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Operator: Thank you for standing by, and welcome to the Coles Group 1H '26 Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Leah Weckert, Managing Director and Chief Executive Officer. Please go ahead. Leah Weckert: Good morning, and thank you for joining us for our half year results call this morning. Before I begin, I would like to acknowledge the traditional custodians of this land on which we meet today, the Wurundjeri people of the Kulin Nation. We acknowledge their strength and resilience and pay our respects to their elders, past and present. I'm joined in the room today by Charlie Elias, our CFO; Matt Swindells, our Chief Operations and Supply Chain Officer; Anna Croft, our Chief Commercial and Sustainability Officer; Michael Courtney, our Chief Customer Experience Officer; and Claire Lauber, our Chief Executive of Liquor. Moving now to Slide 3. I'm pleased that we've been able to deliver another very strong set of results in what is a competitive operating environment. We delivered strong supermarkets earnings growth with continued sales momentum. E-commerce was a key contributor again with sales growing by 27%. Our automation programs are delivering tangible benefits, and we delivered cost savings of $133 million through our Simplify and Save to Invest program. Of course, what matters most to us is our customers, which is why the improvement in our customer satisfaction scores across the business during the half was a key highlight for me. Finally, we completed our Liquorland banner simplification program. And while there are challenges in the overall liquor market, we are seeing positive growth across our convenience portfolio, which is really pleasing. Moving on to Slide 4 and the financial results. We reported group sales revenue of $23.6 billion, an increase of 2.5%. Excluding significant items, group EBIT increased by 10.2% and NPAT increased by 12.5%. In Supermarkets, adjusted for the competitive industrial action in the PCP and excluding tobacco, sales revenue increased by 6.1%. And Supermarkets EBIT increased by a very strong 14.6%, underpinned by top line growth and EBIT margin expansion of 55 basis points. Charlie will talk more to the financials in his presentation. Moving on to Slide 5. During the half, we maintained a consistent focus on executing against our strategic priorities, which once again underpinned our performance for the period. Let's get into this in some more detail, starting on Slide 6 with our first pillar, destination for food and drink. We know value remains front of mind for consumers and delivering on our value commitment to customers remains a priority for us. During the half, we strengthened our value proposition, expanding our range of everyday value products. We ran a winter and spring value campaign and our Shop Scan Win and European Glassware continuity programs each delivered strong engagement with our customers. Our exclusive to Coles portfolio continues to perform well with sales growth of 5.7%. We launched more than 500 new products, and the range was recognized with 17 Product of the Year awards. We know our own brand portfolio is a unique differentiator for Coles, and these new products and awards underscore the momentum we are building in quality and innovation across the portfolio. We also entered into some really exciting exclusive partnerships during the half. One of these was with Marks & Spencer, where we brought a number of their iconic favorites to Australian homes. This included their well-known Percy Pig and Colin the Caterpillar lollies, which turned out to be our most successful lolly launch ever. Our partnership with Grill'd also proved popular, particularly with the rising takeaway trend for those who want to recreate their restaurant or takeaway dinner in their own home. These collaborations broaden our appeal and help ensure we remain a destination for inspiration and everyday meals. We were also pleased with how we executed over the Christmas period, starting with our Christmas range, which showcased more than 340 own brand Christmas products and exclusive specialty drinks. We worked hard in the lead up to Christmas to ensure value was felt where customers needed it most. Our $1 seasonal produce lines in week before Christmas were a simple but powerful example of that commitment. Operationally, we delivered our highest monthly DIFOT results since December 2020, an important sign of the progress we are continuing to make in availability and overall execution. And this leads me to our customer satisfaction scores on Slide 7. As I said at the start, the improvements in customer satisfaction scores were a real highlight with strong improvement across our key metrics of quality, availability, store look and feel, and price. The big takeaway here is that customers are noticing the changes we are making. Improved availability, sharper value, and better execution in stores are translating directly into stronger satisfaction scores, and that gives us real confidence as we look ahead. There is always more to do, but we are very pleased with the progress we are making. Moving now on to Slide 8 and the next pillar of accelerated by digital. We reported another strong half in our e-commerce business with 27% revenue growth in supermarkets, penetration now over 13% and double-digit growth across all shopping missions, whether that be same-day, next-day, Click & Collect or our immediacy offering. We are focused on making sure we have a great offer across all online channels. We've made a lot of progress in e-commerce over the last few years, and customers are responding to this. We know customers have different shopping missions throughout the week, and the investments we have made allow us to provide them with exceptional service that matches their shopping mission. For example, our CFCs allow us to provide the biggest range, better availability and improved freshness for those customers who are looking to do their weekly shop. And our expanded partnership with Uber and our windowless Click & Collect Rapid offer provides us with a leading immediacy proposition. During the period, we made investments in our digital assets and are seeing particularly strong growth in our app metrics with monthly active visitors to the app growing by 32% and the app share of e-commerce revenue now at 54%. Our CFC volumes increased in the half with sales growth again outpacing total supermarkets e-commerce sales growth. Same-day deliveries commenced in Melbourne in the first quarter and Sydney in the second quarter. And we also had a major catchment extension to Geelong and the Surf Coast in Victoria. In terms of our immediacy offering, as I mentioned, we expanded our partnership with Uber Eats with now up to 17,000 products available to purchase through the Uber Eats app. And the windowless Click & Collect Rapid was also expanded to 255 stores nationally. Overall, our online NPS saw a meaningful uplift driven by improved availability, fulfillment and the overall digital customer experience. So, one of the most important points to make here is that we were able to make all of these investments, grow our business, expand catchments, and our immediacy offering while driving efficiencies through technology, scale, and a strong operational focus. We made further improvements to our picking processes in store, increased orders per van, and installed 2 key automation technology features in the CFC with on-grid robotic pick arms and auto frame loading. So, it's been a very pleasing half in terms of e-commerce. Moving now to Slide 9 and loyalty. Flybuys remains an important driver of customer engagement across Coles as well as a key element of our overall value proposition. During the half, Flybuys exceeded 10 million active members, growing by 6.2%. This highlights the continued relevance of personalized value for our customers. We were also pleased to see strong growth in our Coles Plus subscriptions with customers recognizing the additional benefits they receive by becoming part of Coles Plus family, including free delivery, free rapid Click & Collect, and double Flybuys points. Moving now to Slide 10 and our delivered consistently for the future pillar. Our SSI program remains a core part of our DNA. We know the importance of operational efficiency. Delivering consistent and sustainable cost savings through our SSI program enables us to help offset inflation and reinvest in the customer offer. And we see the benefits of that both in our top line as well as our bottom line. This half, we delivered cost savings of $133 million. This brings us to around $700 million since the beginning of FY '24, and we remain firmly on track to achieve more than $1 billion in benefits over the 4-year program. Consistent with previous years, there were many initiatives across different parts of the business that contributed. And again, a common theme with the use of AI and other technology automation to improve the effectiveness and efficiency of our processes. This leads me to Slide 11. We've been building and deploying AI for over a decade. What has changed recently is the pace of capability and the breadth of where we can apply it. For our customers, we are already scaling AI to drive more relevant offers and engagement through personalization across the shopping journey. AI is helping us deliver more personalized and relevant experiences with tailoring engines is improving relevance, conversion and overall customer satisfaction. In parallel, we're also now moving into the next wave, agentic commerce, conversational AI, and real-time personalization, capabilities that will transform how customers engage with us over time. We are proving the relevance, timing and effectiveness of offers and rewards for customers and helping them to find value whilst improving our promotional effectiveness. In our operations, AI is embedded across operational decision-making with a clear focus on outcomes to improve availability, reduce waste and lift productivity. We're using AI in forecasting, demand planning and ranging to improve accuracy and availability. And in stores and in our e-commerce business, AI is helping optimize rostering, improve workflows, pick efficiencies, and dynamic work. Across our supply chain, AI supports optimization in transport and improved workflows. We're also using AI in stores for computer vision for object recognition and loss technology. Now looking ahead, we're building an end-to-end optimization capability across the supply chain from automated DC pallet flows to transport to replenishment. So, decisions are all made as one system and not in silos. A digital twin also lets us simulate scenarios before we change operations. Then we can apply this to execute the best plan in the rural network. The result is improved availability, lower waste, lower cost to serve and faster response time to any disruptions. And we're also looking to optimize online fulfillment capacity across our stores, CFCs and DCs, helping us to decide where orders should flow, how much capacity to allocate and when to flex resources. And finally, for our team members, we're embedding AI tools that make work easier and more productive. Our knowledge assistant is helping teams quickly access policies and procedures, and we've rolled out AI productivity tools, including ChatGPT Enterprise and Microsoft Copilot, and we're partnering with OpenAI on team training. So, it's fair to say that AI is well and truly entrenched within our business, is delivering strong results and has been for some time. But the pace of change is accelerating, and we are really excited by the opportunities that are emerging, particularly in customer-facing agentic AI, and we will be talking about this more in the future as we start to scale. Moving to the next slide. Alongside our financial performance, we remain committed to the role we play in supporting our team members, suppliers, communities, and the environment. So before I hand over to Charlie, I would like to cover off some of our achievements in this area. I will start with our team members. Through our November team engagement poll survey, we maintained our highest ever team member engagement score, remaining in the top quartile. This is a strong reflection of the culture and leadership across the business. Almost 70,000 team members provided their feedback, and it was pleasing to see that delivering for our customers from one of our strongest areas with 90% of team members recognizing our commitment to meeting our customer needs. We also continue to support the well-being of our team members, including through initiatives such as R U OK? Day, where our stores and distribution centers came together to reinforce our care and courage values. We recently launched Round #14 of the Coles Nurture Fund, continuing our long-standing commitment to supporting innovation, sustainability and growth within the Australian supplier community. And we celebrated excellence across our supply base in the 2025 Supplier Partner Awards, recognizing achievements across each of our key trading categories. Our community partnerships remain a defining part of who we are. This half, we raised more than $1.6 million for November and more than $1.8 million for the second by Christmas appeal, helping to provide over 9 million meals for Australians experiencing food insecurity. And finally, we continue to make progress on our sustainability commitments. 87.7% of eligible packaging is now recyclable or reusable, and we maintained 100% renewable electricity usage across our operations, and we continue to divert more than 85% of solid waste from landfill. And with that, I'm now going to hand over to Charlie, who will take you through the financial results in some detail. Sharbel Elias: Great. Thank you, Leah, and good morning, everyone. I'm now on Slide 14, which details our group results. Excluding significant items, we reported group sales revenue of $23.6 billion, an increase of 2.5%. Group EBITDA of $2.2 billion, an increase of 7.8% and group EBIT of $1.2 billion, an increase of 10.2%. NPAT, excluding significant items, increased by 12.5%. Off the back of these results, the Board declared a fully franked interim dividend of $0.41 per share, an increase of 10.8% compared to the prior corresponding period. This is a consistent progression of shareholder returns over time. Moving on to the segment overview on Slide 15. Let's start with Supermarkets. Sales revenue increased by 3.6% with our value proposition continuing to resonate with customers. We adjust for competitive industrial action and excluding tobacco, sales revenue increased by 6.1% EBIT increased by 14.6%, reflecting the strong top line growth, coupled with EBIT margin expansion of 55 basis points to 5.8%, which was underpinned by a 65-basis point increase in gross profit margin. The strong gross profit result was achieved notwithstanding the significant investments we made in value during the period annualized benefits from our DC program, strategic sourcing, SSI initiatives and the growth of Coles 360. Lower tobacco sales also contributed 37 basis points to GP margin. In Liquor, sales revenue declined by 3.2%. The liquor market remains subdued and competitive intensity increased through the period, particularly at the big box end of the market. During the half, we completed our Simply Liquorland store conversion program and our convenience portfolio, representing around 90% of our store network delivered positive sales growth. We are seeing a shift in customer behaviors towards convenience-led purchases. And pleasingly, our stores are well positioned in this convenience space. There is some work to be done to optimize our Liquorland warehouses now that the conversion is complete. Overall Liquor EBIT was impacted by softer top line and $13 million in one-off costs relating to the Simply Liquorland conversions. In other, revenue relates solely to the product supply agreement we have with Viva Energy. As outlined in the results release, the PSA, which is due to expire in April, has been extended and is now due to expire at the end of November to allow Viva to complete the transition to New South Wales, WA and Queensland. The increase in other EBIT was predominantly due to the higher net property gains in the prior corresponding period. Turning to operating cash flow on Slide 16. Before discussing the numbers, I want to highlight a timing impact. The half year ended on the 4th of January. And similar to last year, this resulted in an additional payment run in the final week, creating an additional cash outflow of approximately $560 million. The timing effect impacted several metrics, including cash realization, working capital and net debt. These metrics will normalize in the second half. Operating flow, excluding interest and tax was $1.5 billion with a cash realization ratio of 69%. Adjusting for this additional payment run, the cash realization ratio was 94%. For the full year, we continue to expect cash realization of 100% with the first half timing impact reversing in the second half. The working capital movement primarily reflects increased inventory to support availability over the Christmas period and lower trade and other payables following the additional payment run. The movement in provisions and other largely reflects the flow provision, which is noncash but recognized