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Operator: Ladies and gentlemen, good afternoon. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Cadence Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] Thank you. And I will now turn the call over to Richard Gu, Vice President of Investor Relations for Cadence. Please go ahead. Richard Gu: Thank you, operator. I would like to welcome everyone to our fourth quarter of 2025 earnings conference call. I'm joined today by Anirudh Devgan, President and Chief Executive Officer; and John Wall, Senior Vice President and Chief Financial Officer. The webcast of this call and a copy of today's prepared remarks will be available on our website, cadence.com. Today's discussion will contain forward-looking statements, including our outlook on future business and operating results. Due to risks and uncertainties, actual results may differ materially from those projected or implied in today's discussion. For information on factors that could cause actual results to differ, please refer to our SEC filings, including our most recent Forms 10-K and 10-Q, CFO commentary and today's earnings release. All forward-looking statements during this call are based on estimates and information available to us as of today, and we disclaim any obligation to update them. In addition, all financial measures discussed on this call are non-GAAP, unless otherwise specified. The non-GAAP measures should not be considered in isolation from or as a substitute for GAAP results. Reconciliations of GAAP to non-GAAP measures are included in today's earnings release. [Operator Instructions]. Now I'll turn the call over to Anirudh. Anirudh Devgan: Thank you, Richard. Good afternoon, everyone, and thank you for joining us today. I'm pleased to report that Cadence delivered excellent results for the fourth quarter, closing an outstanding 2025 with 14% revenue growth and 45% operating margin for the year. We finished 2025 with a record backlog of $7.8 billion, well ahead of plan, reflecting broad-based portfolio strength and increasing contributions from our AI solutions. I would like to emphasize the essential nature of Cadence's engineering software. As I have stated previously, our platform is best viewed as a 3-layer cake framework, accelerated compute being the base layer, principal simulation and optimization as the critical middle layer and AI as the top layer to drive intelligent exploration and generation. This holistic approach ensures that our AI solutions are not just fast, but physically accurate and grounded in scientific truth. Building on this foundation, we are deploying Agentic AI workflows powered by intelligent agents that autonomously call our underlying tools. AI flows act as a force multiplier, enabling our customers to significantly expand design exploration and accelerate time to market, while driving increased product usage and deeper engagement across our entire platform. We see growing momentum on both AI for design and design for AI fronts. On AI for design, our Cadence AI portfolio continues to gain traction with market-shaping customers. Last week, we launched ChipStack AI Super Agent, the world's first Agentic AI solution for automating chip design and verification. It is built upon our proven physically accurate product and provides up to 10x productivity improvement for various tasks, including design coding, generating test benches and debugging. ChipStack has received compelling endorsements from Qualcomm, NVIDIA, Altera and Tenstorrent, among others. Our other AI products such as Cadence Cerebrus, Verisium and Allegro X AI are proliferating at scale. And our LLM-based design agents powered by JedAI data platform are delivering impressive results. On design for AI, the infrastructure AI phase is in full swing with AI architectures growing in scale and complexity. Customers are increasingly standardizing on Cadence's full flows to address their performance, power and time-to-market challenges. We continue to closely collaborate with market leaders on their next-generation AI designs spanning training, inference and scaling. We deepened our long-standing partnership with Broadcom through a strategic collaboration to develop pioneering Agentic AI workflows to help design Broadcom's next-generation products. We also expanded our footprint at multiple marquee hyperscalers across our EDA, hardware, IP and system software solutions. And we are particularly excited by the emerging physical AI opportunity, and our broad-based portfolio uniquely positions us to enable autonomous driving and robotic companies to address multimodal silicon and system challenges. In addition, we are increasingly applying AI internally to improve efficiency across engineering, go-to-market and operations. In 2025, we also furthered our partnerships with leading foundries. We expanded our collaboration with TSMC to power next-gen AI flows on TSMC's N2 and A16 technologies. We strengthened our engagement with Intel Foundry by officially joining the Intel Foundry Accelerator Design Services Alliance. Rapidus made a wide-ranging commitment to our core EDA software portfolio across digital, custom analog and verification solutions. And Samsung Foundry expanded its collaboration with Cadence, leveraging our AI-driven design solutions and IP solutions. Now turning to product highlights for Q4 and 2025. Accelerating compute demand driven by the AI infrastructure build-out and demanding next-generation data center requirements continue to create significant opportunities for our core EDA portfolio. Our core EDA business delivered strong performance with revenue growing 13% in 2025. Our recurring software business reaccelerated to double-digit growth in Q4, a testament to the strength and durability of our model. Our hardware business delivered another record year with over 30 new customers and substantially higher repeat demand from AI and hyperscalers. 7 out of the top 10 customers in 2025 were Dynamic Duo customers, underscoring the differentiated value provided by our hardware systems. With a strong backlog entering 2026, we expect this year to be yet another record year for hardware. Our digital portfolio delivered a strong year, driven by continued proliferation of our full flow solutions as we added 25 new digital full flow logos in 2025. We expanded our footprint at a top hyperscaler, growing our AI-driven synthesis and implementation solutions, including our 3D-IC platforms. A marquee hyperscaler embraced the Cadence digital full flow for its first full customer-owned tooling AI chip tape-out. Broad proliferation of Cadence Cerebrus continues and adoption of our Cadence Cerebrus AI Studio is accelerating. Recently, Samsung U.S. used it to tape out a SF2 design, achieving 4x productivity improvement. In custom and analog, our Spectre circuit simulator saw significant growth at leading AI and memory companies. Our flagship Virtuoso Studio, the industry standard for custom and mixed-signal design saw continued traction in AI-driven design migration across its vast installed base. A top multinational electronics and EV customer reported a 30% layout efficiency gain using our AI-driven design migration. Our IP business saw strong momentum with revenue growing nearly 25% in 2025, reflecting both the strength of our expanding IP portfolio and the critical role our STAR IP solutions play in the AI, HPC and automotive verticals. We achieved both significant expansions and meaningful competitive wins at marquee customers, demonstrating the superior performance and capabilities of our IP solutions across HBM, UCIe, PCIe, DDR and SerDes titles. We are seeing particularly strong adoption of our industry-leading memory IP solutions, including our groundbreaking LPDDR6 memory IP, which is enabling customers to achieve the memory performance and efficiency required for next-generation AI workloads. In Q4, we launched our Tensilica HiFi IQ DSP, offering up to 8x higher AI performance and more than 25% energy savings for automotive infotainment, smartphone and home entertainment markets. Our System Design and Analysis business delivered 13% revenue growth in 2025. Earlier in the year, we introduced the new Millennium M2000 AI supercomputer featuring NVIDIA Blackwell, which is ramping nicely and with growing customer interest across multiple end markets. Our 3D-IC platform has become a key enabler for the industry's transition to multichip architectures, which are increasingly critical for next-generation AI infrastructure, HPC and advanced mobile applications. Adoption of our AI-driven Allegro X platform is accelerating. Earlier in Q3, Infineon standardized on Allegro X and in Q4, STMicroelectronics decided to adopt our Allegro X solution to design printed circuit boards. Our reality data center digital twin solution continued its strong momentum and was deployed at several leading hyperscalers and marquee AI companies. BETA CAE continues to unlock tremendous opportunities, particularly in the automotive segment. With our previously announced acquisition of Hexagon's D&E business, we'll be poised to accelerate our strategy around physical AI, including in autonomous vehicles and robotics. In closing, I'm pleased with our strong performance in 2025, and I'm excited about the strong momentum across our business. As the AI era continues to accelerate, our AI-driven EDA, SDA and IP portfolio, powered by new AI agents and accelerated computing positions Cadence extremely well to capture these massive opportunities. Now I will turn it over to John to provide more details on the Q4 results and our 2026 outlook. John Wall: Thanks, Anirudh, and good afternoon, everyone. I'm pleased to report that Cadence delivered an excellent finish to 2025 with broad-based momentum across all our businesses. Robust design activity and strong customer demand drove 14% revenue growth and 20% EPS growth for the year. Productivity improvement across the company helped us achieve an operating margin of 44.6% for the year. Fourth quarter bookings were exceptionally strong, and we began 2026 with a record backlog of $7.8 billion. Here are some of the financial highlights from the fourth quarter and the year, starting with the P&L. Total revenue was $1.440 billion for the quarter and $5.297 billion for the year. GAAP operating margin was 32.2% for the quarter and 28.2% for the year. Non-GAAP operating margin was 45.8% for the quarter and 44.6% for the year. GAAP EPS was $1.42 for the quarter and $4.06 for the year. Non-GAAP EPS was $1.99 for the quarter and $7.14 for the year. Next, turning to the balance sheet and cash flow. Our cash balance was $3.01 billion at year-end, while the principal value of debt outstanding was $2.5 billion. Operating cash flow was $553 million in the fourth quarter and $1.729 billion for the full year. DSOs were 64 days, and we used $925 million to repurchase Cadence shares during the year. Before I provide our outlook for 2026, I'd like to share that it contains our usual assumption that export control regulations that exist today remain substantially similar for the remainder of the year. And our current 2026 outlook does not include our pending acquisition of Hexagon's design and engineering business. For our outlook for 2026, we expect revenue in the range of $5.9 billion to $6 billion, GAAP operating margin in the range of 31.75% to 32.75%, non-GAAP operating margin in the range of 44.75% to 45.75%; GAAP EPS in the range of $4.95 to $5.05, non-GAAP EPS in the range of $8.05 to $8.15, operating cash flow of approximately $2 billion, and we expect to use approximately 50% of our free cash flow to repurchase Cadence shares in 2026. For Q1, we expect revenue in the range of $1.420 billion to $1.460 billion. GAAP operating margin in the range of 30% to 31% non-GAAP operating margin in the range of 44% to 45%; GAAP EPS in the range of $1.16 to $1.22 and non-GAAP EPS in the range of $1.89 to $1.95. And as usual, we published a CFO commentary document on our Investor Relations website, which includes our outlook for additional items as well as further analysis and GAAP to non-GAAP reconciliations. In conclusion, I am pleased that we delivered strong top line and earnings growth for 2025, and we finished the year with a record backlog and ongoing business momentum, setting ourselves up for a great 2026. As always, I'd like to thank our customers, partners and our employees for their continued support. And with that, operator, we will now take questions. Operator: [Operator Instructions] And our first question comes from the line of Vivek Arya with Bank of America Securities. Vivek Arya: Anirudh, I'm curious, have you seen any disruption or change of thinking whatsoever at your customers in terms of them using AI to reduce or eliminate demand for EDA or IP or any other computer-aided engineering tools. Is there a scenario at all that you have discussed, right, or your customers might contemplate where they can use more of their internal tools or AI to displace what you're doing right now? Anirudh Devgan: Yes. Vivek, thank you for the question. I know this is a topical question on top of mind for investors. But like I said before, I mean, for us, we always look things as a 3-layer cake. And there's different kinds of software. There's a lot of discussion in terms of will AI replace some form of software. But you know well anyway, there are different kind of software. Our software is engineering software, you're doing very, very complex physics-based mathematical operations. So any AI tools that we are developing or our customers are using basically in the end, call our software to get the job done properly. So what we are saying instead is that -- and you can see that in our results, we can see this in our discussion with customers is there is -- as we move to these Agentic flows, it uses more of our software to get the job done than the other way around. So as we -- even like our own super agent, which is ChipStack, it is doing a part of the flow, first of all, that was not automated. Even in regular AI, there is a lot of automation in coding. That's one of the big applications. But if you move that over to chip design, if you look at our flow, there is an equivalent of coding, which is RTL code, which describes the chip or the system. But that part has been mostly manual. And then after that, our tools kick in to optimize the RTL to simulate, verify the RTL. So what we are doing with our AI flows, the top layer is we are adding extra tools that will automate the writing of RTL, but then still, it calls a lot of middle layer tools, a lot of the base tools to implement and verify that. And I've said before, like what we are seeing at our customers, they want to use more AI. And I think they will invest more in R&D. I think they will also hire more engineers. But as a percentage of spend, the more spend will go to automation and compute because the other thing which is unique to our end market is that the workload is exponential. If the chip goes from $100 million now to $1 trillion in a few years, they need to do a lot more work and then some of the work will be done by AI agents calling our base tool. So overall, to answer your question, we have seen absolutely no discussion with customers of reducing the usage. On the contrary, all these AI tools are increasing the usage of our tools. And of course, then the AI build-out also, as customers design more and more chips, that is also increasing the usage of our tools. Operator: And our next question comes from the line of Joe Vruwink with Baird. Joseph Vruwink: I maybe wanted to ask about how you're approaching the outlook for 2026. It looks like recurring revenue is set to accelerate, and that's normally well supported by backlog. Maybe can you talk about the key contributors to the recurring improvement? And then just on the 20% or so of revs that come from upfront sources, you obviously had an incredible 2025 with your hardware platforms and it sounds like you're expecting growth there again. I think we're in year 2 of that platform now. Can you kind of see a repeat of what you observed back in 2023. That was a very strong year 2 for the second-gen product. How maybe are you thinking about that product and just where it is in its life cycle? John Wall: Yes. Thanks for the question, Joe. This is John. As usual, at this time of the year, our guidance will reflect what we believe to be a prudent and well-calibrated view of the year. We finished the year with very strong momentum on backlog, and we saw that strength right across the board across all lines of business. And as Anirudh says, our view of the AI era is that it increases workload faster than headcount grows and Cadence monetizes workload through broad portfolio proliferation across EDA, IP, hardware and SDA. And we're seeing that flow through into all lines of business for us. Now typically, at this time of the year, our hardware is a pipeline business. We're expecting a very strong first half for hardware. But because we only typically see 2 quarters in the pipeline, we're quite prudent in the second half of the year. in this current guide, but that's no different to what we normally do. Same -- we typically try to derisk the guide for things like hardware and China at this time of the year. And if you look at how China has performed in the last 2 years, I think it was 12% of our revenue in 2024, 13% in 2025, and we expect it to be in that kind of range, 12% to 13% of our revenue as well for this year. But yes, we're seeing absolutely huge strength across the board, delighted with the strength of the guide. And just a key transparency metric you'll see in the CFO commentary that around 67% of 2026 revenue is coming from beginning backlog. And that gives us strong visibility into the multiyear recurring base. So we're very, very happy to see that recurring base get back to kind of double digits, kind of low teen growth. Operator: And our next question comes from the line of Joe Quatrochi with Wells Fargo. Joseph Quatrochi: Just kind of curious, maybe following up on that. On the verification and emulation hardware cycle, any sort of help on just kind of where you think you are at in that cycle? And then is there anything we should think about just in terms of memory availability from that perspective or just anything about margins given pretty significant price increases that we've seen across the DRAM spectrum? Anirudh Devgan: Yes, good question. So hardware, like you know, is in a multi -- every year is a record for hardware, and I expect that trend to continue. And the reason being, of course, these hardware systems become indispensable to the design of complex chips and systems. Actually, no complex AI chip or any other mobile or automotive chip, any complex chips are not designed without hardware systems, and we have the best hardware system on the market because we design -- just to remind you, we design our own chips made by TSMC, and we sell full racks. These things have trillions of transistors to emulate other chips. So even though it is reported upfront, as you know, because the customers will buy and use these systems for multiple years, the big customers are buying them almost every year, okay? And I don't see that trend changing. And like even I indicated like when we launched Z3, even Z2 was a very good system. So the fact that the system is second year now, I think it's still -- it has capacity to design systems of 1 trillion transistors, okay, which will last for several years to go. And in a few years anyway, we'll launch our next system. So we're always ahead of what the market will need. But in terms of demand, we don't see any difference versus -- if you ask me this year versus last year, the demand is only stronger, and you can see that in the backlog. And then how much this will grow, we will see. Like John said, beginning of the year, we are a little careful with hardware. But we'll update you middle of the year depending on how things are going. But hardware systems are performing well. We are taking share. And actually, what I feel is we are taking share in all our major product segments. So we are taking share in hardware. We are taking share in IP, which is really good to see now. This will be almost third year of strong IP growth. You know us, right? We don't -- 1 year doesn't make a trend for us. So -- but after 3 years, I can see that I feel good about our IP business. Hardware has been strong for a while. EDA, our core business is doing phenomenal, okay? 3D-IC, we are taking share. Agentic AI, we are first to market. We already have a lot of customers using our Agentic AI flow. So not only I feel good about the hardware business and where it is, actually, I feel really good of our overall portfolio and how we are performing. Operator: And our next question comes from the line of Jim Schneider with Goldman Sachs. James Schneider: I was wondering if you could talk about a little bit more about your -- your AI workflows. And if it's possible to quantify any of the benefits that your customers are getting from those workflows today, whether that be time to market, enhanced productivity per seat or so on? And maybe separately kind of address how you're able to monetize that and how broad that is across your portfolio today? Anirudh Devgan: Yes, Jim. I mean, first of all, the results are quite remarkable with AI. And like a few years ago, there was some skepticism of how much AI can benefit. But now, I mean, this is true in other areas, too. But definitely, in chip design, the results are fantastic and real. And I think there is a difference, I believe, in chip design versus other industries because one of the issues with AI flows is that you really don't know whether the AI result is correct or not. And this has been one issue even in wipe coding or software, like, okay, generate some code, but you spend a lot of time verifying that it is correct or not. And in some other industries, there is no like formal languages to design things. But in chip design, first of all, we have formal languages to design things, which is RTL. Plus over the last 20, 30 years, we have built all these products whose job is to make sure that the RTL is correct, okay? So all our middle layer tools, verification, simulation, optimization. So therefore, AI can be a force multiplier and accelerant to chip design versus other areas, okay? And so the way -- and the results, just to highlight, like we talked about Samsung getting 4x productivity. This is code from the customer or Altera talking about 7 to 10x productivity improvement. Now they're on parts of the flow for like RTL writing, which has been kind of manual, there can be massive improvements in productivity. And in the back end, for example, physical design, there could be 7%, 10% PPA improvement, 12% in that range. So just that you know that when you go from one node to another node, like 5 to 3 or 3-nanometer, 2-nanometer, the gain could be like 10%, 20%. So you're getting half the gain or almost the same gain as a node migration through better optimization with AI, okay? So I think the results are real. We have demand from almost all customers now to engage rapidly because they want to deploy AI in their R&D function. And you have to remember the way our customers deploy R&D in the -- apply AI in their R&D function is through Cadence and Cadence tools, right? So they are all very anxious to try all these things. We have all these engagements with all the top customers. And our monetization, and I've always said in the past that it takes some time for monetization to happen. It takes 2 contract cycles, and I think we are well into that now. So I think we are seeing the monetization now, which is reflected in our results is reflected in our record backlog. And Agentic AI can give further monetization. So the way we go to market with Agentic AI will be different because this is a new tool category of something that EDA never automated. Writing of RTL or test benches was manual, right? So we will price it as like a virtual engineer or agent. So that would be extra business. And our customers are willing to spend on that because it is productivity improvement for them. And then on top of that, just like before, it will call the base tools and they become a lot more licenses or usage will happen our base tools. And the reason for that is like in the non-AI flow, this is a misnomer that we are like seat count limited. We are exploration limited. Even if a user, like a manual user is running our tool, they will run like 3 or 4 or 5 experiments in parallel to see what is the best PPA. But with the Agentic AI flow, it could run 10 or 100 experiments in parallel. So our plan for monetization, which is working well, we'll add the Agentic AI part. We will charge for the Agentic flows from a virtual engineer, things like RTL writing and then, of course, for the licenses in the base layer and see how that goes. But from a customer standpoint, I mean, there's a lot of demand to try all these new tools. Operator: And our next question comes from the line of Gary Mobley with Loop Capital. Gary Mobley: Let me extend my congratulations on the strong finish to the year. John, I believe there's been an effort to move your SD&A customers into 1-year license terms. And if I'm not mistaken, that's been an impediment to growth. So the question is, is that the reason why SD&A revenue grew only 13% in 2025? And what's the consideration for 2026? And then what's the consideration for Hexagon when you roll that business? And I believe they were at a $240 million revenue run rate. Does that see a more limited -- is that number limited because of this 1-year license term transition? John Wall: Yes. Thanks for the question, Gary. Yes. And you're right in terms of SD&A, we lapped some tough comps in SD&A in Q4 2025, partly due to the multiyear business. So we did some multiyear business in Q4 2024 through our BETA subsidiary, and we have deliberately been moving to more annual subscription arrangements for BETA in 2025, and that impacts the year-over-year numbers. In saying all that, we're very pleased with SD&A's strategic trajectory and its role in the chip-to-systems thesis. From a mix standpoint, SD&A was like 16% of revenue in '25, consistent with '24 when you look at the year. and we expect it to grow. We expect all product groups to grow, but we're not guiding by segment. In relation to Hexagon, I think the annualized -- I think we've said this before at some fireside chats that the annualized revenue for Hexagon is about $200 million on a year basis. Now what that means, of course, that it's kind of like BETA where BETA did a lot of January 1 deals that -- like if that deal closed by the end of Q1, you're probably looking at $150 million revenue for the year. But we're not guiding. We don't have final numbers for anything like that now. But -- so we haven't got anything to do with Hexagon in this guide. Operator: And our next question comes from the line of Charles Shi with Needham. Yu Shi: Anirudh, I thought the best highlight of the quarter was the announcement around the marquee hyperscaler customer adopting Cadence digital full flow. I think you characterized it as for the first COT chip that they're going to tape out. So it sounds like we should expect that particular hyperscaler having a COT chip coming out in 2 or 3 years down the road. And just kind of want to ask a question like how many hyperscaler customers right now are doing COT and even for that particular customer having the first chip on COT, wonder what's your -- what do you think the ramp is going to be? Like how will they proliferate COT for the other chips they are developing? Because every hyperscaler these days have more than one chip. That's my understanding. And I just want to get some sense from you where you are in terms of that whole COT proliferation. And I believe this is one of the great stories about the Cadence about EDA in general, but I want to get your sense. Anirudh Devgan: Yes. Thanks for the question, Charles. I mean, without getting into like specifics of a particular customer, but I have said for some time now because we work with our customers confidentially. We share our road map with them. They share road map with us. And we are in a unique position to work with all the leading companies across the globe, right? And so I have said for a while that this trend of -- first of all, the trend that the customers, especially these big hyperscalers will do their own chips is even more firm now than 1 or 2 years ago. And it's evident now with some of the big hyperscalers, the success they're having with their own chips, right, especially in the last 6 months, that has become evident because it was not clear like 1 or 2 years ago, people thought people will not design their own chips. It doesn't mean that the merchant semi will not do well. A merchant semi will do fabulous, but the big customers will design their own chips, okay? And then this is also true that over time, the big customers will do more and more things in-house, starting with ASIC to hybrid COT to COT because these chips are -- I mean, this is more -- there's another step these days versus the old days, which is hybrid COT because these chips have multiple chiplets in them. So the customers can do some of the chiplets themselves, some can be outsourced and then they can do all of them themselves. So I think this trend is going to happen. And the reason we talk about it, it is happening and different customers will do it at different pace. But eventually, I think there will be multiple customers with their own chips. There will be multiple, of course, very significant semi-standard general purpose chips. And almost all of them will, over time, do more and more COT. And like you said, they do multiple chips now, at least 3 major platforms for each hyperscaler. So all this is good for us, good for more EDA consumption at the system companies, more IP being used internally, of course, more hardware, more system tools because they are nature -- system companies in nature. So we just want to make sure we are well positioned for that, but the trend is only accelerating of these big companies doing more themselves. And then as you know, this will also then apply to other verticals like automotive and robotics and things like that. Operator: And our next question comes from the line of Siti Panigrahi with Mizuho. Sitikantha Panigrahi: You talked about robust design activity. Can you give us some color in any kind of improvement on your traditional semi segment versus AI or automobile. If you could give some color, that would be helpful. And Anirudh, on the physical AI side, that was a big focus at CES recently. Have you started seeing any traction in that space? When do you think that will be a significant contributor? Anirudh Devgan: Yes. Thanks for the question, Siti. On both, I mean, the design activity is accelerating, like I was saying, and that's true for system companies and semi companies. And actually, I mean, a lot of the projections are that we might hit as the industry, semi might hit $1 trillion this year, which is like it used to be 2030, and we are like 4 years ahead of that. So this is very good news for the industry. And of course, we have deep partnerships with all the major semi players and definitely the AI leaders like with NVIDIA and with Broadcom. Actually, in this prepared remarks also, we highlighted our new collaboration with Broadcom, which are, of course, doing phenomenally well and so is NVIDIA. And then, of course, all the memory companies are doing phenomenally well. So overall, I think the semi companies, along with system companies are doing great. And I do see, especially in AI and memory, but we do see the general market, I'm sure you follow that, the mixed-signal companies, the regular, let's call it, the regular semi companies are also, I think, have a better outlook for '26 than '25. So it's good to see a broad-based strength in the semi business, which is about 55% of our business. And that just creates a better environment for us to deploy our new solutions. And they all want to deploy AI like we discussed earlier. And that's true for both semi and system companies. So overall, I feel that the environment is much more healthier starting '26 than it was like a year ago. Operator: And our next question comes from the line of Lee Simpson with Morgan Stanley. Lee Simpson: I just wanted to go back to ChipStack, if I could. I mean it seems relatively clear that you see the super agent as something that can transform from Verilog to RTL or the coding thereof at least. And then it would pull in basic layer tools for debug and optimization. So you get a more deterministic outcome for customers. But you teased us a little bit with the idea about where the further monetization would come. It didn't sound like it would be on a subscription basis. It would be on a sort of value to customer basis. So I wonder if you could maybe just expand a little on that and how that would be monetized? And maybe in particular, whether or not this would be margin accretive. You're at 45% now already. So could this help kick that on? John Wall: That's a great question, Lee. if I might jump in here on the monetization side that we don't see AI forcing a wholesale change from subscriptions to consumption. Our customers still want predictable access to trusted sign-off engines. and certified flows. So multiyear subscription remains at the core of our business. What AI does is it changes how much customers run the tools and where value is created. There's more automation. There's more iterations, there's more compute. So we'll attach more usage-based pricing for incremental capacity and AI-driven optimization. We have card models and token models that handle all those things. And then in a few areas on the services side, we can offer outcome-oriented packages that's structured around measurable improvements like cycle time, closure productivity with clear scope and governance. And that's kind of how we've been going to market in recent times. And it's worked out well for us. And you can see how it's turning around already our recurring revenue. Now we've been prudent in our outlook, and we're not expecting an uptick in that, but it definitely is -- there's plenty of opportunity for Cadence in AI. But as Anirudh said at the beginning in his opening comments there, that there's 2 real things that differentiate Cadence. First, we're engineering software anchored in physics and mathematically rigorous optimization. And that's not a nice to have. It's a core truth that our customers require as complexity rises. And then secondly, AI is not replacing our products. It's amplifying demand and accelerating adoption. And you see that in our results for 2025, and I think you see it in our guide for 2026. Anything to add? Operator: And our next question comes from the line of Jason Celino with KeyBanc Capital Markets. Jason Celino: Looks like IP had a phenomenal year. I know you have a slate of new exciting titles coming out, but I just wanted to ask how that translates to pipeline? Like does it take time to sell these new IP titles? And then with the guide overall, it looks mostly first half weighted. Does your visibility into the IP today look more first half or second half? Anirudh Devgan: IP is doing great. I mean, like I said, we want to see multiple years of performance before we call it out. And starting last year, I started to call it out because we saw like multiple years and good outlook into '26, which I think should come true. So our starting backlog and everything in IP is strong. And then we are also talking to -- I mean, not just our traditional business with TSMC, which is doing phenomenal, but we have opportunity to engage with the newer foundries. So overall, I think IP will be good this year, and we'll see how it progresses. We'll keep you updated, but it should be a strong year for IP in '26. Operator: And our next question comes from the line of Jay Vleeschhouwer with Griffin Securities. Jay Vleeschhouwer: Anirudh, if we think about what's currently occurring with the AI phenomenon in large EDA historical terms, the last time I would argue that there was a major let's call it, generational technical and procedural change in the industry was in the early 2000s. And I'd like to ask how this time might be different from that phenomenon in the sense that the last time, it was fairly narrowly based in terms of the number of products that grew or were newly adopted. We saw the very interesting phenomenon where average contract durations actually shrank. I think, as customers were looking to perhaps mitigate technical risk and wanted to retain some vendor flexibility or optionality, hence, the shorter durations at that time. Would you say that this time around, the adoption phenomenon might last longer than just a few years of the earlier generation I mentioned that there wouldn't be necessarily an adverse effect on contract durations, perhaps maybe even a lengthening with longer commitments from customers. And maybe talk about how in those big respects, this phenomenon might be broader and more long lasting than what occurred, again, many years ago, but it has some similarities. Anirudh Devgan: Yes. That's a great point, Jay. And I mean, we have to see how it unfolds because each time is similar but different. But we are not seeing any change in the duration, so which is good. We don't want to -- but there is always more opportunity to see more and more add-ons like we have mentioned in the past, -- now it will affect all parts of the flow like in the 3-layer cake, the top 2 layers will fuse together, AI and our core engines. And I think there is opportunity to add, like I said, add new product categories, especially in the front end, this kind of super agent to write RTL, which -- and write -- not just write RTL, which this is different from regular kind of wipe coding. So what is exciting about ChipStack is it's not just writing RTL, but also writing test benches, writing verification flows because you know that, Jay, anyway, that chip verification is as important as chip design. If you can't verify, then the thing -- because all our customers want things to be first time right. So I think the opportunities of AI and verifications are huge because that's an NP-complete exponential problem. So I think what is also exciting to me on the Agentic AI new tools is the ability to verify much more accurately. And then we go from there. I mean, I think I feel good about the strength of the -- at this point, I feel good about all the 3 layers of the cake. We have been innovating. We have been first to market in porting our software to new hardware platforms, whether they're parallel CPUs or GPUs or custom chips. Our base tools are performing remarkably well. We are taking share in almost all segments. And then we are first to market with Agentic AI. So I feel good about the portfolio. I feel good about the engagement. Now how exactly it will unfold, I think it should be more long-lasting, but we'll -- it's very difficult to predict. So we'll keep you posted, but so far, so good. John Wall: Yes. This is John. Just -- I mean, we've been around a long time in terms of chasing Moore's Law for the longest time. And we've built sales models that generally adapt to aligning price with value while preserving the durability of our recurring revenue model. I think what you can count on us to do is that we won't undermine customer predictability that subscriptions will remain the anchor in terms of our primary engagement with our customers. And then we won't take unbounded outcome risk either. Outcomes will be scoped and measurable. And we'll value -- we'll price on value metrics. Customers can control things like jobs and runs and compute and throughput and things like that. But -- so it will be very, very deliberate and thoughtful in terms of how we grow as we always are. Operator: And our next question comes from the line of Gianmarco Conti with Deutsche Bank. Gianmarco Conti: Congrats on a great quarter. I have a long question. Sorry to go back on ChipStack, but could we start by giving some detail about how can we bridge the gap between ChipStack, which we know is about RTL automation and where it evolves versus Cerebrus, which is about implementation with regards to NAND. I guess my question is about whether there could be some cannibalization in the future. And staying on the AI theme, -- could we have some information about given where model development is happening in AI, whether you're seeing more competition, particularly from the startups. I know that present there and whether that's kind of coming up the pitch clients. And finally, just to pile up, are there any harder constraints when you run more agents given that you're going to require more compute, especially at higher design scales? Anirudh Devgan: Yes. Sorry, there's some noise on the line. So I think I got the gist of the question, but I may not have gotten all the points. So sorry, I apologize in advance. I think your question is also about the front-end agent versus Cerebrus and also start-ups, if I -- so first of all, I think Cerebrus super critical. I mean -- so I think there will be several kind of AI Agentic flows that will be needed. Now we highlighted ChipStack because it's kind of new, and it's a new category of RTL design and verification. But there are at least several agents that we are actively developing. Cerebrus, we also extended the Cerebrus to full flow. So there has to be a front-end design agent like Cerebrus. There's a back-end agent for physical implementation because that takes a lot of time right now, and there's a lot of demand for making the implementation more efficient. And there's similar principles apply in Cerebrus AI Studio. We do more exploration and the customer gets better results as a result of that. But there will be a lot of activity we will highlight in the future on the back end, on the physical design. So there's digital design and verification is one area. physical design in another area. Analog, of course, is ripe for. Finally, we have new technology to see if we can automate more and more of analog and migration flows. And then on packaging and system design. So we highlight ChipStack because we're super excited about it, but that doesn't mean