fitzgerald. Thomas Blakey: Maybe just first one, Scott, I just wanted to talk about these increased win rates that you're talking about and obviously evidenced by the increase in backlog. If you could maybe -- in answering another way about the increased win rates on pricing and any levers you might have there with regard to your to Cognigy or other kind of consumption-based AI levers that you have here in the market, that would be helpful? Scott Russell: Yes. I'll try to answer it simply. We're definitely seeing customers being more astute in their expectations of ROI and that leads to more quantifiable outcome. Now they're not buying outcome-based pricing, but they're negotiating an understanding proven ROI that we're able to deliver. One of the advantages we obviously have is that we understand their volumes, their interactions on their existing seats, how efficient their platform is. We use data to inform them about what the automation that AI can do to improve upon that and then how that then delivers measurable return and we put that into our offers. So look, we've seen our pricing continue to be effective in terms of profitable business for NiCE, but also as a differentiator. But we're watching it closely. I think the market in AI will continue to be scrutinized, the promise versus the reality. It's easy to come in with an AI solution and say, we'll build you a bunch of AI agents. But if it doesn't deliver the real value, they go to vendors and partners that have proven to deliver that before. And we leverage that. There is no doubt that we're using our historical strength and benefits to our advantage. And if that means updating our pricing models, we'll do so. Thomas Blakey: Yes. No, that's helpful. And you're definitely balancing that well in terms of the backlog growth. Maybe for Beth, you've broken out in the past the consumption-based AI ARR. I don't know if it's something you'd want to help with here. And just understanding the increase in backlog and the jump in AI ARR in total, I wanted to know if consumption is driving that. And when we can kind of expect as folks are finding value here, looking to expand AI in terms of the CX role internally, NRR to start maybe expanding? Is that more of a '26 or more of a kind of an out-year kind of environment when you kind of look at your contracts and backlog wins, that would be helpful? Beth Gaspich: Yes, sure. So I think I would start with where Scott just led to, which is we have a flexible pricing model that allows that fluidity, and we're driving more and more increasingly towards interaction and consumption-based pricing, which is demonstrated in our overall AI ARR growth, where we're leaning in more and more towards pricing, which is coming from that increasing and ongoing expansion of interactions that we see. With respect to our backlog, we actually -- it demonstrates we have even further upside. When we look at our backlog, we're actually only including there our minimum contractual commitments. So our pricing model and the way we commercialize with our customers generally is on a subscription basis over a multiyear period. So that's what's being reflected in our model. We're still in very early stages of deployment with a lot of those enterprise customers. So as we continue to see those interactions increasing, that's further upside that we have even beyond what's already captured in our backlog. Operator: Your final question comes from the line of Patrick Walravens with Citizens. Patrick Walravens: Great. Let me add my congratulations. I was wondering if you could give us an update on your two $100 million deals. I think you had one that was in APAC and one that was in EMEA. And Beth, maybe you commented on that when you talked about something that went live. So what's the state of those two now? And then are there anything else -- are there any more this big that are in the pipeline? Beth Gaspich: Yes. So I'll take the first part, which is -- thanks for the question. Those -- both of those deals that were internationally driven are actually within our recognized revenue. They've both gone live. We're very excited about them. We're delivering to the customers. I would also add that there are additional opportunities. Those customers are continuing to look to do more with us. So we're off in a great start of those relationships, and we'll have more to come. But yes, they are already live and contributing to our revenue. Scott Russell: Yes. And in terms of the outlook, look, I guess you're getting a sense on this call, both with our backlog, but our optimism. There is some big opportunities that are in front of us. It's highly competitive out there, but I think we're proving that we've got a differentiated ability to win those. And so I look forward to being able to share more significant wins going forward, both internationally, but also in North America. Operator: That concludes our question-and-answer session. I will now turn the call back over to Scott for closing remarks. Scott Russell: Look, I just wanted to, first of all, thank everybody for the engagements, not only today, but throughout '25. It was a year of clear transition, but we're really excited about what we delivered, but also about the future in front of us. And in particular, I just wanted to thank all the NiCE employees, the NiCE is all around the world, our partners and our customers that contributed towards this. We've got exciting times ahead. It is an exciting market, but we've got the momentum to be able to seize upon it, which we will do. So I appreciate the time, everyone, today. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Satoshi Ito: Hello. This is Ito from IR Department of T&D Holdings. Thank you very much for coming to the Telephone Conference of our financial results. Our materials are under our website on the Investor Relations under IR Events tab. First of all, I will be making approximately 10 minutes of presentation, after which we would like to move on to the Q&A session. So we'd like to move on with the presentation. Please turn to Slide 3. First of all, I would like to present the key highlights of the financial results for the third quarter. Group adjusted profit amounted to JPY 122.5 billion against the full year forecast of JPY 146 billion with a progress rate of 83.9%, demonstrating a steady progress. Sales results of new policies of all 3 life insurance companies progressed smoothly against the plan. Surrender and lapse rate increase in Taiyo Life remained at the same level year-on-year in Daido Life and a decline in T&D Financial Life. Value of new business as a combined total of the 3 life insurance companies amounted to JPY 144.3 billion, with full year forecast is JPY 168 billion and a progress rate of 85.9%. Group MCEV amounted to JPY 4.3974 trillion. ESR was 225%. There is no change in full year earnings forecast as well as for dividends. Please turn to the next page. The key revenue and profit items of each company are shown in the table. The 3 life insurance companies recorded increase adjusted profits, but T&D United Capital decreased. Page 5 shows you the breakdown of group adjusted profit and difference from net income. Please turn to the next page. This page shows the key performance indicators of the 3 life insurance companies. The 3 life insurance companies saw an increase in their core profits. Taiyo Life and Daido Life recorded capital gains on sale of domestic and foreign equities. Meanwhile, Taiyo Life recorded mainly losses on sales associated with the reduction of its foreign bond holdings. Daido Life posted losses on sale of bonds, mainly due to replacement as part of its cash flow matching strategy. T&D Financial Life recorded a profit increase mainly due to an improved insurance margins resulting from growth in policies in force. Please turn to the next page. The charts describe factors contributing to changes in core profit for both Taiyo Life and Daido Life, decreased currency hedge costs and increased interest dividend income contributed to an increase in core profit. This effect was partially offset by an increase in operating expenses. Please turn to the next page. Average assumed investment yields of Taiyo Life and Daido Life were 1.35% and 1.21%, respectively. Please turn to the next page. T&D United Capital's adjusted profit decreased by JPY 5 billion year-on-year to JPY 5.4 billion. Please turn to the next page. This page describes the quarterly trends in the profit and loss of closed book business. In its consolidated results for the third quarter, the company recorded approximately JPY 8.9 billion as adjusted profit, equity and gains and losses of affiliate related to Fortitude Re's financial results for the third quarter, July to September. The adjusted profit related to Fortitude's fourth quarter, October to December, earning is under calculation. Please turn to the next page. Viridium's fourth quarter results, October to December will be incorporated into the company's Q4 financial results. In our consolidated financial results, profit and loss based on IFRS will be recognized for financial accounting purposes. While for group adjusted profit and loss equivalent to Luxembourg GAAP will be included. Due to the acquisition of Viridium, JPY 75 billion of goodwill was recognized under financial accounting. However, as an amortization of goodwill is excluded from the group adjusted profit, it has no impact on adjusted profit. Next page, please. At Taiyo Life, annualized premiums of new protection-type policies remained at the same level as the same period of the previous year, while surrender and lapse rate increased mainly due to increased surrender and lapse in the agency channel, annualized premiums of in-force protection-type policies increased from the end of the previous fiscal year. Please turn to the next page. New policy amount of Daido Life continue to be strong and achieved a year-on-year growth. Surrender and loss rate was broadly in line with the same period last year and policy amount in-force increased from the end of the previous fiscal year. Please turn to the next page. Annualized premiums of new policies at T&D Financial Life declined year-on-year mainly due to the lower sales of foreign currency linked products. In addition, the surrender and lapse rate declined due to a decrease in policies reaching their target values for foreign currency-linked products, resulting in an increase in annualized premiums of policies in force compared to the end of the previous fiscal year. Next page, please. Group MCEV increased by JPY 451.7 billion from the end of the previous fiscal year to JPY 4,397.4 billion, driven by the accumulation of new business value, the rise in domestic/foreign stock prices and the adoption of LDTI at Fortitude Re. The combined new business value of the 3 life companies increased by JPY 5.3 billion year-on-year to JPY 144.3 billion, mainly due to higher new policy amount and rising domestic interest rates. The new business margin was 9.3%. A breakdown of MCEV by company is provided on Page 16. The factors impacting the group MCEV is on Page 17. Next page, please. This page shows you the status of investment at Taiyo and Daido Life. The combined amount of the domestic and foreign equity sales by the 2 companies was approximately JPY 209 billion, exceeding the full year sales plan of JPY 180 billion that was set at the beginning of the fiscal year. We intend to continue making progress on sales in the fourth quarter as well. Daido Life's interest rate matching ratio reached 86.4%. And for Taiyo Life, it reached 96.6%. And Page 19 shows you the status of foreign currency denominated bonds. Please turn to Page 22. This page is the status of net valuation gains and losses on general account assets. Unrealized foreign and domestic bonds have increased due to rising domestic interest rates. Page 24, please. As of the end of December 2025, the ratio of strategic equity holdings to net assets stood at 19%, reflecting an increase in the market value of the holdings. The ratio of strategic shareholdings to net assets, adjusting for roughly JPY 100 billion already agreed for sale is around 13%. We'll continue to work on reducing the strategic shareholdings to 0 by the end of March 2031, setting aside those for business partners and collaborators. Please turn to the next page. Sale of stock reclassified from strategic shareholding to pure investment is in process as part of our effort to reduce equity risk. As of the end of December 2025, 57% of such shareholdings was divested on an accumulative basis. Next page, please. As of the end of December '25, ESR declined to 225% from the end of the previous fiscal year. While surplus increased, this reflects the investment in Viridium along with increased mass surrender risks due to higher domestic interest rates. Next page, please. There are no changes to the full year earnings forecast for the fiscal year ending March 31, 2026. For the remaining 3 months of the fiscal year, the group adjusted profit is expected to decrease by approximately JPY 0.2 billion for every JPY 1 of appreciation. A breakdown of each life insurance company is provided on Page 28, significant subsequent events on Page 30 and change in presentation of financial data on Page 31. This concludes the briefing of financial results for the 9 months ended December 31, 2025. Unknown Executive: I would now like to move on to the Q&A session. We would like to introduce the first question from SMBC Nikko Securities, Mr. Muraki. Masao Muraki: So this is Muraki from SMBC Nikko Securities. I'd like to post two questions. The first question relates to Page 4 of the materials. The progress rate is 84%, slightly high as of this moment. If you can give us an update on the full year forecast. So I'm pretty sure you have some loss in the sales of JGB and also gains from the sales of equities in Q4. So what are your assumptions right now? That is the first question. Satoshi Ito: Mr. Muraki, thank you very much for the question. I would like to answer that question. So in terms of the performance up until Q3, it has been quite brisk vis-a-vis the full year guidance. So the group adjusted profit of JPY 146 billion, we are confident that we can achieve this. However, there are certain factors we'd like to confirm as of this moment. The first point relates to Fortitude and Viridium. So the Q4 results has not been closed right now. So we'd like to confirm the results for Q4. And next is Taiyo and Daido. So in order to improve the investment portfolio, we are selling the equities and conducting the bond replacement for the asset liability cash flow matching. So we'd like to see the