in EBITDA. Now I'll now move to capital expenditure on Slide 17. Gross operating capital expenditure on an accrued basis was $476 million, a decrease of $66 million compared to the prior corresponding period. We had a higher weighting towards store renewals and new stores across supermarkets and liquor this half as well as a lower spend in relation to our Victorian ADC, and this was as a result of a milestone payment having been recorded in the prior corresponding period. Pleasingly, our Victorian ADC remains both on time and on budget. We also incurred lower capital expenditure in relation to our investments in loss technology. As you know, CapEx falls into 4 key areas: store renewals, growth initiatives, efficiency initiatives and maintenance. Within renewals, we completed 160 store renewals across our network, consisting of 35 supermarkets and 127 liquor stores. These included 122 Simply Liquorland conversions. Within growth, we opened 6 new supermarkets and 11 new liquor stores. We also contribute -- we continue to invest in our e-comm business. Efficiency initiatives included investments in the Victorian ADC, store front-end service transformation and Liquor ordering. Maintenance capital included our ongoing refrigeration electrical replacement programs and life cycle replacement of store and technology assets. We continue to optimize our property portfolio with net property capital expenditure increasing by $157 million, primarily due to an increase in property acquisitions and developments and lower proceeds from divestments. And to reiterate the guidance we provided at our FY '25 results, we continue to expect capital expenditure of approximately $1.2 billion for the full year as we continue to invest in store renewals, digital and technology and growth initiatives. Turning to funding and dividends on Slide 18. Our funding position remains strong. At the end of the half, our weighted average drawn debt maturity was 4.4 years with undrawn facilities of $1.9 billion. As I said earlier, the Coles Board declared a fully franked interim dividend of $0.41 per share, which is a 10.8% uplift versus first half '25 and shows a consistent progression of shareholder returns over time. We will also have a franking credit balance of approximately $600 million after the payment of our interim dividend. Finally, we retained a headroom within our rating agency credit metrics and a strong balance sheet to support growth initiatives with our current published credit ratings of BBB+ with S&P Global and Baa1 with Moody's. And with that, I'll hand it back to Leah to take us through the outlook and concluding comments. Leah Weckert: Thanks, Charlie. So, turning to the outlook on Slide 26. In the first 7 weeks of the third quarter, supermarket revenue increased by 3.7% or 5.3%, excluding tobacco. We're pleased with this strong sales result as we can see through the market share data that it represents above-market growth, continuing the sales momentum we have had for some time. It indicates that in Victoria, we have retained a portion of the customers that we gained as a result of our negative 2.5% continuing to deliver positive sales growth. As I said at the start, the focus for Liquor this period is on leveraging our unified brand, simplifying our processes and improving the performance of our Liquorland Warehouse stores. So overall, I'd say we have had a strong first half and a good start to the third quarter. And with that, I'll now hand back to the operator for Q&A. Operator: [Operator Instructions] Your first question comes from Ben Gilbert from Jarden. Ben Gilbert: Just a question on the trading update. But just on your comments around market growth, just interested if you could give us some color potentially ex Victoria and how within that trading update, you've seen some of the key categories in terms of sort of your health, beauty versus fresh versus sort of the food category? Leah Weckert: Yes. Thanks for the question, Ben. So, as I said, we're quite pleased with the first 7 weeks for 2 reasons really. One is that based on the market share data, we can see that it's above market growth, and that means we have retained a portion of those customers, which means our Victorian sales numbers actually aren't that far off where we are from a national basis. And then we have grown some share on top of that. The data point we received on Wednesday is entirely consistent with the market share data that we have, which is that our major competitor has also performed ahead of market, but that share is not coming from us, and we can see that it's coming from others. I think the second reason that we're pleased with that first 7 weeks is that it just really shows consistency. For those 7 weeks this year, we've got 5.3% ex tobacco. Last year, it was 4.5%. The year before that, it was 6.4%. And that represents really strong sales growth year in, year out. And we are really focused on continuing to drive the flywheel that we talk about, which is strengthen the top line, unlock operating leverage and then reinvest that back into the customer offer. So that's what we're intending to do. In terms of strength of categories, so food continues to be very strong for us. We're seeing good strength across the fresh areas, and you'll see on the customer satisfaction scores that quality is really stepping up. That is actually directly related to our fresh categories. And I would call out meat as one area where we are seeing outperformance in the market in that space. In the nonfood area, that's been a real focus for us. And we would say we're quite encouraged by the emerging trends that we're seeing in that area. We have reconfigured categories in the half to respond to some of the pricing dynamics that we are seeing in the broader market, which means that we have introduced a lot more lines on to EDLP. I mean we know that we're a convenient destination to pick up many of these nonfood products. You think your cleaning products, your paper products, your baby product, it actually makes sense to grab those when you come into the grocery shop. But we're taking very much a category-by-category approach. So, to maybe just give you a bit of color on that. We've invested, for example, into our cup wipes and our Ultra range in cleaning. So, beauty -- sorry, baby and cleaning, private label, and that has driven really strong volume growth for us in that space. We've also taken action on some of the proprietary lines in pet, for example, to be more competitive with some of the players in the market that have recently moved into that space. And on the back of that, we've seen double-digit growth on those lines. So really encouraging in terms of where we're headed there and more to come. Operator: Your next question comes from David Errington from Bank of America. David Errington: Yes, look, I'd like to pick up on that, particularly Slide 7. It's a fantastic looking slide. It's brilliant in terms of customer resonance, and you highlighted as one of your key highlights. But can you bring it to life a little bit, what does it actually mean? Like 330 basis points? Can you put it in context as how big a jump that is availability? I mean they look really impressive, but I don't know what to make of it. And what does shine for me a little bit is price, up only 180 basis points. I don't know if that's good or not, but your gross margin was very powerful, could you have gone a bit harder on price? Can you basically bring Slide 7 to life? Because that looks an incredibly powerful chart, great execution, great improvement in margin. Can you bring to life what drove that? And maybe given that you are higher margin than your competitor, how much firepower that you've got going forward to maintain that sales momentum that you've got? A bit in that question, but if you could have a go at it, that would be really appreciated. Leah Weckert: Thanks, David. We'll try and unpack it. I mean it was a highlight, I think, for all of us as a team because we do have a fundamental belief that if we're increasing customer satisfaction is one of the things that helps us to drive transaction and engagement in store. I think it is a real combination of the execution focus we've had, but also the benefits starting to flow through some of the transformational investments that we've made over a long period of time now. So, I think the benefits we're getting from the ADC, the CFCs, but also the step-up that we've made in terms of the renewal investment. Maybe I might ask Anna and Matt to give us a little bit of color. We'll maybe just work through the slides in order of what the headings are. But we start with quality. Do you want to cover that one? Anna Croft: Yes. David, it's Anna. When it comes to quality, obviously, it's important across the store, but very, very important in fresh, and we've been running a really big fresh transformation program. And that really has seen us take an end-to-end review of quality. So, taking every touch point on where we might aggregate that and how we would look to solve it. And actually, just to give you a bit of a sense of what we've been doing, we've been working through our supplier base to make sure that we have the right suppliers that are fit for the future. And we've gone into deeper end-to-end partnership with that. We've also coupled that with an upweight in our technical resource to really work with those suppliers to really unlock quality and cost. We've really then also focused particularly in meat around our manufacturing network to make sure it's actually closer to stores. So, I think WA to WA. Queensland, we've got a port facility there now, which means that we're faster and we get fresher product to stores and then therefore, give life to customers in store, and we know that's how they measure quality when they see life at home. The other bit we've done is we've invested quite significantly in store team training and also central team training to really focus on quality. coupled with the work that Matt and the team have been doing in supply chain around faster, fresher flows that mean we are flowing product from our supplier base to the stores in a very nuanced way that means we get better life. And on the back of that is probably to hand over to Matt to give a bit of flavor on that because reducing lead times has been a key priority. I might hand to you before we then talk about availability. Matthew Swindells: Sure. Thanks, Anna. David, look, it makes it easier when Anna and the team are super focused upon right supply, right range by store and the right pricing and promo plans. And that does then set us up to leverage the changes that we've made around our supply chain operations and our store operations. And the game we're playing here is speed. So, the faster we can move product, the fresher it will be and importantly, the less waste and markdown we also get. So, our faster fresh flows is essentially a shift away from bringing product in and racking and stacking to then wait to come and pick it later. We really are moving things through the supply chain as fast as possible and measuring in hours as opposed to days. And then similarly tying that in with the store execution where we've got the right display space and the right resourcing to really make sure that the product gets in front of the customer in the least possible time. I would also add, we've now got a couple of years under our belts of our replenishment forecasting system. This was the RELX implementation we did and the final part of our integrated replenishment plans, and so they get better too. So, it's a number of parts that drive the difference in quality. An answer to your question around this 330 basis points a shift, it is a really big shift. And if I think about the 390 basis points, we've then seen improvement in availability, that is at levels that previously we've not really seen. So, they are extremely good results. On availability itself, you probably think about this in 3 areas. So, the first, and I've talked about this again in the past, we're quite focused on foundations. So, this is where we've made the model changes, and we've got the commercial teams really focused upon supply collaboration, the supply chain team focused upon forecast and the logistics of moving product and the store teams super focused on it but it's the consistency with which the teams now work together that's driving the difference. And so we've got a really solid base that we can build on. Importantly, our supplier inbound fulfillment as I thought is at a 6-year high. And through the Christmas period where it traditionally falls away, we saw it maintain a level so we've got stability, not just consistency there. The second part then that enables us to really drive investments as making the difference. That's the ADCs that we have talked to in the CFCs. And we are putting more cars and more products through those ADCs to drive the benefit of not just efficiency but service. And we've also now rolled out our transport management system. which has enabled us to have better control and visibility of our fleet. And that means we are better at picking up from suppliers through Click & Collect, and we're better at delivering to stores as well. So those investments drive a difference. The final part, which I think is probably where we want to see the next level is really a shift from being reactive to being proactive. And this is where we're starting to use data and AI to look for gaps before they occur. So where can we see the problem before it becomes an issue in the store. And we're able to identify at a store SKU level potential out of stocks and target team members to go and manage the inventory closely so that we can then be proactive around availability and prevent any issues before they even occur. And I think that's then the next level, foundations first, technology driving the difference and then the AI and data really becoming proactive rather than reactive, that's setting us up for even further improving availability. So I might -- for the store look and feel, the third part. Leah Weckert: Yes, there's a number of key areas that go into the store look and feel metric. A couple of things I would say, driving this certainly is our renewal program. If I take you back to '22, we would have done 40 renewals. This year, we will complete 70. And actually, what we have done is maintain the blueprint now for some years to get to consistency. What that does is give customer consistency in every store they go into, but it's also enabled us to take the cost per renewal down to do more of those. So certainly a key focus. And we've really started to address what I would call some of the long-term underinvested stores as part of this program, and we're seeing really good progress and customer response there. The other bit that's in this metric is ease of shop, and we focused on the shelf edge through our range program and macro space. We've really stepped on both navigation of space and aisle. And the one big thing here, we've really thought about the integration of our omnichannel to actually remove the friction we see from customers in the store through that. So good progress there. And the big is we fixed up our checkout space through the service transformation program. So that has been a real meaningful step on from a customer satisfaction. So, I'd say there's lots of initiatives driving this. We are certainly focused on how do we continue to elevate this and how do we take it to the next level. So much more to do, but we're pretty pleased with where we are. And then if I come to the final one on price, funny enough actually it is always the hardest metric to move and move the slowest from a customer perspective. So, we are really pleased with 180 basis points. And that's come from all the work that we've talked about before around fewer, deeper, more targeted promotions, removing the noise and making it easier for customers to shop. We're seeing the increase in EDLP in the right categories really driving that price satisfaction -- and again, the work we have done not only on simplifying the range, but also tailoring the range to the store has made it easier for customers to find value and find the products they want shelf. So, a number of key things. Now there's an awful lot more to do in here, and we're really focused around that, but it's pleasing to see that the work we've done over the last 18 months really starting to come to fruition here. So, they would be the big drivers, David, across those. Operator: Your next question comes from Shaun Cousins from UBS. Shaun Cousins: Maybe just a question just on the first seven weeks, sorry, you dropped out Leah when you were talking in your outlook. Do you think you were hurt by the cycling, the Jan '25 period in that Woolworths is now indicating that they got -- that they were hurt in Jan '25. So did Coles benefit there and hence, you're cycling against a period there, which actually means that 37% could be a bit stronger and that you're getting some big industrial action tailwind. And my question is really more around liquor. Just in terms of like-for-like sales are down 2.5% to start the year. Sorry, yes, please, Leah. Sorry, your line is quite -- we're losing you a little bit. Sorry, the team for a second here or there. So, apologies for that. Leah Weckert: Shaun, can you hear me? Shaun Cousins: You're in and out. Leah