that all the other -- there are 4 or 5 big agentic flows that we are developing. On the start-ups, we always watch all the start-ups. We have a history of also acquiring them if they are good, but more in the earlier stages like we did with ChipStack. I think that was the best AI start-up out there. And we are very confident in our own R&D. We have like 10,000 people, the best R&D team in computational software. Half of them have advanced degrees. We have 3,000 people with customer support engineers. We're regularly meeting with customers -- with big customers in a given week, we'll have multiple R&D meetings with their R&D. So we keep track of what the customer wants. We have massive investment in R&D. And typically, I think the start-ups are successful in areas we don't focus in or if you want to enter in new areas. But in terms of AI, we are completely focused. And we always use start-up as an accelerant if need to, but we will have massive investment in this space in all the major domains that our customers want. Operator: And our next question comes from the line of Ruben Roy with Stifel. Ruben Roy: Anirudh, you answered bits and pieces of what I'm about to ask, but I was hoping to put together a question on SD&A and just to understand sort of the longer-term strategy. It seems like some companies, enterprises, industrials otherwise are maybe thinking about pulling some simulation workloads in-house or partnering with the AI infrastructure ecosystem. We've seen Synopsys and NVIDIA talk about targeting Omniverse digital twins for that type of thing. How should investors think about your strategy? Is it sort of a neutral strategy and you'll work with accelerated compute providers, et cetera, and their tools? Or are you trying to build sort of an ecosystem that's Cadence specific? I'm just trying to understand kind of longer-term strategy and thinking around SD&A. Anirudh Devgan: Yes. Thank you for the question. So in SD&A, like there are 2 critical areas for us. So one is 3D-IC and all the innovation that's happening, both at the packet level analysis. And then the other is physical AI, physical simulation like for planes and cars and robots and drones. And that's one of the big reasons to acquire BETA and then Hexagon. But we are focused on building the core engines, okay? And the core engines will work with the accelerated compute, like we have -- we have done GPU joint work with Jensen in India for years. And we were the first to port all our soft solvers to kind of accelerate compute platform because the physical simulation word just is -- a lot of the simulation and physical like cars and planes and robots kind of CFD and structural simulation. And I've said this before, is naturally without getting too technical, is naturally matrix multiply, okay? And GPUs and NVIDIA is exceptional in that because AI at its core is matrix multiply. So it's a good fit. And then we work with Omniverse and all. But that is not in -- Omniverse is a great platform, but when they actually run Omniverse, they will run our tools through that. So this is another way to go to market. And then also directly with customers. So we are neutral to that, but Omniverse is a great platform to deploy our products and NVIDIA has highlighted that with several of our customers. But our goal is to build the basic -- we are an engineering software company. We build the basic solvers that can solve the most difficult problems, combine them with AI, combine them with compute and deploy it to all platforms. So I feel good about our position that way. Operator: And our next question comes from the line of Andrew DeGasperi with BNP Paribas. Andrew DeGasperi: I just had a question. You mentioned several times in the prepared remarks about taking share across the board. And I was just curious, is this kind of a change relative to previous quarters? And is it focused in any particular area? And are you surprised by this relative to what you've seen in the past? Anirudh Devgan: Yes. I think our competitive position has improved. So we are noticing that and calling that out. And definitely in hardware, given the uniqueness of our platforms in IP. And I mean a lot of it, you can see it in the results as well. Our growth is much higher than the market. So IP is doing well. Hardware is doing well, EDA, 3D-IC, and we are holding, of course, our traditionally good position in analog and gaining in digital and verification. So I feel very good about -- we are technology-centric, R&D-centric company first. And I think all those investments are paying off with customers adopting more of our flows. Operator: And our next question comes from the line of Kelsey Chia with Citi. Wei Chia: Congrats on the great results. I'd like to dive a little on China. So John, you mentioned that you contemplated a more prudent guidance from China. China revenue grew 18% last year, outpacing corporate average and also well above your initial guidance heading into 2025. How should we think about the sustainability of this strength? And also, what are the assumptions you have embedded in that guidance? John Wall: Yes. So look, as we said earlier that the assumptions embedded in the guidance is that we saw 12% of revenue coming from China in 2024 and 13% in 2025, and we expect it will be in a similar range, 12% to 13% for 2026. But what we've seen in China is design activity remains very, very strong, and we're seeing strong bookings growth in the region. But visibility is -- visibility in the pipeline is near term in the first half of the year. So the second half of the year, there's probably more prudence in the second half of this year's guide for China than there would be in the first half because we have more visibility in the first half. Anything to add on design activity in China? Anirudh Devgan: Design activity is good in China. And I think it has stabilized. I mean we had mentioned this last year also, second half had stabilized. And I think it continues to be strong. I mean, China is all the trends that are in the U.S. are also in China, a lot of AI chips, a lot of physical AI is even stronger with cars and autonomous driving, EVs. So it's good to see China doing well. Operator: And our next question comes from the line of Joshua Tilton with Wolfe Research. Joshua Tilton: I will echo my congratulations on a strong quarter. I kind of have a high-level one. I know a lot of times we focus on like what the 3-year CAGR has been. And I think on this call, Andrew mentioned that semis companies now represent or still represent, I think, from my understanding, about 55% of the business. So my question is, how do we think about growth over the next 3 years as the mix of semis and systems levels out and what feels like the mix of upfront and recurring levels out at what I'm assuming is kind of more sustainable levels than the shifts you've seen over the last few years? Anirudh Devgan: Yes. I think we are super excited about the system companies doing more silicon. And there have been some questions in the past. And like I had said before, I think this is irreversible and accelerating trend, okay? And of course, we gave several examples this time. And especially because of AI, the system companies will do a lot. And then with physical AI, they will do even more. Now that number, 55-45, first of all, moves very, very slowly because the semi companies are doing well, too. I mean we are growing at a record pace, but both of them are growing. So semi companies, okay, what NVIDIA has done, of course, is phenomenal. What is happening with Broadcom is phenomenal. And then Qualcomm, MediaTek, there are so many semi companies are doing phenomenally well. So the ratio, I think more and more system companies will contribute more, but it doesn't move as fast as you would think, which is a good thing because the semi companies are also growing rapidly. And of course, semi companies will have an essential role in the build-out of AI, which is driving all this growth. So that's what I would like to say. John Wall: Yes. And Josh, the -- I think I mentioned before, we expect the recurring revenue mix to remain around 80% in fiscal '26, and that's consistent with 2025. And when we say that we have a prudent guide for 2026, I think there's as much upside in our recurring revenue side of the business as there is in the upfront side. Strategically, we like the balance. Recurring provides durability, upfront reflects areas where customer demand is accelerating, and we have differentiated assets. But we're seeing strength right across the board. And I think that's why Anirudh is talking about share gains. Operator: And our final question comes from the line of Nay Soe Naing with Berenberg. Nay Soe Naing: Maybe one for John. I mean you mentioned about leveraging AI internally. And I was wondering how we should think about that in our models how should we think about your incremental margins going forward? I think with your '26 guide, what you're implying is incremental margins of about 51%, which is slightly below the rate that you've been trending in the last recent or last few years as well. So I just wanted to triangulate with the internal AI leverage and how you're guiding for margin for '26 and how we should think about margin a bit longer term in the age of AI? John Wall: Yes. Thanks for the question. I think if you have a look at what we achieved in 2025, we achieved incremental margin of 59%, I think. And I think that points to the fact that there's no near-term ceiling on operating leverage for the company. I mean the company has performed at about 45% operating margin. So there's a lot of upside to that incremental margin of 59% that we achieved in 2025. Now generally, we're more prudent with our guide at the start of the year, and we try to build from there. But -- so I think if you compare the right compare for the 51% that's in the current guide is probably against what we would guide for incremental margin at the start of each year. But -- and I think it's one of the strongest guides that we've ever had. And then in relation to your commentary about AI and our use of that internally, that's absolutely right. That's what Anirudh is talking about for years now that it's designed for AI and AI for design internally at Cadence, we learn a huge amount from our own internal group in terms of how AI is used. But -- and if you like, I mean, we've -- we've built a great business around emulating hardware and a lot of our AI usage is like emulating engineering flows that -- and we take advantage of those, and they're helping us to get more value out of the R&D investments that we're making. But we expect to do the same as our customers in that when you have access to more engineering capability and being able to do things faster and leverage AI, we'll probably do more R&D and it will be more people, more AI, not less people. Operator: And I will now turn the call back to Anirudh Devgan for closing remarks. Anirudh Devgan: Thank you all for joining us this afternoon. It's an exciting time for Cadence as we begin 2026 with product leadership and strong business momentum. Our continued execution of the intelligent system design strategy, customer-first mindset and our high-performance culture are driving accelerated growth. Great Place to Work and Fortune Magazine recognized Cadence as one of the Fortune's 100 Best Companies to Work for in 2025, ranking it #11. And on behalf of our employees and our Board of Directors, we thank our customers, partners and investors for their continued trust and confidence in Cadence. Operator: And ladies and gentlemen, thank you for participating in today's Cadence Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. This concludes today's call, and you may now disconnect.
Operator: Thank you for standing by, and welcome to the Fletcher Building Fiscal Year '26 Half Year Results Briefing. [Operator Instructions]. I would now like to hand the conference over to Mr. Andrew Reding, Managing Director and Group Chief Executive Officer. Please go ahead. Andrew Reding: Good morning, everyone, and thank you for joining us for Fletcher Building's half year results for the 6 months ended 31st of December 2025. Turning to the agenda on Slide 3. I will begin with an overview of the first half of financial year '26 and the key themes for the half and then step through our operating performance across the divisions. Will Wright, our CFO, will follow with a detailed review of the financial results, and I will then return to discuss our outlook for the remainder of the year. Turning to Slide 5. Overall, conditions remain tough, particularly in New Zealand. And whilst we have some earlier operation -- early operational and efficiency improvements from the implementation of our strategic plan, we still have a long way to go. There are 5 key messages from the half. Firstly, our performance was mixed across the period with quarter 2 volume improvements unable to fully offset quarter 1 weakness. Secondly, our core businesses demonstrated resilience despite subdued markets. Thirdly, we continue to exhibit disciplined capital allocation. Fourthly, further cost-out initiatives were implemented, and these will increasingly benefit the second half. And finally, we made significant progress on portfolio simplification, including the divestment of Construction. Slide 6 shows the tangible progress we continue to make on our turnaround plan. Starting on the left-hand side, over recent months, some of the key initiatives we've executed on are the Australian and Steel divisional restructure, the first phase of corporate restructuring, reduced forward capital commitments and implementation of the decentralization restructure. In the middle column, our short-term focus continues to be on key strategic priorities that simplify our business and ensure that we have a more robust balance sheet going forward. We'll now focus on 3 key strategic priorities, in particular, completing the construction divestment, completing the sale of Felix Street and progressing the residential and development strategic review. Finally, over the medium term, we are going to continue to embed the new operating model, simplify the portfolio further and reset the dividend policy once we move into the lower half of our net debt target range. Turning to the Construction divestment on Slide 7. You'll already be familiar with the terms of the deal announced last month. This is a major step in simplifying our portfolio and strengthening our capital structure. The headline sale price is $315.6 million, and there is a potential increase subject to contract outcomes of up to $18.5 million. After adjustments and transaction costs, we expect net proceeds of around $300 million to $315 million, and all of this will be applied to debt reduction. Regulatory approvals are underway, and our current best estimate of completion is during the first quarter financial year '27. VINCI knows Fletcher Construction well and has a deep commitment to New Zealand and the country's infrastructure pipeline. That makes VINCI an excellent long-term owner for the business and its people, customers and partners. On Slide 8, we have a brief overview of the group financials for the half. Overall, you will notice our performance was broadly consistent year-on-year. This is a creditable performance given the continuing weakness in the New Zealand and Australian building sector, particularly during the first quarter. Revenue was broadly in line with the prior period at $2.9 billion, down just 0.5%. Continuing operations EBIT was $145 million, nearly flat year-on-year. On a like-for-like basis, including discontinued operations, it was $151 million compared to $167 million in the first half financial year '25. Net profit from continuing operations was positive at $45 million, and this is the first positive result since June 2023. These results are supported by cost-out initiatives and market share gains in key businesses. Net debt increased to $1.16 billion. This is below our internal expectations and reflects disciplined working capital management and capital allocation decisions, partially offsetting historical residential land purchase commitments of $151 million. Cash flows from operating activities improved materially to $156 million compared to $87 million in the prior period. Overall, the core businesses delivered stable performance despite challenging trading conditions in the first quarter. Moving to Slide 9. Despite the market environment, operational execution across the group remains strong. Firth opened its new flagship batching plant in Auckland. Golden Bay delivered a resilient result and lifted coal substitution. Humes added 3 new branches, enabling a market share growth initiative and Winston Aggregates advanced recycling initiatives and established a quarry joint venture. Winston Wallboards successfully trialed up to 10% recycled content in plasterboard production, and Laminex Australia delivered $14 million of cost out whilst Fletcher Insulation commissioned its new acoustic panel plant. These actions help demonstrate the underlying operational momentum we're building. I'll now turn to operating performance. Over the next few slides, I'll step through divisional performance and the demand backdrop across New Zealand and Australia. Slide 11 provides a snapshot of performance across the 5 divisions. Overall, a mixed bag. Light Building Products grew EBIT despite the environment. Heavy Building Materials experienced some margin pressure, reflecting softer volumes and cost inflation. Distribution remained challenged with further margin weakness. However, we have seen early signs of stabilization nearing the calendar year-end, and we continue to monitor that closely. Residential and development volumes were materially lower, owing to phasing of key developments, while product mix changes due to bulk section sales also impacted on earnings performance. Construction now discontinued, experienced reduced activity as key projects completed and pipeline phasing moved out. On Slide 12, we can see that New Zealand demand has remained subdued, especially in the first quarter. Wallboard volumes were broadly flat, and we're seeing very gradual improvement in daily sales. Aggregates volumes were down more than 13%, owing to weak roading activity and further major project delays. Golden Bay volumes were flat year-on-year, but up 4% versus the second half of financial year '25. PlaceMakers frame and truss volumes continued to recover with a strong December. However, intense competition again means margins are challenging. Humes was materially impacted by civil and subdivision markets, which have remained extremely weak over the last 2 years. In general, competitive intensity remains high across many categories, keeping margins under pressure. In comparison, Slide 13 shows how Australian volumes were more positive. Laminex Australia achieved 6.6% growth, supported by increased activity in residential renovation and competitor supply constraints. Fletcher Insulation volumes improved owing to the shift towards higher density products under updated building codes and Iplex Australia volumes varied by segment, being strong in Electrical and Plumbing, but softer in Civil. Stramit volumes were below the prior corresponding period on a 12-month rolling basis, but when compared on a 6-month basis, have started to show improvement. Overall, we're seeing a more balanced environment than New Zealand. Also, our ongoing cost-out efforts have positioned the Australian businesses well for operating leverage as volumes recover. Turning to Slide 14. Residential and development volumes were 27% lower than the prior corresponding period with 223 units taken to profit. You'll see in the chart at the right, this was the second lowest half since financial year 2020. Bulk land sales formed a higher proportion of the mix, so margins were lower and thus it's difficult to compare to prior years. Weekly net sign-ups averaged around 10 per week compared to 16 last year, reflecting cautious buyer behavior. I will now ask Will to address the financial results in detail. William Wright: Thank you, Andrew, and good morning, everyone. At a high level, this is a result that clearly reflects a challenging operating environment, particularly during the first quarter. While volumes across a number of end markets remain subdued, particularly in residential and distribution, we are seeing meaningful progress on cost reduction, cash generation and transitioning to a more resilient balance sheet. Moving to Slide 16, the income statement. Revenue for the half was $2.9 billion, broadly flat year-on-year. However, the headline number masks some quite different underlying trends. On the positive side, we saw volume and share gains in businesses exposed to renovation-driven demand, such as Winstone Wallboards and Laminex. These gains were offset by lower residential settlements, weak infrastructure demand and compressed margins in our distribution businesses. Warehouse and distribution and SG&A expenses have seen an annualized decrease in structural costs of $63 million with approximately $31 million of benefit in the first half. Like-for-like EBIT, including discontinued operations was $151 million in the half compared to $167 million in the prior corresponding period due primarily to lower construction earnings. EBIT from continuing operations was $145 million, down just $2 million year-on-year. This is despite significant volume headwinds and reflects disciplined cost management. Turning now to discontinued operations, which relates primarily to the Construction division. For the half, discontinued operations recorded revenue of $519 million and a net loss after tax of $56 million. EBIT was modestly positive at $6 million, but this was more than offset by $81 million of significant items made up of additional provisions for legacy vertical projects, closure and wind-down costs in the South Pacific operations and legal costs associated with legacy construction claims. The transaction materially simplifies the group, reduces risks and improves the quality and predictability of earnings and cash flows going forward. Any cash flow and cost-out benefits from the divestment are expected to be realized from FY '27 onwards. Slide 18 illustrates the key drivers of year-on-year movement in EBIT. The most significant headwinds were lower volumes, particularly in residential and development and distribution as well as in infrastructure-exposed businesses, alongside ongoing cost inflation in areas such as energy, labor and leases. These impacts were largely offset by a combination of cost-out initiatives, market share gains in core products and improved operating discipline across the group. Cost out has been broad-based, spanning manufacturing efficiencies, procurement, overhead reduction and simplification of organizational structures. We have more work to do on underperforming businesses with 8 business units losing money in the first half with a total negative EBIT contribution of $12.9 million. Turning to the balance sheet. Invested capital is $5.9 billion, down from $6.3 billion at December '24, reflecting portfolio simplification, asset impairments taken in prior periods and disciplined capital deployment. Working capital is well controlled with inventory and debtors both lower than the prior year, reflecting a more balanced and less volatile approach to managing trading cash flow. Residential and development invested capital increased during the half, driven primarily by $151 million of land purchases. We expect a further $65 million of purchases in the second half with additional commitments of $100 million in FY '27 and circa $35 million in FY '28. Overall, the balance sheet is in a stronger position than 12 months ago, and we remain focused on further simplification, lease reduction and disciplined capital allocation. Turning to Slide 20. Net cash flow from operating activities was $156 million, up from $87 million in the prior period despite a challenging trading environment and significant residential working capital investment as a result of land purchase commitments made several years ago. This reflects strong EBITDA conversion, disciplined capital management of working capital and legacy construction cash inflows. Investing cash outflows primarily relate to growth projects, which have been in flight for a number of periods, including Taupo OSB plant, new frame and truss capacity and the Auckland first batching plant. Moving to Slide 21. Central costs reduced materially year-on-year, reflecting the actions taken to simplify the organization and decentralized decision-making. Group technology costs reduced following the restructuring and rationalization of digital projects. Corporate overhead costs also reduced, reflecting a smaller head office, lower insurance costs and lower short-term incentive accruals aligned to first half performance. As the portfolio continues to simplify, particularly following the construction divestment, we expect further opportunities to rightsize central functions. Turning to Slide 23. Working capital volatility has been a key focus area for the group. Over the past 2 years, volatility in trading cash flows has required the group to maintain elevated levels of debt headroom. As you can see on the chart, in the chart on the left, whilst we have more work to do, the actions taken to improve discipline are now delivering more stable outcomes with movements returning closer to long-run averages. As you can see on the chart right, portfolio simplification, including the exit of construction and potential changes in the residential division are expected to materially reduce working capital volatility over time. This will support a more efficient capital structure and reduce reliance on excess liquidity buffers. Capital allocation remains tightly controlled with a focus on improving ROIC. CapEx and investments totaled $161 million in the half, broadly flat year-on-year. As you can see in the chart, spend was prioritized towards in-flight projects, including continued investment in Taupo -- in the Taupo OSB plant, frame and truss capacity and concrete manufacturing assets. The divestment of construction will result in a meaningful reduction in future CapEx requirements, particularly around asphalt plant renewals previously planned for FY '27 and FY '28. Excluding OSB, stay-in business and growth CapEx was down $17 million versus the prior corresponding period. We remain committed to disciplined capital deployment and expect overall CapEx to moderate as the portfolio simplifies. We now expect full year CapEx to be approximately $290 million to $310 million, down from the previous guidance of $320 million to $340 million. Moving to Slide 24. Lease management is an important lever in improving ROIC and balance sheet resilience. Continuing operations lease liabilities reduced by $172 million, driven by a reassessment of our lease renewal assumptions and site exits. Construction divestment is expected to reduce lease liabilities by a further $76 million, materially lowering group exposure. The inclusion of right-of-use assets into ROIC calculations has helped to ensure lease impacts are fully reflected in performance assessment. Turning to funding and liquidity. The group continues to make progress in transitioning to a simpler, lower cost, more resilient cap structure. The USPP debt was fully repaid and canceled during the period with associated break and make-whole costs recognized in funding expenses. The decision to exit the USPP market simplifies the funding mix and covenant package and lowers the effective interest rate. We also established a new $200 million 2-year liquidity facility and extended our $325 million tranche of the syndicated facility to FY '30. At period end, we had $750 million of undrawn facilities, providing good liquidity headroom for our business. Average debt maturity is 2.3 years. And whilst FY '28 maturities are elevated, this is a reflection of the transition of our capital structure, and we are already working on refinancing options. Pleasingly, Moody's reaffirmed our rating, and we remain committed to maintaining investment-grade credit metrics. Finally, net debt on Slide 26. Net debt increased to $1.16 billion compared to $999 million at June '25. The primary driver of the increase was residential working capital investment, particularly the $151 million of land purchases during the half. Importantly, excluding construction proceeds, we expect full year FY '26 net debt to be broadly flat compared to FY '25, reflecting stronger -- expected stronger operating cash flows in the second half. Net debt reduction remains a clear priority and underpins our longer-term objective of returning to a more resilient capital structure. I will now hand back to Andrew to conclude on broader outlook. Andrew Reding: Thank you, Will. I'll now turn to the outlook on Slide 28. In New Zealand, we think volumes will remain soft and meaningful improvement is not expected until calendar 2027. In Australia, early volume trends in Laminex and [ Setra ] insulation are encouraging, although conditions remain mixed. Margin compression will persist, but our cost-out program will help offset these pressures. As well as the recently announced sale of Felix Street, we also have other sale processes underway for industrial sites that have the potential to generate EBIT. If achieved, this should offset some of the weakness in residential and development and allow for some further modest improvements to the balance sheet. Portfolio simplification remains on track with the construction divestment currently estimated to complete in the first quarter FY '27, while the residential and development strategic review is ongoing. Please note, we won't be making any comments about the strategic review today in order to preserve the confidentiality of the process. Concurrently to this portfolio simplification, our capital structure simplification has also continued at pace. Overall, we are confident that the changes currently taking place will make Fletcher Building more simple, more resilient and more profitable throughout the economic cycle. With that, we will close the formal presentation and take your questions. Operator: [Operator Instructions]. Our first question comes from Kieran Carling with Craigs Investment Partners. Kieran Carling: Just thinking about the balance of the year, you've obviously been fairly clear with your messaging around subdued market activity and margin compression, but you've called out some benefit -- some further benefits to come with cost out in the second half. From what I can tell, consensus EBIT stripping out construction, is it about $350 million for the year, which implies a 10% growth rate in the second half. Do you think cost out will be enough to get you there? And can you maybe just touch on what benefit you expect from further land sales and how that will play into the resi division? Andrew Reding: So I'll take the second part first. Look, we have a number of opportunities to maximize the -- or optimize our footprint, both here and in Australia. But we don't have much control over the timing of those and neither do we want to turn around and start putting information into the marketplace that might impact on our ability to negotiate. So we're not going to be saying a lot of those going forward. In terms of cost out, we have, as you know, talked about cost out for quite a long period of time now. When we did the cap raise, we talked about having an annualized total of $200 million of cost out. And of that, we think structurally, there was about $17 million, and we'd expect about $8.5 million of that to come through in the first half of FY '26. In May '25, we talked about a further GBP 15 million out, which is all structural and there's probably about GBP 7.5 million of that comes through in the first half of '26. And on the Investor Day, we announced another GBP 30 million of structural out, which again would probably equate to about GBP 15 million out in the first half. So in the first half, we've got GBP 45 million of cost out, GBP 31 million of which is structural. We've also announced at the ASM that we were looking at a further GBP 100 million cost out with a run rate of around about GBP 50 million. So I think reasonably, we can expect some of that to come through. But my hesitation on saying it's exactly going to be GBP 50 million is that we are seeing changes in market conditions. And obviously, we will turn around and move or change the nature of our cost out according to what we see in terms of the market activity. And the best example here, I think, is one, for example, like ready-mix concrete where we would be cutting our nose off to spice our face if we were making ready-mix concrete truck drivers redundant when we're actually seeing a lift in some of the volumes there. So it's slightly indetermined exactly how much we'll be taking up in the second half. Operator: The next question comes from Ramoun Lazar with Jefferies. It appears that Ramoun has dropped off the line. The next question is from Rohan Koreman-Smit with Forsyth Barr. Rohan Koreman-Smit: Just on the volumes, it looks like you've done a pretty good job taking market share to offset the cycle, and there's been a bit of a I guess, strategic direction that you've taken. You're talking to some signs of volume improvement in the underlying market now. When do you switch from market share focus to margin focus? Andrew Reding: It's a very good question. And I think the trouble is it's very dependent on which business you're talking about. I mean there will be a point in time where if you're using margin to drive market share, you'd want to swap to a higher margin rather than. So it's very business unit dependent. Rohan Koreman-Smit: Do you think you're at the point when you'll soon be switching some business units to more of a margin focus than a market share focus given that you do have some signs of underlying activity picking up? Andrew Reding: The answer is yes. But again, it's so much dependent on which business unit. If you take Golden Bay Cement, for example, if we see increases in volumes in cement demand across the market, I would expect to see selling prices rise. In aggregates, if aggregates started to pick up to where our expectations were, one would expect to see average selling price rising. So it is very much dependent on which activity you're talking about. Operator: The next question comes from the line of Brook Campbell-Crawford with Barrenjoey. Brook Campbell-Crawford: Just keen to hear your views around the distribution business. Obviously, had a pretty tough period. But if you look at a couple of years to mid-cycle, how do you think the earnings power of that business now should look like given your position and sort of what's happening across the various players? I guess what I'm trying to understand is sort of EBITDA averaged about EUR 100 million over the last decade. Do you think get back to those sorts of levels? Or has the market changed such that we should think about perhaps a lower level of earnings? Andrew Reding: Yes. Look, I'm not really going to comment on what we think those earnings might be in the mid-cycle. What I will comment on is the fact that we've carried out a very deliberate turnaround strategy at our distribution division. So we know that if you get your frame and trust volumes that the value of the balance of house is somewhere in the order of $4 to $1, depending on the precise projects you're looking at. And we know that there is stickiness. So if you've done the frame and trust, you will tend to end up with the balance of house. So we've carried out a very deliberate strategy of being competitive on frame and trust, which is why there's been some margin pressure there. But we would expect as the balance of house comes through for the mix to margin that's being demonstrated to rise. And that's also been a focus on increasing its market share. So look, we think we have a very strong distribution business, and we think the actions that we've taken will start to come through in the not-too-distant future. Operator: The next question comes from Lee Power with JPMorgan. Lee Power: Andrew and Will. Andrew, just following on from Rohan's question. Like if I look at your Frame and Truss comments, I guess that the backdrop is not amazing, but improving volumes in December estimation, volumes got positive momentum. You talked about positivity in concrete. Like your share comments notwithstanding, like how much do you think of what you're seeing is share versus early stages of a market recovery? Because I would have thought some of these things would be a decent indicator for resi generally. Andrew Reding: Look, because we have such a broad spread of activities here, it's very difficult to turn around and give you a blanket answer across all. So we do know, for example, we've seen residential consent start to pick up towards the end of last year. But we also know that when you get a consent come up, it's 9 months to a year before you see the slab being put down and there being meaningful activity from it. We have seen a bit of an increase in some of the commercial inquiries coming out, and we do have a forward workload of commercial concrete, which is slightly ahead of where we were last year. But each of these activities, you have to look up very much on their own merits. So it is very difficult to turn around and give you a single answer that covers everything. Lee Power: And then just a follow-up. William Wright: I was just going to say, quite pleasingly, in most businesses, we have stopped losing market share, which is really positive. And it is starting to lift in a number of areas. And so when you do see lifting volumes, it tends to be improving market share rather than a broad-based recovery. Lee Power: And then just a follow-up. You were talking about the -- I think it was $151 million just around continuing to purchase land and development business. Is there any way or ability to change? I guess there's options around that land, but is there any ability that you have to change or flex that spend profile given obviously the business settlements as we see now are not obviously looking amazing. William Wright: No, unfortunately not. These are commitments that were signed up to, in some cases, many years ago. And that $151 million is after we have pulled all levers and flex what we can. And so just to sort of reiterate, there's a further $65 million in the second half of this year as well, as well as about $100 million in '27 and $35 million in '28. What we can do about these forward commitments all forms part of the strategic review and process that we're going through on the residential business at the moment. Operator: The next question comes from the line of Grant Swanepoel with Jarden. Grant Swanepoel: On house sales, have you seen a trend pick up? I know you've got some presales on the 10 per week that you were saying to us to try and get some sort of model done for the second half of the year. And then on your ROIC, have any businesses start to line up as not achieving those ROICs you said you would adhere to, to keep businesses or get rid of them? Andrew Reding: So I think what you were asking about was residential volumes grow? Grant Swanepoel: Yes, please. Andrew Reding: Yes. So -- we are not seeing buoyant residential volumes at the moment. We think that that's partly due to probably some developments which aren't in the optimum places to be like our South Auckland operations. And we may not be putting the right typology in there. So this is probably limited to the number of units that we're selling at the moment, but that is under review, obviously. I think your second question was on ROIC. I didn't quite catch all of it. Will did --. William Wright: So Grant, look, as I said in my speaking notes, I don't know if you picked up on it, 8 businesses lost money in the first half. And so that's a good place to start in terms of businesses that we're not happy with the ROIC that they're generating at the moment, and they are certainly under review. And we want to see a clear path to those businesses returning to achieving ROIC. And where businesses can achieve ROIC, I think we've been pretty decisive as you saw with like the closure of the panelization plant, for example, the closure of Laminex MADE. And so we're certainly being pretty disciplined about that ROIC target for businesses. Andrew Reding: But obviously, when we have identified the businesses that are underperforming, what you need to do then is to work out what the improvement plan that you could apply to it would result in and then turn around and strategically decide whether that end result is something that is adequate or not. Operator: The next question comes from Stephen Hudson with Macquarie Securities. Stephen Hudson: I know you no longer report on this basis, but I just wondered if you can talk through your Aussie dollar sales and EBIT PCP and why they moved as they did in the half? William Wright: Yes. We do still report on that basis, Stephen, in segment reporting. So I just refer you to the annual report on Page 17 has our Aussie -- our geographical segments. So EBIT from our Australian businesses before significant items was $53 million. Stephen Hudson: That -- it was obviously down quite a way and sales were down quite a way. I just wondered if you can comment on what's going on there, which businesses were moving. William Wright: Well, obviously, I'm not sure what numbers you're looking at for your comparator. But obviously, Tradelink has come out of the Australian business, which was a significant portion of revenue. I think Andrew gave some good color around what we're seeing in terms of the wider market in Australia. So Australia is obviously a more resilient economy. It's much larger and demand is more broad-based, although we do see state-by-state markets. And so I think broadly consistent with what everyone else is seeing. We're seeing a reasonably strong market in Queensland and in Western Australia and a slightly more subdued market in New South Wales and Victoria. But what I would say is probably Victoria has surprised us a little bit to the upside, and that's probably more to do with our customer segments rather than the wider market. So we're well positioned with a number of the large