progress. Because in terms of the loss in the sales and also the gains from the sales will be impacted by the market. So we'd like to assess this correctly. So of course, in terms of bond replacement that will contribute to reduction in the interest rate risk and also enhancement of the portfolio yield. But as of the current interest rate level, we will incur some loss in the sales. So in terms of group adjusted profit of JPY 146 billion, it is not likely that we may see a significant upside given the current situation. To summarize, we'd like to confirm the Q4 results for Fortitude and Viridium; and also, we like to see the progress of the sales of the equities and bond. So within the fiscal year, we'd like to have a highly probable forecast and try to assess whether revision is necessary. And if it's necessary, we'd like to disclose that at the earliest stage possible. That is all. Masao Muraki: And the second question relates to Page 12 about Taiyo Life's surrender. So the third quarter appears to be high. So in comparison to the initial assumption, how do you assess the current state of surrender? Also what sort of impact would it pose on EV at the end of the fiscal year. If you have the calculation, please let us know. Satoshi Ito: Thank you for that question. In terms of Taiyo surrender, we've seen an increase in the bancassurance OTC channel. With the rate hike, the surrender is actually increasing more so than initially anticipated. Now in terms of the surrender, so we've actually conducted some risk transfer with the feeding. So the risk on the financial basis, the risk is limited. But in terms of EV, if you look at Page 17, we have as one of the various factors. So the variance between assumptions and results, you can see the number here, JPY 33.1 billion, and Taiyo accounts for minus JPY 17 billion or so. So in terms of the assumptions, we intend to update and review that at the end of this fiscal term. But in terms of its magnitude, we haven't conducted the calculation yet, so we don't know that. But on the 3-quarter cumulative basis, it's JPY 17 billion. And this product has been on sales for 3 years up until the year 2022. So that should give you some idea. Now in terms of the investment, given the current state of surrender and also the anticipation of the interest rate hike as a way to conduct ALM on a forward-looking basis, we have been shortening the duration on the asset side. Specifically, we are selling the 10-year or longer bond sales and replacing those with short-term bonds or cash. So basically, that is how we're addressing the surrender situation. That is all. Operator: So next question is from Ms. Tsujino of BLA Securities, please. Natsumu Tsujino: I have one question. To date, by reshuffling your JGB portfolio, how much benefit did you read in terms of the increase in positive spread? What will be the impact for this fiscal year and the subsequent impact for next fiscal year. Can you share your view? Satoshi Ito: Yes. Thank you for your question, Tsujino-san. The impact on positive spread stemming from reshuffling the JGB portfolio is projected to be JPY 3.1 billion for next fiscal year. The final yield on EM bond on book value basis is improving significantly, and this is supporting the growth in positive spread. Natsumu Tsujino: And looking at your results, you are enjoying a very good progress on booking the investment gains. Strong distribution from the alternative investment, good dividend stream on equity holdings, lower hedging costs and growing positive spread. So there are multiple positive factors. And I think this will make it difficult to project for next fiscal year. My impression is that the actual investment gain driven mainly by our alternative investment was much stronger than expected. May I ask the magnitude of that impact? Satoshi Ito: Thank you, Tsujino-san. That is actually a tough question to answer, but I can comment on how much upside we had against the plan for this fiscal year. At the end of Q3, we see alternative investment. The upside was roughly JPY 20 billion. And I will not be able to reveal much more than that. We don't have the projection for next fiscal year. But the upside from our alternative exposure for this fiscal year was JPY 20 billion pretax. Operator: We'd like to move on to the next question. From Daiwa Securities, Mr. Watanabe. Kazuki Watanabe: This is Watanabe from Daiwa Securities. I also have two questions. The first is related to Page 30, Taiyo Life, the transfer of the loan receivables and credit guarantee company. So what is the impact on Q4? Satoshi Ito: Mr. Watanabe, thank you very much for the question. So in terms of the transfer of loan receivables, this has already been factored into the budget at the beginning of the year. So if you look at the question, if you look at the recurrent -- the profit and the net profit, there is a variance. So that is because we anticipated this transfer. So we don't know the actual amount as of this moment, so we cannot comment on that. In terms of the transfer of loan receivables, in terms of the economic impact, it is quite similar to the sales of bonds. So we may see some recurrence of bonds. But beyond that, we shall see improvement in the yield. And of course, Daido Life will continuously sell the equities after. So in terms of the loss incurred from the transfer of loan receivables, we should be able to offset that with the gains from the sales of equities. Kazuki Watanabe: I'd like to move on to the second question. This is Page 11 related to Viridium. So Luxembourg GAAP will be included for the group adjusted profit. So what sort of impact would it pose, any difference in the definition with the Japanese GAAP, for instance, related to fair value measurement due to market fluctuations. Satoshi Ito: Mr. Watanabe, thank you very much for the question. First of all, as related to Luxembourg GAAP method. Basically, it is very similar to J-GAAP. So the bonds, it will be treated under amortized cost method and the policy reserve is under lock-in method. In comparison to J-GAAP, it is somewhat more prudent. So first point in terms of the unrealized gains from securities, it would not be recognized on the balance sheet. However, the loss for the lower [indiscernible] cost method, it will be recognized. Also at the time of rate decline, there will be a mandatory provisioning of policy reserve required. So in comparison to J-GAAP, it is somewhat more prudent. However, in terms of the fluctuation in economic value, that will not be reflected on the profit. So in comparison to IFRS, there's not much less variance in comparison to IFRS. So in other words, it's quite similar to the J-GAAP method. Operator: We'd like to move on to the next question. Mr. Sakamaki from Mizuho Securities. Naruhiko Sakamaki: Yes. This is Sakamaki from Mizuho Securities. I have one question. And it is something that happened during the quarter. With a significant rate spike in January, how much was your ESR push down? And under a scenario where the long-term rate remains high, what are the things that you are paying attention to. Can you update me on your risk management framework. Satoshi Ito: Thank you for your question. We don't have the impact on our ESR stemming from the yen rate spike in January. So I will have to point to the sensitivity disclosure we made in November at the IR meeting. So with every 50 basis increase in domestic rate, the ESR goes down by 7 points. And to elaborate on the rate impact, basically, for the bond exposure matched against the policy reserve, as long as we maintain level and ability to hold, there is no need for asset impairment and hence, we intend to hold. That said, as long as we are not confronted by mass surrender, which would force us to sell our bond holdings, the impact will be minimal. On the other hand, we would benefit more by capturing higher yield by reshuffling the portfolio and making new investments. So that's all for me. Naruhiko Sakamaki: I see. So just to confirm, the rate spike in January and that level would not require you to do asset impairment. Is that correct? Satoshi Ito: Yes, your understanding is correct. Operator: Next, I would like to move on to the next question. Mr. Takemura from Morgan Stanley MUFG. Atsuro Takemura: This is Takemura from Morgan Stanley MUFG. I have two questions. I also would like to understand the impact of the rising ultra-long rate. I understand that the bancassurance products offered by T&D Financial come with [ MBA ] clause. Do that mean that even under the environment where the ultra-long end rate goes up, the MBA will be effective to prevent a surrender rate to rise. What are your thoughts around the surrender risk for your bancassurance channel when the ultra-long rate is rising. So that's my first question. My second question is also related to your investment activities, namely your PE exposure. I understand that for Taiyo and Daido, the PE exposure is 2.9% or slightly less than 3%. And nowadays on the media reports on the [ death ] of the SaaS business model, and that seems to be dampening the performance of the overseas PE fund. What is the exposure to SaaS companies or IT sector in general? And how do you manage that risk. So those are my two questions. Satoshi Ito: So thank you, Takemura-san, for your question. For the products with MBA clause, basically, there will not be impact on the earnings, but there are some risk of surrenders in a rising rate environment. And regarding our exposure to SaaS companies, for foreign equities, we basically invest in ETFs, so it's part of index investment. So our exposure will be similar to market rating. As for the private equity exposure, to the extent that we can confirm, there is no concentration to a specific sector, and we have a diversified portfolio that would assure the impact to be limited. At this point, we have not been reported on any major loss. Atsuro Takemura: I see. I have a follow-up to my first question. And apologies for the lack of my understanding, but is there a cap on the MBA coverage regarding the magnitude of the bond value decline? So if it crosses that threshold, the quality for the policy holders would be limited and we may see a rise in surrender. Is that the case? Satoshi Ito: Thank you for the question again. Basically, MBA defines the change in surrender amount subject to the right movement. And there is no concept of a cap in the coverage. Atsuro Takemura: I see. Thank you very much.
Operator: Good day, and thank you for standing by. Welcome to the Kadant Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Michael McKenney, Executive Vice President and Chief Financial Officer. Please go ahead. Michael McKenney: Thank you, Marvin. Good morning, everyone, and welcome to Kadant's Fourth Quarter and Full Year 2025 Earnings Call. With me on the call today is Jeff Powell, our President and Chief Executive Officer. Before we begin, let me read our safe harbor statement. Various remarks that we may make today about Kadant's future plans and expectations, financial and operating results and prospects are forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to known and unknown risks and uncertainties that may cause our actual results to differ materially from these forward-looking statements as a result of various important factors, including those outlined at the beginning of our slide presentation and those discussed under the heading Risk Factors in our annual report on Form 10-K for the fiscal year ended December 28, 2024, and subsequent filings with the Securities and Exchange Commission. In addition, any forward-looking statements we make during this webcast represent our views and estimates only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our views or estimates change. During this webcast, we will refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our fourth quarter and full year earnings press release and the slides presented on the webcast and discussed in the conference call, which are available in the Investors section of our website at kadant.com. Finally, I want to note that when we refer to GAAP earnings per share or EPS and adjusted EPS on this call, we are referring to each of these measures as calculated on a diluted basis. With that, I'll turn the call over to Jeff Powell, who will give you an update on Kadant's business and future prospects. Following Jeff's remarks, I'll give an overview of our financial results for the quarter and the year, and we will then have a Q&A session. Jeff? Jeffrey Powell: Thanks, Mike. Hello, everyone, and thank you for joining us. Today, I'll review our fourth quarter and full year 2025 results and our outlook for 2026. Let me begin with our operational highlights. We closed the year with solid performance despite a challenging macro background that included tariff volatility and continued cost pressures. Our performance led to solid margin results and strong cash flow in the fourth quarter, which I will outline in the next slide. Additionally, at the end of 2025, Newsweek recognized us as one of America's most responsible companies for the sixth straight year, and we're honored to be included on that list once again. Our fourth quarter performance benefited from the acquisitions we completed in 2025 and solid demand in our Flow Control and Material Handling segments. Revenue increased 11% to a record $286 million, led by contributions from our recent acquisitions and record aftermarket parts business. Demand remained solid across all 3 operating segments with bookings increasing 12% compared to the same period last year. While acquisitions accounted for most of the growth in the new orders, organic demand was stable year-over-year and improved sequentially. Adjusted EBITDA was up 11% compared to the same period last year, and our adjusted EBITDA margin was 20.3%. Strong execution by our global operations teams played an important role in delivering value to our customers and driving our fourth quarter operating performance. Our Q4 operating cash flow was excellent at $61 million. Next, I'd like to review our full year financial metrics on Slide 7. Stable demand, combined with contributions from our 2 recent acquisitions drove solid revenue performance of $1.05 billion in fiscal 2025, with aftermarket parts making up a record 71% of our total revenue. Softness in capital project activity, combined with rising tariffs and other cost pressures resulted in adjusted EPS of $9.26 a share compared to the prior year record of $10.28 per share. Despite ongoing economic and geopolitical headwinds, our free cash flow increased 15% to a record $154 million. The volatility and magnitude of