Weckert: I'm going to go ahead and answer the question. Shaun, are you hearing us okay? Shaun Cousins: Yes, I can hear you now. Leah Weckert: Wonderful. Okay. So, I might reiterate the points I made when Ben asked the question. So, we are definitely still cycling over some disruption from the industrial action last year in the January period. We are pleased, though, with our first seven weeks of sales performance, and there's really two reasons driving that. So based on the market share data, what we have reported today is above-market growth. And that means that we have retained a portion of the customers that came to shop with us last year, and we have grown some share on top of that. What we received on Wednesday is entirely consistent with that market share growth -- with that market share data, I should say. So, our major competitor has also performed ahead of market, but that share is not coming from us, and we can see in the market share data where that is coming from. So, we feel that we have the right pitch in terms of customer at the moment because we are retaining customers, and we are stepping it up. The second thing we're really pleased about on the result is just the consistency, which is something we really prioritize. So, if you look back in prior years, those first 7 weeks, we've reported 5.3% ex-tobacco today. That was 4.5% last year, and it was 6.4% the year before. And so that represents really strong sales growth year in, year out that we are delivering. And we believe that is part of what we're managing to get to work through the strategy of the flywheel of strengthening the top line, unlocking it into the customer offer. Did you get all that. Shaun Cousins: We got most of that. And I think across the 2 answers, I think we've got it. My question is around liquor. Just in terms of your like-for-like to start the year is down 2.5%. Your earnings were down 37% in the first half. You've called out the aggression from Dan Murphy's. As Dan Murphy's remains aggressive on price and really tries to reestablish its sort of price leadership, which is quite existential for them. How does Coles Liquor actually perform, and does your big box just continue to sort of suffer? Just curious around the outlook for earnings. Should we be anticipating earnings to be down another 30% again? I'm just -- you've got a fixed cost base there and a competitor that's quite aggressive. Just curious around the outlook there, please. Leah Weckert: Well, we won't be giving any guidance on where the EBIT will go. But let me make a few comments. So, first of all, we're pleased that we've completed the 222 Liquorland conversions as part of the Simply Liquorland project. And along with that, we have reset range, and we have reset value mechanics in our stores. And ultimately, that entire program of work has really been about how do we attract customers into our offer. And what we're really encouraged by -- and I have to say it's early days. We only finished this process in the middle of December. But early days, we're very encouraged by the NPS uplift that we are seeing. It is a very significant and material uplift that we are seeing in customer satisfaction. And that tells us that those changes are really resonating, which is the first thing you have to achieve with your customers. Now there is no doubt that the backdrop to all of that is the market is very challenging. And we have a subdued market, which is a combination of a structural shift, which is generational around consumption of liquor, but you've also got the impacts in there of cost of living. And certainly, in Q2, we saw an elevation in the competitive intensity in the market. And that disproportionately impacted our large box, so the Liquorland warehouse stores, which is only about 10% of our network. And so, what we were really pleased about is even though those stores were impacted, the 90% of the network, which makes up the convenience formats of Liquorland and Liquorland sellers, that component of our network was in positive growth. And so, you team that up with strong customer scores and positive growth in the heart of our network. We think that, that is actually really positive in terms of setting ourselves up longer term to lean into what we are seeing is quite a few convenience trends coming through in liquor purchasing. Now that being said, we've got work to do on the warehouses, and that's going to be a big focus for us over the next 6 to 12 months. Operator: Your next question comes from Adrian Lemme from Citi. Adrian Lemme: Just want to follow on in terms of the liquor commentary. So, one of the things you talked to there is lower consumption of liquor, a structural shift. I'm just wondering in supermarkets, oral GLP-1s seem to be coming down the pipe and maybe cheaper, which could drive increased uptake in your customer base. How are you thinking about the impacts on demand across the supermarket store, particularly in impulse categories, please? Leah Weckert: Yes. So, it's a great question and one we've been discussing quite a bit as a team. So, I mean, if I come up a level, we're actually seeing a huge trend from customers generally around healthful leaving. And we're seeing that play out in our offer that we have in stores today. So, things like the fact that coconut water is up over 30% on sales. The fact that we're getting the growth out of health powders and supplements. Even things like we've seen a shift even just in the last 6 months in the penetration of fresh produce that is hitting customers' baskets. And you've got items, snacking fresh produce items like baby cucumbers, snacking carrots, salary sticks. They're all in double-digit growth. And so, we are looking at that customer and seeing this behavioral change as there is a shift, again, a bit of a generational shift into healthful eating. We're excited by that. We think that's a really big opportunity and actually plays to many of the strengths that we have in the fresh area of the business, but also the way in which we're leaning into our convenience business. So, if you think about our ready meals, fresh ready meals that we have in the dairy section and frozen meals, our perform meals, in particular, are growing really, really strongly in that space, and they're dietitian designed meals that actually tailor the nutritional content to nutrient-rich and high protein. So, with that as a backdrop, we're already starting to make a shift with a lot of the product development that we're doing and also the ranging work that we do with suppliers to bring in more healthful options in every category. And we look at GLP-1, and we're observing closely what's happening overseas. And what we are seeing from those customers is actually what they are really looking for is solutions. They want to find nutrient-rich food in the supermarket and the supermarket that helps them to navigate that as easily as possible. One of the piece of feedback we hear is it's really hard to navigate supermarket shopping as a GLP-1 user. They have the real potential to be a winner here, and that's what we want to lean into. Operator: Your next question comes from Tom Kierath from Barrenjoey. Thomas Kierath: Just got a question on the gross margin. It's up 65 bps, and I understand you've made some restatements there. But I guess I'm just trying to square away the comment that you're investing in price. Could you maybe just step us through the moving parts on the gross margin? Because it's obviously a pretty big move there. And I guess, quite different to what Woolworths reported a couple of days ago. Sharbel Elias: Great. Thanks, Tom. Firstly, I just want to kind of lead off with the restatement was a prior period restatement. So, we didn't actually restate anything for this half. Look, we're really pleased with the progression in gross profit margin, as you'll note, 65 basis points. And if we look at the drivers, what are the drivers that are actually sort of leading to that sort of growth. Firstly, we're actually seeing the annualized benefits of the investments we're making in the ADCs and specifically this half, Kemps Creek. If you recall, Kemps Creek was in ramp-up last year in FY '25. So, what we're seeing at the moment is both the ADCs at business case in this FY '26 year. And we're definitely seeing benefits in the first half, and we'll continue to see that in the second half. Strategic sourcing and SSI benefits, again, are 2 really important drivers in terms of how we look at gross profit margin. And SSI, you would have seen that we delivered $113 million -- sorry, $133 million this half. And a good portion of that goes into GP. And in fact, I think we're really pleased with that particular program. Coles 360. Coles 360 was actually in double-digit growth for the half, and that is on the back of a number of halves now of double-digit growth. So, we're pleased with how that's sort of tracking. And then we've also called out previously the mix benefits from tobacco. As you know, tobacco sales are lower. That contributes in terms of a gross profit margin benefit, not gross margin dollars, but gross profit margin. So, we're actually really pleased with how they're sort of tracking. And the ADCs, obviously, the implementation costs. So, we successfully removed and unwound those implementation and dual running costs, and that created a benefit for the half. So, look, we're -- at this time, and as we did, we continue to sort of make these targeted investments in value, and therefore, we've been investing in value that's allowed us to do that, which is also driving that top line growth that you're seeing in our results. Thomas Kierath: Just can I just clarify the SSI benefit, like how much came through gross margin versus C0DB of the $133 million. Sharbel Elias: Yes. Well, look, typically, it's been -- yes, as you know, over a longer period of time, it's been 1/3, 2/3, 1/3 in GP and 2/3 in C0DB. This half was a little bit more weighted to CODB, for example. So it's a little bit more weighted to CODB and more like 1/4 in GP and 3/4 in C0DB. Operator: Your next question comes from Michael Simotas from Jefferies. Michael Simotas: Could I just follow on from Tom's question on gross margin? I think the message here is that gross margin would have declined if not for mix, Coles 360, SSI, the ADC benefit, et cetera. Can I just confirm that that is the case? And then you're investing in value for customers, which is great. Do you think you're getting enough support from the supplier base to continue to do that and justify what has been or reward what has been a period of very strong execution from Coles? Leah Weckert: Maybe I'll start that question, and Anna can talk to the supplier piece. But I mean, we haven't done the add up specifically on the gross margin. I mean I think one of the biggest drivers in the gross margin expansion is the tobacco impact, which is the 37 basis points. So that obviously is a very significant mix impact in there. And then you've got the initiatives that we've been doing that Charlie outlined like the ADC with Coles 360, strategic sourcing, et cetera. But we have made investments into value, and so that is definitely an offset in that line. And a big one during the half has been in the red meat space as we've seen costs increase in terms of cost of goods on that. And we know that's really important for customers. So we haven't passed all of that through into retail. But what I would say is it's a core job of ours as management to make sure that we're just managing that GP period to period. And we put in place a plan that works to have a look at what do we think the impact will be and therefore, what initiatives do we need to hit with the right degree of timing to be able to get those benefits coming through. So we're pleased with the overall result that we've been able to get there. Anna, did you want to talk about the relationship with suppliers? Anna Croft: Yes, happy to. What I would say, Michael, is that engaging with our supplier base more broadly to optimize the range and strengthen the customer offer is business as usual for us, and we're incredibly focused on that, and that won't change. I won't go into any specifics on the commercials because that wouldn't be appropriate. But what I would say is that we are incredibly focused on working collaboratively, taking a much longer-term view to drive a real meaningful step change in our offer and our commercials collectively. And it's about getting further ahead together, taking a real end-to-end view of our businesses in a way that accelerates our true differentiation, and that's really where we've been focused on working with our supplier bases on, and that has taken a fully collaborative cross-functional approach, not just a trading approach. We're taking it from a supply chain, from an in-store perspective, and we're really looking credible to grave as to how we think about that going forward. So yes, more work to do, but we're absolutely working with the supplier base on that. Sharbel Elias: And so Michael, what you're actually seeing is actually our 3D strategy actually in action. So that's flywheel effect, right, where we're making very deliberate targeted investments in programs in GP, cost discipline in our CODB, allowing us to reinvest that back into the customer offer, driving top line sales and getting that operational leverage and efficiency because all through that, what you actually saw was also an expansion in our EBIT margin bottom line. So it's really our 3D strategy in action. Operator: Your next question comes from Craig Woolford from MST Marquee. Craig Woolford: I'm interested in the comments about the market share performance. It looks -- it is a great result and interesting how it's played out for both Coles and Woolworths. I assume you're referring to supermarket market share. I'd be interested in how much work you're now doing on other definitions of the market, if we look at results from Chemist Warehouse or Bunnings or the strength in dining out more generally. Maybe the bigger question is how do supermarkets ensure they don't lose share from other retailers as well. Leah Weckert: Yes. Thanks, Craig. It did cut out in the middle, but I think we've probably got the gist of it. So yes, we were talking about supermarket share when we were making those comments around the outlook growth. But obviously, it's a much more competitive and broader competition market than it was 10 years ago. And so the likes of Chemist Warehouse, Bunnings and I think we could probably, based on the comments that you've just made, also talk about things like QSR in that mix. And for us, the approach that we've been taking is to really break that down category by category. And so even within the nonfood space, being very particular about how we think about the different categories in there. And I'll let Anna maybe talk to that one. But certainly, on the food front, we continue to expand our convenience options for customers. And we actually introduced a number of new products into both the meat range, but also into frozen and convenience dairy over the half, which are really leaning into that. And I mentioned the grilled burgers, they're a great example of where we can actually bring share back into the supermarkets channel by giving a product to customers that they feel like it's something that they might eat when they're out, but actually they can prepare it in their own homes. And we've seen fantastic growth in our convenience-based meals out of the freezer section, for example, that's an area that we've expanded significantly. So it is a focus area for us. Those categories that we're talking about there, they are in double-digit growth for us. So they're outperforming the rest of the supermarket. Do you want to talk a bit about nonfood and how we think about the different competitors there, Anna? Anna Croft: Yes, of course. And Craig, I think we've spoken about this quite a lot. It is a clear area of focus for us. What I'm pleased is we're starting to see some real green shoots coming through in both sales performance and market share. And when we look at that, we look at supermarkets market share. But more broadly, we look at kind of health and beauty and our pet business at a total market read because, as you said, our competition is far broader than the supermarket space. And I think what we're pleased about the progress has really been driven by a couple of things. I think sharpening our value and moving to a trusted pricing position through EDLP has made a marked difference. In the quarter, we moved 400 lines in that space, and we made 1,900 value-based in store really emphasize the value we have, and we're starting to see that come through. We've really focused on range where it matters. So in pet and baby and beauty that's really come through. We're using the CFCs very strategically to go deeper on range that really matters as well as a bulk strategy, which really means that we are competing with others outside of the supermarket arena in terms of both neutralizing the value, but making sure that we keep the volume within our business. I think in baby, we've talked about the importance of that. And Leah mentioned, we've been really doubling down on CUB, our own brand. And actually, we've invested in both value and quality, and we're seeing that now being the #1 both volume and value line in those categories. And then