volume homebuilders in Victoria. They've recently had ownership changes and those new owners are really swinging into care in terms of ramping up development. So that's been positive for our Victorian business. Andrew Reding: And then there's been an increase in the A&A market of the alteration amendments market, which we managed to tap into very effectively through Laminex. Operator: The next question comes from the line of Sam Seow Citi. Samuel Seow: Just wanted to lean into that market share question a little bit further. I think on Page 18, you're flagging $15 million in EBIT offsetting market declines. Given that's an EBIT slide, maybe give us some more color about where specifically you're seeing that profitable share growth or maybe how that number is made up or [indiscernible] ? Andrew Reding: Just looking through the presentation, [indiscernible] Slide you're referring to. William Wright: Yes, absolutely. It's predominantly, the share gains have been in the light building products and in the heavy Building Materials segment. So I think what we're seeing is we are a domestic manufacturer coming up against imported product. We're seeing significant benefit to domestic manufacturing at the moment and seeing share gains in those businesses. And also in product categories where there's a competitor that is struggling financially as well, we're seeing significant share gains. So I think if we're talking in our heavy building materials distribution -- heavy building materials division, Firth in particular, has seen very good market share gains. And in our Light Building Materials segment, we're seeing good share gains across Winstone Wallboards, Laminex in Australia and New Zealand and Iplex [indiscernible] picked up market share quite significantly as well. Samuel Seow: Okay. That's really good and really helpful. And maybe just on distribution. You've called out some competitive pressures. But actually, revenue and gross margin look okay and looks to be more of an overhead inflation issue. Just wondering if there's something there you can kind of change in the second half to get that business profitable again. Andrew Reding: There's a couple of aspects to that. Firstly, PlaceMakers have very high lease liabilities. So we've obviously suffered CPI increases on those leases, which we need to understand better as we go forward as to whether we can change that. But the other side of it was I think I've made reference earlier on to there being a deliberate strategy to turn around and capture the frame and trust side of things. What we've done now, I think everybody is aware, we've got the Cavendish Drive Frame and Truss plant, which should be operational come May. But what we've been doing is taking on board significant extra resource around the manufacturing of our Frame and Truss so that we can make sure we can make it as competitively as possible. So that's where a lot of the increase in cost has been. Operator: The next question comes from the line of Harry Saunders with E&P. Harry Saunders: Firstly, I know we talked about the second half already. Wondering if we could just think about the bridge from the first half to the second, any benefits or headwinds you anticipate sequentially versus the EBIT you reported, including, I guess, the $11 million gain on the sale of Felix Street or any other likely property sales and what you think the incremental net cost out could be and what seasonality benefit we could see, please? William Wright: Yes, that's a very broad question. Look, what we're trying to do is trying to be as open and transparent with the market in terms of what we see today as to how our individual businesses are performing. So look, we'll continue to provide quarterly volume updates that will give you an insight as to how the individual businesses are tracking into the second half. There is generally a second half weighting, but that has historically actually been driven by -- more by our residential and construction businesses and less so by our core light building products and heavy building materials. The other thing to bear in mind is the cost-out benefit moving into the second half. So we estimate up to $50 million of cost out from the $100 million will benefit will flow into the second half. But as Andrew said, we're just having a bit of a watch on that. What we don't want to do is take cost out and then have to put it in a few weeks later because demand has picked up. And so we're just constantly monitoring where that sort of tipping point in forward orders is that we want to hold on to that cost. In terms of site sales, we'll continually keep the market informed, just like we did when Felix Street was announced last week. And so if any more happen to fall in the second half, we'll certainly keep the market informed. Harry Saunders: Also just wondering if you could give a sense of any mid-cycle margin targets you have across the new operating divisions given we've got a new reporting structure, please? William Wright: Yes. Look, we're trying to stay away from this sort of mid-cycle target piece. Fletcher has probably got a pretty long track record of holding out EBIT margin targets and not hitting them or being creative in the way in which they've hit them. So we're firmly focused on ROIC. And our first step on the ROIC journey is to make WACC because on our estimation, it's been a very long time since Fletcher Building has made WACC. Operator: The next question comes from the line of Ramoun Lazar with Jefferies. Ramoun Lazar: Just one on -- if you can comment on the roading market and those project delays. Have you seen any sort of indication of a pickup or change in the market environment there into the second half? Andrew Reding: Yes. So what we think happened in the first half was in New Zealand, they have what they call the IDCs and the -- all the roading contracts are under an IDC and they turned down and retendered all of New Zealand all at the same time. And we think that whilst the evaluation of those IDC tenders was underway, they choked back on previous road maintenance work. So we saw a significant drop off in our aggregates volumes up to Christmas, and that was 13-odd percent. There have been some indications that the aggregates is picking up as we come into the new year. And certainly, those IDCs are expected to be awarded in the very near future, but it seems to be a bit of a moving piece because they want to turn around and do a grand review and name them all at the same time. But certainly, we'd expect in the next few weeks that the IDCs will be announced and that will actually then lead to the roading activity continuing. William Wright: I would say, and as much as we don't like to mention the weather, February has been a particularly unhelpfully wet month. And so we would expect when the drier weather comes that we see a bit of an uplift in roading maintenance activity. Ramoun Lazar: Okay. Great. And just one for Will. Thanks for the color around CapEx and how to think about debt into the back end of the year. What -- any sort of changes in the sort of provision cash expense into the second half? And perhaps if you can give us some guide into '27. And maybe if you can include sort of an idea of CapEx into '27 as well, help us just to frame up the cash and the balance sheet. William Wright: Yes. There's no sort of acceleration of legacy cash flows into the second half. So the sorts of things we're talking about are a little bit difficult to forecast. But it will continue at a similar run rate as to what we saw in the first half. In terms of CapEx moving into '27, it's probably a little bit too early for us to issue any sort of guidance. But what I'd say is like we're firmly focused on lowering the forecast CapEx number across the go-forward period across multiple years. And so what we were trying to indicate in that chart in the results presentation is if you actually take out the OSV CapEx that we've actually had a half of pretty low levels of CapEx across the remainder of the business. And actually, within the $18 million of growth CapEx, there's a number of projects that were committed to many years ago as well. And so going forward, we do expect a lower level of overall CapEx. Operator: The next question comes from the line of Keith Chau with MST Marquee. Keith Chau: First question, actually a follow-up on Lee's question earlier about residential investment. So maybe another way for us to ask a question is, as you sell through the residential units, albeit the numbers are lower at the moment, with the release of inventory and working capital from unit sales be enough to offset the costs associated with the pre-committed land purchases such that capital employed declines? Or is the way to think about capital employed in that business still that it is rising from here on a net basis? William Wright: No. So you're correct that we will look to release capital employed from that business as we work through the developments. And so it is a little bit hard to forecast in terms of the second half given the uncertain nature of the residential property market at the moment, but we would hope to see an unwind in that funds employed in the second half of this year. Keith Chau: Okay. And then the follow-up to that is outside of residential units, just the potential EBIT from land sales and perhaps, Will, if you can comment on the payables balance as well. It just seemed a bit high to us and it looked like it was high relative -- sorry, it was a bit low relative to our expectations and low relative to consensus as well. So just trying to understand where that payables balance should go in the periods ahead, if possible. William Wright: Yes, sure. Sorry, what was the first part to that question? Payables, second part... Keith Chau: First one was land sales. William Wright: Land sales. So I think we're obviously working through as part of the residential strategic review, also looking at our whole wider property portfolio. So we have a number of processes going on at the moment. The level of earnings from those is uncertain as is the timing of those. So sort of the best we can do is kind of keep the market informed at regular intervals as we go through the year if and when any of those happen to look like they're going to fall in the second half. In terms of payables, what we're really trying to do is move -- and I think Slide 22 sort of demonstrates this is just to a more consistent working capital cycle. And so when you look at historical comparators, there is a lot of noise in those comparators. And so what we're trying to do is move to a more normal cycle where it's a lot smoother throughout the year. So I think this is probably -- December was really probably the first period end where we haven't seen sort of movement in payment timings to try and improve the working capital number. Operator: The next question comes from Daniel Kang with CLSA. Daniel Kang: Just with all the announced divestments and you're flagging for more to come, your net debt should comfortably fall back to the target range of $400 million to $900 million. Just wondering how the Board would be thinking with regards to reinstatement of dividends or capital returns? Andrew Reding: Well, I mean, that absolutely is up to the Board to decide. What we've already said is that we will consider dividend policy once we get to the lower end of that $400 million to $900 million range. So let's wait for the event to happen. William Wright: I'll just probably add to that. Look, free cash flows in the first half wouldn't support any sort of dividend either. So we can't get ahead of ourselves. We've still got a lot of work to do. And what we won't be doing is paying a dividend out of debt going forward. Daniel Kang: Yes, makes sense. And just with regards to WA pipes, I know there's a slide there, and good to see that there's no change to provisions. Can you just provide any color on how the whole process is progressing? Any potential for resolution with BGC? Andrew Reding: So we think it's progressing well in the sense that we've got over 50 builders now signed up into the industry response. As you know, what we're trying to do is to limit the overall exposure caused by any like peak -- pipe leaks. So we now have -- I think it's 4,188 leak detection units installed. And they are quite a clever little artificial intelligence valves that will turn around and track how your normal pressures flow in the house. And if anything happens outside that normal, it just cuts off the water to the property, so it prevents any of the damage happening. The reason that's important is because although we've made little progress with BGC in coming in to join the industry response, they are cooperating wholeheartedly on getting LDUs installed into all the houses that they built. So what they are recognizing is that even though they don't -- they haven't yet wish to participate in the IR, they are trying to participate in that mitigation of damage that might be caused by pipes. And then furthermore, we've carried out, I think it's 1,176 ceiling pipe replacement. And one of the interesting consequences we're seeing of that is that once we've replaced the ceiling pipes, it actually removes pressure from the rest of the system. So as we do a ceiling pipe replacement, it looks as though a full house replacement number is dropping. So all in all, we've got a very good process in place in Western Australia. It's fully staffed. We're in control of understanding the costs and being able to turn around and kick off when people apply for a replacement. And I think all the modeling we're doing at the moment says that the original provision is still comfortably enveloping what we're seeing in practice. Operator: There are no further questions at this time. I'll now hand back to Mr. Reding for closing remarks. Andrew Reding: All I'd like to say is thank you all very much indeed for coming along today and listening to us, and we look forward to probably touching base with most of you personally over the next couple of weeks. Thank you very much indeed. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good afternoon, and welcome to the Fiscal First Quarter 2026 Earnings Conference Call for Leslie's. [Operator Instructions] As a reminder, this conference call is being recorded and will be available for replay later today on the company's website. I would like to remind everyone that comments made today may include forward-looking statements, which are subject to significant risks and uncertainties that could cause the company's actual results to differ materially from management's current expectations. These statements speak as of today and will not be updated in the future if circumstances change. Please review the cautionary statements and risk factors contained in the company's earnings press release and recent filings with the SEC. During the call today, management will refer to certain non-GAAP financial measures. A reconciliation between the GAAP and non-GAAP financial measures can be found in the company's earnings press release, which was furnished to the SEC today and posted to the Investor Relations section of Leslie's website at ir.lesliespool.com. On the call today is Jason McDonell, Chief Executive Officer; and Jeff White, Chief Financial Officer. With that, I will turn the call over to Jason. Jason McDonell: Good afternoon, and thank you for joining us today to discuss our first quarter fiscal 2026 results. As we begin 2026, our unwavering commitment to become America's one-stop shop for pool care drives every action we're taking to position Leslie's for a return to sustainable profitable growth. We see a clear opportunity as we execute our comprehensive transformation plan. We are working diligently to turn around and transform this business with focus on our customer value proposition and rightsizing our operations through cost optimization and better asset utilization. Before I dive in, I wanted to point to our earnings press release in which we reaffirmed our full year guidance for net sales at $1.1 billion to $1.25 billion and adjusted EBITDA in a range of $55 million to $75 million. To start quarter 2, we are seeing encouraging momentum with positive comparable store sales in January. This momentum, coupled with the progress we're making on our transformation initiatives, gives us confidence in our team's ability to execute and deliver on our commitments in the upcoming pool season. As we move into the 2026 pool season, we are implementing a pricing transformation initiative that is a strategic decision to improve pricing for our customers on key items. We have identified that our pricing was often out of step in the market, contributing to our net loss of 160,000 residential customers this past fiscal year. We have been conducting price testing during the off-season period, measuring lift performance across various segments, and the results have given us confidence to move directly to national implementation. The renewed strategy will be supported by our new low prices, same great quality integrated marketing campaign launching this pool season. Our pricing strategy is designed to drive traffic, increase conversion rates and build customer loyalty. Our field organization will capitalize on this opportunity by focusing on basket size growth with the improved pricing on key value items through the integration with our proprietary 10-point water testing system and our in-store consultative approach. In partnership with our vendors, we've made significant investments in associate training and development programs to enhance their customer engagement capabilities, which are essential for successful basket building and sustained customer relationships. Our new low prices, same great quality campaign will also be powered by an integrated marketing plan that combines digital media with other precision targeted outreach. We will deliver personalized messages about our new pricing offer to both active and lapsed customers by mining of our existing Pool Perks loyalty database that has captured customer information from over 85% of our transactions. We have conducted extensive testing to inform this targeted approach and we'll continue leveraging marketing mix modeling to optimize campaign effectiveness and return on investment. Let me go a little deeper on our customer transition and retention efforts. As I mentioned, we had a net loss of 160,000 customers in 2025. Double-clicking on this net loss, the most significant driver was customer churn. Through a combination of our renewed price strategy, a revitalized targeted marketing approach and our store-level pool expertise, we are planning to grow our active customer file in 2026 and beyond. Although we see a clear opportunity to garner new-to-file customers, reengaging lapsed customers remains our greatest opportunity for growth over the near term by optimizing our marketing spend to mid- and lower funnel with a targeted approach. Now an update on our store optimization initiative, which we announced last quarter. A comprehensive review of our entire asset base led to the decision to close 80 underperforming locations. Our team completed approximately 80% of these closures in less than 7 days after we made our announcement last quarter. This accelerated time line was made possible through meticulous planning, strong cross-functional coordination and the dedication of our field teams who manage this complex process while maintaining service to our customers. The speed of execution not only minimized business disruption but also allowed us to capture cost savings more quickly than projected, providing immediate benefit to our financial performance. As we discussed on our Q4 call, despite an expected annual sales impact of approximately $25 million to $35 million, the financial benefits of our store optimization strategy are expected to yield an annualized net EBITDA improvement of $4 million to $10 million once fully completed by the end of Q2 2026. We have implemented a comprehensive customer transition strategy to retain relationships despite physical store closures. Utilizing our Pool Perks loyalty program, we deployed targeted marketing to reach affected customers. We are providing personalized offers to visit nearby Leslie's locations as well as reminding customers to access our full portfolio of products and services through our online platform and mobile app. Building on this foundation, we are expanding our localized marketing efforts through digital channels, direct mail and phone calls to remind customers that other nearby stores can help them with their pool care needs. We will continue to engage customers from closed stores on how Leslie's can meet their needs throughout the upcoming pool season. Complementing our store optimization efforts, we've simultaneously streamlined our distribution footprint to create a more efficient and cost-effective supply chain network. In Q3 last year, we successfully closed our Denver warehouse and seamlessly shifted volume to other distribution centers, reducing annual cost by approximately $500,000 while maintaining service levels. As we transition to a more efficient 5 distribution center network in 2026, we are on track with the planned closure of our Illinois facility, which will drive an additional $500,000 to $1 million in annual savings and further reduce our system-wide inventory levels while maintaining strong and improved in-stock levels. The Illinois location was primarily focused on e-commerce fulfillment. Our optimized network will enable us to fulfill e-commerce orders closer to our customers in regional DCs and supporting BOPIS capabilities at store level, thereby lowering shipping costs and significantly improving delivery speed across our digital platforms. In addition, we are continuing our focus on customer convenience with the further expansion of our Uber partnership. We have completed the rollout in Arizona and California, and we'll be rolling out our Uber delivery platform across the United States ahead of the pool season. Uber same-day delivery is Leslie's next step on delivering added convenience for our customer. Aligned with our asset utilization and operational efficiency priorities, our SKU optimization initiative remains on track. As we outlined in our Q4 call, we will have successfully reduced our SKU count by more than 2,000 SKUs entering the 2026 pool season, primarily eliminating long-tail items from our e-commerce and marketplace offerings fulfilled through our distribution centers. The reduction allows us to focus our assortment on our highest value inventory items that drive the majority of our sales. We believe the strategic SKU rationalization will enable us to simplify our go-to-market solutions and streamline operations while delivering the targeted $4 million to $5 million in annualized EBITDA improvement we projected. And finally, as we discussed on our Q4 call, we successfully implemented a significant restructuring of our field organization. We moved away from the siloed approach that historically separated our stores, service, commercial and trade operations and implemented a market leadership model that integrates all these functions under unified local management. This structure gives managers clear ownership of specific markets and ZIP codes, enabling deeper customer relationships across all touch points, stores, services and digital channels. We're implementing ZIP code ownership with incentives for managers who build their business and customer relationships in their territories. These programs are designed to drive transaction growth and higher order values while maintaining our consultative selling approach. The restructuring also accelerates our customer-centric strategy by combining our customer data with local market leadership, giving managers the tools and authority to capture growth opportunities amongst thousands of pool owners. In summary, we have made meaningful progress on our transformation plan during Q1. We continue executing fundamental changes to how we operate and serve our customers, focused on delivering improved value while maintaining our competitive advantages as the industry leader. Our strategic initiatives are advancing with urgency and discipline. We're excited about our pricing investments and targeted marketing efforts, while our cost optimization and asset utilization actions are proceeding on schedule. We remain committed to transparent communication as we work to restore Leslie's to sustainable profitable growth and rebuild stakeholder confidence through disciplined execution. Now for a brief update on our Q1 results, which were largely in line with our internal top line and adjusted EBITDA expectations. We saw top line net sales of $147 million. When reviewing this result, it is important to keep in mind last year's onetime impacts resulting from the hurricane benefit, the meaningful impact from the shift in comparing a 52-week year to last year's 53-week year and the closure of 80 stores. When it comes to profitability, we surpassed our internal plan with disciplined cost control and efficient implementation of our initiatives. As I mentioned in my opening comments, we are reaffirming our full year outlook for both net sales and adjusted EBITDA, anchored on our confidence in our strategic direction and the continued progress across our key transformation initiatives. With that, I will turn it to Jeff for a more detailed review of our first quarter results. Jeff? Jeffrey White: Thank you, Jason. I'll begin my remarks today with a review of our first quarter fiscal results, then cover our liquidity and capital allocation plans and finally, review our outlook for 2026. Net sales for the first quarter were $147.1 million, largely in line with our internal top line expectations as it aligns to our full year guide. This is compared to $175.2 million in the first quarter of the prior year or a 16% decline. To provide more detail on the decline on a year-over-year basis, we anniversaried a $4 million benefit from hurricane-related sales last year, which we expected to be a headwind in Q1 2026. In addition, the shift from the 53rd week contributed approximately $10 million to the year-over-year decline and the impact of closed stores was approximately $1 million on a year-over-year basis. Comparable sales decreased 15.5% in the first quarter compared with the same time period of fiscal year 2025, with most categories down in line with the decline in comparable sales. The Q1 headwinds that were just mentioned accounted for approximately 850 basis points of the 15.5% decline we saw in comparable sales in Q1. Gross profit margin for the first quarter was 18.4% versus 27.2% in the prior year period. Approximately 430 basis points of this gross profit decline during the period was due to the onetime noncash impairment charge taken on inventory located within stores that were closed during the period. The remainder of the decline in gross margin on a year-over-year basis was due to a decline in overall margins on our core chemicals, which had an outsized negative impact on our gross profit margin in Q1 due to the low sales volume. These declines were partially offset by our cost reduction strategies implemented during the quarter. As Jason mentioned earlier in his remarks, we feel confident in our pricing strategy as we move into pool season and are reiterating our guide that these pricing investments will only cause an approximate 100 to 150 basis point decline in annual gross profit margins on a year-over-year basis for fiscal 2026. SG&A decreased $1.7 million or 2% to $85.7 million compared to $87.4 million a year ago due to lower store labor, corporate payroll and other operating expenses. We will continue to look for opportunities to reduce our fixed and variable costs as we remain focused on cost optimization and asset utilization. During the quarter, we recorded a $10.1 million noncash impairment charge related to the closure of 80 stores and 1 distribution center, which was at the midpoint of our expectations. Net loss for the first quarter was $83 million compared with a net loss of $44.6 million in the first quarter of the prior year. Excluding the charges, adjusted net loss in the first quarter was $48.7 million compared with adjusted net loss of $40.7 million in the first quarter of the prior year, which was in line with our internal expectations. Adjusted EBITDA for the first quarter was negative $40.3 million compared with adjusted EBITDA of negative $29.3 million in the first quarter of 2025. Inventory at the end of the quarter was $210 million compared to $271 million at the end of the first quarter of 2025 due to inventory optimization initiatives and store closures, a reduction of 23% year-over-year. Inventory management is a key priority for us as we work to improve inventory productivity, manage our in-stocks and flow goods to our stores in a more seasonally and regionally relevant manner. Capital expenditures for the first quarter were $4.3 million compared to $4.7 million a year ago, primarily relating to maintenance of our stores and distribution centers. Regarding liquidity, we ended the quarter with $25 million of outstanding borrowings on our line of credit versus $40 million in the prior year. We also had $752 million of long-term debt. As of quarter end, we had approximately $128 million of availability from cash on hand and borrowings available under our line of credit facility. As Jason mentioned, we continue to execute our key strategic initiatives and want to reiterate the impact these initiatives will have on our fiscal year 2026 results. We are making adjustments to the pricing of our core chemicals, working closely with our suppliers to ensure that we are priced competitively in the market. We continue to expect this initiative to impact annual product gross margins by 100 to 150 basis points. As part of our store optimization strategy, we made the decision to close 80 underperforming stores in the first quarter. We expect that this will have an annual sales impact of approximately $25 million to $35 million and generate a net EBITDA improvement of $4 million to $10 million annually once they are fully completed. In late 2025, we began a comprehensive expense reduction initiative to align our costs with the trends of the business. These efforts will include the renegotiation of all contracts with our vendors, suppliers and landlords and a full review of all noncore assets of the business. We strongly believe that we can leverage our SG&A to further enhance the profitability of the company as we continue to focus our efforts on driving traffic and transactions through strategic investments in pricing and meeting the customer the skill and expertise that they expect from Leslie's. We expect these results to drive an additional $7 million to $12 million of annualized savings with benefits starting to be realized in the second half of 2026. Our DC network optimization is well underway with the closure of our Illinois distribution center in Q2 2026. We expect this to reduce annual cost by approximately $500,000 to $1 million annually. We remain focused on disciplined inventory management. We will execute this initiative by clearing slow-moving inventory in certain categories that are not delivering our target gross margin returns. This inventory optimization process is expected to result in a onetime reduction of approximately 100 to 200 basis points to annualized gross margins. We expect this impact to occur prominently in our Q3 and Q4 periods. Our SKU rationalization initiative involves eliminating over 2,000 SKUs to drive cost and inventory efficiency. We expect this focused approach to generate $4 million to $5 million in incremental EBITDA savings by optimizing our product assortment. We continue to expect these combined efforts of all these initiatives to deliver a net benefit to EBITDA of approximately $5 million to $10 million in fiscal 2026. We remain confident in our ability to drive traffic and sales by delivering the right product in the right place at the right time and at the right price for our customers. We have identified significant cost savings opportunities across our operations that will strengthen our financial position. Consistent with our historical performance, we expect to generate the majority of our sales and earnings in the second half of the year due to the seasonal nature of our business. For fiscal 2026, which is a 52-week year compared to a 53-week year in fiscal 2025, we continue to expect sales of $1.1 billion to $1.25 billion and adjusted EBITDA of $55 million to $75 million. We expect CapEx to be in the range of $20 million to $25 million in 2026 as we focus on maintenance and productivity investments as well as providing positive free cash flow for fiscal year 2026. We continue to evaluate capital structure opportunities and are actively working with our incumbent lenders as well as third-party capital providers to finance a series of incremental initiatives that could further accelerate our growth and shorten the path to profitability. The company has ample liquidity and is well positioned to capitalize on the 2026 pool season. In closing, we remain confident in our strategic direction. Through our strategic actions to drive sales and transactions while enhancing our profitability and strengthening our balance sheet, we are positioned to drive shareholder value and long-term growth. Now I will turn the call back over to Jason for closing remarks. Jason McDonell: We have made meaningful progress on our transformation and our strategic initiatives are advancing with urgency. We're excited about our pricing investments and targeted marketing efforts, while our cost optimization and asset utilization actions proceed on schedule. The successful execution of our store closure program, distribution network optimization and SKU rationalization demonstrates our operational excellence. As we move into the 2026 pool season with our new low prices, same great quality campaign, we're well positioned to rebuild customer relationships through our enhanced value proposition and consultative retail model. Also, the progress we're making across our strategic initiatives give us the conviction on delivering on our full year commitments. I want to recognize our Leslie's team members nationwide for their exceptional commitment during this pivotal time. Their adaptability and determination implementing these strategic changes have been outstanding. I also want to thank all our stakeholders for their ongoing support as we execute Leslie's transformation. Together, we are creating a stronger foundation for Leslie's future success. Now I'd like to pass the call back to the operator. Operator: [Operator Instructions] Your first question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: Jason, my question is, it sounds like the pricing actions sound like a move to EDLP in a way, which you want to be competitive on the important thing. I heard the remarks that you don't -- you sized up the gross profit impact. I guess the same question is, how do you feel like the whole year is intact despite these pricing changes? Did you have to find offsets? How does nothing move based on such a -- it feels like a drastic decision or in the right decision, but still a big decision? And then I have one follow-up. Jason McDonell: Okay. Thanks, Simeon. Thanks for the question. So I think the first thing is that when it comes to the pricing actions that we're taking, we did an assessment of how we are looking from a regular price standpoint. And this program is really us looking at our regular prices that we had in the marketplace on some key value items that we've -- then we put tests into action around finding ways to optimize that regular price in the future to look at different price points, look at different bundles, look at even different combinations of buy more, save more, and we looked at multiple markets. So we're actually taking the regular price down and also changing the promotional strategy from where we were more high low before to something that's a lot more consistent and competitive in the marketplace that really is centered around everyday value. So Simeon, that's from the work we've done with our customers. And that's also from the work we've done with our customers specific to switchers and lapsed users to get -- to ensure that we improve the value proposition to get the traffic. And then when the traffic comes in the stores, our teams are going to focus on the building baskets, which is that consultative approach I talked about in the prepared remarks. I'll pass it to Jeff, and he'll talk to specifically how we have built that into the financials as we look to the balance of the year. Jeffrey White: Yes, Simeon, it's a good question. And we talked about it a little bit in our previous call that as we looked at the dollar amount in gross margin that we're going to have to invest on these pricing changes. We've explained all of the cost-cutting initiatives, both from a direct and indirect cost cut perspective that we've done throughout the business. We've said that on a net benefit, it's going to provide roughly $7 million to $10 million to the bottom line adjusted EBITDA number on a full year basis. The amount of expense cuts that we've been able to achieve is a lot greater than the $7 million to $10 million. So the $7 million to $10 million is the net that flows down to the bottom line while we're taking the rest of the cost savings, and we are investing them back into the pricing changes that we have to make in the gross margin, which is why we feel confident that we're able to guide to -- we do expect it to reduce gross margins on an overall year-to-year basis by about 100 to 150 basis points, but we can limit the reduction there through the initiatives that we've executed on thus far and to Jason's point, the building of the basket as we get the traffic and transactions back into the store. Simeon Gutman: Okay. And then a quick follow-up. The positive momentum in January, not to be too cute, I guess, you didn't mention February. Is this an inflection in the business or it's the byproduct of also the exit of the stores and now you have a healthier -- a much healthier base. So how to think about those 2 dynamics? Jason McDonell: Yes. So there's -- we have a healthier base. That's when we're looking at the Q2 performance, we're seeing positive comp store sales through January, like you called out. As we got into February, where we're pleased is where you see weather that has been more normal in February over the first little bit, that being for us in the Western United States that we've seen that trend continue. And it's been a bit more challenged in the north part of the country as well as in some of the more southern East states. That said, the part that makes us feel optimistic about the future is that this is all ahead of the campaign we're about to bring to the marketplace through the pool season around new lower prices and same great quality. So that's why we feel confident, and we're looking forward to this pool season, Simeon. Operator: Your next question comes from the line of Jonathan Matuszewski with Jefferies. Jonathan Matuszewski: My first question was just a follow-up on pricing. I was hoping maybe you could just elaborate on what you're seeing from a basket building perspective during the pilot for new pricing? And just anything you can share in terms of the lift in UPT or AOV? And any metrics you'd want to share in terms of in those markets where you piloted the EDLP pricing, any kind of recapture of lapsed customers in that test? That was my first question. Jason McDonell: Jonathan, I'll give you -- thanks for that question. The specifics that we've done is the team has done a variety of different tests, and we've done these tests across multiple regions and markets. And then that being said, what's hard about giving numbers here is the fact that we've actually done a variety of different categories and products across the portfolio that we've looked at. So what we've been really paying attention to is the types of tests that we're doing, whether it be price points or bundles and even the buy more, save more multiples that we're looking at. And what we have seen is we are seeing some good solid increases from some of those tests in UPT. And our team has done a really nice job over the last year on driving conversion level, conversion at the store, and we've talked about that in prior earnings results in terms of our conversion rate going up. So the combination of seeing good reaction in the marketplace on some of these price changes as well as the conversion rate and the quality of the performance that's done by our teams makes us feel that we have a great recipe for what we need to do to go forward with the launch of the pool season this year. Jonathan Matuszewski: That's helpful. And then a quick follow-up, maybe just on the store base. I imagine the next step is to think about and measure sales transfer rates from the first 80 to 90 closures and maybe that will inform additional closures for '27 potentially. But if you think longer term, over a multiyear horizon, how do you think about kind of Leslie's footprint in being able to kind of serve the pool owner best? Obviously, convenience and proximity has always been an important part of the value proposition. So any thoughts in terms of as you've done more work and more customer insights, how that's making you think about kind of the footprint longer term? Jason McDonell: Yes. Thanks. Good question. This is a very important question because it's how we embarked on the work that we did just in the -- that we implemented in quarter 1 as we took a very strategic approach to how we are thinking about proximity. That's one of the benefits of the pool industry is that we know where the pools are. And obviously, what's key about that is making sure we have the right combination of how we're going to make sure that we service the pools and the pool owners going forward. So what is the right combination of not only the stores that we have, but the DC footprint that we have, but also the changes and improvements we make to our omnichannel approach on this business. So as we think about this for the future is consistent optimization on not only our store footprint, our DC network to make sure that we're getting product to customers as fast as we can. And we've just recently done that with the closure of the Chicago DC, where we believe that we can get -- having the products closer to the customer at the stores on an e-commerce purchase helps drive speed and convenience for our customer. And then we also have all the different elements of providing an omnichannel approach through buy online, pick up in store, the recent announcement of Uber and how we're rolling that out nationally. So for us, it's about being the one-stop shop for pool care. And really about that is making sure that we're accessible and available to all customers, whether they want to come in a store or whether we service them digitally or online. Jeffrey White: Jonathan, it's Jeff. One thing I'll add on to that. Based off the studies that we did, while we found areas where we may have been oversaturated and had the ability to close stores, but also came to light during that analysis was areas across the country where there's opportunity for further expansion. So while this round, we closed 80 stores and ultimately could be -- we'll continue to monitor and look at store productivity going forward. There's also white space opportunity and opportunity for us to go into new markets as we did the network optimization study. Operator: Thank you. This now concludes our question-and-answer session. Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Hello, and thank you for standing by. My name is Regina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Donnelley Financial Solutions Fourth Quarter Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mike Zhao, Head of Investor Relations. Please go ahead. Michael Zhao: Thank you. Good morning, everyone, and thank you for joining Donnelley Financial Solutions' Fourth Quarter and Full Year 2025 Results Conference Call. This morning, we released our earnings report, including a set of supplemental trending schedules of historical results. copies of which can be found in the Investors section of our website at dfinsolutions.com. During this call, we'll refer to forward-looking statements that are subject to risks and uncertainties. For a complete discussion, please refer to the cautionary statements included in our earnings release and further detailed in our most recent annual report on Form 10-K and other filings with the SEC. Further, we will discuss certain non-GAAP financial information, such as adjusted EBITDA and adjusted EBITDA margin. We believe the presentation of non-GAAP financial information provides you with useful supplementary information concerning the company's ongoing operations and is an appropriate way for you to evaluate the company's performance. They are, however, provided for informational purposes only. Please refer to the earnings release and related tables for GAAP financial information and reconciliations of GAAP to non-GAAP financial information. I am joined this morning by Dan Leib, Dave Gardella and other members of management. I will now turn the call over to Dan. Daniel Leib: Thank you, Mike, and good morning, everyone. We finished 2025 by delivering strong fourth quarter results, highlighted by 10.4% consolidated net sales growth, year-over-year growth in adjusted EBITDA and strong adjusted EBITDA margin. Double-digit growth in both our software solutions and event-driven transactional offerings were key components of our strong top and bottom line performance. In addition, given our stock trading levels, strong balance sheet and perspective on long-term value, we accelerated our share buyback during the fourth quarter and repurchased approximately 1.3 million shares, bringing the 2025 total share repurchase to approximately 3.6 million shares or approximately 12% of the company's outstanding shares from the beginning of the year at an average price of $48.36 per share. As a result of focused execution, we grew consolidated adjusted EBITDA by $14.1 million or approximately 44% year-over-year and delivered an adjusted EBITDA margin of 26.6% in the quarter, an increase of approximately 630 basis points from last year's fourth quarter. Our fourth quarter performance is a further validation of our strategy. Reflecting on the full year of 2025 against the backdrop of continued economic volatility, we delivered strong full year results, including Software Solutions net sales growth of 8.7%, growth in adjusted EBITDA, record adjusted EBITDA margin and higher free cash flow compared to full year 2024. While 2025 marked another year of decline in our transactional revenue, the fourth consecutive year of decline, our strong execution enabled us to deliver consolidated adjusted EBITDA of $239.8 million, an increase of $22.5 million or 10.4% year-over-year and consolidated adjusted EBITDA margin of 31.3%, approximately 350 basis points higher than 2024. For context, our 2025 full year adjusted EBITDA margin exceeded the previous record, which was 29.7% despite this year's significantly lower overall and transactional revenues compared to that year. Our long-term focused execution to improve our sales mix and manage our cost structure has resulted in DFIN becoming structurally more profitable, creating the financial flexibility to balance investment in our transformation with smart capital deployment. While transformational implementation continues, 2025 also marks the end of Chapter 2 or the fundamental transformation chapter of our journey as an independent company, a phase that started in 2020. Specifically, during Chapter 2, we transformed many areas of the company, simplified and improved our business processes, installed more robust tooling across the organization and increased development velocity to bring new solutions to market more efficiently, all aimed at creating significantly improved client experience while increasing value for our clients, employees and shareholders. Our performance in 2025 demonstrates much of our progress within Chapter 2. Let me highlight a few of those examples. First, one of the fundamental aspects of our strategy has been the continued transformation of sales mix by increasing the adoption of our software solutions while continuing to serve the market where desired by clients with our tech-enabled services and print and distribution offerings. Our 2025 performance further demonstrated the progress of that strategy. For full year 2025, we delivered record Software Solutions net sales of $358.4 million, an increase of 8.7% from 2024, resulting in Software Solutions comprising approximately 47% of our total full year net sales. Since our 2016 spin-off, we've grown our annual Software Solutions net sales by approximately $222 million from $136 million to $358 million, representing an annualized growth rate of approximately 11%. At the same time, we've maintained a strong tech-enabled services offering and successfully managed the decline in print and distribution net sales, a decline driven by regulatory change, our proactive decision to exit certain low-margin work and the secular decline in the demand for printed materials. Our progress keeps us on the right path toward achieving our long-term financial goals. Let me share a few highlights that underpin the growth in our software solutions in 2025. First, we are encouraged by the sales growth in our recurring compliance products, ActiveDisclosure and Arc Suite, which increased by approximately 13% in aggregate. For ActiveDisclosure, sales increased by 17% for the full year, our highest annual growth rate since 2021. Since completing the product transition in 2023, we've realized sequential improvements in ActiveDisclosure's operating performance, including growth in net client count as well as higher value per client. This improved growth trajectory demonstrates that the upgrades we have made across the offering, including technology, services and support, combined with strong sales execution are delivering positive results. With a strong foundation and ongoing momentum, we expect ActiveDisclosure to continue to deliver solid growth in 2026. Arc Suite, our market-leading compliance software offering to mutual funds and other regulated investment companies delivered solid full year net sales growth of approximately 11%, in part due to the tailored shareholder reports regulation. Given the midyear 2024 effective date, the TSR regulation primarily benefited our first half sales growth in 2025, while the second half growth in aggregate was more modest as we overlap the impact of both TSR and a large client contract renewal. As I have stated previously, we expect the growth profile of Arc Suite to be more modest during periods outside of regulatory changes, while over the longer term, still exhibiting the double-digit growth we have delivered historically based in part on a dynamic and evolving regulatory environment. We are optimistic about the opportunities created by future regulatory change and believe Arc Suite is well positioned to capture additional demand from new regulations to further accelerate recurring software revenue growth. In addition to regulatory changes, Arc Suite is also well positioned to capture additional market-driven demand in areas such as private investments. We expect increased reporting and disclosure needs by private investment institutions, including hedge funds, private equity and business development companies. Our newly launched financial and regulatory reporting offering, ArcFlex, positions DFIN well to capture incremental opportunities in the private investment space. The initial release of ArcFlex has received positive response in the marketplace, and we expect to ramp up in ArcFlex revenue starting in 2027. Turning now to Venue. As expected, the growth rate in 2025 was more modest compared to the approximately 26% growth we achieved in 2024. which was aided by several large projects. On a full year basis, Venue delivered approximately $142 million in net sales and grew approximately 3% versus full year of 2024. Importantly, Venue's year-over-year growth rate improved sequentially each quarter throughout the year, and we ended the year with positive momentum, having delivered approximately 20% growth in the fourth quarter. In addition, the rollout of new Venue, which was launched in the third quarter, continues to gain traction in the marketplace. We are pleased with the ongoing commercial adoption of Venue and expect the upgraded product to contribute to Venue's overall growth in 2026. Next, 2025 was an important milestone in our product development efforts. Having introduced several new solutions to market, including the new Venue Virtual Data Room, ArcFlex, our offering for alternative investments; and Active Intelligence, a suite of artificial intelligence capabilities within ActiveDisclosure designed to streamline compliance and reporting for companies. These new products introduced in 2025 are the latest in a series of new software introductions over the last several years, which also include new AD and within Arc Suite, Total Compliance Management and the tailored shareholder report solutions and are the result of our efforts to accelerate the modernization, innovation and growth of our software portfolio. Over the past several years, these investments have enabled us to launch or modernize the majority of our software products. Our investments have enabled us to increase development velocity, bring new solutions to market more efficiently by leveraging the platform capabilities of our single compliance platform and empower our clients to adapt quickly to an evolving regulatory environment, all while incorporating the most modern technology. Finally, in a business landscape that has become increasingly shaped by the adoption of artificial intelligence, DFIN is deploying AI across both our product offerings as well as our internal operations. As we continue to enhance our compliance platform, we are building an AI framework architecture designed to deliver increased value to our clients through improved efficiency and increased productivity. The AI capabilities embedded in the Active Intelligence are a good example of the higher value we provide to clients. Specifically, during the initial rollout, select ActiveDisclosure clients have access to AI-enhanced capabilities for streamlining the research, comparison and analysis of draft SEC filings against their own prior filings and those of selected peers. This capability will help to reduce risk and expedite the preparation of quarterly and annual reports, proxy statements and IPO filings. As active intelligence and other AI features expand more broadly across the DFIN software platform, we expect more clients will benefit from increased efficiency and actionable insights. This enhancement is part of our end-to-end offering, ensuring clients benefit from both advanced technology and the human expertise required for mission-critical compliance. At the center of our approach is an unwavering commitment to security, privacy and responsible data governance. For example, we never use client data to train large language models, and we architect our systems to ensure sensitive information is protected at every step. Internally, our investments in AI enable us to modernize our business operations by applying automation and AI-driven tools, including commercial AI solutions and our own Agentic AI development to streamline workflows, improve productivity and support profitable growth. One area where we are realizing meaningful benefits from AI is in product development, where improved processes and increased development velocity are enabling us to bring new solutions to market more quickly. These internal gains enhance the speed and quality of the solutions we deliver, allowing us to respond quickly to evolving regulatory, compliance and client needs. As AI strengthens and expands our capabilities, the value DFIN provides a unique combination of deep regulatory expertise and excellent service model and advanced technology becomes more evident. We remain a responsible innovator and a trusted partner dedicated to delivering secure, dependable and insight-driven solutions for clients' most important regulatory and compliance needs. Before turning it over to Dave, I wanted to provide a quick update on our operating priorities for 2026. In 2026, we will transition to Chapter 3 or the sustained growth chapter of our transformation. During Chapter 3, we will continue to realize benefits from our revenue mix shift and historical investments that have resulted in a strong foundation for continued innovation and growth. With revenue from recurring and reoccurring offerings approaching 80% of our full year total revenue and the remaining approximately 20% being event-driven, we expect the evolution of our revenue profile towards a higher mix of predictable revenue to continue going forward as we accelerate the growth in our recurring and reoccurring offerings while benefiting from but being less dependent on event-driven revenues. These dynamics result in sustained profitable revenue growth. We look forward to driving value creation by delivering predictable, consistent organic top line growth, continued strong profitability and ongoing robust cash flow generation. Specific to 2026, our primary focus remains on accelerating our business mix shift by continuing to grow our recurring SaaS revenue base while maintaining share in our core traditional businesses, including transactions. We are encouraged by the momentum in capital markets transactional activity so far in the year and remain well positioned to capture an uptick in deal activity. In addition, we expect print and distribution to continue to decline as a result of the long-term secular reduction in the demand for printed products, though at approximately 14% of our 2025 total net sales, the magnitude of the reduction will be more than offset by the growth in Software Solutions net sales. Further, as it relates to regulatory change, we do not expect major SEC rule changes for 2026. That said, our historic and ongoing investments in our regulatory and compliance software platform positions us well to capture the demand from future regulations and non-SEC use cases. In addition, we will continue to aggressively manage our costs and drive operational efficiencies, part of which will be enabled by the increased adoption of artificial intelligence productivity tools. Finally, we will maintain our disciplined approach to investments and capital allocation in our pursuit of profitable growth opportunities to maximize financial return and create long-term value. I'm confident with our continued focus on executing our strategy, we will create increased value for our clients, employees and shareholders. Before I share a few closing remarks, I would like to turn the call over to Dave to provide more details on our fourth quarter financial results and outlook for the first quarter of 2026. Dave? David Gardella: Thank you, Dan, and good morning, everyone. As Dan noted, we delivered strong fourth quarter results in an uncertain operating environment, including double-digit consolidated year-over-year net sales growth, higher adjusted EBITDA, adjusted EBITDA margin expansion and an increase in both operating cash flow and free cash flow from last year's fourth quarter. We continue to deliver solid growth in our software solutions offering during the quarter, which grew 11.4% year-over-year. In addition, we experienced an increase in the level of capital markets transactions compared to last year's fourth quarter, which resulted in higher-than-expected event-driven revenue in the quarter. The fourth quarter capped off a solid full year performance, demonstrated by our evolution toward a more favorable sales mix, strong adjusted EBITDA margin expansion and disciplined capital allocation. On a consolidated basis, total net sales for the fourth quarter of 2025 were $172.5 million, an increase of $16.2 million or 10.4% from the fourth quarter of 2024. Net sales exceeded the high end of our guidance range, aided in part by higher capital markets transactional revenue. The 11.4% growth in Software Solutions net sales, combined with higher capital markets transactional revenue more than offset a year-over-year decrease in capital markets and investment companies traditional compliance revenue with the majority of the reduction related to the secular decline in print and distribution volume, consistent with recent trends. Fourth quarter adjusted non-GAAP gross margin was 63.5%, approximately 360 basis points higher than the fourth quarter of 2024, primarily driven by higher net sales and a favorable sales mix, the impact of cost control initiatives and price uplifts. Adjusted non-GAAP SG&A expense in the quarter was $63.8 million, a $1.7 million increase from the fourth quarter of 2024. As a percentage of net sales, adjusted non-GAAP SG&A was 37%, a decrease of approximately 270 basis points from the fourth quarter of 2024 as a result of operating leverage on higher net sales. The increase in adjusted non-GAAP SG&A was primarily driven by an increase in selling expense as a result of higher sales volume and higher incentive compensation expense relative to last year's fourth quarter, though full year incentive compensation expense was less than last year, partially offset by the impact of ongoing cost control initiatives. Our fourth quarter adjusted EBITDA was $45.8 million, an increase of $14.1 million from the fourth quarter of 2024. Fourth quarter adjusted EBITDA margin was 26.6%, an increase of approximately 630 basis points from the fourth quarter of 2024. The increases in adjusted EBITDA and adjusted EBITDA margin were primarily due to higher net sales, a favorable sales mix and cost control initiatives, partially offset by higher incentive compensation expense and higher selling expense as a result of the increase in sales volume. Turning now to our fourth quarter segment results. Net sales in our Capital Markets Software Solutions segment were $60 million, an increase of 20% from the fourth quarter of last year, with each offering within the segment, Venue and ActiveDisclosure, growing approximately 20% year-over-year. Specifically, Venue sales were up $6.2 million from last year's fourth quarter, while also increasing sequentially from the third quarter. Venue sales growth accelerated in the fourth quarter, driven by increases in activity across both the United States and Europe. In addition, we benefited from several large projects in this year's fourth quarter, which combined to account for approximately half of Venue's year-over-year sales growth. As Dan noted earlier, we are encouraged by the in-market performance of new venue and believe we are well positioned to capture additional share going forward. As it relates to ActiveDisclosure, we posted another quarter of strong sales growth, increasing by $3.8 million or 20.2% compared to the fourth quarter of 2024 and a continuation of the stronger growth rate we delivered in the third quarter. Total subscription revenue increased by approximately 12%, an acceleration compared to recent trend, primarily driven by the continued growth in client count. In addition, we continue to make progress in the migration of certain activities historically performed on our traditional services platform to ActiveDisclosure, including the use case for IPOs. During the fourth quarter, we experienced higher usage of ActiveDisclosure in the drafting and filing of S-1 documents for certain IPO transactions. We remain encouraged by ActiveDisclosure's solid foundation for future revenue growth, part of which will be influenced by the amount of event-driven transactional activity taking place on the platform. The combination of ActiveDisclosure, our strong service offering and the related domain expertise remains a strategic differentiator for DFIN. Adjusted EBITDA margin for the segment was 30.2%, an increase of approximately 360 basis points from the fourth quarter of 2024, primarily due to higher net sales and cost control initiatives, partially offset by higher selling expenses as a result of increased net sales. Net sales in our Capital Markets, Compliance and Communications Management segment were $61.6 million, an increase of $8.3 million or 15.6% from the fourth quarter of 2024, driven by higher event-driven transactional revenue. During the fourth quarter, we recorded $48.6 million in transactional revenue, which exceeded the high end of our expectations and was up approximately $11 million or 29% from the fourth quarter of 2024. While the U.S. government shutdown temporarily paused certain transactions from being completed, once the shutdown ended in mid-November, we experienced a quick resumption of deal completions driven by both the backlog of delayed deals as well as from increased market activity. Overall, the positive momentum in the equity deal environment, which had been building throughout 2025, continued in the fourth quarter, resulting in increases in the number of regular way IPO transactions that raised over $100 million and completed public company M&A deals in the U.S. compared to the fourth quarter of 2024. Consistent with our historical track record, we continue to maintain high market share for large, high-quality IPO and M&A transactions completed in the quarter. DFIN remains very well positioned to capture future demand for transaction-related products and services as market activity normalizes. Capital Markets compliance revenue was down $2.4 million or 15.5% year-over-year, driven by a lower volume of compliance work, including the related print and distribution, consistent with the trend from the first 3 quarters of the year. Adjusted EBITDA margin for the segment was 33.6%, an increase of approximately 810 basis points from the fourth quarter of 2024. The increase in adjusted EBITDA margin was primarily due to higher transactional revenue and cost control initiatives, partially offset by lower compliance volume. Net sales in our Investment Company Software Solutions segment were $30.9 million, a decrease of $0.7 million or 2.2% versus the fourth quarter of 2024. As expected, during the fourth quarter, ArcSuite faced tough comparisons as we overlapped a very strong fourth quarter of 2024, during which sales increased approximately 23% year-over-year. The robust fourth quarter 2024 sales growth was aided by an increase in revenue associated with onboarding clients to the tailored shareholder report solution as well as the favorable impact related to the renewal of a large customer contract. As such, we overlapped both impacts during this year's fourth quarter, resulting in a modest decline in services revenue, while subscription revenue was flat year-over-year. On a full year basis, total Arc Suite delivered approximately $128 million in revenue and grew 10.6% year-over-year, driven by growth in subscription revenue. As Dan noted earlier, with demand normalizing following the adoption of tailored shareholder reports, we expect a more modest growth related to this offering in 2026, while ArcFlex, our alternative investment solution, is expected to drive incremental revenue starting in 2027. Adjusted EBITDA margin for the segment was 37.9%, an increase of approximately 90 basis points from the fourth quarter of 2024. The increase in adjusted EBITDA margin was primarily due to price uplifts and cost control initiatives, partially offset by the impact of lower sales volume. Net sales in our Investment Companies Compliance and Communications Management segment were $20 million, a decrease of $1.4 million from the fourth quarter of 2024, driven primarily by lower print and distribution revenue. The reduction in print and distribution revenue is a result of the secular decline in the demand for printed materials, a trend we expect to continue going forward. Adjusted EBITDA margin for the segment was 26.5%, an increase of approximately 410 basis points from the fourth quarter of 2024. The increase in adjusted EBITDA margin was primarily due to cost control initiatives, partially offset by the impact of lower sales volume. Non-GAAP unallocated corporate expenses were $10 million in the quarter, a decrease of $1.7 million from the fourth quarter of 2024, primarily driven by lower health care expense and cost control initiatives, partially offset by higher incentive compensation expense. Free cash flow in the fourth quarter was $47.9 million, and full year free cash flow was $107.8 million, an increase of $2.6 million over full year 2024. The improvement in full year free cash flow was primarily due to the flow-through of higher adjusted EBITDA, lower cash tax payments and lower capital expenditures, partially offset by working capital and the onetime cash contribution related to the pension plan settlement, which occurred during the third quarter. We ended the year with $171.3 million of total debt and $146.8 million of non-GAAP net debt. At year-end 2025, we had $61 million of outstanding borrowings under our revolver and had $24.5 million of cash on hand. As of December 31, 2025, our non-GAAP net leverage ratio was 0.6x. Regarding capital deployment, we repurchased approximately 1,255,000 shares of common stock during the fourth quarter for $60.7 million at an average price of $48.38 per share. For full year 2025, we repurchased approximately 3,563,000 shares for $172.3 million at an average price of $48.36 per share. As of December 31, 2025, we had $53.8 million remaining on our current $150 million stock repurchase authorization. Going forward, we will continue to take a balanced approach to our capital deployment. As it relates to our outlook for the first quarter of 2026, we are encouraged by both the level of transactional activity as well as the pipeline so far in the first quarter, though overall deal volume still remains below the historical average. In addition, we expect a continued decline in print and distribution sales, which will impact our traditional compliance offerings consistent with the recent trend. Given the first and second quarters are the peak periods for compliance activities, such as corporate proxies and annual reports and the associated printing and distribution, the rate of decline in print and distribution sales is expected to be greater during the first half of the year compared to the second half. Further, we expect continued solid growth in Venue and ActiveDisclosure, while Arc Suite will overlap the stronger growth we delivered in last year's first quarter. With that as the backdrop, we expect consolidated first quarter net sales in the range of $200 million to $210 million and consolidated adjusted EBITDA margin in the range of 33% to 35%. Compared to the first quarter of last year, the midpoint of our consolidated revenue guidance, $205 million, implies an increase of approximately 2% as the decline in print and distribution volume will be more than offset by software solutions sales growth. I'll also provide a bit more color on our assumptions for the capital markets transactional sale. We assume first quarter transactional sales in the range of $45 million to $50 million, the midpoint of which is approximately flat compared to the first quarter of 2025 as well as flat on a sequential basis. While we remain very encouraged by the ongoing improvement in underlying market activity, recent market volatility has the potential to impact the timing of certain transactions between quarters. As it relates to the full year, our 2026 operating plan reflects the continued execution of our strategy and associated investments aimed toward accelerating our transformation. Our capital spending, which is predominantly related to development in our software products and the underlying technology to support them, is projected to be between $55 million and $60 million, approximately flat from the $57.1 million that we spent in 2025. With that, I'll now pass it back to Dan. Daniel Leib: Thanks, Dave. Our performance in 2025 serves as a further proof point that our strategic transformation is enabling DFIN to become more profitable and resilient. We executed well in a challenging market environment, delivering strong financial results while also continuing to invest in and execute our strategic transformation. The combination of our market position, cost structure and financial flexibility create a solid foundation as we progress in Chapter 3 of our transformation journey. Before we open it up for Q&A, I'd like to thank the DFIN employees around the world. Now with that, operator, we're ready for questions. Operator: [Operator Instructions] Our first question will come from the line of Charlie Strauzer with CJS Securities. Charles Strauzer: A couple of quick questions for you guys. sorry. How much of the outperformance in Q4 was kind of volume versus price? And any more color behind the outperformance that would be great. David Gardella: Yes, Charlie, it's Dave. I'll take that one. I would say price was not significant. I'd say a modest driver. Really, when we think about the outperformance, much of it was on the capital markets transactional revenue and then I think both Venue and AD showed that 20% growth, which was a little bit better than we expected. So predominantly volume. And I would say, as it relates specifically to the capital markets transactional activity, we had the government shutdown for the first half of the quarter, mid-November. The recovery was quicker than we had expected. And then you combine that with the strong underlying activity level in transaction made for a nice quarter in terms of the top and bottom line relative to our guidance. Charles Strauzer: Great. And then your margins were very strong, obviously, in Q4 and for the year. Any more color on the drivers behind the outperformance on that side as well? David Gardella: Yes. I would say more of the same of what we've seen over the long term. I think when you look at how the mix of sales is changing, what we're doing with the cost structure and then certainly the growth, especially on the software sales and then in particular, this quarter with a nice growth in transactional, that operating leverage, right? So the incremental margin on the sales growth has really pushed margin higher. And again, I'd say in line with what we've talked about in terms of going forward, certainly in line with the trajectory that we've seen. Our long-term guidance is for margins north of 30%. We're probably, frankly, ahead of what we had projected. And so feel really good about the direction where we're going with profitability. Charles Strauzer: Great. Dan, just a quick one for you. Just when you look at the -- or think about capital allocation, valuation multiples have contracted across a number of technology stocks. When you look at the potential opportunity in your kind of purview, are you seeing anything more interesting that you would have seen maybe a couple of months ago? Daniel Leib: Yes, it's a great question. I think expectations probably haven't followed as quickly. And as we see the disruption even over the past week or 2, it will take a bit of time. Obviously, for public companies, everyone's had a bit of a re-rate. And -- but I think most folks are thinking or hoping it's not permanent. So I don't think the expectation side of it yet has adjusted. But if valuations persist at a lower level with the AI overhang, then I think they will. And folks are sitting on assets for a fairly long amount of time and looking for liquidity in some cases. So it will take longer, but something that we continue to watch. Operator: Our next question will come from the line of Pete Heckmann with D.A. Davidson. Peter Heckmann: As regards to ArcFlex, the platform designed for alternative investment managers, is that -- can you talk a little bit about kind of how you think about the relative TAM for ArcFlex relative to Arc Suite? And are those 2 solutions designed to be sold together to investment managers that do both? Or is ArcFlex -- can ArcFlex be a stand-alone product sold to purely alternative managers? Daniel Leib: Yes. Thank you, Pete. It can definitely be sold as stand-alone. We do see synergy with existing relationships, certainly on the TPA side. And it is a good example of an offering that we were able to build much more quickly, efficiently given the platform that we've been developing and talked about for a few years. But we see the market and we see the interest being really high as assets continue to grow in the private space, people need more robust solutions in the market. And so getting a lot of interest in discussions. There is not as much of a regulatory framework around that. But even without that, we are seeing some firms transact and purchase ArcFlex. And Eric, I don't know if you wanted to add to that. Eric Johnson: Yes. Thanks, Dan. Pete, it's Eric Johnson. The -- just the data that we have from the SEC shows that the private fund numbers, so number of private funds, so early 2025 was over 54,000, up 15% from the prior period 2023 for same time frame. So there's a significant increase in the number of funds. But what's really happening is this retail access is driving an expansion in the number of investors, which is really pushing the industry to meet efficient production at scale. And with the introduction of ArcFlex, we can handle the alternative investment reporting requirements. At the same time, with the horsepower of Arc reporting, we can help these clients manage the scale that's required to manage this influx of reporting activity due to the increased demand and especially driven from the retail side of the market. Peter Heckmann: Okay. That's really helpful. And then just in terms of the IPO activity in the quarter, it looked like DFIN's share of traditional IPOs was very, very strong. And I guess, would you characterize that as anything beyond just a good mix towards the kind of the larger and more complex IPOs versus smaller deals? Craig Clay: It's Craig Clay. Thank you for the question. I think as you saw in Q4, there were 41 companies that price, 17 raised over $100 million. Our share of that over $100 million was 65%, which is certainly on the higher side. I think what's awesome is Q4's volume was up 70% year-over-year in the $100 million category. So these 17 companies raised a total of $13 billion. Health care dominated across a number of deals. Medline raised $6 billion, and that was a DFIN supported deal. There was one other $1 billion-plus deal, Beta Technologies that we also supported. I think to your question, we certainly play to the larger deals in the full year 2025, there were 10 offerings greater than $1 billion, and we had 70% share of that. So certainly, we are prepared and ready to work the way that our clients want to work. You saw in the prepared remarks how we are supporting IPOs on ActiveDisclosure, which is really a terrific opportunity for us to move into that space. We look at that hybrid solution as a way for our companies to work across the boundaries of having access to our customer service and having access to our regulatory experts. And I think just an opportunity to touch on Active Intelligence. It demonstrates, as Dan said, we're delivering a higher value to our clients across this. So our success with implementing that into ActiveDisclosure, which has Ks, Qs, proxies, IPOs also validates us as a core member of our clients' team, which is embedded at the moment they need accuracy and speed and regulatory confidence. So thank you for the question. Operator: And our next question comes from the line of Ross Cole with Needham & Company. Unknown Analyst: Congratulations on a strong quarter. I was wondering If you could dive in a little deeper in terms of the double-digit software growth you're seeing for 2026? And maybe how do you see that broken up between product or maybe between capital markets versus investment companies, especially given the dynamic of fewer regulatory changes in the year and possibly a slower IPO market? David Gardella: Yes. Ross, just to be clear, on 2026, I think what we said was we expect continued strong growth from ActiveDisclosure and Venue heading into '26 and certainly have that momentum coming out of Q4 here. And then exactly to your point, as it relates to Arc Suite, we've seen the growth in Arc Suite really be more lumpy, I guess, over the course of time. And a lot of that tied to new regulation, whether it be tailored shareholder reports and the total compliance management solution that we launched a few years ago and then more recently with -- sorry, the prior one was 30e-3 with total compliance management and then more recently, tailored shareholder reports those regulations. And so we would say that it will continue to be lumpy going forward, the outsized growth the coming years with new regulatory changes. And then to the earlier question as it relates to private markets, continue to view that as an opportunity and more to come as it relates to ArcFlex and serving the private market side. Daniel Leib: Yes. And just to build on that to the 2026 specifically to Dave's point and then on ArcFlex, our comments where we expect benefit in '27, it's possible it's tail end or some benefit in '26, but it will be very tail end or -- but definitely more predominant in 2027. Operator: [Operator Instructions] And that will conclude our question-and-answer session. I'll turn the call back over to Dan Leib for closing comments. Daniel Leib: Thank you very much, and thank you, everyone, for joining us, and we will look forward to seeing you very soon. Thank you. Operator: This concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, everyone, and welcome to Goosehead Insurance Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. Now it's my pleasure to turn the call over to the Vice President of Capital Markets, Dan Farrell. Please go ahead. Dan Farrell: Thank you, and good afternoon. Before we begin our formal remarks, I need to remind everyone that part of our discussion today may include forward-looking statements, which are based on expectations, estimates and projections of management as of today. Forward-looking statements in our discussions are subject to various assumptions, risks, uncertainties that are difficult to predict and which could cause actual results to differ materially from those expressed or implied in the forward-looking statements. These statements are not guarantees of future performance, and therefore, undue reliance should not be placed on them. We refer all of you to our recent SEC filings for a more detailed discussion of risks and uncertainties that could impact future operating results and financial condition of Goosehead. We disclaim any intention or obligation to update or revise any forward-looking statements, except to the extent required by applicable law. I would also like to point out that during this call, we will discuss certain financial measures that are not prepared in accordance with GAAP. Management uses these non-GAAP financial measures when planning, monitoring and evaluating our performance. We consider these non-GAAP financial measures to be useful metrics for management and investors to facilitate operating performance comparisons period-to-period, by including potential differences caused by variations in capital structure, tax position, depreciation, amortization and certain other items that we believe are not representative of our core business. For more information regarding the use of non-GAAP financial measures, including reconciliations of these measures to the most recent comparable GAAP financial measures, we refer you to today's earnings release. In addition, this call is being webcast and archived version will be available shortly after the call ends on the Investor Relations portion of the company's website at goosehead.com. Now I'd like to turn the call over to our President and CEO, Mark Miller. Mark Miller: Thanks, Dan, and good afternoon, everyone. Thank you for joining our fourth quarter and full year 2025 earnings call. Before I get into the numbers, I want to take a step back and frame where we are, not just this quarter, but as a business since Goosehead is a company that rewards long-term thinking. Personal Lines insurance distribution is not a get-rich-quick business. As our founder, Mark Jones has said, it's a get rich over time and stay rich business and the work we do compounds when it's done correctly. For