the tariffs proved to be quite challenging for us in 2025. I'm proud of our employees for the innovative work done to maximize value for our customers and our stockholders. Next, I'd like to review our performance for our 3 operating segments. I'll begin with our Flow Control segment. Q4 revenue increased 5% to $100 million with strong performance in North America, offsetting weaker performance in Europe. Aftermarket parts revenue was up 9% compared to the prior year period and made up 73% of total revenue. Adjusted EBITDA and margin were down compared to the same period last year due to weaker gross margins related to tariffs and product mix. While bookings were up 7% compared to the same period last year, softness in manufacturing sector persisted, particularly in Europe and Asia. We believe the long-term market trends impacting industrial markets such as automation, defense and energy will continue to drive new opportunities for growth, though business activity continues to be influenced by geopolitical and macroeconomic challenges around the globe. In our Industrial Processing segment, capital project activity remained relatively soft throughout 2025 and continued at similar levels in the fourth quarter. Our performance in this segment, however, benefited from the additions of Clyde Industries and Babbini, both of which were acquired in the second half of the year. Integration efforts for these businesses are progressing well, and they are expected to contribute positively in the years ahead. Revenue rose 16% to $118 million compared to the same period last year, and aftermarket parts revenue grew 31% in the fourth quarter and represented 76% of revenue. Adjusted EBITDA margin improved by 90 basis points year-over-year, driven largely by a more favorable product mix. As we look ahead to 2026, there's increasing project activity, and we expect demand for our capital equipment to strengthen as customers move forward with planned capital projects. In our Material Handling segment, we delivered solid year-over-year performance improvement in bookings, revenue and margins. Fourth quarter revenue increased 11% to $69 million, driven by strong growth in capital revenue compared to the prior year period. Aftermarket parts made up 53% of total revenue and remained steady throughout the year. Margin performance strengthened as well with adjusted EBITDA margin increasing by 130 basis points to 22.1%. Looking ahead to 2026, we are encouraged by the high level of project activity and are well positioned to secure new business. Ongoing modernization efforts in the recycling and waste management sectors as well as infrastructure and data center construction are expected to drive the anticipated increase in order activity. Looking to 2026, capital project activity is looking to improve demand for aftermarket parts and continues to be steady as we start the new year. Additional -- although industrial demand is projected to pick up, uncertainty persists regarding the timing of capital orders due to ongoing economic and geopolitical instability. Overall, our healthy balance sheet and ability to generate significant cash flow position us well to pursue new opportunities that develop, and we are committed to achieving improved financial results this year. With that, I'll turn the call over to Mike for a review of our financial results and our 2026 outlook. Mike? Michael McKenney: Thank you, Jeff. I'll start with some key financial metrics from our fourth quarter. Revenue was a record $286.2 million, up 11% compared to the fourth quarter of '24, including an 8% increase from acquisitions and a 3% increase from the favorable effect of foreign currency translation. Gross margin increased 50 basis points to 43.9% in the fourth quarter of '25 compared to 43.4% in the fourth quarter of '24 due to a favorable increase in the proportion of aftermarket parts, which increased to 70% of total revenue compared to 67% in the prior period. There was a 40 basis point negative impact from the amortization of acquired profit and inventory in both periods. As a percentage of revenue, SG&A expense increased to 28.3% in the fourth quarter of '25 compared to 27.3% in the prior year period. SG&A expenses were $80.9 million in the fourth quarter '25, increasing $10.3 million or 15% compared to $70.6 million in the fourth quarter '24. The increase in SG&A expenses includes $7 million in SG&A expense related to our 2025 acquisitions and a $1.7 million unfavorable effect of foreign currency translation. Our GAAP EPS was $2.04 in both periods, and our adjusted EPS increased to $2.27 and was just above the high end of our guidance range of $2.05 to $2.25 in the fourth quarter. Adjusted EBITDA increased 11% to $58 million and represented 20.3% of revenue. For the full year, revenue was $1.52 billion (sic) [ 1.052 billion ] compared to $1.53 billion in '24, including a 3% increase from acquisitions and a 1% increase from the favorable effect of foreign currency. Gross margin increased 90 basis points to 45.2% compared to 44.3% in '24 due to a favorable increase in the proportion of aftermarket parts, which increased to a record 71% of total revenue compared to 66% in 2024. Gross margin included a negative impact from the amortization of acquired profit and inventory of 20 basis points in '25 and 40 basis points in '24. Excluding this impact, gross margin was up 70 basis points over '24. As a percentage of revenue, SG&A expenses increased to 28.7% in '25 compared to 26.6% in '24. SG&A expenses were $301.9 million in '25, increasing $21.9 million or 8% compared to $279.9 million in '24. Approximately 60% of this increase relates to our acquisitions. which had SG&A expenses of $13.2 million in '25. The remainder was primarily due to a $2.2 million unfavorable effect of foreign currency translation and higher compensation-related costs. Our GAAP EPS was $8.65 in '25, down 9% compared to $9.48 in '24, and our adjusted EPS was $9.26, down from $10.28 in '24. Now turning to our cash flow performance. We finished the year with very strong cash flow. As you can see from the chart, we had stronger operating cash flow in the last 2 quarters of '25 compared to the first 2 quarters. For the full year, operating cash flow increased 10% to a record $171.3 million, compared to $155.3 million in '24. Our free cash flow was also a record at $154.3 million in '25, increasing 15% over '24. We had several notable nonoperating uses of cash in the fourth quarter of '25. We paid $173.7 million for the acquisition of Clyde Industries, net of cash acquired. We borrowed $170 million to fund this acquisition, and we repaid $53.7 million of debt in the quarter. In addition, we paid $6.1 million for capital expenditures and a $4 million dividend on our common stock. We continue to focus on utilizing our strong cash flows to accelerate the paydown of debt, and I'm pleased we were able to repay $122.2 million this year or approximately 42% of our outstanding debt at the end of '24. Turning to adjusted EBITDA. In the fourth quarter '25, adjusted EBITDA increased 11% to $58 million compared to $52.4 million in the fourth quarter '24. As a percentage of revenue, adjusted EBITDA was 20.3% in both periods. For the full year '25, adjusted EBITDA decreased 6% to $216.3 million or 20.6% of revenue compared to record adjusted EBITDA of $229.7 million or 21.8% of revenue in '24. The weaker performance in '25 is due in large part to lower capital revenue, which was down 16% compared to the prior year. Let me turn to our EPS results for the quarter. Our adjusted EPS increased $0.02 from $2.25 in the fourth quarter of '24 to $2.27 in the fourth quarter of '25. This includes increases of $0.17 due to higher revenue, $0.15 from the operating results of our acquisitions, excluding the associated borrowing costs and $0.09 due to higher gross margins. These increases were partially offset by $0.22 due to higher operating expenses, $0.10 due to a higher tax rate, $0.04 due to higher interest expense and $0.03 due to higher noncontrolling interest. Our tax rate was 30% in the fourth quarter of '25, higher than we anticipated due to the impact of global minimum tax regulations as well as a change in geographic distribution of earnings. Collectively, included in all the categories I just mentioned was a favorable foreign currency translation effect of $0.04 in the fourth quarter of '25 compared to the fourth quarter of last year. Now turning to our EPS results for the full year on Slide 17. Our adjusted EPS decreased $1.02 from $10.28 in '24 to $9.26 in '25. This includes decreases of $1.06 from revenue, $0.70 due to higher operating expenses, $0.13 due to a higher tax rate, $0.07 from higher noncontrolling interest and $0.02 due to higher weighted average shares outstanding. These decreases were partially offset by $0.46 from higher gross margin, $0.27 in lower interest expense and $0.25 from the operating results of our acquisitions, excluding the associated borrowing costs. Collectively, included in all the categories I just mentioned was an unfavorable foreign currency translation effect of $0.01 in '25 compared to '24. Now let's turn to our liquidity metrics on Slide 18. Our cash conversion days measured calculated by taking days in receivables plus days in inventory and subtracting days in accounts payable, increased to 130 at the end of the fourth quarter '25 from 122 days at the end of '24. The increase in cash conversion days was principally driven by a higher number of days in inventory. Working capital as a percentage of revenue increased to 18.5% in the fourth quarter of '25 compared to 15% in the fourth quarter of '24 due to the lack of full year revenue for our 25 acquisitions. If you exclude the impact of our 25 acquisitions from this calculation, it would be 15.5%, which is slightly above the end of '24. Net debt, which is debt less cash at the end of '25 was $251.8 million compared to net debt of $131.1 million at the end of the third quarter '25. Our leverage ratio, calculated as defined in our credit agreement increased to 1.33 at the end of '25 compared to 0.94 at the end of the third quarter '25. At the end of January, we announced that we had entered into a definitive agreement to acquire voestalpine BÖHLER Profil GmbH for approximately EUR 157 million, subject to certain customary adjustments. The closing is subject to certain Austrian regulatory approvals and the satisfaction of customary closing conditions. We anticipate that our leverage ratio will increase to just above 2 with the increase in our outstanding debt once this transaction closes. We had $383 million of borrowing capacity available under our revolving credit facility at the end of '25, which will be reduced by the anticipated acquisition borrowing. Before I review our guidance, I want to remind you that our '26 guidance does not incorporate any assumptions related to the pending acquisition. We anticipate that the closing will occur in the first quarter of ' 26, and we will revise our '26 guidance as part of our next earnings call. For the full year '26, our revenue guidance is $1.160 billion to $1.185 billion. And our adjusted EPS guidance is $10.40 to $10.75, which excludes $0.13 related to the amortization of acquired profit and inventory. Looking at our quarterly revenue and EPS performance in '26, we expect that the first quarter will be the weakest quarter of the year. This is primarily related to soft capital bookings in the back half of '25. Our revenue guidance for the first quarter of '26 is $270 million to $280 million, and our adjusted EPS guidance for the first quarter is $1.78 to $1.88, which excludes $0.09 related to the amortization of acquired profit and inventory. I should caution here that there could be some variability in our quarterly results due to several factors, including the variability of order flow and the timing of capital shipments. I wanted to highlight that due to the delayed timing of capital orders, we have a number of large capital projects where we have been actively working with customers and have provided proposals with a cadence solution to meet their needs. We have taken a conservative approach to our '26 guidance given the order delays we experienced in '25. These orders are waiting for customers to have enough clarity with the economic environment to commit to these capital expenditures. As soon as the customers place these pending orders, we will be able to determine the timing of the associated revenue recognition, which provides upside potential for our '26 guidance. We anticipate gross margins for '26 will be approximately 45.2% to 45.7%. As a percentage of revenue, we anticipate SG&A will be approximately 27.7% to 28.3% and R&D expense will be approximately 1.4% of revenue. In addition, we anticipate net interest expense of approximately $15.5 million to $16 million for '26, which does not include any estimated interest expense related to our proposed acquisition. We expect our recurring tax rate will be approximately 27.3% to 27.8% in '26, and we expect depreciation and amortization expense will be approximately $60 million to $61 million. We anticipate CapEx spending in '26 will be approximately $23 million to $27 million. That concludes my review of the financials. But before we go to our Q&A session, I want to discuss our plan starting in the first quarter of '26 to add back recurring intangible amortization expense in our adjusted EPS calculation. Many of you have suggested that we add back noncash amortization expense in our adjusted EPS calculation. Historically, we have only added back intangible amortization expense related to acquired backlog, which amortizes relatively quickly in the post-acquisition period. Recurring intangible amortization expense has grown steadily given our significant acquisition activity with a projected annual increase of 22% in '26. These acquired intangible assets are initially recorded as part of purchase accounting and then reduced via a noncash amortization expense for periods which can extend over 15 years. With this change, our adjusted EPS will be more consistent with our adjusted EBITDA and cash flow metrics, which are not impacted by intangible amortization expense. We believe that the exclusion of this expense from adjusted EPS will allow for more consistent comparisons of our operating results over time into peer companies. Now I will summarize the '26 adjusted EPS guidance and comparative '25 information with this change. For '26, recurring amortization expense is $33.4 million or $25.1 million net of tax and represents $2.13 per share. Our adjusted EPS guidance presented today and in yesterday's earnings