on pet, as we said, we've done a lot of work on both value and bulk and that is playing through. We ultimately know, as I said, we are the right convenience spot for customers to buy these categories. So we actually will take a category-by-category approach and make sure that we are being really tailored where we need to put innovation in, where we need to deal with value and where we need to deal with range. So certainly not a one-size-fit approach, and we're taking very much a total market view in these categories rather than the supermarket lens. Operator: Your next question comes from Caleb Wheatley from Macquarie Group. Caleb Wheatley: I wanted to follow up. I know there's been a bit of a discussion so far, but particularly around sort of the forward-looking thoughts on the capacity to reinvest. I mean, as you've spoken about, GP margins are up fairly materially, EBIT margins are up fairly materially. I know there's sort of one-offs and things dropping out that are helping that. But on a sort of go-forward basis, how are you thinking about now the sort of capacity to reinvest from an operational point of view? And I know prices has been a bit of a focus, but just sort of more broadly in the suite of options you have to reinvest from an operational point of view, whether it's kind of service or store ops or loyalty, how are you thinking about sort of your flexibility now? Do you have that margin expansion to reinvest and sort of where the more meaningful opportunities are from here, please? Leah Weckert: Yes. It's a great question. And I think the expansion that we have got in the margin does give us flexibility as we move forward. I think we've been fairly clear in all of our results presentation that we intend to maintain competitiveness. And so we do continue to monitor very closely price and not just from one competitor, but from a full suite of competitors depending on the category that we are talking about, and we will continue to do that. However, we have even just in the last 7 weeks, been what I would say is nuancing our operating model. And that's something that's just BAU for us, which is we look at performance, we look at where we see some opportunities, and we will put money in to help us to capture opportunities. A good example of that would be -- so we've actually seen some real strength in our Sunday trade. And as a result of that, we have made the move to invest more into store remuneration to help us to support that. And from a category perspective in the store, investing into the online space because we can see that there's latent capacity there that we can access. And we're not afraid to put some investment in to really capture that. And particularly through Flybuys, and we will flex on that to get the right outcome that we want. I'm told that you might have missed part of that because we're struggling with clarity today. So I'll just reiterate that one of the things that we've noticed coming into the first 7 weeks of the calendar year has been real strength on Sunday trade in our stores. And we have, as a result of that, made additional investments into store remuneration, so our team to help us to capture the upside of that and in particular, in the online space. Operator: Your next question comes from Bryan Raymond from JPMorgan. Bryan Raymond: Just mine is a bit of a follow-on actually around cost growth. On my numbers, excluding implementation costs, you had 6.6% cash CODB growth in the half. I know there's a lot of moving parts in there. But I just wanted to walk through because it was a bit of a surprise on the upside to me that cash cost growth. I acknowledge you had a pretty big online channel shift. That would be a higher cost channel. You just talked Sunday trading and there's obviously loading there, labor hours in store. But given you had $100 million of SSI benefits, which is the 3/4 of the $133 million in the period in CODB, I'm just surprised that cost growth is running that high. So, if you could help us understand sort of why that is and if that is the path that should continue or if there's some one-offs in there that we need to adjust for? Sharbel Elias: Bryan, thanks for the question. And look, as you know, when we look at CODB and look at cost generally, we look at it as a percentage of sales. And I actually think we are completely tight band over a number of years now in terms of -- as a percentage of sales, particularly if you exclude the sort of the D&A element of that. Cost discipline in our business is very much part of our DNA, right? And you've seen that through our SSI program. Leah mentioned earlier, to date over the last -- since FY'24, we've actually delivered over $700 million of that. That's going to continue. We're going to continue delivering on that, and we're going to continue delivering around that sort of $250 million a year in SSI benefits going forward. Look, we did successfully unwind and the implementation costs, as you did call out, and that was a clear positive. But we have been making very deliberate in strategic investments in our customer offer. So, including our CFCs, which are now fully embedded in our cost base. So, our CFCs are fully embedded in our cost base, they're delivering results and in line with expectations. So, you're seeing that result fall to the bottom line. We're actually making very deliberate investments in data and technology, which is all about improving that customer experience and online growth and omnichannel growth really across the board. So, with these investments, they are driving our top line. And one of the things that I do sort of look at as I look at the -- including GP and including our CODB. And what we're seeing is these investments are driving not only growth but margin growth in our business. Operator: Your next question comes from Richard Barwick from CLSA. Richard Barwick: I've got a question around the CFCs. You do mention that the CFC sales growth was ahead or outpacing your total online or e-commerce growth. Can you put some metrics around that just to give us a sense of how much better your New South Wales and Victoria would be doing online versus the rest of the country. And part of that answer just makes me wonder if you are outpacing online within Victoria, just why -- so it sounds like it wasn't quite enough to get your Victorian sales growth ahead of cycling the industrial action because I think you did call out that Victoria was a little softer than the national rate of growth. So, you sort of put those 2 pieces together for us. Michael Courtney: So Richard, it's Michael here. I did get the first part of the question, which was about CFC growth. And then I missed the second part of the question. So maybe I'll answer the first part first, and then maybe you can follow up and just clarify what the second part of the question was. So, we're not giving specific growth rates for the CFCs. But if I take a step back and talk about proposition types, where we've got Click & Collect, where we've got same-day delivery, where we've got next-day delivery and where we've got immediacy. I think the really pleasing part was that all of those offer types were in double-digit growth throughout the first half. And then next-day delivery, which obviously the CFCs form part of, is still by far and away our largest offer type. So, to be still getting really strong growth through that with the CFCs being a driving factor is really pleasing for us. The proposition continues to ramp up and continues to get really strong customer feedback. And I think that when you look across the positive feedback that we're getting from customers across range, availability and freshness, it's great to see that the customers are seeing the differentiation that is in that offer. So, we're getting really good growth. The operating metrics are in a really good spot in terms of Ocado partners globally where the top performing partner on key operational measures. As Charlie mentioned at the start, we're continuing to invest in that proposition when you look at things like on-grid robotic pick, there's other efficiency measures. So, we're getting really strong growth. It's becoming a really important part of our proposition. The NPS is growing, but an important part also in that as part of being an omnichannel retailer is that we've seen as those volumes have come out of stores and gone into the CFCs, the NPS in store has also improved, which speaks to the benefit of the CFCs, not just as a sales driver, but as a really key part of an omnichannel fulfillment network. Would you mind just clarifying the second part of your question? Richard Barwick: Yes. And the second part was just reconciling that commentary with the comment that Victoria was not growing as quickly as the rest of the country. And I realize that it was in part because of the industrial action but just trying to square those 2 pieces together. And just as a little adjunct to that, at what point are you completely clear of the -- any lingering sort of headwinds from last year's industrial action for Woolworths. So, when are you in sort of clear air there, so we're no longer having to make adjustments for that issue? Leah Weckert: Thanks, Richard. I think that is a million-dollar question. So as we shared, if we go back to when all this was unfolding last year, our big expectation was that there was going to be a cohort of customers that experienced the industrial action where they only came to us because it wasn't convenient to shop somewhere where there was really poor availability, and it's likely that all those customers have just returned back. Then there was a cohort of customers making an active decision between us and our major competitor where the stores are quite closely located. And then there were our online customers that came to us. And it's really the 2 second buckets that we have been working over the course of the last 12 months to put together a plan to say, how do we make sure that now that we've had those customers come and shop with us, that we can retain them. And what we're seeing in the first 7 weeks of data is that we have been successful in retaining a proportion of them, but we are definitely still going over the top of some of the disruption for last year. I think I'm hopeful that we're sort of past it. We aren't spending a lot of time trying to pull it out of the numbers, if I'm honest now. We're just cracking on with continuing to drive sales and do what we need to do. But my expectation would be that Q4, in particular, should be very clean. Richard Barwick: That's an important one because obviously, there's a lot of comparisons with your rate of growth versus Woolworths quarter-by-quarter, and it seems like it's made a difference, obviously, for the first 7 weeks. But if we -- so that's going to impact the third quarter. But if you -- I mean, effectively, your answer is all clear in the fourth quarter, that's what's important. Leah Weckert: That's my expectation. And we definitely -- obviously, we didn't actually receive all the sales that were disrupted as part of the industrial action last year. And I think you're seeing some very interesting reversions going on in the market share data because of that. Operator: Your next question comes from Peter Marks from Goldman Sachs. Peter Marks: My question is just on liquor again. Just wanted to touch on the gross margins. I guess, surprised to see them up in the half. I think you had a 21 basis point headwind from range optimization costs there as well. So I think underlying, they're probably up 40 basis points or so, if that's right. And I think you would have been lapping like a strong period last year as well. So I guess have you managed to drive that improvement in the liquor gross margins in the half? And then just wondering on your trading update, the sales down 2.5%. Are you able to give any indication of whether you're losing share there? Like what's your liquor market data showing in the first 7 weeks? Leah Weckert: Thanks, Peter. The line was a bit garbled. So let me play back what I think we're answering here. The second question you had was around what's our viewpoint on market share. And then the third part was around the expansion of the gross margin, which I might get Claire to answer. Maybe just market share issue though. The data that we have available these days for market share in the liquor market post the changes that were made to the ABS data that's available to us is quite poor these days. So it's actually difficult for us to have a view on that until we see our major competitor come out with their results. So at this stage, we probably couldn't give you a clear view on that one. On the gross margin, Claire, I might ask you maybe to cover that one-off and how we've achieved expansion. Claire Lauber: Thanks, Leah. Yes. So Q2 was obviously a heightened intense competition quarter. We were managing price and promotion intensely through the quarter with a focus to offer compelling offers for our customers. And despite the competitive intensity, we were really pleased that we thought we struck the right balance between driving sales and managing margin, with delivering the gross margin result of 17 basis points improvement. Operator: Your next question comes from Phil Kimber from E&P Capital. Phillip Kimber: My question was just about the online business. Williams has called out that there's been a step-up in competition from all the various players in there. Is that sort of what you're seeing? I mean, your growth rates are very strong. Are you seeing sort of reactions now from a competitive point of view that are maybe higher than they were in the last 3 to 6 months? Matthew Swindells: Yes. Thanks, Phil. So firstly, in terms of our own offer, when we look at whether it's customer acquisition or investment in the customer offer, we haven't increased the investment relative to the prior year. We've obviously had very strong sales growth. So, the level of dollars that we're investing with customers has gone up, but that's a good thing based on the sales growth. Our investment in the customer offer as a percentage of our sales hasn't gone up. So, I wouldn't say that we are investing more. In terms of competition, where I would say that there's been an increase in competition, is probably on the immediacy platforms because, depending on the platform, you've seen more competitors in the grocery space enter, which, a more competitors leads to more competition. But that's why we've taken a really proactive step of expanding our partnership with Uber. So that's something that will allow us to partner more closely with Uber, giving a better offer in terms of range, being able to partner more closely on things like loyalty, and something that's world-first for Uber in terms of the way that we're partnering. We think it's something that's going to allow us to have differentiation in this market as it relates to immediacy and ensure that we have a leading customer offer with strong economics. So, whilst there might be increased competition in certain parts of the market, I think we've taken some really proactive steps to ensure that we've got a winning offer. Operator: Your next question comes from Ben Gilbert from Jarden. Ben Gilbert: Just another one on liquor. It sounds like, obviously, you're probably doing pretty well, given that the pricing competition is more so across 10% of the portfolio. Just interested in how you're seeing the pricing deck across the residual 90 smaller format, where you think you're doing better? Because just anecdotally, your pricing probably seems much sharper than the market there. And I'm wondering if that's where the risk is if your competitors go after the smaller formats, which have probably been left alone a little bit at the moment. Leah Weckert: Yes, it's a great question, Ben. I mean, we're definitely seeing a good uptick in our customer satisfaction around value and price in the small format stores. And we have been very sharp on KPIs there. As we've said, we think that with the shift to convenience, building brand loyalty to Liquorland in that convenience format will be really key going forward. And the value proposition that we have in there is a really important part of that. Operator: Your next question comes from Adrian Lemme from Citi. Adrian Lemme: Just one quick one, please. Just on tobacco. I think we've seen a bit of a crackdown in recent months on illegal tobacco shops. Are you seeing any slight improvement yet coming through in your tobacco performance? It's obviously still a big drag on sales. Leah Weckert: Yes. Sales week-to-week are pretty consistent now for us, and they have been for the last 6 months. We have seen some slight improvements week-to-week when we've seen a couple of the crackdowns, particularly in Queensland and WA, but I'd probably describe it as quite marginal, and it doesn't tend to have longevity around it. So, it can go for a matter of days or a couple of weeks, and then we tend to see it revert back. So that's why, sort of overall, we're still in a sort of a similar position to what we reported at Q1. Operator: Your next question comes from Michael Simotas from Jefferies. Michael Simotas: Charlie, I just wanted to pick up on a comment that you made about the CFCs being embedded in the cost base. Just want to understand exactly what that means. Last year, you called out $40 million of effective