the full year 2025, we grew total revenue 16%, adjusted EBITDA of 14% and delivered an adjusted EBITDA margin of 31%. These results didn't come from one-off wins that came from disciplined execution of our strategy and structural improvements across the organization. Several of our most important KPIs simultaneously moved up in to the right. For example, client retention continued to improve. We moved from 84% in the second quarter to 85% in the third quarter and we exited the year with continued upward momentum. As we have said before, retention is the flywheel in this business. When retention improves, everything else gets easier; growth becomes more efficient, margins expand and client lifetime value increases. We also saw accelerating growth in policies in force, ending the year up 14%, increasing from 13% in the third quarter. At the same time, we have seen strong productivity across all 3 distribution networks: corporate, franchise and enterprise sales. Now let's talk about the insurance market itself. Our industry operates in well-documented cycles, moving between hard markets, driven by elevated loss ratios, capital constraints and tightening underwriting and soft markets where loss ratios normalize, capital returns and carriers compete for growth. We're currently coming out of a sustained hard market where we saw carriers raising rates, tightening underwriting guidelines and reducing capacity, actions that were difficult in the short term but necessary to restore profitability. Today, pricing has largely caught up with loss ratios, underwriting profitability has been restored and carriers are once again in a position where they want to grow. This is the environment where Goosehead performs best. A healthier product market means more choice for our agents, better outcomes for clients, lighter service loads, more stable underwriting and carrier partners that want to grow alongside us. The added variable of AI impacting the personal line space is beginning to take hold as well. When implemented strategically in the right portion of the value chain, AI has the ability to improve outcomes for all parties. For us in the distribution portion of the value chain, maximizing efficiency with our existing clients and matching carrier risk appetite with client demand represents the largest value creation application. However, there is significant opportunity costs associated with chasing the wrong implementation of AI. Ultimately, the tool set will be broadly available, but the secret is the data behind the tool. Because we have built such a diversified book of business across 50 states, and with hundreds of carriers, we have access to proprietary data that we believe is highly differentiated. Tools in the market today act as quasi lead aggregator technology, providing generic information about insurance broadly in your area. From what we have seen, these tools have no choice model transacting ability and in some instances, point users to contact their local Goosehead agent. Mark Jones Jr will go into more detail about our specific plans for implementing AI in our business, we're being incredibly thoughtful about investing only where it drives real value. While we're encouraged by the product market and the technology advancements, I'm extremely proud of what this organization accomplished over the last 3 years without those tailwinds. Across our franchise network, we made a deliberate decision to prioritize quality over quantity. This has resulted in meaningful productivity gains, stronger economics for franchise owners and healthier system overall. Gross payments per franchise are up 29% year-over-year. This meaningful increase in cash flow enables our owners to reinvest in people and ultimately grow more rapidly. We expanded total producer count while reducing the number of operating agencies, exactly what we would expect to see in a system getting stronger. Producers per franchise increased from 1.9 at the start of the year to 2.1 by year-end, which is 1 of the longest and most powerful levers in our model. This momentum was further evidenced by an increase in book acquisitions within the network, going from 38 in Q3 to 64 in Q4. Typically, the buyer is one of our strongest and fastest-growing agencies. So these consolidations make the entire community stronger, more resilient and positioned for growth. On the corporate side, we did what we said we would do and fundamentally reset the corporate agent footprint. We expanded to new geographies like Tempe, Arizona and Nashville, Tennessee, and reduced concentration in well-established markets. So far in 2026, we have 3 new offices fully launched, with a fourth slated in April. A portion of our corporate agents outside of Texas increased from 30% in 2022 to 52% in 2025. Since 2022, the corporate team has produced 61 new franchises through our corporate to franchise ownership path, many of which now sit in the top 5% of new business production across the entire network. Corporate new business growth also reaccelerated in 2025, reaching its fastest pace since 2021. This year, we also gained traction on our newest distribution on the enterprise sales and partnership network. This network is incremental, efficient and strategically important. It allows us to access portions of the market that traditional agency models simply cannot reach. In 2025, enterprise sales almost doubled new business production and partners on our platform now address millions of mortgages serviced across the country. At scale, this channel is a growth driver and margin accretive. To summarize, the fundamentals in almost every area of our business remains sound, but we acknowledge the future of insurance distribution may look different over time as technology evolves. That is why we have been investing heavily in our technology roadmap for the past several years. Technology remains one of our deepest competitive advantages, and we have exponentially increased the size of the tech organization in the past 3 years, adding skill sets not commonly found in our industry. Over the past several years, we've invested in both agent-facing tools and core infrastructure required to support a much larger organization. To that end, Goosehead has now delivered the United States' first end-to-end choice buying experience. Our Digital Agent 2.0 platform is now live in Texas with multiple auto carriers and multiple home insurance carriers and active implementation. During 2025, we made massive strides in the hardest challenges in digital binding, and we are now set to rapidly expand our product and geographic coverage. These capabilities can only exist with deep relationships and trust with the carriers, complex integration with underwriting back-end systems, and high-scale service organization that can handle the complexity of hundreds of carriers and multiple product lines. This is not just another lead aggregation tool with an AI wrapper. This is a true frictionless digital distribution platform. We want to give our clients the purchasing option they want, whether it is all digital, partially digital or completely human. By leveraging our proprietary data, we can deliver that shopping experience in a way that provides carriers with high-quality and retentive clients. We have also made significant strides to enhance our client experience with technology innovation. We launched our mobile app, giving clients the ability to manage policies across multiple carriers in 1 place. Introduced Lily, our AI-powered virtual phone assistant. Lily has already handled hundreds of thousands of client interactions, streamlining the client experience and reduce the number of calls requiring agent involvement. As these tools mature, we expect continued improvement in the client experience, alongside lower servicing costs. It is an exciting time to be in the property and casualty insurance industry, especially for Goosehead. We have hardened our model, widened our competitive moat, improved productivity and profitability and laid the foundation for what we believe will become the leading digital insurance distribution platform in the United States. Looking ahead to 2026, our priorities remain clear and unchanged: accelerating growth within existing agencies, placing agencies in the right geographies, expanding our corporate sales organization, scaling enterprise and partnership channels, continuing to invest in technology, particularly strengthening our proprietary AI applications and building a winning culture. What excites me most is that we're entering the next phase with improving market conditions. When the product market is healthy, everything in our system works better. Agents close more business, clients are better served, carriers lean into growth, and retention improves naturally. We finished 2025 in a position of strength, and our focus in 2026 is on continuing to execute against the opportunity in front of us. I said before that we believe Goosehead has the ability to operate at a Rule of 60 model over time with a combination of revenue growth and EBITDA margin exceeds 60% on a sustained basis. As our core KPIs continue to improve, and newer initiatives like partnerships and Digital Agent 2.0 scale, we see a clear path to progressing toward that objective. I'm proud of the progress we've made this year, and I'm even more confident in the position we've built as we continue to work towards our long-term objective of becoming the largest distributor of personal lines insurance in our founder's lifetime. Thank you to our clients, our teammates, our carriers and our partners. With that, I'll turn the call over to our CFO and COO, Mark Jones, Jr. Mark Jones Jr.: Thanks, Mark, and good afternoon to everyone on the call. Mark Miller just walked through the broader story of the business, the progress we've made, the environment we've operated in, and why we believe Goosehead is well positioned for what comes next. I want to build on that by talking about how that strategy translates into execution and economics. What has allowed us to deliver consistent organic growth and strong profitability through a very challenging product and housing environment is not simply the result of what we did this year or last year. It is the result of maintaining a long-term mindset, staying focused on first principles and making decisions that compound over time. Many of the initiatives you hear us discuss today were set in motion years ago with a clear view towards durability rather than short-term optimization. Our business is built around multiple growth engines that are designed to work together. At the core is our franchise network. Our focus here continues to be on productivity, quality and long-term economics. We are seeing continued consolidation within the network where our strongest agencies are reinvesting cash flow to hire additional producers and acquire smaller agencies in their markets. This is a healthy dynamic and raising the bar across the system, improves client outcomes and increases the lifetime value of the book. While this has impacted our revenue growth over the past couple of years, this consolidation is value creating. The acquiring agencies are significantly more productive and better positioned to grow the acquired books through cross-sell, referrals and improved service. You should expect to see this continue in 2026, resulting in less operating agencies but higher total producer count as that cash flow is reinvested by our agency partners. You can see this already as producer count has grown from 2,092 to 2,113, while shrinking our operating franchises from 1,103 to 1,009 over the last year. The health of our franchise network can be seen in our strong same-store sales growing 19% in the fourth quarter. Our corporate sales organization plays a critical role in feeding the franchise system. This is where our agents are trained in the Goosehead operating model, develop deep carrier expertise and build the habits required to run a high-performing agency. Over time, this group has proven to be the highest quality source of new franchise launches in the company. That is not accidental. It is the result of years of investment in training, leadership and culture, and remains a structural advantage that is difficult for competitors to replicate. Traditional corporate sales agents were 374 at year-end, growing 6% over the prior year. As we expand our corporate sales footprint during 2026, that allows us to reach new geographies with the highest quality talent pool. We have also continued to expand our enterprise sales and partnerships business, which allows us to access pools of potential clients that our traditional go-to-market strategy does not naturally reach. This channel is scaling quickly, growing nearly 100% in headcount, up to 115 as of year-end and is strategically important because it provides embedded lead flow, strong client trust and highly efficient client acquisition. From an economic standpoint, these partnerships are incremental to the core business and increasingly attractive as they scale. What ties all this together is technology. From a capital allocation standpoint, our technology team is now the single largest portion of our P&L and rapidly making progress towards our growth and efficiency initiatives. Our digital agent platform is now live with multiple auto carriers in Texas with true end-to-end binding capability, and we've already seen policies bound with no human involvement. We know of no other company with a choice product offering and the ability to actually bind policies digitally. Our platform is now live, and we plan to rapidly expand product and market coverage. Many of these transactions are coming from existing clients, allowing agents to add policies to their books with effectively no incremental effort. We're also in active implementation with multiple of our top home carriers right now. In the second half of 2026, we plan to host a webcast at Investor Day to demonstrate what a true frictionless shopping experience looks like. While some clients will choose to transact directly through Goosehead owned digital channels, we believe the larger opportunity is integrating deeply with our partners. While we are early in our journey here, the upside of deep penetration into our partners is substantial. These integrations allow us to reduce friction for their clients, solve real operational pain points and deliver high-quality risk to our carriers at scale. Our partners today now represent a total of 2.3 million potential clients across mortgage origination, servicing and other financial services and the pipeline of potential partners continues to grow. The majority of that partnership base is still in the implementation phase, meaning the benefits from those arrangements are not yet felt in our financial results. We believe our national footprint, broad product access and highly differentiated service offering position us as the most logical partner of choice for those looking to add a choice model personal lines insurance offering into their business. Ultimately, we expect the partnership business in tandem with the digital agent platform to have the potential to be the single largest growth driver in our company's history. As Mark Miller mentioned, we're being very thoughtful in deploying AI into the areas that actually deliver a strategic advantage and profitable growth. There are many shiny objects in the world of AI, and we are focused on only the areas that drive a real tangible value. First, we are injecting AI into our service function to reduce friction for our clients and improve our service cost efficiency. As Mark mentioned earlier, we launched Lily, our AI-powered virtual phone assistant. Lily is already having a positive impact, as Mark Miller mentioned, handling hundreds of thousands of client interactions, and it is part of a broader set of tools we've implemented to intelligently route work, reduce complexity for our teams and create a foundation for further automation. Second, utilizing our data and our carrier relationships to be intelligent about matching carrier risk appetite with client demand. The reality is, unlike a normal retail operation, an underwriter is not trying to sell an insurance policy to every homeowner in the country. Each has a specific risk appetite and to successfully maximize value, you must be able to segment clients appropriately and align them with the right underwriter. As these efforts enhance the economics across the value chain, we take part of that upside through proprietary product access and compensation plans. And third, we expect to drive new business generation through targeted marketing campaigns to drive client retention, client referrals and cross-sells. As the product market ebbs and flows, being in front of the right clients at the right times should fuel new policy generation and existing policy retention. We have made strong headway incorporating AI into our business where it makes the most sense and are steadily moving towards a model where selling and servicing can occur with far less manual intervention. That evolution is only possible because of the infrastructure, carrier relationships and operational discipline we built over more than 2 decades. This is not a departure from who we are. It's a continuation of it. Turning now to our fourth quarter and full year results. Total revenue for the quarter was $105.3 million, up 12% over the previous year quarter and $365.3 million for the full year, growing 16%. Core revenues for the quarter grew 15% to $78.2 million and grew 16% to $317.9 million for the full year as a result of continued improvement in client retention and growth in new business production from all 3 sales networks. Looking into 2026, we expect low double-digit core revenue growth for the first half of the year as year-over-year pricing dynamics impact the renewal book. Additionally, the consolidation of single producer franchises results in a short-term revenue impact. However, this effort dramatically improves the efficiency and productivity of the overall franchise network and therefore, our future growth and profitability. We expect acceleration in the second half of 2026 as year-over-year pricing changes are more consistent, client retention improvements continue, and the benefits of our recent partnerships and Digital Agent 2.0 investments take hold. Ancillary revenues, which is largely comprised of contingent commissions, was $25.3 million for the fourth quarter, bringing the full year to $41.1 million. Contingent commissions in 2025 represented 86 basis points of total written premiums, which outperformed our expectations throughout the year. During 2026, our initial expectation for contingent commissions is between 60 and 85 basis points of total written premium. Cost recovery revenues for the quarter was $1.8 million. As a reminder, revenues from franchise fees are recognized over the 10-year life of the agreement. When an agency exits the system, any unamortized revenue is then accelerated. We expect cost recovery revenue to be flat to down with normalized levels of franchise exits as further consolidation accrues within the network. Total written premiums for the quarter were $1.1 billion, growing 13% over the prior year and were $4.4 billion for the full year 2025, up 17% over 2024. The quarter included franchise premiums of $896 million, up 15% and corporate premiums of $194 million, up 4%. Policies in force grew 14% to $1.9 million, which accelerated off of the 13% growth rate in the third quarter of 2025. We expect continued acceleration of the policies in force growth rate for the full year 2026 as client retention continues to improve, our franchises onboard new producers and expansion of our partnerships in enterprise sales business. Adjusted EBITDA for the quarter grew 5% to $39.2 million, up from $37.4 million in the year ago period. This includes $2.9 million of incremental strategic investments in the quarter that we believe will drive long-term shareholder value. For the full year, adjusted EBITDA was $113.6 million, growing 14% over the prior year and producing an adjusted EBITDA margin of 31%. Looking into 2026, we expect margins to be modestly down as we invest in broadening our application of AI, as I discussed, and our Digital Agent 2.0 and partnerships platform. We expect these investments to deliver incremental long-term growth and margin at scale. We ended the year with $34.4 million of cash and cash equivalents and total debt outstanding of $298.5 million. Cash flow from operations for the year was $91.8 million, up 28% from the prior year. As we mentioned, we maintain a long-term focus for our business, and you can see that in our capital allocation. During the fourth quarter, we repurchased and retired 323,000 shares of our Class A stock, representing $22.5 million. For the full year 2025, we acquired $81.7 million of our Class A shares and combined with 2024, nearly $145 million and over 2 million shares, representing approximately 8% of our total Class A share count as of the beginning of 2024. Given the current market volatility, today, our Board of Directors authorized an additional $180 million share repurchase authorization and we plan to continue to be opportunistic when there's a market dislocation. As we look into the future, many things about how our business operates will adjust based on changes in technology and adaptations to market conditions. However, some critical things will not change. We remain committed to delivering our clients the best possible value with our sales and service functions. Our clients have a choice of who they do business with, and we want to make that decision as obvious as possible. We remain focused on the personal line section of the P&C market as this is the area where we have durable competitive advantage and specific expertise. We remain committed to organic growth as the first and foremost driver of our business as that is the most sustainable and profitable way for us to operate, and we are committed to delivering our current and future agents with the best value proposition for distribution through technology, product access and back-office support. As we look into 2026, our guidance for the full year is as follows: Total revenues are expected to grow organically between 10% and 19%. Total written premiums are expected to grow organically between 12% and 20%. As Mark Miller said earlier, I want to echo my appreciation for the Goosehead team. Strong financial performance is never the result of a single initiative or a single quarter. It is the result of consistent execution across the organization. I'm proud of what we accomplished in 2025 and confident in the foundation we have built through the years ahead. Thank you to our shareholders for your continued support and to our teammates for the work they do every day to make these results possible. With that, let's open the line up for questions. Operator? Operator: [Operator Instructions] Our first question comes from the line of Andrew Andersen with Jefferies. Andrew Andersen: Just in terms of the guidance for next year, how are you thinking with regards to home closing transactions? And how are you thinking about the insurance pricing environment? Mark Jones Jr.: Andrew, yes, this is Mark Jones. So in terms of home closings, I think you saw some interesting data come in, in December, a strong December, followed by what looked like a relatively weak January. As we've talked about for the last couple of years, housing construction, while certainly not a tailwind for us hasn't necessarily been a big headwind. Our agents have done a really good job continuing to go get lead flow. And through our strategic partnerships, we just continue to decouple our business from the ebbs and flows of the housing market. So we're not counting on any improvements in housing in terms of our guidance throughout 2026. I think that would be potentially upside. And then pricing, you could probably assume the bottom end of the guidance range includes pricing that's generally down in the top end of the guidance range, you'd have moderate increases in homeowners pricing. I think that's pretty consistent with what we're seeing in the market right now. Andrew Andersen: And then as some states consider measures like profitability caps or just tighter constraints on insurance pricing, how would those types of regulatory changes impact your business model, I guess, specifically carrier appetite, maybe commission economics and your ability to maintain growth in these geographies? Mark Jones Jr.: Yes. I mean it will be interesting to see how that plays out. I'm not sure that, that is likely actually to happen. I know I've seen a couple of articles about that across a few different states. I don't necessarily believe that is a good thing for the whole market. But what you'll probably see is the excess and surplus lines market, that can be a little bit more nimble, probably be more durable in those areas. But we'll just have to see how that plays out. Operator: It comes from the line of Brian Meredith with UBS. Brian Meredith: A couple of big picture questions. First, thanks for all the color on kind of how you're using AI, but maybe you can talk a little bit about why you don't think agents will be disintermediated through the use of AI? Clearly, that was a big topic last week. Mark Miller: Yes, Brian, this is Mark Miller. I'll take that one. So clearly, none of us have a crystal ball, but I'll give you my perspectives on it. Auto generally becomes more commoditized, I think, over time. It's a more standard commodity type of product. Home remains complex and often is the largest asset for our clients. And I think they're going to be particular about how they buy that product. And selling home in general, is just a much trickier sale. It requires a lot more detail, a lot more knowledge. So I think it's going to be difficult to disintermediate the clients. And carriers when you think about them, what they want is they don't want to sell as much product as possible, what they want to sell is the highest product to the highest quality clients, and that's what we're doing with our agents. And the majority of our clients still want some human guidance interaction in the process. And we lead with the home and cross-sell with the auto so I think it makes it even harder for us to get disintermediated in this process. I see a world where it can be a combination of fully automated, maybe in a sale of an auto product, a hybrid sort of a product or a fully human distribution. But digital, in my opinion, just over time, increases the productivity of our agents rather than disintermediates them. One last point is just it's really, really challenging to disintermediate when the service function is such a big component of it. And what's makes Goosehead so unique is the size and capability of our service function compared to anybody else. Mark Jones Jr.: Yes. Brian, I would just add, I think people really underestimate the complexity of being able to distribute in a choice model directly to consumers. There's not really a ton of underwriting demand for that, especially on the home side. B, it's 50 different state regulators. There is a ton of different product out there and the product market ebbs and flows. And then I would just call out, there's only from what we know of 1 business that can actually today bind policies end-to-end without human intervention, and that's us. Everybody else out there is lead aggregation. Brian Meredith: Makes sense. And then I guess my second question, back to the digital agent, maybe you can dive in a little bit more on kind of what exactly that's doing because I guess the concern I have on it, is it going to actually cause customer retentions to actually start to decline here if it's easier and easier for customers to switch something like what's going on in the U.K. Mark Jones Jr.: So Brian, we've seen so far -- and granted, it's not like we've sold tens of thousands of policies so far. We've sold some. And largely what it has been so far as existing clients who are monoline home bought an auto policy directly from goosehead.com. That actually improves client retention because it rounds out their total account helps us capture full share of wallet better. And I think if you interact with one specific platform like we're trying to drive the industry to be Goosehead as really the place you need to purchase your insurance through. You don't have to leave Goosehead in order to get that full complete shopping experience. Mark Miller: And Brian, I think we're going to use it is pretty unique. Right now, you could go to goosehead.com for the state of Texas, and you can see auto carriers live that you can bind on. But when we think about how we use it over the medium term to long term, we're using it through our partner network that we've talked about that we've been adding. So we'll go straight at like mortgage service clients, if you will, cross-sell them auto, help them with their auto -- home products in the initial loan origination process, loan closing process and as their service books come up for renewal -- renewing their mortgages -- or lowering their mortgage insurance. Mark Jones Jr.: Yes. And ultimately, the service function is what really locks in client retention for the longer term. And the service function that we've built today does what we believe is the best job in the industry of fully licensed U.S.-based service agents who can handle the complexity of hundreds of different carriers in 50 different states. Operator: Our next question comes from the line of Tommy McJoynt with KBW. Thomas Mcjoynt-Griffith: First question, along the same topic here. How did the majority of consumers that are serviced by Digital Agent 2.0 find their way to Goosehead? Is it through top-of-funnel search engines, through corporate partners? And to go further, do you think Goosehead needs to go integrate with the LLM such as ChatGPT, if that's where consumer eyeballs are going? Mark Jones Jr.: Yes. So Tommy, we'll certainly look at that. But we're not necessarily trying to drive a whole bunch of monoline auto business. It may be a way to generate a bunch of short-term premium, but it doesn't actually generate long-term enterprise value because that's not the most retentive business, it's not the highest quality business. And when there's a market downturn, it's typically the channel that gets shut off first. Our distribution point with the digital agent largely going through the partnership base, gets us access to a preferred set of clients, one where we can solve pain points for the partners and give the carriers, the type of clients that they want at scale and at speed. We're not going to go into a giant advertising campaign to try and drive eyeballs at goosehead.com, but just the economics don't work in that world. And the advertising space and personal lines is so competitive. I mean you can't watch TV for 10 minutes without seeing 4 different insurance ads. So that's not an area where that's going to be a good use of capital. Mark Miller: And as we've gone around and talk to the big home carriers, that's not what they're looking for. They just don't want massive volume of low-quality leads. They want very select customer bases, and that's what we're going to deliver to them. Thomas Mcjoynt-Griffith: Got it. That all makes sense. And then switching over to buybacks. You saw the announcement of the sort of increased authorization here. Can you talk about your appetite and capacity for buybacks as we go through the year, given where the stock is now, what's the cadence of your guys cash flow generation typically throughout the year that should unlock perhaps more front-loaded buybacks through this year? Mark Jones Jr.: Yes. So I would point you to 2025, we used 80% of the full authorization that we were pretty aggressive because we thought the stock was undervalued. Looking at the valuation of where it is today, I think it's probably safe to say we think we're undervalued, hence, the repurchase authorization. We generate a really strong amount of cash. First quarter typically has the contingent commission bonuses that actually get paid. So it may not be the biggest EBITDA quarter, but it's a big cash flow quarter. And then we've got strong flexibility in our balance sheet because we've been conservative over the long term and being diligent and not over levering. We have a revolving credit facility of $75 million, that's got same-day liquidity. So we have a lot of options, but we want to be aggressive and deploy capital in the way that's going to drive long-term shareholder value. Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: Yes. What is the latest number, and I apologize if you gave this earlier in the call, but the investment spending, kind of elevated investment spending in 2026? Mark Jones Jr.: Yes. The 2026 number is still the same that we talked about in the third quarter call. That's $25 million to $35 million of total cash, $8 million to $11 million of that, that hits the P&L. And just for your context, fourth quarter 2025 there was $2.9 million that hit the P&L in the Q4 related to the Digital Agent. Mark Hughes: Yes. And you had mentioned, I think, 2.3 million potential mortgages available to you with the enterprise sales and other partners, but you're still ramping up. How many of that -- or how much of that potential is active as we sit here today? And what's the cadence for bringing the rest of that online? Mark Jones Jr.: Yes. A pretty small percentage of that is actually live so far today through either enterprise sales lead flow type arrangements or through embedded franchises. The embedded franchises that we have live so far today are performing really well. I think the story that having inbound lead flow already built inside your business is going to result in productivity is certainly holding true. But I get really bullish on that channel when I just look at what the potential pipeline looks like and how much we already have under contract and how the implementations are going. So I would not say the majority of that 2.3 million is already kind of fully sending lead flow through. And then there's always going to be tweaks that we make as we learn on how to best engage with one specific audience. Is there a different marketing collateral that needs to be sent, do we need to adjust how we interact with them to drive conversion. Mark Hughes: Understood. And then on the new business royalty fees up 6%, I think, this quarter. You talked about consolidation of the franchises that maybe impact productivity in the short term. You think that will be good for the long term. Anything else? That category has been a little volatile up 9% in the second quarter, but up 18% and then up 6% and maybe some of that is just underlying mortgage activity. But anything else that you would highlight around the productivity in the franchise channel? Mark Jones Jr.: Yes. I mean we feel actually really good about the health of the agency community. I mean same-store sales was up 19% in the fourth quarter. As Mark Miller mentioned in his prepared remarks, gross payments to agencies was up 29%. So the franchise community is healthier than what it has been in a long time. We feel really good about that. I think a really good leading indicator is our agency staffing program. The demand for that is really, really high, almost higher than what we can actually fulfill. So we've got to put some more resources against that. But our top agencies kind of that top 200 bucket is growing really, really nicely. And they're kind of more like 25% to 35% same-store sales growth. So I feel really good about the direction of the franchise community. Obviously, there can be quarter-to-quarter fluctuations in the overall growth rate of new business royalties, but we're expecting that to accelerate throughout 2026. You can see it in the higher new plans from our franchises. Mark Hughes: And if I could, one more, the corporate sales headcount, how do you think that will trend in 2026? Mark Jones Jr.: Yes. I would expect it to trend up. I mean enterprise sales should grow pretty strong just as we've got to onboard these partners, we want to make sure we have lots on seats to fulfill the lead flow. Traditional corporate sales team, we've seen nice improvements in the agent retention. We've made some changes to the recruiting profile that do not get off of college campuses, but add additional talent pools of experienced sellers that we traditionally have not necessarily gone after. And then as we've expanded geographically, and we've got 3 new offices here in February. We've got 1 more coming in the second quarter. I feel good about the direction of the corporate sales team and expect the head count to grow, and I don't expect it to double in 2026, but expect it to grow. Mark Miller: But I think the opening of the new office speaks to how we feel about the product market and our ability to grow the corporate staff. Mark Jones Jr.: Yes. And the corporate sales team is super strategic to the long-term vision of the organization. I mean we talked about the franchises that we've launched in the last year, many of them are already in the -- not even just the top 5%, some of them are in the top 5 of the agency community already. So we really are able to grow what I believe is the best insurance professionals in the industry in-house. Operator: Our next question comes from the line of Mike Zaremski with Bank of Montreal. Michael Zaremski: Back to the producer trend lines. Could you comment on franchise producers. It's been a bit volatile decline just a bit sequentially. I know it's better than expected last quarter. I think we heard you loud and clear about the franchise consolidation. But how about -- do you expect producers at the franchise to increase at a more meaningful rate as the market opens up? Mark Jones Jr.: Yes. Our agencies are really looking forward to hiring in the fourth quarter, you typically have your lowest recruiting of new producers, just seasonally, you don't necessarily start people going into Thanksgiving going into Christmas. But the demand for new hires is really strong, and I want to continue to push that producers per franchise number. So it was up to 2.1 here in the fourth quarter. I still believe 5 is a good kind of medium-term guidepost, continue to drive that up. And I think our largest agency is just about at 50 now, and we've got multiple that are over 20, some in the 30s. So the producer count is growing nicely. It's harder for you guys to see it just as the consolidation happens, but I'm feeling really good about the direction of that. Mark Miller: The larger the franchises, the more easily they can hire and onboard people and ramp them up. And that's what we're seeing is this consolidation is allowing the bigger ones to get bigger and have more staff. But it's just -- it's kind of blurred a bit because if you've got consolidation of the really small ones. But most of those small ones are just rolling up in the big ones that are more powerful. Michael Zaremski: Just directionally, will this consolidation dynamic kind of just work itself out of the system in '26? Or it's more of a kind of ongoing pruning and will be probably may be talking about this in '27 as well? Mark Jones Jr.: Yes. We talked about in the third quarter, probably the next 12 to 18 months. So you might see that a little bit into 2027. It's hard to say exactly because some of this is driven by those franchises themselves, whether they want to continue to operate as a sole proprietor or whether they'd like to join a bigger force. But ultimately, I expect probably the number to start to slow down, but it's still going to be slightly elevated in 2026. Michael Zaremski: Got it. And lastly, moving to -- you mentioned, obviously, the importance of retention. You can see the -- I think the sequential improvement this quarter. Maybe you can talk about kind of what's embedded in the guidance range you gave in terms of are you assuming retention kind of continues glide pathing up a little bit or a lot or not at all? Mark Jones Jr.: Yes. So we're continuing to see client retention improve basically on a daily basis. We look at it down to 2 decimal points. It's the first thing I look at every single morning. It's the most important piece of the business. So it's nice to see the trend continue up. You could probably assume the top end of the guidance range contemplates continued improvements in client retention, honestly, acceleration in the second half of the year. The bottom end of the guidance range would probably imply less improvements to potentially stalling in the client retention numbers. We think the market is going to continue to improve. Pricing is going to likely slow down, which should naturally improve client retention. And then we've put so much effort into our client-facing tools and the service function, we believe we should be able to drive it up. Operator: Our next question comes from the line of Katie Sakys with Autonomous Research. Katie Sakys: I wanted to circle back to the Net Promoter Score for the quarter. And normally, I wouldn't focus on this metric so much. But if I think, the lowest that we've seen in quite a while. And I just wanted to, a, ask for a little bit more color on perhaps what impact about this quarter? And b, circle back to the discussion of the impact of the rollout on the Digital Agent 2.0 platform, and how that has sort of impacted your clients view of interacting with Goosehead and really how you foresee the further rollout of the Digital Agent 2.0 platform competing with other similar platforms from your competitors? Mark Miller: Sure. Let me take this one, Katie. And I'll just start by saying just a reminder, the NPS score is a trailing 12-month metric. So it still reflects a lot of the price increases that you saw early last year, and they started to taper off like third quarter of last year, but people were in shopping mode at that point and very dissatisfied with the general broader market of insurance in general, just when we get the type of price increases they saw. So I would say it's a general affordability kind of sentiment sort of measure. We also started working in internally a CSAT score, which instead of measuring how they felt about, would they recommend Goosehead to a friend, that's the NPS score. We're