release was $10.40 to $10.75. After adding back recurring intangible amortization expense, our adjusted EPS guidance for '26 is now $12.53 to $12.88. For '25, recurring intangible amortization expense was $27.4 million or $20.6 million net of tax and represented $1.75 per share. Our previously reported EPS of $9.26 for '25 is now $11.01. Recurring intangible amortization expense is $0.53 and $0.40 for the first quarters of '26 and '25, respectively. Our adjusted EPS guidance for the first quarter of '26 is now $2.31 to $2.41, and our previously reported adjusted EPS for the first quarter of '25 of $2.10 per share is now $2.50. We will be issuing an SEC Form 8-K filing shortly with formal reconciliations of prior period information. I'll now turn the call back over to the operator for our Q&A session. Marvin? Operator: [Operator Instructions] Our first question comes from the line of Gary Prestopino of Barrington. Gary Prestopino: Mike, just a couple of housekeeping things here. Do you have the numbers for current assets and current liabilities at year-end, Andy? Michael McKenney: Yes, I do. Hang in there and let me look that up. Current assets are $542 million and current liabilities are $228 million. Gary Prestopino: Okay. And just I was going through this as you were talking, given your narrative, but consumables in Flow Control were 73% of revenues, Industrial 76% of revenues and material handling, 53% of revenues. Is that right? Michael McKenney: Yes. Yes. Gary Prestopino: Okay. And then you're seeing a lot more increased demand for consumable products. Now some of that is a function of your acquisitions, right? But are you still seeing that your customers are running their equipment really hard and using a lot more consumables in their processes, and that leads you to feel that the capital projects will get better as the year goes on in 2026? Jeffrey Powell: Yes, Gary, we've kind of said actually most throughout a lot of last year as we reported that the parts were -- aftermarket was slightly overperforming our expectations based on the operating rates. As you know, we tend to say that traditionally, our aftermarket is a function of operating rates and operating rates really around the world have been quite -- were quite low in '25. And the parts business really outperformed that. And the -- and they did it consistently. And so it clearly was a case where they're running the equipment harder. There's been some capacity taken offline, and they're trying to make up for that. Overall demand, of course, increased last year in most of our markets. And even though some capacity was taken offline in certain markets. And so because of that, they had to run the existing equipment harder and it's older because they've been underinvesting now for nearly 3 years. And so that's the only explanation you can have for aftermarket overperforming consistently for such an extended period of time with these lower operating rates is that they're making up for that capacity taken offline by pushing everything harder and the equipment is just older. Gary Prestopino: And then lastly, what -- obviously, there was a lot of confusion on tariffs as we entered 2025 last year. What's the thought process of your customers now? I mean you're saying that you're going to see the capital projects start increasing in 2026. I mean, have they basically just got the mindset that, hey, this is going to square out to maybe a 10% to 20% tariffs and let's reinvigorate our capital projects? Jeffrey Powell: Yes. I mean I think it was the volatility and the weekly changes that really -- and the breadth of the implementation in early last year that really shocked everybody and really caused everybody to take a wait-and-see attitude. But things are a little more stable now and people realize that they have to continue running their business. You can't stop running your business, you can't stop investing in your business. You lose your competitiveness. And so as things have started to stabilize a little bit and people have absorbed whatever tariff impact for their respective businesses, they've kind of absorbed that. Things are starting to rationalize. And and they've got to get back to increasing efficiency, increasing outputs. So everybody -- I would say right now, the main focus is on improving productivity and driving down costs, not so much on adding new capacity. That tends to be where we're at with a few exceptions in a couple of markets we're in where they are adding capacity. But in most places now, it's really trying to squeeze more out of their existing operations and just be more efficient and more productive. Operator: Our next question comes from the line of Ross Sparenblek of William Blair. Ross Sparenblek: A couple for me here, and I'll pass it along. Did you guys give a backlog figure? I may have missed it and then also the equipment backlog when we include the Clyde acquisition? Michael McKenney: Yes, I can give you a number here. When we brought in Clyde, they had a backlog of about $30 million, just as a reference point for you. Our backlog currently at the end of the fourth quarter was $288 million, and the split on that is 60-40, 60% capital, 40% parts. Ross Sparenblek: Okay. That's helpful. And then, I mean, did you guys give organic assumptions within the 2026 guidance? Michael McKenney: We didn't, but I'm happy to do that. What it was really, I would say, kind of flat, a little less than 1% to 3% was what we modeled. And the point I was trying to stress is that, as you know, Ross, through '25, we had line of sight on some nice capital projects. And the customers have yet to place the orders for those. So the approach we're taking for '26 is those orders are there. We think the customers will place those. They're significant orders. There's -- that would be meaningful upside for us, but we did not bake that into our guidance. Of course, at 1% to 3% organic, there's not a lot of big capital jobs in there. But there are big capital jobs that are ready to go. And we're hoping that we're going to get to midyear and customers will have placed some of those orders, and we'll be able to take our guidance up. Ross Sparenblek: Okay. So I mean, I get the sense that most of that organic in the guide is just your confidence around the parts and consumables business. Michael McKenney: Yes. The capital is up, but not substantially. You're correct. We're really -- it's confidence in parts and consumables. But we do anticipate the kind of, I'd say, single unit capital business to still keep plugging along. Ross Sparenblek: Okay. So that seems to imply then that the capital equipment orders is kind of $290 million, $300 million run rate we've had in the last 2 years that's kind of the static base case with potential for upside from there? No expectation that that's going to be going lower. Michael McKenney: Yes. Operator: Our next question comes from the line of Kurt Yinger of D.A. Davidson. Kurt Yinger: Mike, you had talked about a large number of capital orders where you've provided proposals and you're sort of waiting to hear back from customers. Can you maybe just talk a little bit about how unique that is in terms of the time that proposals have been outstanding or maybe the typical time line where you would expect a proposal to turn into a booking and how that's different today than what you've seen in the past? Jeffrey Powell: Yes, Kurt. So I would say the discussions have been ongoing. A lot of projects that we thought were going to be released in the back half of last year didn't go away. But again, people -- because of the constant changes in the geopolitical kind of discussions around tariffs and things really just caused them to say, well, we're just going to wait another quarter. We're going to wait another 2 quarters here before we do anything. So we really haven't seen any projects kind of go away. We have some projects that we've actually gotten the order, but we're waiting for letters of credit or down payments before it becomes a booking. So there is some activity that has started to move forward, but it's taking longer in some cases to get the bank set up and get the letters of credit and the down payments. And others are just proceeding more slowly. It's just one of caution. I think everybody is looking to see if we bottomed out and we're going to start to see some growth from a macro level. And so it's probably been, I would say, the capital business has been -- the bookings have been as slow, as soft as they've been any time in history when we haven't had a significant recession. We normally -- the bookings we've seen in the last kind of 2.5 years have been -- stuff we saw back in '08, '09, back when you have a real recession. So it's really unusual to see this kind of softness when the economies are still growing. And I think it's just because of all the uncertainty. The tariff thing, notwithstanding what the current administration says, the tariff thing has been highly chaotic for our customers to manage and to plan and to budget around. It just created a tremendous amount of instability. And -- but as I said earlier, when Gary was asking the question, they are starting now to say, okay, things seem to have calmed down a little bit. I mean we don't like where we're at, but at least we know where we are now, so we can start to plan around that. And so that's what we're seeing. But we do know our companies are -- many of our companies are over 100 years old. We know history tells us they cannot go forever without investing in the business. The markets we're in are still growing. Even the paper and packaging business, which is a chunk of our business right now, it's growing low single digits, but it's still growing. So you cannot underinvest forever in that. So they will have to start to make some investments. Kurt Yinger: Okay. That's super helpful. And then thinking about last quarter, you talked about some of those larger fiber processing orders that you could kind of recognize on an overtime basis. Is that kind of the main component that maybe element of conservatism where you just have assumed that those won't necessarily come in, in the guidance? Or are there other percolating areas of kind of capital activity across the portfolio that might be beneficial in there as well? Michael McKenney: Yes. You've really hit it exactly, Kurt. We're just -- we're being cautious here as we move into '26. And as I said, hopefully, we'll get some good traction here. And we get to midyear, we'll be able to raise guidance if some of these capital bookings are placed. Jeffrey Powell: We are a little bit gun-shy because we thought things were going to strengthen. We remember back when they were talking about things improving at the end of '24, then it moved to the end of '25. And so we're just being -- trying to be as cautious as possible. As you know, we tend to always try to -- and traditionally have always kind of underpromised and overdelivered, and we want to continue that trend. And so we just said, look, it's early in the year. We're going to come out of the gate cautiously. And hopefully, some of these things that are out there that we believe will come in will come in, and we'll be able to then kind of update you guys accordingly. Kurt Yinger: Got it. Okay. And you talked about how aftermarket has kind of outperformed expectations and it's maybe been consistently surprising. It's interesting, some of the European peers have talked about a greater focus on that area, parts and services. Are you seeing that or hearing from your teams about that kind of showing up in kind of any meaningful change in the competitive environment and maybe any of these smaller kind of parts and consumables category? Or any commentary on that just in general? Jeffrey Powell: No. I would say '25 was a good year for us. We did have a lot of our competitors come at us hard, and we were able to defend that. And in many cases, if they did get their foot in the door, we were able to kind of turn that around as the year progressed. And so from our standpoint, it was a good year. And our customers' relationships tend to be quite sticky, and they've been very -- we've had them for a very long time. And so it's held steady. And that many of our companies had kind of record -- if you look at the percentage of revenue aftermarket, it was a very high level. So we're quite pleased with the way our guys performed around the world. That is the daily challenge. Every day when our guys get in the morning, that's what they're focused on. That's a big challenge, is serving the customers with that aftermarket piece to help our customers stay as efficient as possible. And so it's our primary focus, and our guys, I think, did a great job in '25. And there's always people coming after us. If it's not the big guys from Europe, it's the regional players that can be quite competitive from a cost standpoint. So it's a challenge that we face every day and always have. But we're quite pleased with the way our guys performed. Kurt Yinger: Perfect. Okay. And just last one, Mike, if you have it in front of you. Can you just give us kind of organic parts and consumables versus capital kind of sales and bookings for Q4? Michael McKenney: Yes. I have -- you wanted both revenue and bookings on that, Kurt? Kurt Yinger: Yes, it's possible. I realize it's a lot of numbers, but... Michael McKenney: No, that's okay. Organically, I have -- for the fourth quarter, parts on the revenue side up 3%, capital on the revenue side down 7%. So overall, organically, that would -- that comes out to flat. And then on the bookings side, I have parts up 4% and capital down 6%. But organically, with the weighting on parts, it puts us up 1% on bookings organically. Operator: Our next question comes from the line of Walter Liptak of Seaport Research. Walter Liptak: I wanted to do a follow-up on that last question about the aftermarket competition coming out of Europe, it sounds like. If that's the case, how do they compete? Is it -- are they competing on like a quality aftermarket? Or is it like a pricing thing? Like if you had seen any changes in the marketplace for aftermarket because of that? Jeffrey Powell: Traditionally, when somebody is coming in and trying to steal market share away from you, assuming your customer is happy with your product, your service, your performance, the only real leverage they have is to try to undercut you on price. And our customers will always take advantage of that to try to lower their overall cost. And so that's typically what they do it. I mean we -- in the markets we're in, as you know, we tend to be #1 or in 1 or 2 slight cases, maybe #2, very