start-up costs for the CFC model. How do we think about that going forward? And look, I'm not asking for specific numbers on that, but are there still some costs in the P&L that will come down over time? Or has that flipped to a positive contribution? And then just generally, what's the profitability of your online business look like right now, noting that your competitors disclose margins, and they effectively doubled year-on-year. Sharbel Elias: Yes. So, Michael, let me take that. Great question. So, a couple of things. Firstly, let me go to the CFC side of that equation. We are really pleased with the financial performance of the CFCs. They're absolutely in line with our expectations. And as we said, the CFCs are volume, we're seeing great volume growth, as Michael articulated a little earlier. And what we have seen now in financial performance is that the second half of '25 is better than the first half and certainly an improvement half-on-half and year-on-year in the CFCs. All the one-off implementation, any of those costs, they absolutely go away. So, there are no lingering costs from that perspective. We're really saying, when I mentioned that CFC is, that they're now in the cost base. It's actually part of our business going forward. They're fully embedded there. And I would just encourage, again, as I said earlier, there are elements that go into GP, there are elements that go into CODB, and those changes. From our e-commerce business, generally, again, really pleased with the growth, a positive contributor to earnings. And from that perspective, we're seeing the leverage actually drop to the line. So, you would have seen our e-commerce business has grown at 27% this half. Last half, it was a similar sort of very strong growth rate. And in that time, we've not only grown earnings, but we've absolutely grown our EBIT margin through that perspective. That's the lens which I would look at in terms of the profitability of our business. Operator: Your next question comes from Craig Woolford from MST Marquee. Craig Woolford: Just a follow-up on the inflation path. Without getting bogged down on the technicalities of how Woolworths and Coles measure it, it was surprising to see Coles measure accelerate in 2Q versus Q1, whereas Woolworths measure decelerated in 2Q versus Q1. So perhaps there are some elements in your basket you can talk to that may have added to inflation. And what's your perspective on that inflation outlook over the next 12 months or so? Leah Weckert: Yes. Thanks, Craig. I mean, we did see it accelerate 30 basis points, as you just highlighted quarter-on-quarter. I probably would say that over time, Coles has tracked quite closely to what we see in the CPI data, which gives us some confidence around how the reporting that we do actually aligns to that. The most significant areas of pressure for us from an inflationary perspective have been in the red meat space, so beef and livestock prices are coming in. We haven't passed all of that through to consumers, but it's definitely, some of it has moved through, particularly in the lamb space. We've also seen a bit of inflation in dairy for chilled desserts and milk. Some of that is related to capacity constraints in the market around yogurt. But equally, there have been others on the other side of the ledger. So, eggs have come off now that we're past the avian flu impacts. We've still got deflation in quite a few of the non-food categories where there continues to be very intense price investment across the market. Operator: Your next question comes from Thomas Kierath from Barrenjoey. Thomas Kierath: Just a quick one on depreciation and amortization. I think before you had said it would rise by $115 million this year, and it only went up by $46 million in the first half. How should we kind of think about that for the second half of the full year? Sharbel Elias: Yes. Well, look, thanks, Tom, for that sort of question. Look, we'd expect the second half to be around that sort of $50 million or so increase. So, we're probably expecting -- if you think about the full year, these things are not always a precise science in terms of -- because they do vary on when capital investments and things land. The depreciation is probably more like $100 million or thereabouts for the full year of '26. Operator: Your next question comes from Bryan Raymond from JPMorgan. Bryan Raymond: Might be one for Anna. There's obviously an ACCC case going at the moment. I don't expect you to comment on that specifically. But just wanting to sort of get your thoughts around value perception impacts that might come through from all the press coverage, but particularly how you're thinking about red versus yellow tickets longer-term, like this might be increasing a bit of distrust in some of those red tickets and whether you need to pivot a bit more to high-low. I'm just interested in how you're thinking about the composition of your promotional program going forward. Anna Croft: Thank you, Bryan. I won't comment on the case, but I think that would be appropriate. I think that we remain really focused on how we give our customers great value across the entire basket and making sure we've got the right mechanics in every category. And as we said, in some categories, we've had to move more on to EDLP. The program we've been running around actually doing fewer, bigger, bolder promotions, and that into activity with EDLP seems to be really working for customers, and we can see that through some of those areas. So I think, look, we're just really focused on actually using data and AI to work out how do we get the right promotions to meet the right customer cohorts and how do we do that longer term. And actually, what we are seeing is the work that's done in range is making it simpler for customers to find value. And obviously, our own brand growth in the quarter around really driving quality and value is another lever we have to really simplify that on an ongoing level. So, we're really focused. The outcomes will be the outcomes of where we are on the ACCC, and we'll work through that, whatever that may be. But again, it comes back to making sure that we're doing the right thing across the basket, not in any particular category, but lowering the cost of shopping and giving customers the right value in the right way in the right categories. I don't know whether you want to add anything, Leah? Leah Weckert: I think that's a good answer. Operator: There are no further questions at this time. I'll now hand back to Leah Weckert for closing remarks. Great. Leah Weckert: Thank you for joining us this morning. In summary, we say we're very pleased with the financial results and the strategic achievements that we've delivered over the last half, including strong supermarket sales and EBIT growth, and strength in online. The fact that our automation and operational efficiency programs are now delivering really tangible benefits, including improved customer satisfaction scores and the completion of the Liquorland banner simplification. So, we're seeking to be laser-focused going forward on what really matters to customers, both in the short-term and the long-term. And we know that if we do that, we will continue to move the dial in each period. We know that's what is going to drive our top line, translate to sustainable earnings, and create long-term value for our shareholders. So, thank you for your time this morning, and I look forward to speaking to you again at our third quarter results in April. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Good morning, everyone, and welcome to Docebo Inc.'s Q4 2025 earnings call. All participants are currently in listen-only mode. We will open up the lines for a question-and-answer session momentarily. I would now like to turn the call over to Docebo Inc.'s Vice President of Investor Relations, Mike McCarthy. Please go ahead, Mike. Mike McCarthy: Thank you, Julianne. Earlier this morning, Docebo Inc. issued its Q4 2025 results. The press release, which included a link to management's prepared remarks, and our quarterly investor slide deck, were all posted on our Investor Relations website. This morning's call will allow participants to ask questions about our results and the written commentary that management provided this morning. Before we begin this morning's Q&A, Docebo Inc. would like to remind listeners that certain information discussed may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties, and assumptions relating to forward-looking statements, please refer to Docebo Inc.'s public filings, which are available on SEDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. Now I would like to turn the call over to Docebo Inc.'s CEO, Alessio Artuffo, and our CFO, Brandon Farber. Julianne, can you open up the Q&A queue? Operator: Certainly. We ask that analysts please limit themselves to two questions and return to the queue for any follow-up. Thank you. Our first question will come from Ryan MacDonald from Needham & Company. Please go ahead. Your line is open. Ryan MacDonald: Congrats on a nice quarter. Alessio, maybe the first one for you. It was really interesting to read in the prepared remarks about the potential power of integrating Harmony Search with 365 Talents, as it seems like, over time, the search data that you can get from Harmony Search and identifying skill gaps, and then integrating that with 365 Talents, could potentially help close those skill gaps. I think, as the products are integrated, could you talk about where the integration efforts stand on 365 Talents? And do you also see a similar potential integration? And then, as we think about 2026, how close are we to that vision state? Is there a sales training to do that cross-sell motion going into place for this year? Thanks. Alessio Artuffo: Good morning, Ryan, and thank you for the question. First, let me tell you I am extremely excited to be able to talk about our acquisition of 365 Talents. It has been an important milestone for us. You are correct in saying that the integration between Docebo Inc. and 365 Talents is strategically relevant for us, if not because, among other reasons, it gives us an incremental data moat which, in the agentic era, is a very critical aspect of our strategy. When it comes to the integration, integration is designed to be a phase one. Let me ground it in the current times. We already have customers that we share. We already have an integration that is in production. We are aligned on our ideal customer profile. 365 Talents operated in the strategic enterprise segment, and their customers are very complex organizations with very complex people workflows. So, when it comes to integrating the data of Docebo Inc. and the data flow and the opportunities, there are many. What I would say is, one of the things that I loved about 365 Talents, and one of the reasons that led us to this acquisition, is also their AI-forward technology and thinking. To give you an example, they already have built agents that allow building entire job architectures—a job that would have required months with consultants even a couple of years ago—be done in an instant. Their agentic experience will accelerate our integration between the two platforms. You asked about our roadmap path and what it means for us. So a couple of examples of integrated work that we envision. Number one, imagine this skill architecture that, again, like I said, gets built via agents. This is available now. It is there. Learning programs execution happens within Docebo Inc. But as skill gaps are identified and detected as part of the regular workforce planning, skills are constantly assessed, and skills remediation happens in an integrated way with Docebo Inc. Imagine an agent that is capable of understanding where the workforce stands against certain business goals and the learning machinery, the agent that creates content to continuously produce the material that remediates and to get better. That is the power of the integration between Docebo Inc. and 365 Talents. Brandon Farber: Ryan, just on the second part of your question of the sales motion and the cross-sell. So, really, on day one, right after the acquisition, we started cross-training our sales staff. Our acquisition thesis remains that there are going to be three motions. We are going to continue to sell 365 Talents on a stand-alone basis. We are going to sell back to our existing customer base and net new customers. We are going to sell a combined Docebo Inc. and 365 Talents suite. We do expect our existing customer base to start attaching on 365 Talents in H2 of this year while we cross-train our staff in H1. Ryan MacDonald: Super helpful color there. And then, maybe, as we think about taking a step back on AI, clearly you have the product vision and roadmap out there. But, obviously, in the markets over the last several months, there have been plenty of fears and concerns about what AI can do in terms of disruption for broader enterprise software. I am curious if you are seeing any signs of market fears and reactions in the field. What are customers saying about AI and their internal initiatives, and how is that affecting the budgetary environment as you look ahead into 2026? Alessio Artuffo: The demand environment has been very strong. The field is constantly helping us better qualify how our customers in the L&D, in the learning management world, think about AI within their organization. There is no doubt we live in a transformation phase. But, in terms of the sensibility of our solution, I have done this for now over 20 years. I would say that there are a few things that I am absolutely clear and sure about. The number one thing that I am sure about is that what we have built at Docebo Inc., now combined with 365 Talents and the evolution of what we are doing, is incredibly hard to build and replicate. You just do not cloud code this stuff overnight. That is pure marketing speak for that type of concept. I will add to that. I do spend nights in cloud code. I stopped sleeping because of that. What I would say is when you go beyond the surface of your first 15% to 20% creation of a productive front end, the enterprise piping required to deliver at scale to hundreds of thousands and millions of users—things like unsettled things like database-specific multi-tenancy, role-based permission—all this stuff is what actually powers an enterprise application. I really like to emphasize that because beyond the surface, there is a lot of hard coding piping that folks do not talk about on LinkedIn. Second, I would say, Ryan, what we are hearing from customers reflects our thought and knowledge of the industry, which is that enterprises effectively are evolutionary and not revolutionary, and particularly in L&D. Radical change is slow to come by. Now we are not standing still. We own the data. We own the compliance data, the skills chart data, and no LLM owns any of that. That data becomes then what? The catalyst for those agents to take action. Agents are not magicians. An agent without data is like a Ferrari with no fuel. What we do is make sure that our data structure and data investments are very strong. On top of that, we build the agentic layer so that now we have the data moat, the agentic moat, and the combination of the two with our enterprise experience becomes the proof that we are going to be winners in this market. Ryan MacDonald: Really helpful color. Thanks again. Operator: The next question comes from George Sutton from Craig-Hallum. Please go ahead. Your line is open. George Sutton: Alessio, I wanted to talk about your DNA. So growing 9% in Q4 and guiding for 10% to 11%. My sense is the DNA of this company is built very differently for much more significant growth. So I wondered if you could discuss that—if anything has changed there. And then I wanted to pair that with your substantial issuer bid and your desire to buy a lot of stock down at these levels. Alessio Artuffo: Love the DNA question. I think your intuition is right in the sense that, over the years, we have continued to operate the company with a few drivers that, when you look at those distinctly, make up what you are seeing reflected in the data. What are those drivers? Number one, staying ahead of the curve in the market in terms of technology advance. That will fuel growth as a result. The investments in AI that we have made, not just now, but over the past few years, are aimed at that. This is not a story of roll-up. This is not a story of building a legacy business. It is a story of continued evolution. Second, disciplined execution. Innovating and building great products and being on the forefront of AI, in our point of view, should not be inconsistent with great financial discipline and focus on profitability. We believe that is something that we have gotten very good at, and we can be even better at. So I do love this nature of a business that has the technology and the fuel to accelerate growth moving forward while adding a rather strong profitability profile. And that is where I would end. Brandon— Brandon Farber: 2026, if we think about how we reaccelerate, how we beat our guide, we really look at our business previously in three ways and now four ways. Firstly, mid-market. Mid-market had a really strong 2025. We called it out for three quarters in a row. We expect that performance to continue, but that is not a real lever to