starting with the CSAT score, which is how is your interaction with your Goosehead agent that you just had. That score has been on a 5-point scale, about 4.2 since we started it and holding steady. So I don't think there's been a change there. And the other thing that we look at is just retention. And retention has consistently moved slightly up every single quarter what I think is another measure of how people are feeling about our service levels. So overall, I feel very good about it. And when you think about the tools that we've put in place with our new mobile app is probably the first thing in our Lily, our AI automated agent. I think those 2 things right there have really helped client service overall. Katie Sakys: Got it. Okay. I appreciate that color. And then I guess thinking about the year ahead and your expectations for productivity growth. Can you kind of delve into more color on those additional pools of talent that you guys are reaching into to further support your recruiting efforts and how much additional tailwinds to productivity, those more seasoned producers might be able to provide relative to like the typical profile of a traditional Goosehead new hire? Mark Jones Jr.: Yes. So as we go after people who have a little bit more sales experience, what I anticipate is going to happen on that is, a, the retention of those agents should be better because they're not learning whether they want to be in sales or not on our dime. They already understand if that's what the career path that they want is. I don't necessarily think there's a magic bullet between hiring somebody that's off of a college campus versus hiring somebody that's got some experience as long as you're picking the right person who knows that they want to be in sales. And we've made a lot of investments in the training program and the management infrastructure over the last 6 to 8 months to help improve agent productivity in the corporate sales force. You can see that in the less than 1-year corporate agent productivity. And then as you look into 2026 in the third quarter call, we talked about smoothing out the hiring time frame, which is a little bit different than what we've done in the past. That should also aid both in productivity as well as in retention of those agents because you're not launching so many of them at one time where a manager has the potential to get overloaded. Operator: Our next question comes from the line of Andrew Kligerman with TD Cowen. Andrew Kligerman: Okay. Just some quick follow-ups on the earlier questions. On the one with regard to the guidance, of low double to high single digits or 10% to 19%. And you touched on retention being the key variable there. What's kind of your bias thinking? Do you think retention is... Mark Jones Jr.: Yes. I think retention builds up. We're seeing that already. I don't have a crystal ball for what happens in the second half of 2026, but my baseline assumption would be retention continues to go up. Mark Miller: It's highly correlated with pricing, and we're starting to see pricing stabilize. So that would lead that and we've put a lot of extra efforts into improving retention, just better service. Andrew Kligerman: Got it. And with respect to the AI questions earlier, and I completely appreciate your points about the complexity of products and how you need people to do that. But I think the market's concern is around 5 years from now and 10 years from now. So does your thesis still hold 5 and 10 years from now, where do you see that disruption coming? Mark Jones Jr.: Yes. So Andrew, I think if you're looking out 5 or 10 years from now, the company that is best positioned to leverage AI, I believe is us, because we've got access to proprietary data that we've built over 20 years that is not only just the generic publicly available data that you may have from just doing advanced Google searching on, hey, your ZIP code generally has replacement cost of X. Now we've got almost 2 million policies across all 50 states, across a broad set of carriers that we're building the infrastructure right now to leverage that to be able to make the best possible decisions on behalf of clients. So if you're rolling this for 10 years from now and say, AI is going to be the main distribution platform, which that may or may not be true, even if it is, that should be through us. I think we're the ones best positioned to capture that by far. Mark Miller: Andrew, I just say -- the carriers don't give access to binding authority to just anybody. And that trust that we've built up over this time makes us very, very unique and well positioned even over the long term. Operator: Our next question comes from the line of Paul Newsome with Piper Sandler. Jon Paul Newsome: Also a little bit of a follow-up. I apologize if you already hit this or maybe you could just expand upon it. The guidance or at least you're thinking for the next year or so, does that have any view on product availability changing over the time? I know that was at 1 point an issue with sales. And maybe just some general thoughts on the -- are we at the point where everyone is open. It's just not an issue? Or is there some sort of expectation that maybe it continues to get even better? Mark Miller: Paul, it's Mark. I would say on the auto side, it's been wide open for a bit now. The home probably 50% open towards the end of the year, pretty wide open right now. There's not a market that we operate in that we're having a significant product availability issue, carrier appetite is returning. There might be slight restrictions on some of the carriers where you have to bundle the product or something like that. But generally speaking, we've got product in every market right now. Mark Jones Jr.: Yes. So as you're thinking about guidance, there's not -- it doesn't really contemplate on either end of it, changes in the product environment. I don't necessarily see that coming in 2026. Operator: [Operator Instructions] Our next question comes from the line Ryan Tunis with Cantor. Ryan Tunis: First question, I want to make sure I heard this correctly. It sounded like in your discussion of '26 objectives that you're assuming a slightly lower take rate on the contingents. So that's question one. And if that's right, I was wondering if your margin guidance, excluding contingent commissions allows for any improvement. Mark Jones Jr.: Yes. Ryan, generally, we've had really strong contingent commission years the last 2 years in a row, 2024 and 2025. That's probably the base case assumption going into 2026, just given how that can impact both revenue and earnings in 1 year given that it is currently February. There's plenty of things that can still happen in the year that can swing that one direction or another. I don't think it would be prudent to just assume it's going to be 85 or more basis points. So internally, that's what we're kind of planning towards that 60 to 85. We've talked about forever that long-term average is 80 to 85 basis points and then we've shown that a couple of years in a row. But I want to make sure we give ourselves enough degrees of freedom in the event that there is some kind of catastrophic events, if there's a bad hurricane season, if there's wildfires, things like that. Ryan Tunis: So any comments on the -- any chance the margins can expand like if we exclude those? And I'm just wondering how much the decel and contingent is weighing on that margin guide. Mark Jones Jr.: Yes. No, the margin guide is really more around the core investments that we're making into the Digital Agent platform, into the partnership space. And just as you think about the cadence and pacing of that throughout the year, there's a couple of factors I want to make sure we bring up. One, and we talked about the year-over-year comparison on changes in pricing, impacting the first half of the year more than it does in the second half of the year. And so that's flowing through the renewal block can impact profitability as well as the revenue growth rate. And remember, we talked about hiring corporate sales agents more evenly throughout the year, which would mean that gets floated a little bit into the P&L. But generally expecting as the renewal block continues to grow and retention improves at the second half of the year, you get better year-over-year margin. But I think if you look at it ex contingents, you're probably still expecting margin compression because of these investments that we think are going to drive long-term growth and shareholder value. It help us drive towards a real industry leadership. Ryan Tunis: I guess just trying to frame these investments even going on for a little bit of time. Are you guys confident that looking out in the '27, '28, this morphs into a real margin expansion story. Or is it still kind of wait and see in terms of what you might have to invest in? Mark Jones Jr.: Ryan, we're pretty confident that long term and at scale, this is very accretive to the margin profile. I want to be clear, this isn't kind of infinite money pit that you see a lot of AI investments in. This is very thoughtful about what we're investing in the specific teams, what we anticipate the return profile to be. So we feel really confident this is an investment that is most likely to pay off. And it is a defined time period, it's not an infinite kind of black hole of investment. Yes. So at scale, it's going to be able to drive significant growth and significant margin opportunity. Ryan Tunis: And then just last one. I think just looking at the franchise commission rate that's come off over a point since 2023. I guess, first like how focused are you on trying to get those commission rates back up here in 2026? Or is that going to be somewhat sticky? Mark Jones Jr.: No, that's a big area of focus for us, and now is absolutely the right time to be having those conversations. If you look at the last couple of years, I mean, we always want to be a good partner and back our partners play, and we expect our partners to keep the same. So the last few years has been a challenging time to be an underwriter. That's not necessarily the case right now. And so as you look at ways to drive the most profitable growth for a carrier, investing in your distribution channel, that's been a good long-term partner for you is a good way to do that. And if you think about the franchise business specifically, there's a lot in California, there's a lot in Florida. So over the last couple of years, that's been a lot of business to, a, California FAIR plan, and b, Citizens, both of which have much lower average commission rates in the market because they're not necessarily trying to incentivize you to write business on them. And then we've seen the uptick in the excess and surplus lines market over the last several years. And I don't necessarily think that's going away. I think the growth rate probably starts to trend down. But from a positive perspective in our book, you're seeing E&S markets start to behave a lot more like the admitted market, both from an agent kind of access from a client understanding and importantly, from a compensation perspective. Operator: One moment for our next question. It comes from the line of Pablo Singzon with JPMorgan. Pablo Singzon: So first question, you've framed the high end and low end of guidance in terms of drivers such as pricing and retention. So should we take your comments about the first half core revenue growth being in low double digits as a representative of the midpoint? Because yes, it seems like a steep trajectory in the second half to get the midteens for the full year. So just wondering if you could comment on that point. Mark Jones Jr.: Yes. I mean we're expecting acceleration in the second half of the year through head count growth and really all 3 distribution channels, more partnership efforts coming online and continued improvements in client retention. Pablo Singzon: Okay. But double digits for the first half in your view that sort a realistic midpoint level for guidance, right? In other words, you're not being too conservative in setting that expectation for the first half? Mark Jones Jr.: Yes. I mean, remember, our philosophy that we've reiterated a lot of times is we try to be as honest as possible in our guidance and guide you to what we actually believe is going to happen. Pablo Singzon: Okay. And then next question, just on the Digital Agent 2.0. I guess is the plan to roll it out nationally ex partnerships. And I'm curious if you're actually able to measure the business you're getting from it, if it's different or incremental from business that your agents would have generated anyway? Mark Jones Jr.: Yes. I mean the policies we bound so far are monoline home clients who have -- many of them, at least our monoline home clients who have gone and bound an additional auto policy. So an agent was -- basically had no incremental effort, and now has grown their individual book of business and really received full compensation on that. I want agents engaged and excited about the digital agent, and we will be rolling this out more broadly across additional geographies as we continue to go take share in other markets. Now it's probably not going to be something that's at least all 50 states [ in a ] blitz, right? We're not going to try and sprint to South Dakota. It's obviously, in order of prioritization to make sure that we can cover the right geographies where, a, both our carriers want us to be and there is significant demand in the market, and there's good overlap with our partner client base. Mark Miller: Right now, Pablo, as I said earlier, we're focused on getting auto carriers on in Texas, which we've been successful in doing that. We've got a little bit more work to do there. At the same time, we're building out the connections to the home carriers for Texas, and we'll test and pilot the product in Texas and then a quick follow-on to other states where we can just replicate what we've built. Operator: And our last question will come from Mike Zaremski with a follow-up with Bank of Montreal. Michael Zaremski: Just a quick one. On premiums coming out of Texas, I think last update, that was at very high 30s. And just curious if that's -- do you expect that to stabilize and go back up? Or are we still kind of mixing out of Texas a bit? Mark Jones Jr.: Yes. We're continuing to diversify outside of Texas. For the full year, Texas was 40% of the premium for the fourth quarter. Texas was 38% of the premium. So that's been a really concerted effort by us. Just reduced dependency on the Texas market. If you think about the last several years, that was probably the area where there was the most product construction. So I just want to make sure we've got appropriate coverage in the right geographies where carriers want to be, where agents can be successful. So you should probably expect to see the Texas proportion of total written premium continued to decline as the rest of the country grows. Operator: And I don't see any further questions in the queue. I will pass it back for any final comments. Mark Miller: Sure. I just want to thank everybody for taking the time to join the call today. As you can see, it's an exciting time to be in the personal lines brokerage business, and we look forward to talking to everybody again in April with our first quarter results. Operator: And this concludes our conference. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Medifast Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steven Zenker, Vice President, Investor Relations. Thank you. You may begin. Steven Zenker: Good afternoon, and welcome to Medifast's Fourth Quarter 2025 Earnings Conference Call. On the call with me today are Dan Chard, Chairman and Chief Executive Officer; Nick Johnson, President; and Jim Maloney, Chief Financial Officer. By now, everyone should have access to the earnings release for the fourth quarter ended December 31, 2025, that went out this afternoon at approximately 4:05 p.m. Eastern Time. If you have not received the release, it is available on the Investor Relations portion of Medifast's website at www.medifastinc.com. This call is being webcast, and a replay will also be available on the company's website. Before we begin, we would like to remind everyone that today's prepared remarks contain forward-looking statements, and management may make additional forward-looking statements in response to your questions. The words believe, expect, anticipate and other similar expressions generally identify forward-looking statements. These statements do not guarantee future performance, and therefore, undue reliance should not be placed on them. Actual results could differ materially from those projected in any forward-looking statements. All of the forward-looking statements contained herein speak only as of the date of this call. Medifast assumes no obligation to update any forward-looking statements that may be made in today's release or call. Now I would like to turn the call over to Medifast's Chairman and Chief Executive Officer, Dan Chard. Daniel Chard: Thank you, Steve, and good afternoon, everyone. We appreciate you joining us today as we discuss our fourth quarter and full year 2025 results and as we share an update on the progress we're making building the next chapter of Medifast. Before I get into performance and strategy, I do want to briefly acknowledge a leadership update we communicated in January. I recently informed the Board that I plan to step down as Chief Executive Officer, effective June 1, 2026. I've led this company for close to 10 years now, and it's no exaggeration to say that it has been one of the great privileges of my career. This decision was made thoughtfully and deliberately as part of a planned transition that I have been talking to the Board about over recent months. I will continue to serve as Chairman following the transition and will be fully engaged as CEO through the end of May as we execute against our priorities and support a smooth intentional handoff. As part of the transition, the Board appointed Nick Johnson as President of Medifast with the expectation that he will assume the CEO role following my departure. Nick has been a central leader in the work we've done over the past several years, strengthening our coach-led model, helping reposition the company around metabolic health and working in tandem with our independent coaches to build the operational discipline required to sustain change. He has been with us on recent earnings calls, and you'll have the opportunity to hear from him today about the progress we're seeing with the field and how that's translating into early and measurable progress. What made my decision easier is my absolute conviction in the direction that Medifast is heading, the strength of our leadership team and the path we are on as a metabolic health company. Over the past 2 years, Medifast has been in a period of transformation. We've navigated fundamental disruption in the weight loss industry, driven by rapid adoption of GLP-1 medications and shifting consumer expectations. During the second half of 2025, we made a series of intentional choices to reposition the company, not to abandon weight loss as a concept, but to put it in the right context under the broader umbrella of metabolic health. At a fundamental level, many of the health challenges people struggle with today stem from poor metabolic health, often referred to as metabolic dysfunction. That dysfunction often shows up downstream as a whole set of symptoms. Weight gain is certainly one of the most visible of those, but it's far from the only health challenge. The problem is if we only focus on the symptoms, we are not fixing what's driving them. Improvement requires restoring metabolic health itself. At the center of our work in this space is a scientific approach we refer to as metabolic synchronization. Rather than just helping people with short-term weight loss, the science behind our clinically supported system works with the body to help reset key metabolic processes that have fallen out of balance over time. That approach allows us to reverse metabolic dysfunction and help create conditions for improvement in body composition, energy and overall health. To better understand how Americans view metabolic health, we partnered with KRC Research on a national survey that found that nearly 94% of American adults expressed concern about at least one aspect of metabolic health. Importantly, 85% of respondents believe metabolic dysfunction can be reversed and 84% view it as central to overall health and well-being. That combination of widespread concern and belief in reversibility highlights a large underserved market and reinforces our view on why a clinically proven coach-led approach is well positioned to meet it. Clinical results show that our metabolic synchronization approach reverses metabolic dysfunction and can deliver a targeted metabolic reset of key metabolic processes that improves body composition in meaningful ways. Specifically, during a 16-week clinical study, participants using our 5-in-1 metabolic plan reduced harmful visceral fat by 14% while retaining 98% of lean mass and experienced clinically significant weight loss. These outcomes impact metabolic health going beyond just weight loss. We're actively leveraging our metabolic synchronization science platform to develop a new product line designed to further support reduction of bad visceral fat and improve body composition, metabolic efficiency and overall health. These products will utilize a proprietary formula of clinically studied ingredients and are designed to support metabolic health. In parallel, we are simplifying how we support clients across every phase of their metabolic health journey. While most clients will begin in a targeted reset phase, the science of metabolic synchronization now provides a clear road map to guide and support them through additional phases that aid in achieving optimal metabolic health. We'll share more as we move through the year, but this innovation is a direct extension of the foundation we've built. Rebuilding our core offer has taken time. But today, we believe that process is largely complete. That does not mean that our work is finished, but we believe the foundational elements we needed to move forward are now in place. We have a clear science-driven strategy that is supported by clinical research. We have strengthened our clinical and scientific foundation, and we've positioned the company to expand our claims over time. We have revitalized and simplified key parts of our commercial model and leadership systems in the coach-driven field structure. And we have taken disciplined steps to align our cost structure and operations with the realities of the market while preserving the resources we need to invest in growth. So as we enter 2026, we are moving from transformation to execution. And in the fourth quarter, we started to see early evidence that our strategy is impacting key metrics. This includes the emergence of a green shoot in coach productivity, along with bright spots developing across the business. While these early performance metrics are yet to have appreciable impact on our revenue, we believe they are nonetheless early signs of the improving performance of our coaches in support of our efforts to get back to growth and profitability. This quarter marks the first time since mid-2022 that quarterly coach productivity turned positive on a year-over-year basis, up 6% in the fourth quarter over the prior year. That's a meaningful milestone because productivity performance like this has historically been a leading indicator of broader improvement in client acquisition and coach growth. We are seeing a sharp increase in coach-led product and business opportunity meetings with activity in January showing a significant rise compared to the same period last year. This is a clear sign of the energy and excitement that our coach base is bringing into 2026. We've talked about the importance of coach productivity and the associated positive metrics like these in previous earnings calls and the role that they could play in future growth. Their emergence now is consistent with the idea that the foundational work of the past 2 years is translating into measurable progress against our transformation objectives. While we continue to expect a decline in the overall active earning coach count through most of the current year, another positive early trend that we expect to see soon is a more favorable mix in coach tenure as a higher proportion of new coaches come in and longer tenured, less productive coaches transition off as part of the coach life cycle. This should create a younger tenured coach base, which is a sweet spot for productivity and the sponsoring of new coaches. We saw this in prior cycles, including in 2016 and 2017, and we are expecting to see some shift in the current year. Importantly, in this current environment, productivity is not being driven by price or business promotions, but by the new positioning of our coach-led program as a metabolic health solution, complemented with new tools and behavior changes inside our coach base as they focus on the new business opportunity around the large and growing metabolic health market. Nick is now going to share more detail on what we're seeing from coaches and how programs, including Premier+, EDGE and our client referral activity are set up to drive coach productivity and engagement and how the metabolic health story is energizing our coach base in a way we have not seen in some time. Nicholas Johnson: Thank you, Dan, and good afternoon, everyone. I'm grateful for the opportunity to continue working closely with Dan and the Board throughout this transition. I joined the company in 2018, and I've been deeply involved in the work to reposition the company over the last several years. My focus now is on executing this transition to a metabolic health company, particularly in the field where our strategy becomes real. Our coach-led model remains Medifast's greatest strength, and the data reinforces that belief. By working with a coach, clients are capable of achieving significantly better metabolic health outcomes, losing up to 10x more weight and 17x more fat on our flagship 5 & 1 metabolic health plan compared to those attempting to lose weight on their own. That difference underscores why we continue to invest in the coach experience and why we believe our model provides us with a real structural advantage in a crowded market. In a world where many solutions are increasingly virtual or transactional, our model is built on human connection, accountability and community, and we believe that matters now more than ever. As Dan referenced, we're seeing early signs of improved productivity, and we're pairing that with targeted actions designed to make productivity sustainable. Premier+ and EDGE are both central to our work here. Premier+ has enabled us to simplify our offer, and we expect it to strengthen client acquisition and retention, making it easier for clients to start our program, understand the value and stay engaged in their metabolic transformation beyond month 1. EDGE is a program that incentivizes the duplication of highly productive coaches by rewarding the behaviors that drive client acquisition, coach sponsoring and leadership development. In the fourth quarter, we achieved a double-digit percentage of active earning coaches reaching the important coach business leadership rank of Executive Director, the highest percentage since mid-2023. And the retention rate of those coaches hitting that rank for the following 2 months was the highest since 2022. This matters because duplication of this core rank is what ultimately grows their businesses. The more we can find ways to help new coaches reach this important rank, the more we expect we will be able to stabilize then scale the business. In addition, building on that, we're seeing higher engagement and activity levels in the field. As Dan mentioned earlier, coach-led opportunity meetings and training activity have increased significantly across the nation. Our optimal metabolic health story and the science behind it is giving coaches a sharper focus and stronger confidence in delivering meaningful value to their clients. We've invested in equipping them to share our breakthrough metabolic synchronization science responsibly and consistently through efforts like our annual scientific symposium as well as continuing education for our coaches. All of that is translating into more frequent and effective conversations, better follow-through and a larger investment in in-person events across the country. We're also seeing signals that the word-of-mouth engine is strengthening. We've introduced an expanded referral-oriented activity, and we're seeing indications that a higher share of clients are recommending the program to prospective clients. There are also indicators that sponsoring is improving. And when you combine that with a younger tenured coach mix, it can create a flywheel of momentum. Historically, when productivity improvement was sustained, we have typically seen active earning coach trends improve within the following 6 to 9 months. Delivering on that is what we are focused on for 2026. With that, I'll turn it back to Dan. Daniel Chard: Thanks, Nick. Before I hand over to Jim, I want to emphasize 2 points. First, we are staying consistent. We are not pivoting our strategy. We are executing on what we've been building, moving upstream to address metabolic dysfunction with a clinically proven system built on science and a coach-led model that differentiates us. Second, we are focused on disciplined execution on retaining profitability. We are deepening our leadership in metabolic health through ongoing research and a new product line being developed with our metabolic science at the center. And both Nick and I will share more at the appropriate time as we move through the year. We will continue strengthening and simplifying the coach and client experience and we will maintain cost discipline and protect our financial flexibility so we can invest in the areas that matter most. Our balance sheet remains strong, and our operating model is tightly aligned to the market realities we're operating in today. We have more work to do, but we're encouraged by the early indicators we're seeing. And as a result, we're confident in the direction we're headed. Now I'll turn it over to Jim to review the financials and our outlook. James Maloney: Thank you, Dan. Good afternoon, everyone. Fourth quarter 2025 revenue was within our guidance range with revenue per active earning coach showing year-over-year growth for the first time since Q2 of 2022 and reaching its highest level since Q3 of 2024. Our fourth quarter loss per share was $1.65. The loss per share is impacted by a $12.1 million noncash valuation allowance we recorded against our deferred tax assets in the current quarter, which on a per share basis represented $1.10 of the $1.65 loss. The loss per share before the noncash deferred tax valuation allowance was $0.55, which was better than the guidance range we provided. Revenue for the fourth quarter was $75.1 million, a decrease of 36.9% versus the year earlier period, primarily driven by a decrease in the number of active earning coaches. We ended the quarter with approximately 16,100 active earning coaches, a decrease of 40.6% from the fourth quarter of 2024. This decline was driven in part by the rapid adoption of GLP-1 medications, which continues to impact the traditional weight loss category. It's also reflective of the work we have been doing to build a new coach leadership structure comprised of the most productive executive director organizations described by Nick. Accelerating the exit of less productive and less profitable coaches contributed to average revenue per active earning coach for the fourth quarter reaching $4,664, a year-over-year increase of 6.2%. This represents a much anticipated green shoot during the current quarter with coach productivity turning positive both year-over-year and sequentially. As we have discussed previously, we view increases in revenue per active earning coach as an early indicator for future coach growth, which we believe will in turn lead to revenue growth. As a reminder, revenue growth is expected to take several quarters to materialize and productivity per coach needs to sustain in order for revenue growth to occur. Gross profit for Q4 2025 decreased 40.9% year-over-year to $52.1 million, driven by lower sales volumes. Gross profit margin decreased 470 basis points to 69.4%, primarily driven by the loss of leverage on fixed costs of 420 basis points and a onetime restructuring charge of 40 basis points. SG&A expense for Q4 2025 was down 31.5% year-over-year to $59.9 million, primarily due to an $18.6 million decrease in coach compensation, a $5.8 million decrease in company-led marketing-related expenses and a $4.2 million decrease resulting from the realignment of the employee base to lower revenue levels, partially offset by a $1.9 million increase due to a onetime restructuring charge and a $1.6 million increase in coach event costs. Q4 2025 SG&A as a percentage of revenue increased 630 basis points from last year, primarily reflecting 370 basis points of loss of leverage on fixed costs, a 300 basis point increase for higher coach event costs and a 250 basis point increase due to a onetime restructuring charge, partially offset by 440 basis points of reduced company-led marketing-related expenses. During Q4 2025, we executed a restructuring across all of our business functions and further scaled back our marketing spend with targeted future savings of over $30 million. These restructured costs, along with other initiatives, are incorporated in our 2026 guidance. Loss from operations was $7.8 million in the fourth quarter of 2025 compared to income from operations of $0.7 million for the year earlier period, driven by lower gross profit, partially offset by lower SG&A. As a percentage of revenue, loss from operations was 10.4% in the fourth quarter compared to income from operations of 0.6% for the year earlier period. Other income increased 151.1% year-over-year to $1.4 million, primarily due to unrealized losses on our investment in LifeMD common stock in Q4 2024 that did not recur in the fourth quarter of 2025. Income tax expense was $11.7 million for the fourth quarter, an effective tax rate of negative 183.9% as compared to $0.5 million, an effective tax rate of 37.3% recorded in the prior year's fourth quarter. As I alluded to earlier, we recorded a $12.1 million noncash valuation allowance against our deferred assets in the current quarter, which was equal to our ending deferred tax asset balance. We assess deferred tax assets for realizability on a quarterly basis and the current quarter's analysis warranted the establishment of the valuation allowance. Net loss in the fourth quarter of 2025 was $18.1 million or $1.65 per diluted share compared to net income of $0.8 million or $0.07 per diluted share in the year earlier period. The $12.1 million valuation allowance represents $1.10 of the loss on a per share basis. The loss per share before the noncash deferred tax valuation allowance was $0.55. With respect to our balance sheet, we ended the year with $167.3 million in cash, cash equivalents and investment securities and no debt. Additionally, our working capital, defined as current assets less current liabilities, was $158.7 million as of December 31, 2025. Now I'll turn to guidance. We are expecting our first quarter revenue to range from $65 million to $80 million and our loss per share for the quarter to range from $0.15 to $0.70 per share. We expect to see continued coach productivity growth during the quarter, up both year-over-year and sequentially. With our confidence level up regarding visibility for the entire upcoming year as we focus on metabolic health, we are reinstituting annual guidance. For the full year 2026, we expect to make significant headway on our efforts to get back to profitability with revenue of $270 million to $300 million and loss per share between $1.55 and $2.75. Also included in our guidance is that we believe improvements to get back to profitability will start in Q4 2026, following the launch of our new product line, and we will be targeting improvements in earnings to continue into 2027 and beyond. Finally, we believe our working capital will be more than $140 million at December 31, 2026. With that, let me turn the call back to the operator for questions. Operator: [Operator Instructions] The first question is from Jim Salera from Stephens Inc. James Salera: I want to start off by asking about the coach productivity and how we should think about the sequencing of that into 2026. Particularly, can you give us any detail around the guests or the consumers that are matched up with these coaches? You mentioned you noticed a younger composition of coach, but does that also apply to the consumers that are tethered to the coach? Can you offer any insight in how we see that progressing through '26? Daniel Chard: Sure, Jim. Thanks for the question. This is Dan. Yes, you're focused on the right area. This is one of the big changes from where we've been in the last few years. As we indicated in our prepared remarks, this is the first time since mid-2022 that we've seen a year-over-year improvement in productivity, and it's an improvement over where we've been over the last several quarters as well. So it's reflective of our coaches -- actually 2 things happening. Our coach is telling a new story focused on metabolic health, which is resonating in an environment where weight loss has been largely a story that's changed to focus -- be focused on GLP-1 weight loss. So as we've said, metabolic health goes beyond just weight loss. So we're seeing a new type of customer coming in who's looking for a different kind of health benefit. And we've seen that new client be tied to this -- as we said, this new story. This is largely a function of our coaches now being largely retrained and able to tell this metabolic health story, and we're seeing that expected improvement. And we anticipate that, that as we get the story continues to build and we introduce new products in the back half of this year, that productivity level should be -- or we expect that to be sustained and even improve. The other thing that is a big part of this new quarter that we're reporting on is some very significant improvements on our cost structure. As Jim said, we were able to restructure the business to be more reflective of where we are as a company and pulled approximately $30 million out, which we anticipate to be reflected both a little bit in the fourth quarter of last year and moving into this current year. James Salera: If I think about the sequencing of the top line, particularly against the backdrop of the $270 million to $300 million that you gave for the full year. If my math is correct, at the midpoint, 1Q is down like 37%, but the midpoint for the full year is only down around 27%. So that would imply improving generally throughout the year. Is it possible that we can get to a point where revenues are flat or maybe even modestly positive by 4Q? Or is it more of kind of a gradual improvement, but we should still exit the year with productivity positive, but absolute top line year-over-year still negative? Nicholas Johnson: Yes. I mean we're not -- obviously, Jim, we're not giving quarterly guidance. When you think back in 2022, we took away full year guidance at that point because we were disrupted by the introduction of GLP-1 medications, and we needed the flexibility as a company to invest in certain areas to make sure we were getting to the path forward the company needed to. Now that we landed on metabolic health, and we're past, I'll call it, the transformation stage and more on the execution, we're able to provide longer-term guidance. So we're happy to share the annual guidance as we did today. And you should think of that as that we're more confident in the movement into metabolic health. With the information that we have provided investors, you would think of the way you're thinking of it. So it's not unreasonable to think that when you look at a top line basis of our company, that things are going to stabilize, and that would be the anticipation. James Salera: If you look at the customers that have used GLP-1 either in the past or maybe currently actively using it, can you just offer any thoughts around how the new lineup and some of the new product innovation that you talked about and it sounds like coming this year as well is going to match up with kind of that change in the composition of the consumer base? And also, any thoughts you can offer around the fill format rolling out this year and anything that you've kind of modeled into impacts from that? Daniel Chard: Yes, I'll take the first part of this question, and then I'll have Nick Johnson, who's also here with us, comment on what they're seeing in the field. But what we're seeing now is this -- what we refer to as the off-ramp or people who are coming off GLP-1 drugs is getting significantly larger because that's -- because I think there's a recent study that showed after 2 years, roughly 2/3 of GLP-1 patients transition off for a variety of reasons. It also shows that they regain the weight and in some cases, gain more than what they -- where they started back after being on GLP-1 drugs. So we're seeing that large inflow of clients inside of the group that our coaches are now able to attract. I think we have roughly 1/4 of our patients either have or are on GLP-1 drugs. But I'll let Nick comment on where our coaches are having success in attracting both those who have never used as well as those who have used or are current users or who have used in the past. Nicholas Johnson: Thanks, Dan. Jim, as Dan was mentioning, the story in the field around metabolic health and specifically about what's to come. I think it's important for us to talk about some of those foundational pillars of our proprietary science metabolic synchronization, which focuses on a 14% reduction in visceral fat and 98% preservation of lean mass and then protecting healthy muscle. And when you think about that off-ramp group, and you think about the body composition, specifically around the type of weight that's being lost and you think about a healthy portion of that weight loss coming from lean mass, lean muscle, it's on consumers' minds. So when you think about what's coming with new plan, new program and system in the back half of the year, you can be thinking about solving for some of those outages, which are on people's minds today. And just to further articulate the point, our field are very excited about what's to come because they understand it's the quality of the weight that's coming off, where it's coming off, the type of dangerous visceral fat that's coming off as opposed to the type of weight that you want to maintain, specifically lean mass. Operator: There are no further questions at this time. I would like to turn the floor back over to Dan Chard for closing comments. Daniel Chard: I'd like to thank you all for joining the call today. We appreciate your continued interest in Medifast and the thoughtful dialogue that we've had this afternoon. We remain focused, as Jim said, on executing the transition to a more differentiated metabolic health company. We feel like we're well on our way to doing that and to strengthening our coach community and positioning the business for sustainable long-term performance. We look forward to updating you on our progress in the quarters ahead, and we thank you again for being with us today. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Welcome to the Vicat 2025 Full Year Results Presentation. [Operator Instructions] Now I will hand the conference over to Guy Sidos, Chairman and Group CEO; Hugues Chomel, Deputy CEO and Group CFO; and Pierre Pedrosa, Head of Investor Relations. Please, sir, go ahead. Guy Sidos: Thank you. Good afternoon, ladies and gentlemen. Welcome to Vicat's 2025 Results Presentation. I'm Guy Sidos, Chairman and CEO of the Vicat Group. Alongside me, I have Mr. Hugues Chomel, Deputy CEO and CFO; as well as Pierre Pedrosa, Head of Investor Relations. On Slide 2, as a preliminary remark, I would like to draw your attention to the fact that the forward-looking information presented here reflects our current assessment of expected trends across the group's various markets and should not be regarded as forecast. On Slide 3, 2025 is part of a solid and sustainable performance trajectory, illustrating the strength and resilience of Vicat's business model. Consolidated revenue amounted to EUR 3.85 billion in 2025, reflecting an average annual growth rate of nearly 7% over the past 5 years. EBITDA reached EUR 771 million which representing average growth of close to 7% over the same period. ROCE remained stable at 8.1% [indiscernible]. Lastly, the group's leverage ratio continued to decrease, reaching 1.49x in '25 [indiscernible] Vicat's financial structure. These results once again demonstrate Vicat's ability to consistently combine operational performance with financial discipline in a demanding environment. Let's move to Slide 4. As a reminder, Vicat's business model is built on several key pillars that underpin its resilience. First, a family shareholding structure and a long-term vision grounded in continuity, which enable us to pursue a consistent and sustainable industrial strategy. We are a cement-focused business and benefit from [indiscernible] high-performing industrial asset base vertically integrated across the value chain. We have [indiscernible] decentralized organization which [indiscernible] needs of a markets. [indiscernible] long standing collection of innovation [indiscernible] capabilities [indiscernible] invention of [indiscernible] in [ 1817 ] today is low-carbon cements such as [indiscernible] we're positioned as a key player of our industry in decarbonization. Firstly we benefit from geographically diversified portfolio across both developed and emerging markets. This [indiscernible] and provide a foundation for [indiscernible] model fully aligned with the ongoing [ confirmation ] of our sector. Slide 5 provides an analysis of the group's investment cycle over the past 10 years and how we have balanced our strategic priorities with financial discipline. Following an initial phase between 2015 and 2018 during which investment levels remain stable, we made the decision from 2019 onwards to accelerate capital expenditure at a time when funding conditions were [indiscernible]. Since 2023 in a context of [indiscernible] we've been to capitalize on discuss [indiscernible] [ eye catch flows ] [indiscernible] deliver of investment consistent [ reach over ] initial goals. Turning now to the key highlights of 2025 on Slide 6 in a complex international environment is a group delivered solid results. Organic revenue growth came in at 3.3%, accelerating to 8.1% in the first quarter. EBITDA reached EUR 771 million, representing organic growth of 3.7% compared to a record year in 2024. However, foreign exchange headwinds had a significant impact in a slight EBITDA decline on a reported basis. For the third consecutive year, the group generated strong free cash flow amounting to EUR 324 million in '25 and continued to reduce its net debt. [Firstly] we made further progress on decarbonization reached an important milestone in securing the financial of VAIA of flagship carbon capture project in France with the award of 2 subsidies at both the Europe and France levels. Altogether, these elements once again illustrate the strength of Vicat's model, which is able combine operational performance and [indiscernible] decarbonization. In France, as shown on Slide 7, the residential market has gone through an unprecedented slowdown and is now at the lowest level in 25 years. As far as we are concerned, we have lost [ 600, 000 tons ] of cement over the past 3 years, representing nearly 20% of our production. Despite this [indiscernible] France showed remarkable resilience in 2025. After 6 consecutive quarters of decline, volumes stabilized in the second half of 2025 at a low level with a slight rebound in the fourth quarter. While visibility remains limited, notably due to the political concept and the upcoming municipal elections in France, this development is encouraging in the context of reduced interest rates. Let me remind you that residential need in France aiming very [indiscernible] is specifically intended to address this situation [indiscernible]. As a result [indiscernible] aligning for [ moderate ] and progressive recovery from 2026 onwards. [indiscernible] long standing roots in France which represents 31% [indiscernible] revenue. A very [ bad ] capacity Vicat is very well positioned to benefit from [indiscernible]. As soon as [indiscernible] France as shown on Slide 8 it's a TELT project [indiscernible]. So this project [indiscernible] [ mature ] to [ agility ] in 2025. It is [indiscernible] largest civil engineering project and construction year ago. [indiscernible] which is commissioning of the [indiscernible] boring machines is expected to [indiscernible] cement construction in 2026. And develop [indiscernible] from '27 onwards. Overall we've [indiscernible] secured more than 1.3 million tonnes of cement. As well as around 4 million tonnes of [indiscernible] like to come into the project. I will show [indiscernible] which a [ cage ] name CO11 which we won jointly Vinci. Just [indiscernible] treatment of [indiscernible] material into [indiscernible] 24 million tons of material will be sorted with the objective of recycling of [indiscernible] and we have [indiscernible]. And today is a 10th project for [indiscernible] operation in France, it will provide [indiscernible] support to our volumes over the next 7 to 8 years. More broadly, the outlook for the infrastructure segment in France is [ promising ] with good visibility over the coming years. The launch of the French access work for TELT which is in addition to the main [indiscernible] probably near over [indiscernible] plant. [indiscernible] it's a new generation of [indiscernible] in France in [indiscernible] this are a few jump [indiscernible] activity in [indiscernible] U.S. In Brazil now on Slide 9 [indiscernible] performance in 2025 [indiscernible] market momentum and sustained [ commercial ] development in [indiscernible] and the state of Goias. In 2025 we completed acquisition of Realmix a readymade concrete [indiscernible] this [ construction ] [indiscernible] ocean and 2 additional cement and [indiscernible] use. Also you get [indiscernible] 1st of September of 2025 [indiscernible]. Realmix made with the [ automation ] [indiscernible]. In Brazil we generated EBITDA EUR 63 million in 2025. Even by your market growth. A strong performance of [indiscernible]. The contribution of [indiscernible]. It was noted on [indiscernible] on Slide 10. [indiscernible] strongly in 2025 [indiscernible] EBITDA inching EUR 58 million up by nearly [35%]. A [indiscernible] wide across [indiscernible] increased by 19% in 2025. The construction market in this region [indiscernible] demographic trends which population we are getting from [indiscernible] 2023 of stretch towards [indiscernible] . [indiscernible] in 2025 [indiscernible] project [indiscernible]. We are also seeing some production capacity being directed towards export markets, which favors domestic players such as [indiscernible]. And in the current inflation on environment who have been able to adjust of [indiscernible] protective market. On Slide 11 in Egypt, the remarkable turnaround of our performance continued in 2025. EBITDA once again increased sharply, reaching EUR 61 million, up by nearly 79%, sorry, with margin rising to 37.3%. Export volumes remain sustained and the rebound of the domestic market was confirmed in the second half of the year [indiscernible] launch of [indiscernible] projects [indiscernible] continues to [indiscernible] for the group up to [indiscernible] who potential of [indiscernible]. At this finally turned to Senegal on Slide 12. Where we are made a major adjustment over the first few years. That it was started in June 2025, [ '26 ] as continue to run [indiscernible]. Delivering first [indiscernible] financial confirmation [indiscernible]. As a reminder of [indiscernible]. high performance facility is intended to replace in 3 and 4 and to [indiscernible] and will generate cost saving of EUR 20 per ton of cement in the coming years. The ramp-up of [indiscernible] will continue this year and will be a key driver of the group's performance in Africa in '26 and '27. I will now hand over to Hugues Chomel for a more detailed review of our financial statement. Hugues Chomel: Thank you, Mr. Sidos, and good afternoon, ladies and gentlemen. I will start with the main highlights of the group consolidated income statement on Slide 13. Revenue amounted to EUR 3.854 million, representing an organic growth of 3.3%, but remaining broadly stable on a reported basis due to a negative foreign exchange impact of EUR 242 million. EBITDA reached EUR 771 million, up organically by 3.7%, in line with the plus 2% to plus 3% target communicated last July. The EBITDA margin, therefore, stood at 20%, consistent with our medium-term priority. Net income group share increased by 6% at constant scope and exchange rates, reaching EUR 275 million. Despite a particularly negative foreign exchange impact in 2025, the quality of the group results demonstrate once again our ability to deliver solid operational and financial performance in a challenging economic environment. On Slide 14, you can see the evolution of the revenue by region in 2025 compared with 2024. At constant scope and exchange rates, the solid organic growth delivered across the group reflect contrasting trends from one region to another. France recorded a slight increase on a reported basis, supported by the gradual stabilization of the cement business in the second half of the year, as mentioned by Mr. Sidos, and by the positive contribution of the integration of Cermix since Jan 1, 2025. The Europe region grew by 7.9% on a reported basis, benefiting beyond the appreciation of the Swiss Franc from the recovery of the market in Switzerland, VGA's exposure to major infrastructure projects as well as the commercial success of our low-carbon offering. Americas posted a decrease, mainly reflecting the slowdown in United States. This decrease was, however, partly offset by the strong performance in Brazil. In U.S., interest rate remained high throughout the year, penalizing the housing sector. Uncertainty resulting from the tax and tariff changes created a climate of instability, which impacted the non-residential markets. In this environment, the group performance was contrasted across regions with growth in the Southeast and a sharp decline in California. In Asia, revenue recorded a slight organic decline of 1.5% Activity in India remained volatile due to a highly competitive environment, particularly in the south of the country, which put pressure on pricing despite an improvement in the second half of the year. The Mediterranean region stood out, delivering organic growth of more than 30%. Lastly, Africa posted a slight decrease of 2.9% despite the strong performance in Senegal, notably driven by an acceleration in aggregate sales following the restart of major public infrastructure projects. As you can see on the chart on the right of the slide, the group organic growth accelerated throughout the year, reaching plus 8.1% in the fourth quarter. Now turning to Slide 15 to the evolution of EBITDA, whose main drivers are illustrated on this chart. The increase at constant scope and exchange rates is mainly explained by a positive volume effect in cement, concrete and aggregates. Overall pricing developments allowed to offset cost increases, which were notably driven by wage inflation. Industrial performance also contributed positively, notably in Senegal. Foreign exchange had a negative impact of EUR 46 million. This reflects the depreciation of all currencies in which the group operates against the euro with a notable exception of the Swiss Franc. Let me remind you that 59% of the group revenues is exposed to non-euro currencies. Overall, EBITDA recorded a moderate decrease of 1.6% compared to 2024, which was a record year for the group. Therefore, this can be considered a very solid performance given the environment we faced in 2025. Moving to Slide 16. 2025 was also characterized by a strong cash generation. We maintained strict investment discipline. Net CapEx amounted to EUR 299 million, down compared to 2024. CapEx was split more or less evenly between maintenance CapEx and strategic CapEx, including the cash outflows related to Kiln 6 in Senegal. This discipline will be maintained in 2026 with expected CapEx of around EUR 290 million. For the third consecutive year, the Vicat Group generated strong free cash flow amounting to EUR 324 million in 2025 and illustrating the highly cash generative nature of our business model. As shown on Slide 17, this free cash flow of EUR 324 million notably reflects a further reduction in working capital requirement and as I just mentioned, control over CapEx. The cash conversion rate stood at 42% in 2025 On basis and taking into account the group's market capitalization at the end of January. Vicat free cash flow yield is around 9%, one of the highest in the industry. This highlights both the strength of our cash generation and the rerating potential that remains significant despite the share price increase over the past year. This cash generation enabled us to continue our deleveraging trajectory. As shown on Slide 18, the group net debt decreased by EUR 85 million in 2025 to reach EUR 1.151 million. The leverage ratio stood at 1.49x EBITDA, marking a further reduction in line with our priorities. On Slide 19, you can see a detailed breakdown of the group net debt at the end of 2025. It is characterized by a well-balanced maturity profile with an average maturity close to 5 years. Average interest rate was 3.86% before hedging in 2025, down significantly year-on-year. Gross cash at EUR 528 million and EUR 877 million of available undrawn credit lines, the group benefits from strong liquidity and the resources needed to continue pursuing its development. Thank you for your attention. I will now hand it back to Mr. Sidos. Guy Sidos: Thank you, Hugues. Let me now briefly comment on Vicat's climate performance in 2025 on Slide 20. We made further progress towards our 2030 targets across all key indicators, particularly in Europe. In France, we continue to pursue a particularly ambitious trajectory [indiscernible] below 80%. [indiscernible] an increase in the alternative fuel rate to more than 70% of 5 percentage points year-on-year. This made us [ concrete ] machine [indiscernible] of their old performance. In 2026 the [indiscernible] in France focused on [indiscernible ] as well as [indiscernible] with regard to alternative fuels should accelerate the reduction of our emissions. [ Auctions ] were to extent renovation you can see 2 examples on the left-hand side of this slide. [ Product ] innovation with Progresso that makes the first concrete of Switzerland with emissions of less than 100 kilograms of CO2 [attribute] better. [indiscernible] innovation [indiscernible] catch for climate which will be [indiscernible] and aim to facilitate CO2 capture while reducing the [ costs]. You can see on Slide 21 that at the group level, low-carbon cements accounted for nearly 1/4 of total sales volume in 2025. This indicator which we are presenting for the first time today is calculated in accordance with the methodology defined by the International Energy Agency and adopted by France Ciment. In France, the commercial success of [indiscernible] continues. In Switzerland nearly 100% of [indiscernible] classified as low-carbon [indiscernible] products such as Progresso which I mentioned earlier and which is also remarkable commercial success. We're also a leading player in low-carbon cement in California and Brazil. The carbon footprint of our products continues to improve in line with our climate road map. This road map is supported by initial investments and by acceleration of low-carbon innovations. Turning to Slide 22 now. Regarding VAIA of carbon capture project in France, we reached a major of a new milestone with the award of 2 subsidies at both the European and French levels. These awards demonstrate the credibility of our approach and our commitment. I remind you that the VAIA project aims to capture and sequester 1.2 million tons of CO2 per year at the Montalieu-Vercieu cement plant largest facility in France. The captured CO2 will be transported by pipeline to Fos-sur-Mer which should then be liquefied before being shipped to its storage site in the [indiscernible] at each stage I mean [indiscernible] shipping and storage. The subsidies awarded to us for this project amount to [ EUR 340 million ] combining French [indiscernible] and the European Innovation Fund grant. [indiscernible] expected to be [indiscernible] contractual agreements of as coming months. As a reminder the estimate in investment for the [indiscernible] VAIA project alone amongst to EUR 700 million [indiscernible]. [indiscernible] essential connection for the project [indiscernible] of making the final investment decision by Jan of 2027. Slide 23 illustrates[alludes] important performance [indiscernible] walking on for many years Artificial Intelligence. Which we have to bring as an [ occasional ] tool to support our businesses. Artificial Intelligence initiatives are led by Digital Factory 1817 at the year of invention of [indiscernible] cement. [indiscernible] 22 people also works for external clients. We the [indiscernible] twofold. First, at the service of industrial performance across all cement plants. Also [indiscernible] time optimizer solution [indiscernible] productivity gains in our facilities it improves quality and enhances [indiscernible] installation. This tool as already been deployed at several pilot sites [indiscernible] in Switzerland and Kalburgi in India. And we intend to accelerate its rollout. We are targeting productivity gains of at least 5% this is a near beginning. At [indiscernible] level this tool [indiscernible] capacity by around [indiscernible] this represents [indiscernible] fund additional cement position line with a very, very [ limit ] investment. [indiscernible] AI as a powerful tool for [indiscernible] there are many potential uses cases and [indiscernible] improving concrete formulations optimizing concrete and aggregate logistics [indiscernible] for sites and those of our customers and [indiscernible] our processes. Artificial Intelligence is [indiscernible]. Turning now to 2026 on Slide 24. Growth momentum is set to continue despite persistent macroeconomic and geopolitical uncertainties and foreign exchange rates are likely to remain volatile and unfavorable. In this context, we remain confident in the group's ability to continue delivering robust performance supported by its strong operational fundamentals in 2026 at this early stage of the year we [ socially ] expect slight growth in sales on a like-for-like basis, slight growth in EBITDA on a like-for-like basis and net CapEx of around EUR 290 million. [indiscernible] capital allocation in the Slide 25 [indiscernible] free cash flow generation and consistent financial [indiscernible]. This [indiscernible] built on 3 pillars. The first pillar preservation of a solid financial [indiscernible] of strong liquidity. [indiscernible] to investment we intent to maintain the figures discipline while investing consistently [indiscernible]. Finally this [indiscernible]. dividend aim to maintain an attractive description [indiscernible] earnings information. [indiscernible] investing safety [indiscernible]. attractive return to our shareholders. So let's now move naturally to the dividend on Slide 26. Based on this 2025 results I'm confident in the group's ability to keep delivering profitable growth, the Board of Directors has decided to propose to shareholders the distribution of a dividend of EUR 2 per share, which stands out for its stable and highly predictable distribution policy. I will remind you that the dividend has never been reduced in the past few years. Let us switch to Slide 27. Vicat is proceeding consistent growth trajectory as [indiscernible] 3 mid-term [indiscernible] priorities which we are confirming to first maintain an EBITDA margin of at least 20% over the [ '25, '27 ] period. [indiscernible] continue over deleveraging. Finally [indiscernible] with strong omissions to [indiscernible]. This [indiscernible] priorities under [indiscernible] growth. On Slide 28 to conclude [indiscernible] goes in coming years we'll be super [indiscernible] drivers, several of which are already underway today. First, in 6 in Senegal, as [ Hugues ] already mentioned it is a major lever of competitiveness. That we have [ material ] impact on [indiscernible] how performance in the [indiscernible]. So once it's [indiscernible] project it's confirmation to a cement and you'll get a sales already visible and it is expected to intensify supporting our activity in France over the coming years. Also in France [indiscernible] residential market is [indiscernible] to look on which was significant [indiscernible] potential in more than 30% of [indiscernible] France. The [indiscernible] is very well positioned to benefit for this upturn when it materialize. Similarly in the US residential construction is going [indiscernible] potential of [indiscernible]. Finally the [indiscernible] significant mid-term [indiscernible] potential reconstruction needs that [indiscernible] confidence in [indiscernible] mission to pursue disciplined, sustainable and value-creating growth. Operator: [Operator Instructions] The next question comes from Tom Zhang from Barclays. Tom Zhang: So 3 questions from me, if I may. The first one, you've talked about significant price hike announcements in France this year. I know it's early in the year. We don't know enough about how this will develop. But I wanted to ask in your guidance for slightly higher sales and EBITDA, what kind of realized pricing are you assuming in Europe? Would that be sort of low, mid, high single digit? Some color there would be interesting. The second question, just on the U.S. You talked about price absorbing the impact of cost inflation. Could you please elaborate a bit? Should we expect positive price cost in the U.S.? And can you differentiate between the Southeast and the West Coast? And then the last one, just on CapEx. So you guide for EUR 290 million, even though we have Senegal rolling off, which I think was about EUR 50 million of CapEx. Can you just give some color on the projects that you're now investing in that means the CapEx is fairly stable? Is that mostly growth CapEx, climate CapEx, maintenance catch-up? Guy Sidos: I will leave you Chomel. Hugues Chomel: Tom, thank you for your questions. Indeed, we -- as you know, the French market has some specific cost drivers, the evolution of electricity cost and the start of the implementation of CBAM that push us to announce high single-digit to low double-digit price increases in the market. As you mentioned in your question, it is early in the year to tell where we stand. I would say, to mid- high single digit would be a good realization probably, and that would translate in a positive price cost differential. Regarding U.S., it is even earlier in the year to give you a solid answer. We did announce price increases in both regions, substantial. But as usual, they do apply on April 1. And our ability to get them through and to have them stick will heavily depend on market context when they roll out. And that's a little bit early for me to give you a projection on that. We assumed in our guidance, I would say, a neutral price cost differential. If they would fully materialize, that would be an upside. Regarding CapEx, indeed, we did guide to EUR 290 million, a new reduction compared to last year. This has always is including about half of maintenance CapEx, still last amount regarding Senegal with the last milestones of the contract and first acceleration in decarbonization spend to secure our 2030 objectives. Tom Zhang: That's clear. Sorry, could I just follow-up just on the European pricing. So you very hopefully said for the U.S., you're assuming in the guidance a neutral price cost differential. And then you said mid or high. Hugues Chomel: You talk about France, Tom, not Europe. Tom Zhang: That was for France. Okay. So a neutral price cost differential is in your guidance for France? Hugues Chomel: Slightly positive. And I didn't mention the Europe, which has a slightly different cost base, specifically on electricity, where we do expect a positive price environment. Operator: The next question comes from Ebrahim Homani from CIC. Ebrahim Homani: I have 3, if I may. The first one is on France. In France, the operating leverage is huge. In case of a 1% increase in volume, what could be the impact on the EBITDA? My second question is on Senegal. Do you confirm that the EBITDA contribution will be higher in 2026 than it was in 2025? And my last question is on CapEx. Could you give us the part of maintenance CapEx? And what's your level of flexibility to reach your 2027 leverage targets, please. Hugues Chomel: Yes. You are right in France, we do have a high leverage -- operational leverage in cement. We as well have a large share of our activities. You will understand that this is quite sensible information. We do not disclose as is, but you can observe from the volume impact from the past years, the tremendous impact of volume fluctuation. In Senegal, indeed, as mentioned by Mr. Sidos earlier, the initial startup of the kiln was in June. It did ramp up very gradually and start to regularize a little bit in Q4. So the initial contribution comes out of Q4 only. So we do expect it to contribute more heavily and to have gradually improve both energy efficiency and alternative fuel increase. I remind you that as mentioned by Mr. Sidos during the presentation, the midterm saving objective is EUR 20 per tonne of cement sold by the facility. On CapEx, I believe I just gave the information to Tom, but indeed, we do expect about half of our CapEx to be maintenance. So roughly EUR 140 million to EUR 150 million. Operator: [Operator Instructions] Unknown Executive: We have 2 written questions from Investment Research. So first question on the guidance. With price increase in France, savings from the new king in Senegal, strong Egyptian exports and improving condition in Turkey, it seems organic EBITDA growth in those regions will be more than slides. [indiscernible] guidance suggest a sharp EBITDA drop in the U.S. and India? Or is it simply [indiscernible] earlier in the year with room to upgrade. I will hand it over to management for the answer. Guy Sidos: Yes. The answer is in the question. Everything you said there is a momentum where you said, but we are very cautious at this time of year. And guidance could be disappointed, but I would like to share a few comments guidance growth of sales and EBITDA on a like-for-like basis which is expression for cautious optimism of a positive orientation of our main markets with an acceleration in H2. In France, you see after stabilizing in H2 '25, residential market is expected to continue with soft landing with a gradual recovery from '26 onward. We'll have unforgettable base of [indiscernible] each one and municipal elections for the [indiscernible] for construction. Material or quicker recovery will constitute an upside, and we expect a positive price environment. You were talking about markets believe that [indiscernible] industry market should remain well oriented [indiscernible] Senegal will benefit from the ramp-up of 6 kiln for year and India is [indiscernible] to remain volatile in a growing market so at this time of the year, we [indiscernible] opportunities this year to be more precise [indiscernible] upend actually. Unknown Executive: Second question, how do you interpret the recent political comments in France and Germany around potentially lower CO2 prices and the ETS adjustment? What will lower CO2 price mean for your carbon capture strategy and long-term cash generation in France and Switzerland. Guy Sidos: Well, there was remorse in fact, the [ nothing ] is changing on a short-term basis and [ nothing ] is changing on a long-term basis. Things could change on a midterm basis changed in the past. And basically it could be positive for industry to decrease the rate of -- to lower the rate of free quotas decrease. It will mean we've little bit more [ means ] to fine tune of strategy as you know this we've some of this [indiscernible] to reduce it's carbon footprint [indiscernible] of equipments [indiscernible] we place [ coal ] by [ waste ]. And then [indiscernible] and these 3 levers brings money. It's a [indiscernible] then it's last deliver is CCS or CCU [indiscernible] main project as a [indiscernible] decision will be taken at the end of '27. So we have time to fine tune [indiscernible] what's happening now about [indiscernible] this I would say, a regular adjustment of the European policy. And I feel it's positive for industry if it's like [indiscernible]. Operator: The next question comes from Tom Zhang from Barclays. Tom Zhang: The first one was just a follow-up actually to that point on EU ETS. I hear what you're saying that perhaps not much is changing and this is, as you say, a regular adjustment of policy, but ultimately, the CO2 price has declined by 25% in the last month. How has not change in EUA prices affected your via CCS decision-making? And then the second question was just, could you speak a little bit about what you've seen in January and February so far, the run rate that we've had in Q1, how does that match against your pricing and volume assumptions, especially in France? Hugues Chomel: Yes, thank you for your question. For the VAIA project, first of all, it's probably first reminder, our CO2 reduction objective for 2030 are based only on the 3 first layers that Mr. Sidos, presented, the traditional levels that have their own paybacks. We have said for a long time that CCS will contribute in a second step in a longer run, notably because of weaker economic model. Indeed, if carbon price comes down, that will probably lead to review the space of those projects, but we still are fully committed that both technology will be needed to reach the 2050 ambition. It's not just a matter of time, which may create opportunities in terms of technologies as well. So that's the first point. Second point regarding current trends that's very early in the year to give you comments on where we stand on pricing. I mean, we have announced them. We are, of course, getting them through, but January is never a month you can extrapolate to the full year. So I will stay away from any comment. Operator: There are no more questions at this time. So I hand the conference back to the speakers for the closing comments. Guy Sidos: Hello ladies and gentlemen, thank you for joining us today. We look forward to seeing you at our Annual General Meeting on the 10th of April in [indiscernible], the beautiful department of [indiscernible]. Thank you very much. Thank you. Have a nice day. Bye-bye.
Operator: Good morning, everyone, and welcome to today's conference call with Portland General Electric. Today is Tuesday, February 17, 2026. This call is being recorded. [Operator Instructions] For opening remarks, I will turn the conference call over to Portland General Electric's Manager of Investor Relations, Nick White. Please go ahead, sir. Nick White: Thank you, Daniel, and good morning, everyone, and thank you for joining us today on short notice. Before we begin, I would like to remind you that we issued a press release this morning and have prepared a presentation to supplement our discussion, which we will be referencing throughout the call. The press release and slides are available on our website at investors.portlandgeneral.com. Referring to Slide 2, some of our remarks this morning will constitute forward-looking statements. We caution you that such statements involve inherent risks and uncertainties, and actual results may differ materially from our expectations. For a description of some of the factors that could cause actual results to differ materially, please refer to our press release and our most recent periodic reports on Forms 10-K and 10-Q, which are available on our website. Turning to Slide 3. Leading our discussion today are Maria Pope, President and CEO; and Joe Trpik, Senior Vice President of Finance and CFO. Following their prepared remarks, we will open the line for your questions. Now I'll turn things over to Maria. Maria Pope: Thank you, Nick. Good morning, and thank you all for joining us very early today to discuss our expansion into Washington State and the proposed acquisition of PacifiCorp's utility assets. We will begin by covering this exciting news as well as RFP results, guidance for 2026 and our 2025 financial results. I'll start with Slide 4. Earlier today, we announced a definitive agreement to acquire the Washington electric utility business from PacifiCorp for $1.9 billion. This includes select generation, transmission, distribution and other utility assets in Washington State. We are partnering with Manulife Investment Management and its affiliate, John Hancock, an insurance and investment company who will be a 49% minority partner in the Washington business. Manulife brings broad financial expertise and energy infrastructure and has owned and invested in agriculture, timberland and other businesses in both Oregon and Washington for over 2 decades. This transaction represents a key step in our strategy and complements the work that Portland General team does every day, prioritizing safe, reliable, increasingly clean electricity to serve customers at the lowest possible cost, enabling economic development and strengthening energy infrastructure across the Pacific Northwest and creating value for customers, communities and shareholders. In this time of unprecedented electricity demand, PGE's commitment to the Pacific Northwest and our excellent service and energy infrastructure will benefit Central and Southeastern Washington. Our overall portfolio will grow by approximately 18%, and the acquired operations will continue to operate as a Washington-regulated utility, serving 140,000 Washington customers. These additions bring benefits of scale and operational expertise to both Oregon and Washington service areas. We look forward to working together with the 140 dedicated employees who will continue to serve Washington customers. This transaction is forecast to be accretive in the first year, while diversifying and broadening our growth opportunities, underscoring long-term EPS and dividend growth of 5% to 7%. The acquisition will be subject to industry standard regulatory approvals, including from Washington, Oregon and other jurisdictions, which we will expect will take approximately 12 months after regulatory filings are submitted. This is a unique opportunity during a pivotal moment for our region and industry. We are excited to bring PGE's operational expertise, customer focus and reliable energy delivery to Washington. Before Joe and I go further into the details of the transaction, we will cover our 2025 earnings results, 2026 guidance and highlights from the year. Turning to Slide 6. For the full year, we reported GAAP net income of $306 million or $2.77 per diluted share and non-GAAP net income of $336 million or $3.05 per share. Our 2025 results were impacted by unprecedented warm weather in November and December as seen elsewhere across the West. We saw the warmest temperatures on record since we started recording 85 years ago. In total, this abnormal fourth quarter weather reduced earnings by $0.17. Despite these conditions, our teams worked throughout the year to execute, advancing our cost management programs, achieving multiple constructive regulatory outcomes and accelerating clean energy procurement to maximize federal tax benefits for customers. Importantly, we continue to see strong growth in our service area. Total weather-adjusted load growth was about 5%. Large customers, including high-tech manufacturers and especially data centers ramp their energy usage throughout the year, driving industrial growth of 14% compared to 2024. This combination of operating performance and strong fundamentals in our service area underpins our 2026 earnings guidance of $3.33 to $3.53 per share. We are also reaffirming our long-term earnings and dividend growth guidance of 5% to 7%. Turning to Slide 7. Our 5 strategic priorities. First, our team advanced multiple key regulatory proceedings in 2025. We received approval of the Seaside battery project and reached constructive stipulation for the distributed system plan. We are making continued progress on data center tariff updates that support residential and small business customer affordability, which I'll cover shortly. Discussions are ongoing regarding our holding company and transmission company proposals. We will be meeting with parties at settlement conferences later this week and in early March as we work towards resolution of the process around the end of June. Second, we're focused on O&M and capital cost management. In 2025, we work to realize efficiencies and improve productivity in delivering safe, reliable service at the lowest possible cost. Net of transformation costs, our teams exceeded targets for the -- and reduced PGE's overall cost structure by about $25 million. Third, as I noted, customer growth continues to accelerate in our service area. In the fourth quarter and early 2026, we executed 5 additional contracts with data center customers totaling 430 megawatts. These contracts further strengthen our pipeline of large load customers who are invested in the region, constructing facilities and energizing their operations. Our large customer group is forecast to grow energy usage by about 10% compounded annually through '23 (sic) [ '30 ] Enabling this growth is transmission capital investment and extensive work to unlock capacity through the use of AI analytics, data -- excuse me, dynamic line ratings and other grid-enhancing technologies. Alongside this work and in conjunction with Oregon's recent data center legislation, the POWER Act, our proposed large load tariff, UM 2377 is tracking towards completion in the second quarter of this year. This includes the creation of separate data center customer class, sharpening the cost allocation framework and enabling contracting flexibility. Our tariff proposal includes a 25% price increase for data center customers, which in turn would reduce residential and small business customer prices. Fourth, today, we are announcing 4 new energy projects and executed agreements. We have signed build transfer agreements to construct a combined 125-megawatt solar and 125-megawatt battery storage facility at Biglow. We also signed a build transfer agreement to construct a combined 240-megawatt solar and 125-megawatt battery facility as part of the Wheatridge Expansion project. PGE will own 175 megawatts and procure the remaining 190 megawatts via a PPA. Both projects are slated to come online by the end of 2027 and are eligible for federal investment tax credit between 30% and 40%, enabling additional clean energy at significant lower cost to customers. In addition, we are procuring 400 megawatts of battery capacity through 2 capacity storage agreements. We are also taking steps forward in the 2025 RFP and hope to have announcements later this next year. And fifth, we continue our year-round data center wildfire risk mitigation approach, hardening and modernizing the grid and reducing risk through strong operational performance. With that, I'll turn it over to Joe to cover 2025 results and 2026 guidance in more detail before we return to discuss our acquisition. Joe? Joseph Trpik: Thank you, Maria, and thank you, everyone, for joining us to hear about today's important developments. Turning to Slide 8. 