strong relations with our customers and really serve them well. So the only way they can really make any real entrees into those markets is to try to really reduce pricing. And frankly, the European companies, they've got a cost structure that isn't substantially less than ours. So that -- the only way they can really do it is to just make less money. And if you follow our competitors in Europe, you'll find that they often do make a lot less money than us because they try to undercut our price. But there's a lot more to it. That total cost of ownership is so critical. The technical services that we give them are important. We have guys living in the operations supporting our customers. And because of that, we kind of were able to defend our territory and in some cases, pick up market share. So it's -- it's really nothing new. I mean, like I said, if it's not the big guys coming after us, it's the small regional guys actually the ones that can create more havoc for you because they try to come in and really undercut you on price. But it's -- we work very hard to understand our clients' operations and how we can help them create value and stay competitive and increase their throughputs and reduce their inputs. I mean that's our value proposition. And so we -- that's our daily mission. We work it very hard, and our guys do a great job of it. Walter Liptak: Okay. Great. Okay. And during your prepared comments, Jeff, I think you commented about a good funnel for projects in recycling and waste and data center. And I wonder if you could talk a little bit about those, especially the data center part. Jeffrey Powell: Yes. So as you know, the housing has been down, but data center construction is booming. They're massive facilities. And of course, they -- all the materials they use to make those, for instance, our material handling group is involved with, right? So you're talking about aggregate, sand, concrete, copper, aluminum. Everything that goes into building those structures starts out as a natural resource that is mined, processed, screened, size, cleaned, things like that. And of course, our material handling group is in all those sectors. And so if you look at some of our big customers out there, the Martin Marietta and people like that, that on the sand and gravel side, they're doing quite well in part because it's providing the materials required to build these facilities. The amount of copper, for instance, going into these facilities is quite substantial. So we support the copper mine operations around the world, of course. the amount of concrete that goes into building one of these -- if you've ever seen one of those data center farms. It's some of the biggest buildings that I've ever seen and they just go forever. And so it's basically all that material has to get processed by equipment that we build or our competitors build. Operator: [Operator Instructions] And our next question comes from the line of Ross Sparenblek of William Blair. Ross Sparenblek: Can you just give us a sense on where the OSB segment shook out within Industrial Process for the year? Michael McKenney: Well, I will say, Ross, we usually -- we don't bifurcate that. We usually just talk wood and fiber processing. But that isn't -- that's a bright spot for us, frankly, in the wood processing side. The debarking business servicing dimensional lumber and North American housing is really on the capital side is quite soft right now. But the OSB just keeps plugging along. They're doing fantastic. Jeffrey Powell: They're finding -- first of all, we supply them globally, and we're one of only, I guess, technically 2 companies that are doing that. And they're finding more and more applications, more and more uses for the product. So it just continues to grow. Ross Sparenblek: Okay. That's good to hear. Jeffrey Powell: Siding, of course, they're going into higher, higher value, higher dollar applications for it and new applications for it. They're even starting to do it for dimensional and structural elements and things like that, looking at it for things that traditionally would be laminated products. So it's just -- we continue to see more and more demand. Ross Sparenblek: Okay. And then one of your competitors recently called out the vertical integration of the pulp and processing market in China as a secular opportunity over the coming years. Anything you can speak to as to like cadence, content or how you guys argue that market today? Jeffrey Powell: Yes. So when you put pulp mills in, of course, one of the big issues there is the recovery boilers. And Clyde, of course, who joined us recently serves that market. So they've got -- they provide a lot of the technology into the Chinese market as these pulp mills are being built. Traditionally, China was almost 100% recycled fiber. But when they put the -- when the Chinese government put the ban in the importing of waste paper, they had to go out and search for fiber. And one of the things they're doing, of course, is they're putting these pulp mills in. And so Clyde is over there supplying the boiler cleaning technology for those applications. Ross Sparenblek: Okay. And then maybe just one last one on your 80/20 expectations this year, you guys usually target 2 to 3 divisions. Anything more material to call out as like the mix within the segments? Jeffrey Powell: No. I mean we're constantly trying to increase the size of our team that leads those efforts and starting more and more companies up. But it's continuing to progress. I think it's -- some of the businesses, I think, starting the program late last year. And so we're expecting maybe towards the end of this year to start to see some results from that. And then, of course, there are others that are just entering it or on schedule to enter it. The -- as you know, normally with acquisitions, the first year, we don't like to do anything with them. We like to kind of get them stabilized and integrated, get them kind of understanding the programs and kind of deciding when they want to undertake that initiative. So I'd say for some of the newer companies that are out there, they're still to be started. But it's continuing along. Our team, I think, continues to get better and better at implementing it. And it will be -- continue to be a primary internal initiative of ours for the years to come. Operator: I'm showing no further questions at this time. I'll now turn it back to Jeff Powell for closing remarks. Jeffrey Powell: Thanks, Marvin. Before wrapping up the call today, I just want to leave you with a couple of takeaways. We finished the year with improving business conditions. We acquired 2 great companies in the second half of 2025 and the integration of this business into the Kadant family is going well, and I'm confident that they'll make meaningful contributions in 2026 and beyond. The outlook for 2026 is optimistic with expectations of increased project activity and stable aftermarket demand. And we look forward to maximizing the value that we create for our customers and for our stockholders in 2026. And with that, we want to thank you for joining us today. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to the Teekay Group Fourth Quarter and Fiscal 2025 Earnings Results Conference Call. [Operator Instructions] As a reminder, this call is being recorded. Now for opening remarks and introductions, I would like to turn the call over to the company. Please go ahead. Lee Edwards: Before we begin, I would like to direct all participants to our website at www.teekay.com, where you will find a copy of the Teekay Group's Fourth Quarter and Annual 2025 earnings presentation. Kenneth will review this presentation during today's conference call. Please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements. Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained in the fourth quarter and annual 2025 Teekay Group earnings presentation available on our website. I will now turn the call over to Kenneth Hvid, Teekay Corporation and Teekay Tankers' President and CEO, to begin. Kenneth Hvid: Thank you, Ed. Hello, everyone, and thank you very much for joining us today for the Teekay Group's Fourth Quarter and Annual 2025 Earnings Conference Call. Joining me on the call today for the Q&A session is Brody Speers, Teekay Corporation's and Teekay Tankers' CFO; Ryan Hamilton, our VP, Finance and Corporate Development; and Christian Waldegrave, our Director of Research. Starting on Slide 3 of the presentation, we will cover Teekay Tankers' recent highlights. Teekay Tankers reported GAAP net income of $120 million or $3.47 per share and adjusted net income of $97 million or $2.80 per share in the fourth quarter. For the full year, Teekay Tankers reported GAAP net income of $351 million or $10.15 per share and adjusted net income of $241 million or $6.96 per share and realized gains on vessel sales for the year totaling $100 million. Spot tanker rates during the quarter were the second highest for a fourth quarter in the last 15 years. With our significant spot exposure and a low free cash flow breakeven, the company generated approximately $112 million in free cash flow from operations and at the end of the quarter, had a cash position of $853 million with no debt. This excludes $99 million of cash held in escrow at the end of the year related to payments for vessel purchases. Teekay Tankers continues to execute on its fleet renewal strategy. In January, we acquired three 2016-built Aframaxes for $142 million and bareboat chartered the vessels back to the seller on short-term contracts. We expect to take over full commercial and technical management of these vessels in the second and third quarter this year. In addition, we sold or agreed to sell two older Suezmaxes for gross proceeds of $73 million. And just this week, we finalized an agreement to sell our only VLCC for gross proceeds of $84.5 million with delivery during Q2. We expect to recognize total gains from these sales of approximately $45 million in the first and second quarter of 2026. Looking at our first quarter to date, the tanker market has continued to strengthen, and we have secured spot rates of $79,800, $56,900 and $51,400 per day for our VLCC, Suezmax and Aframax LR2 fleets, respectively, with approximately 78% spot days booked for our VLCC and around 65% spot days booked for our midsized fleet. Lastly, Teekay Tankers has declared its regular fixed dividend of $0.25 per share. Moving to Slide 4. We look at recent developments in the spot market. Spot tanker rates strengthened in the fourth quarter of 2025 due to a combination of fundamental drivers, geopolitical events and seasonal factors. Global seaborne oil trade volumes were near record highs during the fourth quarter due to the unwinding of OPEC+ supply cuts, coupled with rising oil production from non-OPEC+ countries, particularly in the Americas. In addition, tighter sanctions against Russia, Iran and Venezuela created trading inefficiencies, which have benefited tanker ton-mile demand while pushing more trade volumes away from the dark fleet towards the compliant fleet of tankers. Midsized tanker spot rates were further supported by disruptions on the CPC terminal in the Black Sea during November 2025, which led to a reduction of crude oil exports for around 2 months. This outage opened up the arbitrage to bring U.S. oil across the Atlantic to Europe, while poor weather in Europe prevented ships and ballast from returning across the Atlantic, giving rise to very strong rates for both spot voyages and lightering in the U.S. Gulf region. Spot tanker rates have strengthened at the start of 2026 with midsized rates trending above the 5-year high in February as many of the factors which supported the tanker market during the fourth quarter remain in place. Turning to Slide 5. We look at the impact of sanctions on tanker trade patterns. Geopolitical events continue to shape global oil trade flows and in recent months have pushed an increasing portion of global seaborne oil trade to the non-sanctioned or compliant fleet of tankers. As shown by the chart on the left, both Russia and Iran have found it increasingly difficult to sell their oil due to stricter sanctions leading to a more than 70% increase in sanctioned barrels at sea over the past 12 months. This includes both tankers in transit as well as oil held in floating storage and reflects the increasing complexity of the logistics chain for sanctioned oil exports. The end result is that buyers of Russian and Iranian barrels are having to find alternative sources of oil using the compliant fleet in order to compensate for the loss of sanctioned oil. This trend is most evident when looking at Indian crude oil imports. India became the top buyer of Russian crude over the past 2 to 3 years with imports averaging 1.6 million barrels per day in 2025. However, sanctions on Russian oil companies, Rosneft and Lukoil, coupled with an EU ban on the import of refined products made from Russian crude oil has led to a drop in imports to around 1 million barrels per day as of January 2026, with replacement barrels being sourced from the Middle East and Atlantic Basin via the compliant fleet. In addition, the U.S. and India recently signed a trade deal, which reportedly involves India further reducing the imports of Russian crude oil, which may push even more trade to the compliant fleet in the coming months. Finally, recent U.S. action in Venezuela is incrementally shifting trade flows to the benefit of compliant tanker demand. Close of Venezuelan oil to China via the dark fleet, which averaged 550,000 barrels per day in 2025 have fallen to 0 since the onset of the U.S. naval blockade in December. Venezuelan oil is now being transported entirely by the fleet of compliant tankers with most volumes in January being directed to the U.S. Gulf and Caribbean on Aframaxes. In the early part of February, we have also seen several loadings destined for Europe on Suezmaxes, while we understand that some Indian refiners have also booked cargoes for April delivery using VLCCs. To give an illustration of the potential impact going forward, an extra 500,000 barrels per day shift from Venezuela to the U.S. Gulf creates demand for approximately 20 Aframaxes. Turning to Slide 6. We review the key drivers for the medium-term tanker market outlook. Underlying tanker demand fundamentals remain positive. Global oil demand is projected to increase by 1.1 million barrels per day in 2026, which is in line with levels seen in 2024 and 2025. Demand could be further boosted by strategic stockpiling, particularly in China, where the country is projected to add just under 1 million barrels per day