reaccelerate growth. EMEA, again, had two strong quarters in a row. We do expect that to continue. Enterprise, this is the real lever for us to reaccelerate and beat our guide. To be completely transparent, we were not happy with our performance in 2025. Some of it was macro. Some of it was performance. Our guide does assume that we perform similarly in 2026 to 2025. We are seeing early signs that that business is turning. The demand environment is there. Execution is getting better. Really, Q1, it is time for us to just execute. We have the demand. We have the pipe. Alessio Artuffo: And now it comes down to execution. Brandon Farber: The last one—or, sorry, the last two—is government. We are still in the early innings of government. If I could use a hockey reference, the national anthem has not even finished singing. From partnerships to pipeline to RFPs, we are extremely early in this motion. We just became FedRAMP at the May. We are seeing pipeline exceed expectations. We have the pipeline to win some large whale deals in Q3. But when you think about how ARR converts to revenue, our baseline assumption is that ARR comes in September 30, and we really have three months of revenue. So not a significant revenue acceleration for 2026, more 2027. And then March, I would say we already have a fairly aggressive growth target embedded within the guide. So, really, going back, enterprise is the main lever to beat our guide. From an SIB perspective, if you really just take a step back, SIB is designed with all shareholders in mind. It provides every shareholder an equal opportunity to participate. We filed our circular in late January, early February. The view is clear, and it remains unchanged today. We believe the trading price of our shares does not reflect the underlying value of our business and our future prospects. From a mechanics perspective, the SIB is the most efficient path to meaningfully buy back shares. Under NCIB, due to our public float and the amount of shares traded daily, we are actually quite limited. To take out 3,600,000 shares, it would take over two years under NCIB. Brandon Farber: So, and lastly, I would just note that even after the SIB, even after the acquisition, our net leverage remains low. We still have flexibility to allocate capital. George Sutton: Wonderful. Great. Just one quick, more narrow question on your QSR win. Understanding that organization is doing this through franchises, I am curious if your deployment will be mandated by the entire system, or is this a hunting license situation? Brandon Farber: Sorry. Can you repeat that last point? George Sutton: Is this something mandated by the overall company so all the franchisees take it? Or is this a hunting license where you need to go sell individually to the franchisees? Brandon Farber: Nope. It is company-wide, corporate, and all franchisees. George Sutton: Super. Thank you. And you know the sandwich name, or we can see it? Operator: Our next question comes from Josh Baer from Morgan Stanley. Please go ahead. Your line is open. Josh Baer: Great. Thanks for the question. Brandon, you just mentioned not being fully pleased with 2025, but some of those same assumptions around that execution are embedded in 2026. Could you unpack that a little bit more? What exactly are you assuming in the 2026 guidance with regard to converting that pipeline, contribution from new customers, expansion from existing customers? If you could talk about the assumptions embedded in that guidance a little bit more? Alessio Artuffo: I think it is Alessio speaking. Our fundamental point of view is grounded on the observation of the work that our teams have been doing over the past few quarters and the leading indicators that are resulting out of that work. If you recall, a couple of quarters ago, we instituted a new leadership team in the go-to-market team. After Kyle Lacy joining Docebo Inc. as CMO, subsequently, a new CRO was appointed in Mark Kosoglow, and we have effectively reshaped our GTM motion as a result of these leaders coming in. In this new GTM, it brought improvements across the board. I would say that we have focused on a number of different areas where we thought we could do better: process reengineering, people optimization, and, notably, a deliberate strategy to focus on qualitative demand as opposed to quantitative demand. What that means is we have taken steps to be deliberate in the leads that we believe are most suited to win, that belong to our category, and have implemented processes to pass on to certified partners very small business leads that are not necessarily any more in line with the strategy of Docebo Inc. We are a mid-enterprise to strategic enterprise company, and we need to focus there. That exercise is paying off. We are seeing that in the leading indicators about enterprise pipeline. We are seeing that in the execution in the field. The comments from Brandon are the result of that observation. We have data, and that informs our belief that the enterprise segment and government will be catalysts for our reacceleration. Josh Baer: Okay. Thank you, Alessio. Just to follow up there with some of the refocused go-to-market, looking at the ACV for new customers, which was down, is there anything to read into that? Is that a result of the reshaped go-to-market? Or, obviously, just one quarter of that new customer metric can move around a lot. How should we think about that? Brandon Farber: It is really our mid-market team firing on all cylinders. When you look at that metric, it is heavily skewed by the number of customers you sign during a given quarter. Enterprise wins tend to be one unit at a high value; mid-market tends to be many units at a lower value. So the mix overall tends to skew it from quarter to quarter. Generally, we were actually quite pleased with all our segments in Q4. As mentioned in our prepared remarks, it was the strongest gross bookings we have had since 2021. The business performed. As everyone knows, we had some structural headwinds that masked the top-line ARR growth with the wind-down of Dayforce and the loss of AWS coming in effect in Q4. It is just really a matter of go-to-market performing really well in Q4. Operator: Our next question comes from Erin Kyle from CIBC. Please go ahead. Your line is open. Erin Kyle: Hi. Good morning, and thanks for taking the questions. I wanted to ask and dig into the net dollar retention for 2025, down year over year to 99%. I expect a lot of that was largely due to AWS. Can you unpack that number a bit for us? Brandon Farber: You are exactly correct. Excluding AWS, we actually would have been up 1% year over year, so we would have been at 101%. There are a lot of good trends within NRR. We saw sequential three-quarter improvements in net retention, excluding AWS, from Q2 to Q3 to Q4. When we look at 2026, from a retention perspective, we forecast four quarters out. Again, we are seeing strong trends in Q2, Q3, Q4 into 2026 as well. One thing is when we look at Q4, even with record gross bookings, we have talked about how typically our mix of gross bookings is 65% new logo, 35% expansion. In Q4 it was 60% new logo, 40% expansion. Our expansion delivered in Q4. Our ideal mix is 60/40 or even 45/55. As we all know, expansion is much more efficient from a cost perspective. Acquiring new logos is very expensive. We are really focused on the expansion perspective. 365 Talents really helps us accelerate that. We are focused on improving that NRR in 2026. Erin Kyle: Brandon, that is a lot of helpful color there. Maybe one more for you, or Alessio, if you can give us an update on the AI credit pricing model that you talked about last quarter. Is consumption pricing something you have been looking at moving towards more broadly? Or how should we think about that? Mike McCarthy: Hi, Erin. Alessio Artuffo: Yes, it is Alessio. One of my favorite topics. Let us go. AI credit pricing and, more broadly speaking, the topic of monetization are hot topics in the industry right now. We have spent a considerable amount of time lately thinking through this deeply. I will share my thoughts, including credits, but they need to be taken in the context, more broadly, of the overall AI monetization strategy that is becoming a very pervasive narrative these days. First, let me start head-on. We are testing AI credits at Docebo Inc. We have maybe a month and a half worth of data, so it is early days. The results of that work have been a mixed bag, frankly. In some instances, customers, particularly technology-first customers, are receptive to the idea. In other instances, and frankly more, there has been pushback—pushback that is CFO/CIO-led—resulting from their desire for predictability and discomfort with non-strict controls and forecastability. That is where we stand with credits. If that is okay with you, I would like to broaden that question to our point of view on the narrative on pricing because the argument that I am hearing a lot of people bring up is, “In this new AI-first era, per-seat pricing is the legacy model.” That is the general sound of it. We went and dug deep. We looked at over 30 companies. We analyzed AI-native LLMs, etc. What we found out has been really interesting. The number one pattern has been the majority of the companies across AI-native companies are using what we would call a hybrid model, which is what Docebo Inc. has today: a mix of per-seat pricing combined with credit pricing. The second finding was that a lot of AI-native companies actually do not have any concept of credit pricing or outcome pricing; they are per-seat only. We have been analyzing the why, and that is really simple. Customers will not buy it, and their use case and their industry do not lend themselves to a full outcome or a full credit-based model. I am really passionate about this topic. We are going to continue exploring new avenues. I do believe there is room for innovation on the pricing side in AI. I have learned over the past 20 years that the best pricing model is the one that meets the needs of the company with the business process of your customers. What we are not going to do—on the trend basis that everybody wants credits to be the same—is to shove a pricing model down customers' throats. Rather, we would work with customers to understand how their buying trends are, and we listen to the field. We do a lot of audience insights in our customers' calls. Great topic. More to come. We will report back on our findings as we continue to explore credits. Erin Kyle: Thanks, Alessio. That is a lot of helpful detail there. I will pass the line. Thank you. Brandon Farber: Thank you, Erin. Operator: Our next question comes from Robert Young from Genuity. Please go ahead. Your line is open. Robert Young: Hi, good morning. First question for me will be on the force reduction that is after the quarter. It seems both optimization and R&D, but I am trying to get a better idea of what the drivers are there—if that is just duplication after the acquisition of 365 Talents, or if it is a more permanent reduction. Are you preparing for a shift towards hiring up in AI? Maybe if you could talk about what that implies on the strong EBITDA margins you reported this quarter. Should we expect that to continue to grow higher on the back of this force reduction? Alessio Artuffo: Rob, good morning. Robert Young: Good morning. Alessio Artuffo: Our restructuring followed a few specific criteria. First, the most important fundamental is we continue to use performance as a strong mechanism to grade ourselves against our own expectations and against our shareholders' expectations. Our job is to continue to have the best people in season to deliver against those expectations. That is an evergreen rationale that applies here. Second, a more targeted action was taken to accelerate something that is not new, which is moving our product capabilities closer to our customers. As you very well know, over 70% of our customers are in North America, and very few people in product are in North America. That distance, that has accumulated between our customers and our product culture, is one that we believe needs to be remediated and addressed, and so we have taken steps to address that. We have chosen to collocate these teams in hubs like Toronto. Just to be absolutely clear, that does not mean that we are exiting or developing a decreased presence elsewhere; that remains foundational to our products. It does not mean that there is any action that has to do, as a derivative, with the March acquisition. We simply want to give our customers the confidence that we have a product team and organization that is also closer to them. As a result of that, we are not pausing anything to rebuild. We are accelerating. We have retained our core architectural leaders to ensure continuity. This transition will not delay—if nothing, will accelerate—our agentic roadmap. In general, as we tap into new markets and as we have the ability to hire people in new territories, we are also excited about the opportunity to improve our hiring profile and continue to augment the skills of the people at Docebo Inc. I think Brandon wants to add something on the EBITDA question. Brandon Farber: Hey, Rob. On the EBITDA side, as Alessio mentioned, the main goal of the reduction was not for cost-savings. Although we are expanding EBITDA margins, the main reason for that is discipline throughout the business while we grow it. When you look at the guide relative to how we performed on EBITDA in 2025, it is about 2% EBITDA leverage year over year. When I think about that at a really high level, there is going to be 1% leverage gained in G&A year over year. That is just continued discipline that we have talked about for years within G&A. Then roughly half a percent of leverage in sales and marketing and R&D, where we continue to focus on sales efficiencies and gaining leverage in R&D as we continue to use various tools that allow us to become more efficient. Robert Young: Okay. Thanks for all that. Second question, adding on to a previous question around the QSR and the casual dining traction. You have had a lot of traction in that space over the last five-plus years. Can you talk about how much opportunity is left and what the competitive dynamic looks within that specific end market? It seems to be driving a lot of new customer growth over the last couple of years. And, if I can, quick question. In the gross bookings metric you gave, the 12.5% growth, does that include Dayforce and AWS, or is that just Dayforce? And then— Brandon Farber: Alessio, I will let you answer the question. Sorry about that. Alessio Artuffo: I will start with the QSR part of the question, and then I will pass on to Brandon the gross ARR question. You are right. QSR is a relevant market for us, one in which we have continued to win landmark logos. That is really the result of a couple of things: a focused sales strategy and a better defined targeting of the accounts that have a higher likelihood to convert with Docebo Inc., and a deliberate product strategy that addresses some of the peculiar needs that this industry has. Some of those include the way they report the data. Others include the way they organize their personnel across franchisees and corporate offices, and that requires rather complex ways of mapping users across the geos, entities, and so on and so forth. By the way, let me use this example to reference back to the defensibility of a true enterprise-grade system. This stuff is really complex. It is multilayered. It takes years to build. Back to QSR, we believe the opportunity ahead of us is pretty significant. We have in-roadmap capabilities that further make us even more compelling. The QSR space requires a deep usage of adaptive and mobile technology. We are thinking and rethinking our mobile strategy in that regard to have more frontline workers technology readiness available. As part of that offering, let me finish by saying there is a module of Docebo Inc. called AI Virtual Coaching that is, still, rather early days but has the potential to become an absolute killer in use cases for front-end workers and QSR-like. We are very excited about it. We are investing in it. We are going to put more resources and more effort into it to accelerate its development. We believe the QSR opportunity is significant for us. Brandon Farber: Rob, if we think about the top 10 QSRs, we have about four of them as customers. There are still the top four largest QSRs that we do not have. There is still a large market opportunity for us to continue to gain. On your question on gross bookings, the 12.5%, that is actually just our total ARR, so it includes gross and churn. That includes AWS. If you are looking for a metric of our growth excluding both Dayforce and AWS, that was closer to 14.5%. Robert Young: Thanks a lot. Operator: Our next question comes from Richard Tse from National Bank Capital Markets. Please go ahead. Your line is open. Richard Tse: Yes. Thank you. With respect to the environment in general, has this AI narrative impacted your sales cycles at all? Is there a swell building as your prospective customers evaluate what they want to do? The environment is changing so quickly. I wanted to get your perspective on that. Alessio Artuffo: Richard, we really monitor our demand in multiple ways. If the question is, are you seeing headwind relative to this AI-first