2025 was another year of strong energy demand in our service area. This significant growth again was led by the diverse and growing data center and high-tech customers that Maria highlighted earlier. From 2020 to 2025, PGE's industrial customers have grown at 10% compounded annually. This same group is expected to continue at this pace through 2030, highlighting the strength of our large customer pipeline. These trends speak to the attractiveness of our service area and our team's ability to serve growing customer needs, invest in critical assets and enable benefits for the entire system. In 2025, total load increased 3.8% overall and 4.7% weather-adjusted compared to 2024. Industrial load increased 14%, residential load decreased 1.8% year-over-year but increased 0.4% weather adjusted. Residential customer count increased by 1.3% and commercial load remained largely flat. Turning to Slide 9, where I'll quickly cover year-over-year earnings drivers. Overall, our full year 2025 results reflect meaningful industrial demand growth, improved recovery of assets serving our customers, differing power cost conditions as compared to 2024, our team's strong execution of cost management programs, ongoing rate base investment and financing, other items and business transformation and optimization costs as we work towards reducing our cost structure. These drivers bring us to GAAP EPS of $2.77 per diluted share. After adjusting for business transformation and optimization expenses, we reached our 2025 non-GAAP EPS of $3.05 per diluted share. As Maria mentioned, our full year results were impacted by the unprecedented warm weather conditions in the last quarter of the year. December alone accounted for $0.14 of the $0.17 EPS impact in Q4 as it was the warmest December on record for our region with 24% fewer heating degree days than average. Turning to Slide 10 for an overview of the executed 2023 RFP projects, the Biglow Optimization and Wheatridge Expansion, which will widen our generation capabilities to meet the needs of our customers. Both projects will be in construction this year and are expected to be serving customers by the end of 2027. We are also advancing our 2025 RFP, and we'll be submitting the final shortlist to the OPUC this week. The shortlist includes a variety of renewable and non-emitting capacity projects totaling approximately 5 gigawatts. As we proceed to negotiations, we will prioritize projects that include renewable generation, close earlier in the eligibility period and maximize tax credits. We expect the final selection to be a blend of build transfer agreements and PPAs that total approximately 2,500 megawatts. On to Slide 11 for our 5-year capital forecast, which now includes 2026 and 2027 spend for the incoming RFP projects. I will note that this view does not contemplate CapEx from the Washington utility business from the transaction we announced today. On to Slide 12 for our liquidity and financing summary. Total liquidity at the end of the year was $954 million. Our investment-grade credit ratings remain unchanged. Our outlook from Moody's has improved from negative to stable. We continue to maintain strong cash flow metrics with estimated 2025 CFO to debt metrics above 19%. As we look ahead to 2026, we continue to expect a base equity need of $300 million as we work towards our authorized capital structure. Our plan considers the constructive regulatory outcomes in 2025 and continued robust operating cash flows in 2026. These factors will enable solid progress in our equity ratio and ultimately arrival at our target capital structure earlier than anticipated. As such, we expect base needs to taper to approximately $50 million in 2027. We anticipate financing the 2023 RFP projects in line with our 50-50 cap structure, net of tax credit monetization, resulting in $350 million of total equity needs in 2026 and 2027. I will note these financing expectations do not contemplate the potential holding company for investment in the Washington utility. In recent years, we've effectively utilized our at-the-market program to opportunistically fund accretive rate base investments. We continue to see value of this tool and the strategy, and we are refreshing our ATM, which we've upsized to $500 million in support of our diverse and robust CapEx plan. This facility enables issuances over multiple years and like our previous programs, will include a forward component. We also expect debt issuances throughout 2026 of up to $350 million, focused on funding our capital expenditures. Turning to Slide 13 for an overview of our 2026 guidance. Overall, our focus on managing cost structure, robust load growth and rate base investment catalysts underpin our expectations for 2026 and the years ahead, including 2026 earnings guidance of $3.33 to $3.53 per share, 2026 weather-adjusted load growth guidance of 2.5% to 3.5%, long-term load growth guidance of 3% through 2030 and reaffirming our long-term EPS and dividend growth guidance of 5% to 7%. Now let me turn it back to Maria for continued discussion on this morning's announcement. Maria Pope: Thank you, Joe. Turning to Slide 15. We will be adding 140,000 customers across 2,700 square mile service area anchored around Yakima, Walla Walla, and other Washington communities. The portfolio of generation assets in this transaction is a valuable mix of natural gas and wind resources that provide safe, reliable and affordable power. These assets will complement PGE's 1.8 gigawatts of natural gas generation over 1 gigawatt of wind assets, including PGE's Tucannon River Wind project located midway between the Marengo and Goodnoe Hills wind farms. On to Slide 16. This acquisition is a great fit. First, an excellent opportunity to expand our service to Washington State and acquire generation, transmission and distribution assets we know very well. The Washington Utility and Transportation Commission will continue regulatory oversight of the Washington utility operations. Washington's regulatory jurisdiction includes many positive components, including multiyear rate plans, competitive ROEs, constructive fuel mechanisms and frameworks for clean energy investment. We look forward to working with Washington regulators and stakeholders in enabling economic development and advancing clean energy policy goals. Second, enhanced scale and reach, and operational capabilities will position us for rate base and customer growth. Central and Southeast Washington are home to dynamic communities and industry, including agriculture, manufacturing and technology businesses that serve regional and global markets. We will have the opportunity to support economic growth in these regions and bring further investment for grid modernization and renewable energy acquisition to serve growing customer demand. Third, we anticipate meaningful customer upside. Portland General Electric brings a track record of effective operational performance, including strong plant availability, first quartile safety, commitment to wildfire and other risk mitigation, top 10 customer service and programs and first quartile reliability. The expertise of Washington employees who are deeply familiar with Washington customers and assets will be supported by PGE's administrative, finance, energy management and other system-level expertise. We also expect that the increased scale will deliver benefits from shared corporate functions, enhanced purchasing power and efficient financing for system investments. And fourth, clear shareholder value that will sustain further customer-focused investment. PGE expects EPS accretion in the first full year, while enhancing PGE's long-term EPS and dividend growth of 5% to 7%, supporting strong investment-grade credit ratings. Manulife's partnership is a key element in the acquisition's strength. They bring significant expertise in this region and in our sector. Turning to Slide 17. The broadening of our service area footprint represents an exciting moment for our company and shareholders. As I noted, our overall portfolio increases by 18%, a 22% increase in generation and transmission, a 14% increase in distribution and a 15% increase in the number of customers. This transaction fortifies our key strengths, broadens opportunities for growth and delivers benefits for all customers and communities we serve. With that, I'll turn it back to Joe. Thank you. Joseph Trpik: Thank you, Maria. As you can see from this view, PGE's acquisition of PacifiCorp's Washington operations presents a structured, executable transaction with clear advantages for our customers and stakeholders. The key upsides include additional scale, diversification into a constructive jurisdiction and enhanced capacity for system improvements to serve customers. Overall, we expect both operational synergies and incremental rate base growth opportunities. Notably, we will now step into the Washington RFP process to pursue varied ownership structures that deliver least cost, least risk options, drive towards the state's goals and support customers' energy and capacity needs. Moving to Slide 18 for a summary of the transaction structure. The acquisition is structured as a sale of certain assets serving customers in PacifiCorp's Washington service area. Due to PacifiCorp's existing structure, we expect customary regulatory approvals in each of their jurisdictions as well as from FERC. I will note that due to the asset purchase nature of the acquisition and PacifiCorp's multistate structure, we will be assuming relatively few liabilities as part of this transaction. Upon closing, which is expected 12 months after regulatory filing submission, PGE and Manulife will form a joint venture to own the regulated utility in Washington, which PGE will operate. While our ongoing corporate structure update, including the creation of a holding company and a transmission company are not prerequisites for this transaction to close, we see the holding company structure as supported by this scenario. In the coming months, we will submit regulatory filings in both Washington and Oregon for approval of the transaction. We look forward to engaging stakeholders during the approval process, and we'll provide status updates as part of our typical disclosure. Turning now to Slide 19 for our planned financing approach for the transaction. First, concurrent with the agreement signing, PGE obtained commitments for the full $1.9 billion purchase price, including bridge financing from Barclays and JPMorgan and commitments from Manulife. For our permanent financing plan, we expect to utilize a combination of $600 million equity contribution from Manulife, $700 million secured debt at the Washington utility and $600 million raised at the proposed holdco. This approach strikes the right balance across financing channels. It strengthens accretion, manages risk and supports investment-grade credit ratings, which are expected across all entities. On to Slide 20 for an overview of the Manulife Investment Management and the partnership agreement. Manulife IM and its affiliate, John Hancock, is a leading direct investor in U.S. infrastructure. Their presence in the Pacific Northwest is notable, having invested in infrastructure, agriculture and timberland in our region for over 2 decades. Beyond these important local ties, this partnership structure brings value both during the transaction window and after closing, particularly reducing overall capital markets exposure and equity needs, introduction of another cost-efficient source of capital, preservation of PGE's strong balance sheet and strong support for further investment and growth opportunities at the Washington utility. Overall, the partnership is structured as a traditional arrangement with familiar features for our sector. PGE will manage and operate the Washington business and will also be a 51% owner with Manulife owning the remaining 49%. PGE will also hold the majority of seats on the 5-person Board. Moving on to Slide 21 for our operational track record and approach to business integration that supports this acquisition. PGE has captured significant organic growth within Oregon service area over the last 2 decades, adding over 180,000 customers and expanding the generation portfolio by 2.4 gigawatts of utility-owned generation. As Maria mentioned earlier, we are excited to welcome the highly skilled Washington employees who will be an important part of the integration and go-forward operation. Our growth and ability to serve robust customer demand have been supported by the company's investment in integrated operations. These encompass several critical functions that enable low-cost access to market power, renewable energy integration and reliability. PGE has recently implemented and enhanced several technologies that enable the smooth addition of business units and are expected to help streamline the technical integration of the Washington service area. I'll also highlight the experience of our leadership team. Many of our officers bring expertise from large organizations, including multi-jurisdictional utilities and have executed many transaction integrations. We will draw upon this experience to deliver a seamless transition for our customers. Now let me turn things over to Maria to close. Maria Pope: Thank you, Joe. We've covered a lot of ground today, both what we've accomplished and what lies ahead for Portland General Electric. Let me close today's discussion on Slide 22. The strength of our existing approach and the opportunities in Washington are all rooted in PGE's 5 strategic priorities. We are deeply committed to the Pacific Northwest region and continued investment, which will expand to include assets and operations in Washington State. We remain focused on delivering safe, reliable power at the lowest possible cost, efficient and effective operations, realizing economies of scale and regulatory frameworks that support customer affordability. We are advancing critical infrastructure investments that support economic development and builds upon a base of growing data center and high-tech customers. We are integrating clean energy resources to satisfy customer and policy-driven goals, executing RFPs and reducing customer price impacts by maximizing federal tax credits. And we are deploying our mature data-driven wildfire risk mitigation programs, modernizing the grid and reducing risk through strong operational execution. We are excited for the road ahead. We are affirming our trajectory of strong financial results and look forward to delivering for customers, communities in both Oregon and Washington for years to come. And now, operator, we're ready for questions. Operator: [Operator Instructions] Our first question comes from Shar Pourreza with Wells Fargo Securities. Shahriar Pourreza: Congrats on the deal. It's definitely interesting, really good transaction here, so unexpected. So Maria, just let me ask you. So the deal is done at 1.4x, and you expect the deal to sort of be accretive in year 1. Can you just touch a bit on the accretion drivers and maybe frame the sensitivities to items like regulatory timing, financing, transaction, transition costs, et cetera, so we can kind of better understand upside, downsides around the numbers. Maria Pope: Sure. First of all, there are several key areas. The first is our permanent financing plans that we laid out today. We also are expecting our cost management plans to continue to be executed and integration of this new company will really help our cost structure. And then we will be bringing data center and other customers to the area and development. It's a great operational opportunity and fit for us as we expect first year accretion. Shahriar Pourreza: And then just on the language, Maria and Joe, around just the enhancements to the EPS growth rate. I guess, can you define maybe a little bit on what you mean by enhancement in this context? Is it sort of a step-up in the growth rate, a higher midpoint within the existing range, a lengthen and extend scenario? I guess, can you just be a little bit more specific on the accretion? Maria Pope: Sure. So we have a combination of factors that give us confidence to be squarely above the midpoint of our guidance range of 5% to 7%. Shahriar Pourreza: Big congrats... Maria Pope: Thank you. Shahriar Pourreza: On the deal. Operator: Our next question comes from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Maybe just a few different questions here, more housekeeping than anything else. But just at the outset, how do you think about earned ROEs? What's the ability? What do you think the opportunities over time here as you think about extracting the full extent of the value from this transaction? What's the normalized ROE to think of over time? And then maybe a couple of credit ones just to chime in on here. How do you think about new metrics from the rating agencies given the diversification that this offers? How the agency is thinking about maybe some of the benefits from a wildfire diversification perspective? Yes, I'll leave it there. Joseph Trpik: Julien, as it relates to ROE, their -- from their last general rate case, they have an imputed allowed ROE of 9.5%. We do believe that over time, as we work into the organization as it relates to our cost management programs, our cost structure as well as the regulatory filings, we would expect it to perform in a -- work towards a gap similar to what we're seeing performance-wise over time here. I mean it will take a little bit of a time period as we integrate them in, but that is the expectation that we can we can work them into a relative level of efficiency to ours or a little better. As it relates to the credit metrics, we have had preliminary conversations with the rating agencies. We've been very clear with the rating agencies about our desire to have investment-grade credit ratings and quality credit metrics across the organization. We'll continue to have discussions with them as this matures, but it is fully our intent to have a structure of these organizations to have relatively high credit metrics. Julien Dumoulin-Smith: Got it. And just to come back to you real quickly here. Earned -- where have earned returns been of late? And how do you think about what that -- how long it would take to get to that 50 plus, call it, 50-ish basis points lag or wherever you're exactly pinning that down? And then if I can just quickly also clarify on the -- are there break fees in the event that you don't get approval here? I mean -- and how does this fit into the process you have underway already regarding the HoldCo Transco? Just if you can elaborate a little bit around that. Joseph Trpik: Sure. So I'll start with your earned returns. This company has a portion of the subsidiary, obviously, not a bunch out there to show in detail, but they have had -- their earned returns have been a little off mainly due to the cost recovery on the power cost side of the equation, understanding that, that power cost recovery was part of the allocated structure that they had as opposed to what we'll see as a very specific plant and contract-based cost recovery method. As it relates to break fees, yes, there are break fees that go on both sides of this transaction that we've included in some of the disclosures. There are break fees for certain reasons that the transaction does not close as if there is not FERC or regulatory approval, there are break fees that are out there as well as if the rate base that is approved by the regulator is not equal to what is -- which is agreed to within the contract. And there's a few other nuanced break fees out there, relatively symmetrical and again, all generally valued at $35 million to the extent there's a break fee. Operator: Our next question comes from Chris Ellinghaus with Siebert Williams Shank. Christopher Ellinghaus: What do you expect the filing cadence to look like? Maria Pope: We expect the filings to take place in the next 30 to 60 days. The regulatory process should take about 11 months to 12 months. Christopher Ellinghaus: With the new proposed data center tariff, can you give us any kind of metric on how that helps on the residential side as an offset? Maria Pope: Sure. Chris, the data center tariff, which you mentioned is UM 2377, and it follows the POWER Act that we put in place with parties through the legislature in 2025. We've had several passes at it. And overall, the increase in data centers, which today is about 6% of our customer load and about 4% of our peak directly benefits residential and small business customers. Initially, it's about a 2% reduction, and that should grow over time as the data centers continue to grow in the area. It also allows for direct contracting and something that we call in the filings, the Peak Growth Modifier. So we are fortunate to be able to work with parties as well as with all of our data center customers to ensure this works with everyone across the state of Oregon. And we hope to take some of our -- this kind of work around customer relationships, regulatory and economic development to the new Washington area. Christopher Ellinghaus: The $25 million cost reduction that I think Joe quoted, can you give us any kind of sense of how that sort of prorated over time to get a sense of when that's effective essentially? Joseph Trpik: Sure. So the $25 million cost savings in 2025, it was a program that started in 2025. So we expect that to grow. So when you do the run rate on that as a general rule, probably more of like use a half year convention since a lot of these cost programs were put in sort of the second to the third quarter. The key to our cost management program here is a cumulative approach. So the savings that we had in '25 that we will do two things. They will become full year savings as they come into '26 and they are permanent. And then we will be building upon those savings as we've been doing a rollout plan here as we plan to manage our costs for the next several years. So we will be introducing a new set of cost management for different portions of the organization that will do that same thing again. We'll have programs that are implemented in '26 that will have benefits in '26 that then grow to full year in '27 as we have this thoughtful rollout to drive this efficiency and be able to manage inflation over a multiyear period. To date, the program has been very successful. As we noted, we exceeded our targets. And if you normalize our O&M for 2026, we even did a little better just on not spending money in places, maybe not per se aligned to the efficiency program. But pretty excited about the execution and would say that the program for '26 is more mature than '25 because in '25, we were developing as we were going in '26 has an established plan in place already for the year. Christopher Ellinghaus: Great. That helps, Joe. Maria, lastly, can you just sort of talk about how you see the Washington acquisition aiding or providing an opportunity for additional large load growth? Maria Pope: Yes. So Eastern Washington is focused on economic development. We also hope to leverage our existing relationships. As you can see, we have quite a broad and diverse set of high-tech and data center customers, and we'll work closely with them in the area of Washington as we have throughout our service area in Oregon. Operator: Our next question comes from Anthony Crowdell with Mizuho. Anthony Crowdell: Congrats on the transaction. If I could just squeeze hopefully, 3 quick questions. If you could help us out, when I look at Slide 19, the $600 million raised at the HoldCo, is that all debt, all equity structure, like 50-50 of a utility? How should we think of that $600 million financing? Joseph Trpik: Sure. So as it relates to that $600 million, think of it as a balanced mix of the investment, be it at the HoldCo or other structure, but it will be a balanced mix of debt, equity, potentially hybrid or other securities that align to the capital structure that we'll be focused towards. Anthony Crowdell: Got it. And then you've given out an EPS CAGR of 5% to 7% for a number of years. The thought was the holding company that you're going to create was going to provide efficient financing for the Oregon utility. Now you're potentially adding in already taken some of the debt capacity based on the $600 million. Could you tell us maybe in '27 and '28, how much debt do you forecast being held at the holding company now? Joseph Trpik: So for right now, I don't want to front run the holding company regulatory approval process, which will itself potentially have stipulations. But I'll take the -- to the comment in tying this to the earnings growth trajectory that we have, be it the Washington transaction that we're talking about right now or the holding company, either both taken in a vacuum together, each one is an enhancement to that earnings growth rate. And as each of them mature here, we will continue to -- we will reevaluate how that -- do they just enhance the growth rate or do they put upward pressure on that. But we want to give them both a little time to settle. There is -- obviously, within the regulatory approval process, there could be items which impact one way or the other. And so as these items come more into clarity, we will reevaluate. But I do acknowledge that each one individually does have a level of enhancement to the earnings growth. Anthony Crowdell: And just lastly, I thought my view was like 2026 talking with investors, you guys had the holding company structure going. You had such great tailwinds with -- coming from the RFPs. It was like a transformative year for Portland now to jump into a transaction. Just the timing of why now, I guess, because I was looking at 2026 as a very transformative year for Portland on that holding company structure, more financing, you had these RFP wins. And now it's like a 12-month freeze. Maria Pope: Actually, I -- the transformational 2026 is exactly correct. I wouldn't call it a freeze at all. Joe talked about the operational work we're doing across the company. We have tremendous opportunities with regards to customer growth, and we have some RFP wins. We also continue to work with regulators on a number of topics that are constructive. And we look forward to being able to close on this transaction in mid-2027, and it gives us a unique opportunity to continue our growth trajectory. Operator: Our next question comes from Andrew Levi with Hite Hedge. Andrew Levi: Can you hear me? Maria Pope: We can. Andrew Levi: So a couple of questions. So just on the holding company, so you have settlement talks next week. Is that correct? Maria Pope: We do. We have them this week. Andrew Levi: This week... Joseph Trpik: As well as in March. These discussions will probably go on through to the summer. Andrew Levi: Okay. So I guess my question was this transaction, does this enhance the possibility of getting the holding company approved? Joseph Trpik: Yes, I mean, we believe that this transaction both supports the logic that was laid out in the holding company, but it also is the cleanest vehicle here to allow for the benefits of this transaction, which to the Oregon or to the Washington customers to be clearly identified and work through the process. I mean we just see the holding company as just a natural way to clearly make this work. It is not required. It is not a prerequisite for this transaction, but we do think that it is very clean. It makes for a very different way... Andrew Levi: That wasn't my question. My question was, does this enhance the possibility of settling your HoldCo case by having this acquisition? Joseph Trpik: Obviously, the regulators will work through the process. Do we think that this provides further validation and clarity to this? Yes. Do we believe it enhances the view of why a holding company makes sense for Portland? Yes. And we look forward to discussing these in detail at these settlement conferences. Andrew Levi: Okay. And then why -- just based on Maria's comment, why are we -- why does it bleed into the summer? Why wouldn't you be able to potentially settle next week? What's kind of the sticking points? And then I have a few other questions. Joseph Trpik: Sure. I mean, Andy, I'll just do it. As it relates to timing, there are 2 scheduled settlement conferences that are out there. And in all honesty, to Maria's comment that there are scheduled settlement conferences to the extent that we're having constructive dialogue and those settlement conferences do not yield a result, we -- there can be discussions that will continue up until once we get into the procedural part of a case and filing with an ultimate resolution required here at the end of June. I mean there's nothing to say, I mean what the sticking points in all honesty, as we've gone through on the holding company, which got a little clear in this last round of testimony are about what are the benefits for the customers. And I think this, again, back to what I said before, is just another validating point that we had a compelling case before. This does nothing more that we believe and puts more weight on the scale because this transaction is about -- also about benefits to Oregon. Andrew Levi: Okay. And then on the Hancock partnership, so how should we think about that longer term? So obviously, I understand the partnership within Washington. But you get this holding company approved. Do you envision Hancock possibly doing a similar type of investment in Oregon? And is that kind of the longer-term goal in part of this transaction and having Hancock involved? Joseph Trpik: Having a partner involved, this partner is focused on Washington. But having a partner involved to support growth while continuing to manage our balance sheet strength, our credit quality, that's really what the focus is. So the idea of the partner here is to give us an efficient form of capital, allows us to support this growth. So we will continue to evaluate our financing options and flexibility going forward. But the key to the partner here was about continuing to have the right balance sheet strength. Andrew Levi: And then just a couple of questions on the Oregon business. So on the '23 RFP, I guess, the primary -- the bigger investment is solar/batteries. Is that correct? Maria Pope: Yes. Andrew Levi: That's the $400 million and whatever million, right? So once that goes COD, right, that goes right into rates because since it's a combined asset, right? Is that right? Maria Pope: Correct, Andy. Both had... Andrew Levi: So, that's... Maria Pope: There's 2 projects. One is Wheatridge and one at Biglow, and both will use the renewable adjustment mechanism. Andrew Levi: So does that -- obviously, you got this distribution rate increase. Does this help continue to postpone a base rate increase or base -- not base rate increase, but a general rate case, I should say? Speaker. Maria Pope: So we will be evaluating where we are with the general rate case. As you may remember, we have a stay out until about mid-summer. But the last time we brought in energy, we actually had customer prices go down. And so that was the Clearwater project in Montana. On the regulatory side, we're also working through a multiyear framework, and we'll evaluate that also in conjunction with whether we do a rate case this summer. Andrew Levi: And one -- my last question is just around hyperscalers. So I guess in the handout, you talked about 430 megawatts, I think it was with incremental load, something like that, right? Is that the number? Maria Pope: Yes. Andrew Levi: There you inked in the -- was that in the quarter you inked or was that for the year? Maria Pope: So those are 5 contracts. The names of the different companies are highlighted in the deck of the materials. This is in the fourth quarter and then in the very first part of 2026. Andrew Levi: And then you have -- there's up to another 1,200 megawatts of talks going on, I guess, is that my understanding not correct or... Maria Pope: Yes. And we have people in our queue, and it's actually 1.7 gigawatts, Andy, and we have comps... Andrew Levi: 1.7 gigawatts, I'm sorry... Maria Pope: Yes, some of those are with existing customers and some of those are with new customers. Andrew Levi: So how should we think about that incremental load? Obviously, it's under the new tariff rules. How should we think about that as far as your 5% to 7% forecast and whether that's actually included or whether that gets you to the high end of your forecast or above your long-term growth rate? Maria Pope: So as I mentioned before, this supports continued growth within that 5% to 7%. And it also -- the data centers create additional margin that supports the capital investment needed to support them as well as ensures affordability for residential and small commercial businesses. Andrew Levi: Does the Washington acquisition get you -- maybe not in the first year, but as you get out to '28 and '29, also see a big step-up in CapEx in Washington, especially in the outer years, does that get you to the high end of your forecast? Maria Pope: Yes, that keeps on moving us through our forecast range, supporting accretion in the first year and underlying our growth trajectory long-term of 5% to 7%. Joseph Trpik: Andy, I'll just add to you, as I mentioned before, right, take this individually, each one of these items has enhancements within the growth trajectory. And as the dust settles a little bit here and as the HoldCo works, how Washington matures itself to approval, we will reassess what these individual enhancements mean to the long-term trajectory as there are several items that we've spoken here today that all have individually positive pressure on the upward side of our earnings guidance. Andrew Levi: And then I'm sorry, I just have one last question, and I'll let somebody else go. But if for some reason, the HoldCo doesn't get approved, should we just assume hybrids at that point? Or how should we think about it? Joseph Trpik: I do think if the HoldCo is not approved... Andrew Levi: That $600 million -- you know, the $600 million you talked about. Joseph Trpik: That's right. I mean I think we will do a -- what makes sense is a combined set of financing. We will look at -- if we don't have the HoldCo, based on what structure we have and where we finance, we will look to what are the right instruments and the right mix at that time that still allows us to realize the value that we see in this transaction. Operator: Our next question comes from Steve Fleishman with Wolfe Research. Steven Fleishman: What are the -- remind me what the approval requirements are in Oregon and Washington. Are they no harm to customers? Are they net benefits? About standards... Joseph Trpik: So in -- in Oregon is a no harm standard and think of that as both a qualitative and quantitative no harm standard with about an 11-month approval process for Oregon. In Washington, it is a net benefit standard, that same approach of qualitative and quantitative net benefits with an 11-month approval process with the ability under circumstances to get a 4-month extension. Steven Fleishman: Okay. And then just -- how did you get kind of comfortable on wildfire risk in the Washington territory? Just any color on kind of the nature of that territory and the like? Maria Pope: Sure. So as you know, we spend a lot of time on managing wildfire risk from prevention and mitigation to early detection and working closely with first responders and have as mature a process and program as any utility. PacifiCorp also has done quite a bit of work. We calibrate with them, both in Oregon as well as work with Washington regulators. They have a wildfire approved plan for years 2024 through 2027. We will pick up that plan, but also bring our expertise as well as collaboration with Washington regulators and stakeholders as we work in both states to improve the risk framework and investability of utility businesses in both states. Operator: Our next question comes from Matt Davis with North Rock. Unknown Analyst: Sorry, my questions have been asked and answered. Operator: Our next question is a follow-up from Julien Dumoulin-Smith with Jefferies. Julien Dumoulin-Smith: Sorry, coming right back here real quickly. Just want to make sure I heard you right. How are you thinking about that $600 million in equity financing at HoldCo? What are the gating factors here? How do you think about like FFO to debt from the rating agencies? What do they want to see thus far in terms of limiting parameters here? Any comments or statements, any pro forma targets that they're at least initially giving you? Any reason that you couldn't imagine doing a fully debt financed HoldCo transaction, for instance? Joseph Trpik: Julien. So a couple of things. So our discussions with the rating agencies have been preliminary, right? Our -- and our focus with them has been about investment grade across each of the utilities and the proposed holding company. To the specific financing plan at what would be the proposed holding company, there is -- we will evaluate what is the right mix. To your question of how you finance at the holding company, we don't want to front run the regulatory process, which may have certain requirements for reporting. But what we're committed to do is to effectively use the holding company to allow for what is a good financing structure for the company consistent with other utilities, but we would like to make sure we're aligned with our regulators and their approach. But the holding company, if you take it to its fundamental, just like you laid out, it should give us the flexibility for the choices for what are the right instruments for us where right now without a holding company, we do have somewhat of a limited choices as we try to manage our balance sheet, manage our credit metrics. Operator: And our final question comes from Paul Fremont with Ladenburg Thalmann & Co. Paul Fremont: Does the diversification of state regulatory risk play a role in your decision to acquire the Berkshire properties in Washington? Maria Pope: Yes. Not only are we gaining important economies of scale, but having 2 different jurisdictions to operate in is very beneficial. Paul Fremont: And then sort of following up on Andy Levi's question. Obviously, you haven't determined the mix of debt and equity. But should we look at the establishment of the holding company as potentially driving the mix? In other words, might there be less equity issued if you were granted approval to establish a holding company? Joseph Trpik: Paul, so I agree, right? The holding company itself is this variable to flexibility. So yes, there are opportunities at the holding company, if approved in the structure that you could get a differing cap structure. And all honestly, if even not for the holding company, considering what structure we'll choose, we'll have a varying amount of instruments. But we do find the holding company to be really attractive because it comes back to -- it supports the deal. It supports driving the benefits clearly to the customers, and it gives us the flexibility to have these choices like we're talking about here of choosing what are the right instruments for the situation. I mean obviously, because the holding company is a proposed item right now and not approved, we don't want to front run the process, and we just -- we will evaluate and appreciate the flexibility that we expect that it will afford us. Paul Fremont: And then after the Washington utility is acquired, would you expect to use consolidated accounting or equity accounting? Joseph Trpik: Our current expectation, obviously, we will finalize and haven't done the reporting is that based on the partnership structure and our operations that we would be consolidating the utility. Paul Fremont: Got it. And then can you tell us what was the most recent PacifiCorp Washington rate base? Maria Pope: It's $1.4 billion. Paul Fremont: And that would be as of -- is that at the end of '25, the end of '24? Maria Pope: End of 2025. Joseph Trpik: I believe you'll find that -- that rate base was included in a fuel type filing, an energy filing is where it was last presented. And I believe it's called their -- and do not ask me for to spell that, it's called their [indiscernible] They have been -- as they've disclosed, which they've talked in their release, they have been attempting to sort of restructure their multistate setup here. And this was a movement in the multistate to start to realign what assets they are serving, what parts of the -- of their set of companies, not completely, at least partially address that. Paul Fremont: And then... Operator: Last question from -- sorry. Joseph Trpik: I was just going to say we look forward to in Washington, we believe they've been pretty constructive on the regulatory front, have the opportunity for a multiyear plan and think that their mechanisms are somewhat helpful to the fuel recovery. So I just want to finish that thought. Paul Fremont: Great. And then I think in the past, you've given us sort of a sense of what percent of properties in Oregon are high risk relative to wildfire. Is there a similar percent that you can share with us in the Washington properties? Maria Pope: You know, as we move forward, we will do the same sort of disclosure that we have. Overall, it's pretty similar to Oregon, where it's actually quite low, maybe about 2% or so. It's about 20 distribution miles. Much of the area that you can see on higher fire risk maps is actually non -- not in hazard by individuals that's forest service or tribal land. Operator: This concludes the question-and-answer session. I would now like to turn it back to Maria Pope for closing remarks. Maria Pope: Thank you very much for joining us today. We remain focused on delivering efficient, effective operations, realizing economies of scale and regulatory frameworks that support customer affordability as we move forward with this exciting opportunity. We're advancing critical infrastructure investments that will support economic development, both in Oregon and in Washington and builds on a base of growing data center and high-tech customers. The Washington opportunity and acquisition of PacifiCorp's assets represent a strong operational fit. They're accretive in the first year and enhances our long-term EPS and dividend growth guidance of 5% to 7% as well as credit supportive. We look forward to moving through the process with stakeholders and regulators on a number of fronts and speaking with you next quarter and probably meeting with many of you at investor conferences in the months and weeks to come. Thank you very much for joining us. Operator: Thank you. This concludes today's conference call. Thanks for participating. You may now disconnect.