to strategic reserves during 2026 as per estimates by the U.S. Energy Information Administration. Non-OPEC+ supply growth is projected to increase by 1.3 million barrels per day in 2026, led by the Americas, which should lead to meaningful midsized tanker demand growth. The OPEC+ Group, which unwound over 2 million barrels per day of voluntary cuts in 2025 has announced a pause on further unwinds during the first quarter of 2026 and its supply policy for the remainder of the year is uncertain. On the supply side, over the recent months, we have seen an increase in tanker ordering, particularly for large crude tankers, which has pushed the size of the order book to a 10-year high when measured as a percentage of the existing fleet. As a result, tanker deliveries are set to increase in 2026 with a further acceleration in 2027. Though actual fleet growth will depend on the level of vessel removals through scrapping or via the migration of vessels from the compliant fleet to the dark fleet and the utilization of older vessels. While the order book size has increased over the past year, we should keep in mind that the tanker fleet is aging with the average age of the fleet now the highest in over 30 years, meaning that there will be a significant amount of replacement demand in the coming years. In fact, the order book, which now stretches into 2029 is completely offset by the number of compliant tankers reaching age 20 over the same time frame, not to mention the dark fleet of tankers, which already has an average age of over 20 years. So in short, while the tanker order book appears large on the surface, these vessels are needed to replace the older fleet of tankers, which are approaching the end of their trading lives in the coming years, although the timing of when vessels will exit the fleet is uncertain. Turning to Slide 7. We highlight TNK's key achievements in 2025. Reflecting on the year, the tanker market for 2025 was strong but volatile, influenced by several dynamic geopolitical factors. With our exposure to the spot tanker market and our low free cash flow breakeven levels, Teekay Tankers generated $309 million of free cash flows while returning approximately $69 million of capital to our shareholders via our regular quarterly dividend and $1 special dividend in May of last year. We commenced our fleet renewal process, including our recent transactions in January and February, the company acquired 6 vessels for $300 million, while selling 14 vessels for $500 million, booking estimated gains of approximately $145 million. As a result of these transactions, we have made progress towards reducing our fleet age. These transactions highlight our ability to act opportunistically given the dynamic market conditions. In addition to the fleet renewal transactions, we outchartered 3 vessels, extended an in-chartered vessel for another 12 months and sold our investment in Ardmore, generating a gross return of over 14% on this investment. Overall, our strong financial result was supported by our exceptional operational performance with 0 lost time injuries and 99.8% fleet availability, important metrics measuring the safety of our crews and reliability of our operations. Turning to Slide 8. We highlight Teekay Tankers' value proposition. First, as a result of our fleet profile, our operating leverage remains strong and the company is well positioned to generate significant cash flows in nearly any tanker market. With our 3 out charters and no debt, we have a low free cash flow breakeven of approximately $11,300 per day, which is down significantly from $21,300 per day in 2022. For every $5,000 per day increase in spot rates above our low free cash flow breakeven is expected to produce about $55 million of annual free cash flow or $1.60 per share. Second, Teekay Tankers has a strong balance sheet with no debt and a large investment capacity for future growth. Having $853 million cash position, we can transact quickly in this dynamic tanker market. And lastly, the company's performance is underpinned by our integrated platform. We believe our in-house commercial and technical management is a competitive advantage. Combined with over 50 years of operating experience in the tanker industry, we provide superior service to our customers and transparency through the value chain, which drives shareholder returns. In summary, the company's strategy over the last several years has been to maximize shareholder value through our exposure to the strong spot market. In 2025, we made progress to renew our fleet by making incremental investments in more modern vessels, while at the same time, selling some of our oldest tonnage. As we look ahead, our best-in-class operating platform and strong financial footing positions the company well to continue renewing our fleet, earning cash flow, building intrinsic value and returning capital to shareholders. With that, operator, we are now available to take questions. Operator: We'll take our first question from John Chappell with Evercore ISI. Jonathan Chappell: Brody, a couple of questions for you today on modeling. So the bareboat charters for the Aframaxes that you acquired and will take full commercial ownership in the second and third quarters. Between January and taking that full ownership, the P&L impact, is that you're just getting the bareboat rate that you chartered back to the previous owner. There's no OpEx, there's no D&A. There's no other impact except a revenue. Brody Speers: Yes, that's right. We're just getting the bareboat back. And those ships will actually dry dock in the first half of the year during that period, too, but we'll continue to get the bareboat rate during the dry docking. Jonathan Chappell: Okay. Great. The other thing I wanted to ask you was the G&A run rate. So you did the whole management reorg, et cetera. So as we look at kind of the last 3 quarters, is that the right run rate to think about going forward, maybe with some inflationary impact on there? Or is there anything that would either make that go up or down significantly from, let's call it, the last 3 quarter run rate? Brody Speers: Yes, I think that's right. I think if you look at even our annual G&A for the year, around $46 million. Going forward, I think we should be about that or maybe a little bit lower. So it approximates the run rate from the last few quarters. Jonathan Chappell: Okay. Final thing, sorry, just to harp on this stuff. It's the strategic stuff to market. I think we've covered that pretty well already. The D&A. So you've done a lot of fleet renewal, taken out the V, a couple more Suezmaxes. And then obviously, you're not going to add the 3 acquired Afras until, call it, the middle of the year. What do we think about for a first quarter starting point on D&A? Is it similar to 4Q? Or would it be a step down from there? Brody Speers: Yes. Yes, it should be pretty close to what we had in Q4 there at about $21.5 million or $22 million in the first quarter. Operator: Our next question will come from Omar Nokta with Clarksons Securities. Omar Nokta: Obviously, things are progressing quite nicely. You were mentioning the $850 million of cash you've got that gives you plenty of flexibility in this market to act quickly when an opportunity arises and you're getting close to that $1 billion number here, seemingly, I would say, in the next -- presumably the next few weeks or months. But -- and you have no debt. So just wanted to get a sense from you in terms of how you're feeling about this cash position you have on the balance sheet. Do you feel compelled to put that to work? And is there like a sense of urgency that you have either at your -- at the management level or at the Board level that you want to put that to work? And I guess maybe kind of related, obviously, to that is, how are you thinking about putting that to work when it's time? Is it more kind of drip fee dynamic in acquiring assets in the sale and purchase market? Or are you thinking more big picture M&A? Kenneth Hvid: Thanks, Omar. Welcome back. Good question. Obviously, it's a bit of a high-class problem we're sitting on here. But it's not something that's a big surprise to us. I mean we could obviously project this out. I think what has surprised us maybe in this quarter, last quarter and this quarter we are in here is how strongly the market has performed. That's obviously positive. We have still a lot of operating leverage and generating a lot of cash flow in this market. Had the market been low, we probably would have been a bit more active on the buying side. We still found a couple of ships, and we're happy about that. The way we look at it in a strong market, which very clearly, and we've seen the big uplift in tanker values here is that we're still an operator. We still want to renew our fleet. We still believe that there are deals that we can find in this market. So -- but at the same time, we also recognize that asset values have had another step up here, and that's natural as we are seeing spot rates as we have. I expect that we will continue to do a couple of purchases throughout the year here. I think it's a very tough environment to see that we do a major acquisition just because of the relative asset values. So I think the short answer to your question in terms of big acquisition versus drip feeding, I think, was your words. It will probably be more drip feeding with a couple of ships here and there. And the way we think about it is that we can still do it on a basis where we are selling maybe 1 old ship and buying 2 new ones and using a bit of the arbitrage that we have as we have seen a nice uplift also on the values of the older tankers that we have. Omar Nokta: Yes. Makes sense. And then I guess, perhaps a follow-up and clearly related. We're coming up on the 1Q dividend potential. I know you've declared $0.25. The past 3 years, you've conditioned us to anticipate a special with 1Q. Is the plan still to stick to that? And I know it's a Board decision, you can't just speak openly like that. But can we presume that the payout for the first quarter will be higher than what was done last time around? Kenneth Hvid: Yes. I'm just looking for my note to your question from exactly a year ago, Omar. And I think my answer at that time was that it's something we discussed with the Board at our March Board meeting and as we've done in the last couple of years, we typically announce any specials in connection with the May earnings release. Omar Nokta: Okay. I will try to remember that for next year. Operator: We'll now take our next question from Ken Hoexter with Bank of America. Ken Hoexter: Brody, I love going back to the May script to repeat it. So thoughts on -- you mentioned the 500,000 barrels increase in Venezuela can provide the increased demand for a number of vessels. Your thoughts on timing of Venezuela getting back up and running? Or is there an immediate amount that they've talked about kind of revamping and being able to scale up with speed before long-term capital investments have to be made. Is there a potential of that increase of 500,000 barrels? Kenneth Hvid: Yes. I think the -- it's Kenneth here. I'll pass it on to Christian. The oil is obviously being transported already now, as we said in our prepared remarks, but I'll let Christian comment on kind of our outlook for Venezuela. Christian Waldegrave: Yes. So last year, Venezuelan crude exports averaged about 800,000 barrels a day. We obviously saw in December and January after the U.S. naval blockade that those volumes fell to about 500,000 barrels a day, and it was all the long-haul flows to China that disappeared. Just looking at where it's tracking in February, we're already back up to about 700,000 barrels a day of exports. So the oil is starting to move again, and it's all going on non-sanctioned ships, primarily to the U.S. Gulf Caribbean region, but we've also seen 2 or 3 cargoes to Europe. And we know that India is starting to buy some barrels as well. So it looks like we're going to get back up to the normal run rate of 800,000 barrels a day of exports fairly soon. And then I think there's an expectation as well that with the Venezuelan oil industry opening up and foreign companies coming in and doing more investment that production and exports could be boosted within the year by another 200,000 to 300,000 barrels a day, but that's obviously dependent on how quickly they can get things moving there. So I think it's a good story for the tanker market in terms of the exports are shifting from the dark fleet to the compliant fleet. And then if we can get some extra production and volumes moving as well, then it's just going to benefit the midsized tankers, especially even more. Ken Hoexter: Great. How about the same thing, Christian, on an update on the Canada shipments? Christian Waldegrave: Yes. So it's an interesting one because, obviously, a lot of that Venezuelan crude, which is heavy sour was going to China. And so some of the Chinese state-owned refiners that were getting that heavy sour crude will probably be looking for replacement. And there are two areas they could replace it from. One is Middle East heavy crude and the other is Canadian. We have seen an increasing trend of the TMX exports going directly on Aframax to Asia. And I think it's a natural replacement for some of that Venezuelan crude. And we're also seeing a trend of the U.S. West Coast requirements are coming down because there's been some refinery closures there and the Benicia Refinery, I think, is in the process of closing down as well. So again, that just frees up more Canadian crude to flow to China. So I think we will see some volumes picking up there directly on Aframaxes, which again is going to benefit the Aframax market. Ken Hoexter: Yes. So it's staying on Aframaxes. It's not transloading the load. Christian Waldegrave: So now it doesn't seem to be transloading. It's going more directly on Afras rather than transloading a pile on to Vs. Ken Hoexter: Ken, how about a little history lesson, right? I mean it seems like something -- I don't know, maybe it's getting a little more antagonistic with Iran the last couple of days. If there is action, maybe a little history lesson on what's happened with rates and volumes with military action in the region? Kenneth Hvid: Yes. I think it's a good question. Right now, it's more in anticipation of something happening. And as you're probably alluding to, it's -- we go back to last time that we had action in the region where there was military action, and we looked at it back then, we saw a run-up in rates. We saw some security fears. I think we -- at the time, we pointed out that -- historically, we've never seen a closure of the Strait of Hormuz. But of course, that's what everybody is speculating about in the event that we see an escalation there, how is that going to drive up rates. And I would say the one difference we have this time around is that we've seen also consolidation in the VLCC segment. So it's a slightly different dynamic this time around in the event that charterers will be looking to secure tonnage quickly. But I think at this point, I mean, we see rates which are as high as we saw last time, but for slightly different reasons. And I think it's just a situation we need to watch. Christian, do you want to add anything? Christian Waldegrave: No, I think like Kenneth said, when we had the last time, obviously, it was last June during that 12-day conflict. And as Kenneth said, I think the big thing was during that time, there was no actual disruption to flows and to movements. It was more of a security sort of premium that caused the rates to spike and they came down pretty quickly. So it will depend if there's military action. Obviously, we don't know that. That's kind of speculative. But if there is military action, it depends on whether actual shipping and oil infrastructure is impacted or not. If the oil keeps flowing, then presumably, it will be a bit like last time, the effects might be short-lived, but it really depends on how it unfolds. Ken Hoexter: So if no attack on shipping or infrastructure, then rates -- you're saying they've already run up in anticipation and we see it cooling off. Okay. Got it. And then last one for me is the tanker order book. Now you mentioned 18% of the fleet, the highest since 2016, but you said optically, it's different as I think you said some of the vessels needed to replace an aging fleet. So maybe thoughts on -- your thoughts on supply/demand, Christian. How do you think we see the balance in the year ahead? Christian Waldegrave: Yes. It's going to be a timing issue, I guess, because as we laid out in the prepared remarks, the order book, while on the surface, it looks quite big. If you look at the fleet age profile, there was a lot of ships that were built in the late 2000s, especially 2008, 2009, 2010. So we're approaching a big hump in the fleet age profile that needs to be replaced. So the ships that are on order right now are needed to replace the older ships, but it's a matter of timing, right? We know when the ships are coming into the fleet, we don't know when ships are going to be exiting either through scrapping or other means. So in the meantime, like I said, the deliveries will ramp up this year and further into next year. So there's quite a bit of tonnage that needs to be absorbed. But for now, as we're seeing in the rate environment, the fact that the underlying demand is still positive. We're seeing more and more trade getting pushed to the non-sanctioned fleet. There are factors there that in the near term, at least suggest that the market should stay firm. But beyond that, it's going to depend on the timing of the order book coming in versus some of these changes that are going on, on the geopolitical side. So that's why we take a more balanced outlook on the medium term. But certainly, in the near term, I think things still look pretty positive. Operator: And that does conclude our question-and-answer session for today. I'd like to turn the conference back to the company for any additional or closing comments. Kenneth Hvid: Thank you very much for tuning in today. We look forward to reporting back to you next quarter. Have a great day. Operator: And once again, that does conclude today's conference. We thank you all for your participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the Brady Corporation Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ann Thornton, Chief Financial Officer. Please go ahead. Ann Thornton: Thank you. Good morning, and welcome to the Brady Corporation Fiscal 2026 Second Quarter Earnings Conference Call. The slides for this morning's call are located on our website at www.bradycorp.com/investors. We will begin our prepared remarks on Slide #3. Please note that during this call, we may make comments about forward-looking information. Words such as expect, will, may, believe, forecast and anticipate are just a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties, which could significantly impact expected results. Risk factors were noted in our news release this morning and in Brady's fiscal 2025 Form 10-K, which was filed with the SEC in September. Also, please note that this teleconference is copyrighted by Brady Corporation and may not be rebroadcast without the consent of Brady. We will be recording this call and broadcasting it on the Internet. As such, your participation in the Q&A session will constitute your consent to being recorded. I'll now turn the call over to Brady's President and Chief Executive Officer, Russell Shaller. Russell? Russell Shaller: Thanks, Ann. Thank you for joining today. We released our fiscal 2026 second quarter results this morning, and I'm pleased to report that this marks our 20th consecutive quarter of organic sales growth. Top line growth is a key metric and achieving this milestone for 5 straight years of quarterly sales growth demonstrates the strength of Brady's business model. This quarter, we also improved our gross margin. Our cash generation was incredibly strong, and we grew adjusted earnings per share 9%. I'm proud of the team and proud of our first half of the year. Brady's core mission is to create new world-class products to serve our industrial customers. Just last week, we launched an exciting new product that's unlike any other on the market, the i4311 transportable industrial desktop label printer. This is the first transportable printer that can print on materials that are up to 4 inches wide. It has an all-day battery. It's WiFi and Bluetooth enabled and includes our LabelSense software technology. The difference maker with this new printer is that it adds portability when our customers need to print on larger adhesive back materials, which greatly expands the use cases for our customers. With the i4311, our customers can set up shop anywhere, and they can print up to 5,000 labels on a single charge on hundreds of different specialty materials across wire ID, safety and facility ID and product ID. The battery is rechargeable and can be easily swapped out, maximizing productivity at all times. And just like our entire printer lineup, the i4311 is incredibly versatile and ideal for a wide variety of applications, including both indoor and outdoor uses, safety and OSHA requirements, harsh environments, lean manufacturing, electrical and datacom and lab applications. This is just one of the many examples of our R&D developments, which span our printers to RFID to optical image recognition to lasers and more. I've always been most excited about Brady's commitment to R&D. When I first joined Brady a bit over a decade ago, we spent roughly 3% of our revenue on R&D. This has grown to almost 6% in 2026, while our pretax earnings have more than tripled over the same period. To keep this trend going, we just hired Jane Li as our new CTO in January. I'm personally delighted to have her on Brady's leadership team, where she's bringing a wealth of insights to improve our technical road map. And as always, we are committed to helping our customers in their journey to identify products in a safe working environment. Now I'll turn it over to Ann to provide more details on our financial results. Ann? Ann Thornton: Thanks, Russell. Our financial results were strong once again in the second quarter. Organic sales were up 1.6%. And as Russell just mentioned, this was our 20th consecutive quarter of organic sales growth as a company, which was led by the top line performance in our Americas and Asia region. The Americas and Asia grew 3.1% organically, which was partially offset by a slight organic decline of 1.1% in the Europe and Australia region. We also reported strong growth in our adjusted pretax income as well as our adjusted diluted earnings per share in the quarter, while funding a significant increase in research and development. And we finished the quarter in a net cash position, which allows us to continue to invest in both organic opportunities and strategic acquisitions to continue to drive shareholder value into the future. Slide #4 details our quarterly sales trends. Organic sales grew 1.6% this quarter. Acquisitions added 2.3% and foreign currency translation increased sales by 3.8% for total sales growth of 7.7%. Slide #5 details our quarterly gross margin trending. Our gross profit margin was 50.6% this quarter compared to 49.3% in the second quarter of last year. Last year, we took actions to streamline our cost structure, and we closed manufacturing facilities in Beijing, China and Buffalo, New York, and we reorganized our overhead structure in Europe. Adjusting for the onetime charges in gross margin in last year's Q2, our gross margin -- gross profit margin would have been 49.8% in last year's second quarter. You can see the gross margin benefit from cost reduction actions in our results, along with our sales growth coming from our highly engineered products, both of which led to the improvement in gross profit margin from 49.8% last year to 50.6% this year. Turning to Slide #6. This details our SG&A expense trending. SG&A was $107.9 million this quarter compared to $105.9 million in the second quarter last year. As a percent of sales, SG&A decreased to 28.1% of sales 29.7% last year. If you exclude amortization expense from the current and prior year, as well as the facility closure and other reorganization costs that we incurred last year then SG&A was 26.7% of sales this quarter compared to 27.3% of sales last quarter. A decline of 60 basis points. We're seeing the benefits of our facility closure and other cost structure actions that we took last year, while we continue to invest in growth through targeted additions to our sales force as well as expanding in certain geographies. Moving to Slide #7. This details the trending of our investments in research and development. We continue to increase our investment in new products within our organic business with products like [ i-4311 ] that Russell just described as well as products from our acquisitions from last year. R&D expense was $24.3 million or 6.3% of sales this quarter which was an increase from $18.7 million or 5.2% of sales in last year's second quarter. We funded a nearly 30% increase in R&D in the quarter and still improved profitability. For the second half of this year, we do expect R&D as a percent of sales to be around 5.5% of sales, which would put us slightly below 6% of sales for the full fiscal year 2026. Slide #8 shows the trending of our pretax earnings. Pretax earnings on a GAAP basis increased 19.1% from $52 million to $62 million in the quarter. If you exclude amortization from both periods and exclude the facility closure and other reorganization charges we incurred last year, pretax earnings increased 7.7% from $62.4 million to $67.2 million. Turning to Slide #9. This details the trending of our net income and earnings per share. Our net income increased 19.1% from $40.3 million to $48.1 million. Excluding amortization from both periods as well as the facility closure and other reorganization charges from last year, net income increased 8% from $48.1 million to $52 million. GAAP diluted earnings per share was $1.01 compared to $0.83 last year. Excluding amortization from both periods and the facility closure and other reorg charges from last year, our adjusted diluted earnings per share grew to $1.09 this year from $1 last year, an increase of 9%. Our results continue to benefit from sales growth in our highest gross margin products as well as from the cost reduction actions that we took last year in certain areas of our business. Moving to Slide #10. This details our cash generation. Operating cash flow increased 34.7% to $53.3 million in the second quarter of this year compared to $39.6 million in the second quarter of last year. And free cash flow increased 30.5% to $42.3 million in Q2 of this year compared to $32.5 million in last year's Q2. Year-to-date, our cash flow from operating activities is up nearly 38% versus last year, which demonstrates our high-quality earnings and our consistent focus on cash-based decision-making. Slide #11 outlines the impact that our cash generation has had on our balance sheet. As of January 31, we were in a net cash position of $97.8 million. Our approach to capital allocation is consistent, and that is to always fund organic sales growth and efficiency opportunities. This includes investing in new product development, sales-generating resources, capability-enhancing CapEx and improvements in automation. We have the ability to invest throughout the economic cycle so that we're always positioned to grow the top line and our profitability. And we're focused on consistently increasing our dividends. At the beginning of this fiscal year, we announced our 40th consecutive annual dividend increase, which was a very exciting milestone for us as a company. From here, we're disciplined and opportunistic in our approach to both acquisitions and share buybacks. We're focused on identifying acquisitions with clear synergies, and we have the financial strength to do all of this to fund our organic business, our dividend, M&A opportunities and share buybacks. So far this year, we've purchased 121,000 shares for $9 million, which works out to an average price of $74.23 per share. Moving to Slide #12. This details our fiscal 2026 guidance. We are increasing the bottom end of our full year fiscal 2026 previously announced adjusted diluted EPS guidance range from $4.90 to $5.15 per share to $4.95 to $5.15 per share. And we are increasing the bottom end of our full year GAAP EPS guidance range from $4.57 to $4.82 per share to $4.62 to $4.82 per share. Our adjusted diluted EPS guidance range represents a range of growth of between 7.6% to 12% compared to 2025. We expect organic sales growth in the low single-digit percentages for the year ending July 31, 2026. Other elements of our guidance include depreciation and amortization expense of approximately $44 million, capital expenditures of approximately $45 million and a full year income tax rate of approximately 21%. Our income tax rate generally tends to be slightly lower in the fourth quarter compared to our full year expectation which is based upon our historical profit mix and the expected timing of other discrete adjustments. Potential risks to our