narrative, the answer is no. As far as our sales cycle and our velocity of execution, one of the metrics that I am keeping an eye on in that area is exactly how long it takes us in different segments to get a deal done—from qualification to close. The recent data is incredibly encouraging. We have shaved off weeks of sales execution, particularly in our mid-market and mid-enterprise space. When you do that, what it effectively means is you are almost gaining a month of selling action in the year. That has been very significant, and we are taking steps to improve that even further. Richard Tse: Okay. Thanks. With respect to capital allocation, with you continuing on the SIB, there is a high degree of conviction. Post that SIB concluding, if the stock does not move higher off the back of that, how are you thinking about capital allocation? Would you consider additional buyback programs? Or are you evaluating acquisitions? Ultimately, what is your comfort on leverage ratio here? Brandon Farber: It is a great question. On the acquisition front, doing an acquisition the size of 365 Talents in 2026 is unlikely. We have a lot of things to focus on for 2026. We want to focus on execution and reaccelerate Docebo Inc. organically, and really perform and execute on our acquisition of 365 Talents. From a buyback perspective, if our shares continue to trade at depressed valuations, we will continue to buy back shares under the SIB, even after the SIB. From a net leverage ratio, when we think about net cash to EBITDA, we certainly get very uncomfortable above 3. Under 3, we are more comfortable. So that is our line in the sand. Richard Tse: Okay. Thank you. Operator: Our next question comes from Ken Wong from Oppenheimer. Please go ahead. Your line is open. Alessio Artuffo: Fantastic. Ken Wong: Alessio, I wanted to touch on 365 Talents. This is the largest M&A at the company. M&A is not exactly a competency or a muscle that you guys have. What is your comfort in your ability to absorb such an acquisition? Any appetite for additional M&A beyond this? Alessio Artuffo: I would say a number of things on this. The discipline of skills intelligence is actually very adjacent relative to the learning space. There are obvious overlaps between the two. You are absolutely right in saying that the use cases and, in some instances, the persona buyer can vary. That is why we have taken a deliberate stance of maintaining, for a period of time, the 365 Talents entity and brand active as we implement both the integration from a product capability standpoint—that is priority number one—and, in parallel, we integrate the commercial motions. The enablement that is necessary to blend the organizations is ongoing and will take time. In the meantime, we have structured our organization at Docebo Inc. with resources that are going to be experts and are going to live within the 365 Talents world to become the translators of the value of 365 Talents in our market. The other thing that I would say about this acquisition is, as Brandon briefly mentioned earlier, that I think is really important: as we have this incredible base of over 3,500 customers active, one of the objectives was also to have an opportunity to differentiate and have another entry point other than LMS in these organizations that may already have an LMS in place. Dismantling an LMS setup from a large enterprise can be years' worth of work. Our opportunity here, with effectively our first true second product, is to knock at the door of organizations and offer a value that integrates with their existing LMS. As we enter that secondary door, we can then consolidate that account under a unified strategy. You can appreciate how the adjacency of the capabilities and the integration strategy—from a product and commercial standpoint—lends itself to what will be a very successful second-product story that will have an impact on our NDRR in the future. Ken Wong: Fantastic. Really appreciate the look into the strategic rationale. Brandon, maybe building on that. As we think about the fiscal 2026 guidance, any change in your philosophy here as you have to think through some of the moving pieces that go along with March? The ability to integrate, obviously operating two teams in parallel—how should we think about what prudence was baked in? Brandon Farber: From a March perspective, I would say we did not take a conservative approach. We had a very tight business case. We are factoring in high growth from that business, and we are expecting to execute on that. When we think about the different aspects of revenue, talking about Dayforce, it is going to be down to roughly 3% to 4% of our total revenues. We publicly disclosed that we will generate roughly $9,000,000 pro rata from 365 Talents. We continue to put no deals greater than $1 million ARR within our guide. We do have a number of those in our pipeline, but it has been over 12 months since we have closed one, so we feel like the prudent aspect is to exclude that from our guide. Just as I mentioned, government—while it is in our guide—it is only there for three months, given the seasonality of the Fed spend geared towards September 30. Those are the main aspects that I think of from a revenue perspective. Ken Wong: Got it. And then just a quick follow-up. Any top-line or bottom-line synergies between the two orgs that are factored in? Brandon Farber: Bottom line, no. Top-line synergies are really just what we talked about: going back to the Docebo Inc. base and selling 365 Talents to our current customer base. Ken Wong: Okay. Fantastic. Thanks a lot, guys. Operator: Our next question comes from Matt Van Vliet from Cantor Fitzgerald. Please go ahead. Your line is open. Matt Van Vliet: Yes. Good morning. Thanks for taking my question. Now that you have the go-to-market team reorganized like you wanted, but with the addition of the federal opportunity maybe being a little bit more wholesome than it was before, where do you feel like you are at in terms of sales headcount? What is the plan baked into the guide for 2026? Longer term, how do you think about headcount additions correlating with top-line growth? Or can you decouple those a little bit using AI tooling and other efficiency mechanisms? Brandon Farber: From a sales headcount perspective, on the government side, we invested in 2025 to get additional quota carriers in seats. We feel like, at the start of 2026, we are well set up from a quota perspective. The focus is to win more business with the same amount of headcount. We are really focused on sales productivity and sales efficiencies, using tools to improve those efficiencies. In 2025, I think we ended the year on a good note from a sales efficiency perspective. We started the year fairly inefficient in 2025. We are continuing to focus on it. We really look at our pipeline to indicate when we need to add quota carriers. While we have a budget, we do not stick to it. We do not hire just to hire. We hire based on pipeline, and we will continue to look at that on a quarterly basis. Matt Van Vliet: Very helpful. On the other side of the AI question, how much demand—or maybe even deals closing—are you finding as customers want to have a more complete platform to train their employees on the usage of those LLMs, how to get value out of them, how to protect the organization's data from not including overly proprietary things in prompts? Is it driving a fair amount of top-of-funnel demand and potentially even deal closing? Alessio Artuffo: I would say among the trends in the audience insights that we have, AI readiness is one of those trends. Specific companies in the tech sector are more concerned with advancing their people's AI capabilities. Conversely, what we are finding is that sectors that are more institutional—like manufacturing, healthcare, and data-sensitive—are, in an anticyclical way, asking us to put in place measures for AI to be deeply controlled, enabled, disabled, toggled off. Those controls capabilities have become an absolute must requirement. We are seeing evidence of that, unsurprisingly, in the government space. It is a very interesting phase in which you have the ones that are on the offense side and want to use our technology to get smarter about AI, and the ones that are on the defense side and are still skeptical of the downsides of AI, asking us for observability, controls, and compliance. We are playing on both fronts. Matt Van Vliet: Alright. Great. Thank you. Alessio Artuffo: Thank you. Operator: Our next question comes from Suthan Sukumar from Stifel. Please go ahead. Your line is open. Suthan Sukumar: Good morning, gents. For my first question, I wanted to touch on the competitive landscape. Aside from Workday buying Sana, I am not sure I am seeing any major moves in the industry. More broadly, how are you seeing competitors respond to AI and executing on this opportunity? Alessio Artuffo: I would say this. First, I will tell you where I stand philosophically on the topic of competition. While we get educated, I like to say to the team we are incredibly self-centric and self-focused. I do not want this company to chase the others. I want us to lead the pack, innovate, and be very focused on ourselves. That is the philosophy I take on competition. When I get education from the team about what they hear about the competitive landscape, I think your reflections are correct. There is not a high degree of innovation happening. Fortunately for us, companies in our state historically have taken more prudent approaches to R&D. I would say the biggest trend that we are seeing, that I am having evidence of, is what I would call AI by marketing. AI by marketing is the art of calling everything “agents” even when they are not. What I see is a bunch of pretty simple copilots defined as revolutionary agents, when they are not. An agent is an agent by definition; it should be studied what that definition is. An agent takes decisions. An agent solves complex business problems. We understand the difference between a copilot and an agent because we are building both. I would say the market is frothy. There is not a ton of real, disrupting value. I would say Sana acquired by Workday was that one startup that had an edge in that area. Certainly, it becomes challenging for a company like that to go at the same speed and pace within a machinery like Workday. None of my business. All I know is that when we go in the market and we introduce AI capabilities, we stand out big time. That is what we are keeping on doing. Suthan Sukumar: Great. For my second question, from more of a bookings and pipeline perspective, can you speak about how contribution has been trending in your pipeline from your SI partners, like Deloitte and Accenture? Any color on how deal sizes and deal scope have been evolving when partners like these are involved? Alessio Artuffo: Yes. Straight to your question, nearly 80% of our enterprise pipeline now has a system integrator attached to it. We work with a number of system integrators from the Deloittes and Accentures of the world to smaller, medium-sized system integrators that are either regional or leaders in their respective market. That work that has happened over the years is certainly paying off. Specific to system integrators, things that I can share: we recently announced that with Deloitte, we have completed a process to enable Deloitte plus Docebo Inc. to become a product that you can purchase through the Amazon AWS Marketplace. That means Deloitte customers that want to implement a learning platform can buy Docebo Inc. in partnership with Deloitte using their AWS credits, which is a very favorable vehicle of purchasing, especially for large enterprises that often have credits to be managed and spent on the AWS side. Everybody wins because Deloitte wins, AWS wins, and, ultimately, Docebo Inc. benefits from what is a very CAC-accretive type of sale. Additionally, we are working with Deloitte and other system integrators on their own academies. What we are finding is that these system integrators are implementing academies using Docebo Inc., which means they power their own customer academy using Docebo Inc. This is becoming a catalyst for very large organizations that are approaching the system integrators. Notably, it is happening with major airlines and major transportation groups that are going to the system integrators and saying, “I would really love to implement your academy.” When they scope out what they really want, this becomes less of a broad academy play and more of a direct deal with the system integrator. It also acts like a lead-gen opportunity for us. The work that our team is doing on system integrators is very good. There is more to be done, and there are more integrators that we are talking to that we plan to sign over the next few quarters. I am pretty excited about it. Suthan Sukumar: Okay. Great. Thank you for the color. I will pass the line. Operator: Our next question comes from Gavin Fairweather from ATB Capital Markets. Please go ahead. Your line is open. Gavin Fairweather: Just on 365 Talents. I am sure you had a base deal or a base understanding about upsell and bundled deals when you did that acquisition. I am curious what market feedback you are getting from clients and prospects and how that is making you feel about the opportunity vis-à-vis your original expectations. Alessio Artuffo: Gavin, relatively early days—we are a month plus in—and I can tell you that we had certain phases of the amount of opportunities that we would generate of companies that want to look at 365 Talents. I recently posted a webinar with Loïc, the CEO of 365 Talents, and close to 1,000 people registered for the webinar. A number showed up, and a big percentage of the people after the webinar asked for a demonstration and declared in the webinar that they were looking for a solution or looking to improve their current solution. The pervasive feedback that we are getting across all calls is that companies do have a skills strategy, but it is fragmented from a system standpoint—meaning, they may have a skills module in their HRIS or HCM system, but it is not connected to the learning execution strategy in the way that we plan to do it. When we tell them a story of this automated cycle across the skill gap—the skilled engine, their workforce planning strategy, their career development, the internal mobility use case—with learning attached to it in a seamless way, we demo that to them, their reaction is incredibly positive. We are a month in. Our integration is still relatively simple, all things considered. Imagine what will happen when we execute on our real vision over the next two to three phases of integration, which will occur within the next 12 months. All of that to say the leading indicators are incredibly positive. I would also say the other thing that excites me the most is it is clear we have an enterprise-first strategy. Complex organizations get the best out of the 1,000 employees and above, which we have set for this product. We are bang on in terms of the pain that is felt from the type of customers that we want. That is product market fit, and now we just need to execute. Operator: Our next question comes from John Chao from TD Cowen. Please go ahead. Your line is open. John Chao: Good morning. Thanks for taking my questions. You mentioned Docebo Inc. has the data moat. Could you break down that data moat to help us understand what data belongs to you versus your customers? Alessio Artuffo: I would say, most simple, compliance-related forms. Then you have data relative to external use cases. You have years of use of the Docebo Inc. platform to prove that, by enabling your customers and/or your partners to do the work that they need to do, or to buy more by educating them, they indeed deliver better experiences if they are partners, or they buy more, or they stick around longer if they are customers. That data is invaluable to any marketing organization, to any revenue organization. On top of all of this, we are adding the data moat of skills. Now we are talking millions of records, as very large companies have knowledge that an individual went from a certain skill set to a new skill set over different levels over the course of years. That data, again, is not available to third-party sources. The reason why all of that data is incredibly important is that, in order to operate automation and decision-making on top of it in the form of agents, agents are not ET aliens. They are fundamentally workflow executors. They execute workflows on clean, well-organized, structured datasets. Whether the agent lives in your LLM and is called via an MCP server, or the agent is a hyper-specialized agent that Docebo Inc. has the knowledge to create and solve the very specific problems in the LMS world, it does not matter. They can live in a number of different places. What they need in order to provide an outcome is the data that resides in our systems. I hope that helps. John Chao: Got it. Thank you. My second question is in terms of the customer spending. I understand that ACV is around $60,000 to $70,000. How does that number compare to your customer's corporate learning budget? Is it around 10%, or is it a much higher number? I am asking this because one of the key arguments for AI disruption is cost savings. Mike McCarthy: It is a very interesting question, but the learning tech