guidance, among others, include potential strengthening of the U.S. dollar, inflationary pressures that were unable to offset in a timely enough manner or an overall slowdown in economic activity. Now I'll turn it back over to Russell to cover our regional results and to provide some closing thoughts before Q&A. Russell? Russell Shaller: Thanks, Ann. Slide 13 details the financial results of our Americas and Asia region. Sales were $251.6 million this quarter, up 7.6% from Q2 last year. Organic sales growth was 3.1%. Acquisitions added 3.5% and foreign currency translation increased sales 1%. We grew sales in most of our major product lines with growth once again led by our wire identification product line at nearly 8% in the quarter. Data centers are an ideal use case for our specialty wire ID solutions, and this has been a growth leader for us. Asia continues its strength of strong performance with organic growth of 14.2%. Our business in India continues to lead Asia with nearly 25% organic sales growth this quarter. We expanded into North and West regions of India over the last several years, and India is now our second largest business in Asia. Our reported segment profit in Americas and Asia region increased 16.9% to $53.8 million, and segment profit as a percentage of sales increased from 19.7% to 21.4% in the second quarter. If you exclude the impact of amortization in both the current quarter and last year's Q2 as well as the facility closure and other reorganization activities from last year, segment profit increased 11.3%. Our sales growth in Engineered Products as well as our cost reduction activities from last year have led to improved profitability. Tariffs are still a headwind in the U.S. compared to last year's second quarter. We're constantly taking steps to mitigate the effects and halfway through the year, we continue to expect the full year incremental impact to be at the low end of the range we initially provided, which was approximately $8 million. Slide 14 details the financial results of our Europe and Australia region. Sales were $132.5 million in the quarter. Organic sales declined 1.1% and foreign currency translated added 9% for a total growth of 7.9% in the region. The manufacturing environment in Europe has been weak for the last several quarters, and we're feeling the effects of that. But we still saw growth in our Wire ID product line in the quarter, so we're benefiting from the data center expansion in this key product line in Europe and Australia as well. We saw sales declines in Safety and Facility ID and Product ID, which are more closely tied to general manufacturing and automotive. Despite the weak macro activity in the region, we reported significant improvement in segment profit once again this quarter. Our reported segment profit in Europe and Australia increased 35.5% in the quarter to $15.4 million, and segment profit as a percentage of sales increased from 9.3% to 11.6%. If you exclude the impact of amortization in both the current quarter and last year's Q2 as well as the facility closure and other reorganization activities from last year, segment profit increased 10.6% compared to the prior year. We took several actions last year to reduce our cost structure in both Europe and Australia, and we're seeing the benefits in our results this year. We're positioned for increased profitable growth when manufacturing activity picks up in the region. I know we're on the right track halfway through the year. We're growing sales, we're improving profitability, and we're generating increased cash flow, all while investing in our products. I'm really looking forward to our customers' reactions to the brand-new i4311 transportable label printer, and we have a lot more to come in our product pipeline. We work hard to help our customers operate a safe and productive workplace in any industry anywhere in the world. Product marketing and identification requirements are rapidly changing with the upcoming GS1 standards and the European Union product labeling requirements being only a couple of examples. This means that our customers are facing a more extensive set of identification requirements that call for both the knowledge and the solutions to be able to comply. This is exactly where Brady excels. Our goal is to provide our customers with easy-to-use products that meet complex requirements in situations with a high cost of failure. We value our customers and our #1 focus is to provide them with solutions that keep them coming back to Brady. We've reported a strong first half of 2026. We have momentum in our Americas and Asia region, and we've nearly returned to growth in Europe and Australia. Our acquisitions added direct part marking and inkjet printing capabilities to our product portfolio, helping us achieve our objective, which is to provide easy-to-use solutions for all of our customers' identification need. With that, I'd like to turn it over for Q&A. Operator, would you please provide instructions to our listeners? Operator: [Operator Instructions] Our first question comes from the line of Steve Ferazani with Sidoti. Steve Ferazani: I wanted to start with -- what I -- to us was a negative surprise was the organic sales growth in the Americas, I mean, down to only just over 1%. I mean, if I group that with what you're doing in Europe and Australia, it looks like if I combine those, your organic growth is completely dependent on Asia right now despite the fact you're investing 6% plus sales in R&D. Was this a 1-quarter blip? Or where is the growth going to be? Ann Thornton: Steve, the -- our organic growth in the Americas and Asia region this quarter was actually up 3.1%. Steve Ferazani: I'm speaking specifically about the Americas. That's what I'm saying. If you put the Americas and group them with Australia and Europe, net, that's probably going to be down, which means all your organic growth came from Asia. Ann Thornton: Got you. Got you. My apologies, I missed that. Yes, the Americas on its own was up 1.4% and Asia on its own was up 14.2%. So we did take the big step back in the momentum on organic growth in the Americas on its own in the quarter. Steve Ferazani: So what I'm asking is, was that a 1-quarter blip? Or what's the trend here? What are you seeing as you late in the quarter from orders and now into pretty deep into Q3? Russell Shaller: Yes. So we feel like we're headed in a better direction for us. November was actually a little bit on the weak side in the Americas. But as we exited the quarter, we definitely saw some improvement. I think there is still some struggling out there with U.S. manufacturing, certainly not as bad as Europe, but it has not been as robust as we would have expected. Steve Ferazani: And how much of that 1.4% growth in the Americas was price versus volume? Russell Shaller: Virtually no price. Steve Ferazani: It was virtually no price. Okay. What do you think gets you back to a growth trajectory? Is it going to be completely macro dependent? Russell Shaller: Yes. We correlate very tightly, particularly in America to U.S. manufacturing capacity utilization, which right now is in the 78%, 77% range. We see something closer to 80% is very stimulative for us. It's starting to trend up a little bit, but it's still not at a point that we would like. Steve Ferazani: Okay. And then if I can ask about the very healthy margins again. It sounds like you weren't that aggressive on pricing, so it sounds like more of a mix for this quarter. Russell Shaller: Yes. It's a mix. As you can imagine, our more commoditized products have actually done less well compared to our engineered products. So while I'll say the empty calories of our commoditized products have clearly gone down year-over-year, the engineered products have more than compensated for that, which is, in turn, bumped up our margins. Operator: Our next question comes from the line of Keith Housum with Northcoast Research. Keith Housum: Russell, your confidence in Europe and Australia returning to growth here in the second half of the year. I guess what's giving you some of that confidence? Russell Shaller: So I was actually in Europe two weeks ago and kind of was taking a tour of pulse of manufacturing over there. It feels like there will be modest. I mean -- and when I mean modest, they'll go from a contraction to maybe a 1% growth. I'm not saying by any stretch of the imagination that we saw something super robust. But I'm hoping that they actually hit bottom towards the end of last calendar year, and they're starting to see a recovery. So I think there's still an awful lot of headwinds in Europe in terms of energy prices and some of their policies due to manufacturing. It's no surprise if you read about heavy manufacturing in Europe has been particularly hard hit by energy prices and the influx of lower-cost Chinese products. So we're hoping they're doing it. And we also are seeing some growth in some of the noncore European countries. Middle East is doing pretty well for us. The Poland and Eastern Europe also doing well, Scandinavia. Unfortunately, those economies are not quite as big as the Germany, France and U.K., which largely are still struggling. Keith Housum: Got it. Okay. And then the Gravotech acquisition is probably 1.5 years behind you. You guys have added Mecco or Mecco, I apologize whichever you say it. And how is that performing for you guys? I know you guys had some restructuring you guys were doing there, but how are we doing in terms of growth trajectory? Russell Shaller: Yes. So it's absolutely from a technology perspective, it has done 100% of what we wanted. We wanted to have that capability for direct part marking, which we see as a significant growth potential, particularly if you look at European digital passport and some of the initiatives here in the United States to have unique part traceability. I think in the short term, we're definitely seeing a little bit of an impact of European automotive. They do serve the European automotive market. And manufacturing in Europe, particularly in Germany, has been pretty hard hit. In fact, it is still below where they were in 2019. So there's one slice of Gravotech related to automotive that I think has been weak, but the rest of the business is doing well. And actually, the luxury personalization segment is doing the best amongst that group. Keith Housum: Interesting. Okay. I appreciate that. Just to get this question out there because I'll ask everybody, I know your printers use a small amount of memory. Any issues you guys are facing in terms of pricing or shortages on memory? Russell Shaller: So no issues so far on memory. We try to lock up supplies for a long period of time. We're a memory light user. Will it affect our [ BOM ] a tiny bit? Yes, probably. But we're not anywhere near, say, the usage of a tablet or a mobile computer or something like that. So at the margin, it's just a very, very small effect. Keith Housum: Got you. Okay. And I appreciate your commentary on R&D and R&D is an investment for the longer term, but maybe you can help reconcile it for investors because, again, we did see 1.1% organic growth or 1.6%, whatever it was, probably less than what we expected, but yet R&D has a significant investment. How should we reconcile the increase in the R&D versus the, I guess, the declining organic growth? Russell Shaller: So you need to compare it to our gross margin. If I look at our non-engineered products, we're probably collectively in the 40% gross margin. Now fortunately, that's a small percentage of our portfolio versus the engineered products are mid-50s and higher. I wish all of our products had the engineering behind them. So we continue to do that. I think that is 100% of Brady's growth story over the last decade. And it was a part of what I said. For us, engineering is a multiyear journey. The investments we're making today are things that pay back in 3 years. I would never look at engineering and R&D on a quarterly basis. It's kind of irrelevant. I would look at it more of the journey Brady has been on in the last 10 years where we've tripled our operating income while R&D has gone from 3% to 6%. So I wish we can keep that trend going for the next decade. And again, I am super delighted to have our new CTO joined. I can't say enough about the experiences she's bringing in a more connected ecosystem. She came from Honeywell. And I think that is -- she will help us get to the next level in the coming years. Keith Housum: Great. Last question for me. As I think about the European business, it probably has always had a more of the commodity type products, but it's been more defensible and the pricing has been better on that. Any signs or concerns that, that pricing for the commodity type of products might be breaking down? Russell Shaller: Yes. So that was always -- has been an issue in the U.K., much, much less so in the other countries. We've seen it. We continue to see some deterioration in the U.K. but it's also the backdrop of the overall U.K. economy, which isn't awesome as well. So as Brady goes on, I wouldn't say that there's any trend there that is catastrophic. It's just the long-term revolving of Brady out of commodity products into manufactured products. It's a journey we've been on for years. It will continue to happen. Unfortunately, it is a little bit of a drag on our overall growth, but we're going to get through it, and that's kind of the story of Brady. Operator: And I'm currently showing no further questions at this time. I'd now like to hand the call back over to Russell Shaller for closing remarks. Russell Shaller: Perfect. Thank you for your time and participation today. We exited the first half of 2026 with momentum going into the second half of the year. We're investing in new product development, and it's our highly engineered products that drive organic sales growth and profitability improvement. We have more products in our pipeline that are focused on solving our customers' problems in the simplest way possible, which also gives us the opportunity to engage with a broader set of customers and markets. Despite the tariff environment and the decline in manufacturing activity in Europe and Australia, we still grew organic sales for the 20th straight quarter in a row. We're improving our productivity while increasing our investment in R&D. We keep our focus on what we control, and we move forward with a long-term always in focus. I continue to be optimistic about this year and our ability to deliver improved results for our shareholders. Thank you for your time this morning. Operator, you may disconnect the call. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.