stack is much wider than you would expect. Every company has, from HRIS systems to LMS to skills—the tech stack is wide. If you look at a graph of the number of SaaS companies that are in the L&D or CHRO tech stack, it is wide. LMS is not the biggest one. Obviously, HRIS is by far in the lead, and it is materially higher than the cost of an LMS. That is the reality. The average ACV of $60,000 to $70,000—that is really Docebo Inc. continuing to move up and upmarket. We really look at an enterprise ticket now at roughly $250,000. While there is competition in the enterprise space, Docebo Inc. is typically very competitively priced, maybe on the top end, but compared to our competitors, we are within the range. We continue to see enterprise willingness to spend that money. There has been no pushback on price—on renewals, on new prospects. Pricing is holding strong, and companies see the value in an LMS. John Chao: Thank you so much. That is all. Operator: Our last question will come from Kevin Krishnaratne from Scotiabank. Please go ahead. Your line is open. Kevin Krishnaratne: Hey there. Thanks for fitting me in. Just one question, maybe two parts, for Brandon. Brandon, you talked about in the prepared remarks reaccelerating organic growth. I think you did 9.5% subscription growth in Q4. Maybe you can help us on what the organic growth expectation is for Q1 after 365 Talents. It is coming down a little bit, but do you expect that to stabilize and grow in Q2? Or is there anything that we should be thinking about in Q2—whether that is anything from Dayforce churn or any renewals coming up in Q2 that we need to consider? I am wondering how we think about the organic growth trajectory here. Brandon Farber: The reacceleration organic we are modeling Q3, Q4 onwards. There are a number of factors. Number one, you look at Q1 and Q2—our enterprise performance was below expectations. As we lapse some of the quarters that had material impact due to Dayforce wind-down, which was Q3 and Q4, and as we lap AWS, our ability to reaccelerate growth becomes greater and greater. In our internal models, that acceleration starts in Q3 and continues in Q4. Kevin Krishnaratne: That is super helpful. Then last piece—you talked about strength in mid-market. Enterprise is going to be a driver. Can you talk about the SMB or the low end of your base and how much of that is in your ARR? Is there anything to think of there in terms of pressures or churn at those types of companies that are more on the low end of the customer profile? Brandon Farber: ARR below $50,000, which is generally the benchmark we consider commercial or SMB, is down to about 16% of our ARR. At the same time, it is interesting to note that our gross retention in that area actually improved year over year. We were always in the mid-80s, and we actually saw a sequential improvement in the commercial segment. It is an area that we have restructured how we manage it from an account management perspective. We have put a bit more focus, a bit more investment, and we are seeing that investment pay off. That is more from an account management perspective. As Alessio mentioned, from a new leads perspective, we have new benchmarks—some go to partners, some go to us. That existing customer base below $50,000 is actually a much healthier customer base than it has been in prior years. Operator: We have no further questions. I would like to turn the call over to Alessio Artuffo for closing remarks. Alessio Artuffo: Thank you, everyone, for being on the Q4 2025 earnings call. We are very excited about the trajectory of Docebo Inc. A milestone ahead of us is called Docebo Inspire in April in sunny Miami, and we look forward to seeing you there. Thank you. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to the Assured Guaranty Ltd. Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Becky, and I will be the operator for the call today. All participants will be in a listen-only mode. Should you need any assistance, signal a conference specialist by pressing star then 0 on your telephone keypad. During today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. I would now like to turn the conference over to our host, Robert S. Tucker, Senior Managing Director, Investor Relations and Corporate Communications. Please go ahead. Thank you, operator, and thank you all for joining Assured Guaranty Ltd. for our full year and fourth quarter 2025 financial results conference call. Robert S. Tucker: Today's presentation is made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. The presentation may contain forward-looking statements about our new business and credit market conditions, credit spreads, financial ratings, loss reserves, financial results, and other items that may affect our future results. These statements are subject to change due to new information or future events. Therefore, you should not place undue reliance on them as we do not undertake any obligation to publicly update or revise them except as required by law. If you are listening to a replay of this call, or if you are reading the transcript of the call, please note that our statements made today may have been updated since this call. Please refer to the Investor Information section of our website for our most recent presentations and SEC filings, most current financial filings, and for the risk factors. The presentation also includes references to non-GAAP financial measures. We present the GAAP financial measures most directly comparable to the non-GAAP financial measures referenced in this presentation along with a reconciliation between such GAAP and non-GAAP financial measures in our current financial supplement and equity investor presentation, which are on our website at assuredguaranty.com. Turning to the presentation, our speakers today are Dominic John Frederico, President and Chief Executive Officer of Assured Guaranty Ltd., Robert Adam Bailenson, our Chief Operating Officer, and Benjamin G. Rosenblum, our Chief Financial Officer. After their remarks, we will open the call to your questions. As the webcast is not enabled for Q&A, please dial into the call if you would like to ask a question. I will now turn the call over to Dominic. Dominic John Frederico: Thank you, Robert, and welcome to everyone joining today's call. We significantly advanced Assured Guaranty Ltd.’s key business strategies in 2025, positioning us for sustainable long-term growth. Among this year's most important accomplishments, we again brought our key shareholder value metrics at year-end 2025 to new per-share highs of $186.43 for adjusted book value, $126.78 for adjusted operating shareholders' equity, and $125.32 for shareholders' equity. We earned adjusted operating income per share of $9.80 compared with $7.10 in 2024 and created significant future earnings from financial guarantee originations. Our present value of new business production, or PVP, totaled $286 million with meaningful contributions from each of our three financial guarantee underwriting groups. We continue to be the leader in the new issue market for U.S. municipal bond insurance. In our strategic efforts to expand our U.S. municipal secondary market business, we saw great success as we more than tripled our secondary market par insured over last year's performance. Rob will provide details on our financial guarantee production in a few minutes. In our capital management program, we repurchased 12% of the common shares that were outstanding on 12/31/2024 while meeting our 2025 target of repurchasing $500 million of our shares. We also distributed $69 million to shareholders through dividends, and last week, we announced that we have increased our current quarterly dividend per share by 12% compared to November 2025, representing fourteen years in a row of dividend growth. Our alternative investments continue to perform well, including funds managed by Sound Point Capital Management and Assured Healthcare Partners. Alternative investments have provided an annualized, inception-to-date internal rate of return of 13% through year-end 2025. As we mentioned on prior calls, we successfully defended our legal rights in litigation with Lehman Brothers International, resulting in a pretax gain of approximately $103 million in 2025. We also reached successful resolutions of several other loss mitigation situations that were accretive to our financial results. Ben will discuss these further in a few minutes. Lastly, during 2025, we completed substantially all the work required to leverage our decades of experience in life insurance securitizations and investment management into a life and annuity reinsurance business. In January 2026, we acquired Warwick Re Limited, which we have renamed Assured Life Reinsurance Limited, or Assured Life Re for short. This acquisition further diversifies our revenue sources and has the potential for significant synergies with our financial guarantee and investment activity. Assured Life Re’s primary business focus will be reinsuring fixed-term annuities, specifically multi-year guaranteed annuities known as MYGAs, and pension risk transfer annuities. The Assured Life Re platform combines Assured Guaranty Ltd.’s core strengths in credit and structured finance, management of our own multibillion-dollar investment portfolio, and our twenty-year track record of providing financial guarantee services to the life insurance sector with the operational infrastructure and experienced life reinsurance professionals of Warwick Re. We believe we are well positioned for growth in 2026 and beyond. Since we commenced operations in 1985, the value and reliability of our guarantee and the resilience of our business model have been repeatedly demonstrated, especially during financial crises, a global pandemic, and during other periods when it was difficult to predict the direction of economic conditions. I will now turn the call over to Rob to provide more details about our financial guaranty production results. Robert Adam Bailenson: Thank you, Dominic. In 2025, we generated $286 million of PVP from transactions that, in aggregate, were of higher credit quality than in recent years. Municipal bond insurance remained in strong demand during 2025, as the U.S. municipal market experienced the second consecutive year of record issuance. In U.S. public finance, we originated $206 million in PVP, finishing the second half of the year strongly with $132 million in PVP, a 19% increase over the second half of 2024. In looking at 2025, PVP was limited by the mix of business that came to market, which resulted in our insuring fewer large transactions in the BBB category than in 2024. As a result, municipal par we insured was weighted more heavily toward higher credit-quality transactions with lower capital charges, and these higher-rated deals produce less premium. Overall, we guaranteed over $27 billion of municipal par, 16% more than in 2024, across more than 1,500 primary and secondary market policies. For insured new-issue municipal par sold in 2025, Assured Guaranty Ltd. achieved a fifteen-year high, wrapping more than $25 billion and leading the bond insurance industry with 58% of new-issue insured par sold. Our new-issue deal count grew 15% year-over-year to more than 900 transactions. Perhaps most notably, we increased our U.S. public finance secondary insured par written more than 240% year-over-year to approximately $2 billion, which generated $44 million of PVP. With over $4 trillion of municipal bonds outstanding, we are excited about the opportunity available in bonds we can insure in the secondary market. We have made several technological and operational process improvements over a multiyear investment period to greatly enhance the secondary market team's ability to source, evaluate, and execute transactions. Modernization of our platforms, including deployment of new market analysis tools and applications and real-time data integration, as well as improved workflows, drove a substantial increase in our underwriting speed and capabilities, enabling faster credit assessments, quote turnaround times, and deal executions. A strong new-issue market demand on larger transactions showed continuing institutional appetite for a guarantee on such transactions. In 2025, Assured Guaranty Ltd. wrapped 51 primary market issues with approximately $100 million or more in insured par, a total of approximately $12.6 billion of insured par sold. This is our highest annual number of $100 million-plus municipal transactions in over a decade. Two of our transactions were honored at the 2025 Bond Buyer’s Deal of the Year ceremony. JFK International Airport's Terminal 6 redevelopment project, for which we insured $920 million of par in November 2024, was recognized as the Green Financing Deal of the Year, and Alaska Railroad Corporation's cruise port revenue bonds, where we insured $108 million in 2025, was named the Far West Region Deal of the Year. Other large deals in 2025 included $1 billion for the Authority of the State of New York, $844 million for the Downtown Revitalization Public Infrastructure District in Utah, $730 million for the Alabama Highway Authority, $650 million for the Massachusetts Development Finance Agency on behalf of Beth Israel Lahey Health, and $600 million for the New York Transportation Development Corporation’s new Terminal 1 at JFK Airport. Also in 2025, we saw an increase in the use of our insurance among underlying AA-rated credits, which are credits rated in the AA category before insurance by S&P or Moody’s. For AA-rated credits, in both the primary and secondary markets, we issued over 160 insurance policies totaling approximately $7 billion of insured par, which year-over-year represents an increase of approximately 60% for both of those metrics. While such step-away transactions produce less premium per dollar of insured par, they require us to hold less capital, generate attractive returns, enhance overall insured portfolio credit quality, and demonstrate market confidence in the strength, reliability, and durability of our guarantee as a backstop against potential issuer downgrades, headline risk, and market value declines. Turning to our other markets, non-U.S. public finance and global finance originations together contributed $80 million in PVP for 2025. We closed $37 million of non-U.S. public finance PVP in 2025, including $18 million in a strong fourth quarter. The year's production results were mainly driven by several primary infrastructure finance transactions in the U.K. and the European Union, as well as secondary market transactions for U.K. sub-sovereign credits. Among the insured credits are a portfolio of general obligation loans to universities in the United Kingdom, a project finance loan for a road construction project in Spain, and a note issue to refinance debt in the French fiber optic sector, our first primary market execution in France since the global financial crisis. In global structured finance, we guaranteed over 40 transactions in 2025, with a total PVP of $43 million, including strong fourth-quarter PVP production totaling $20 million primarily from fund finance facilities, insurance securitizations, the upsize of a transaction providing protection on a core lending portfolio for an Australian bank, and consumer receivable transactions. We have now built fund finance into a high-performance flow business that includes repeatable transactions whose renewals generate future PVP, and since these are shorter-duration transactions, we also benefit because we earn the premiums more rapidly and can recycle the capital more quickly. For example, the transactions we insured this year had a stated maturity within one to four years, and we will earn all the premiums during that period. This fund finance earnings time frame is two to three times faster than a typical structured finance business we insure. Looking toward par and PVP production in 2026, we have a robust transaction pipeline and are expecting strong results from each of our three financial guarantee product lines. Thus far, in 2026, we have already closed several large transactions. We believe we have significant short-term and long-term opportunities for growth across our financial guaranty markets. In the U.S. public finance market, we continue to be the premier insurer of new-issue municipal bonds and have developed more efficient and broader capabilities to serve the enormous secondary municipal market. In structured finance, our fund finance business provides us with a stream of shorter-duration transactions that are repeatable and complement the often larger and longer-duration transactions that have been typical in that sector. We have also seen expanding business opportunities in Europe and Australia across both public and structured finance. Most important of all, we have the financial strength, experienced staff, and improved business model to continue growing and leading the financial guaranty industry. I will now turn the call over to Ben to discuss our detailed financial results. Benjamin G. Rosenblum: I am pleased to report fourth quarter 2025 adjusted operating income of $109 million, or $2.32 per share, representing an increase of 83% on a per-share basis from adjusted operating income of $66 million, or $1.27 per share, in 2024. Our full-year 2025 adjusted operating income was $445 million, or $9.08 per share, representing an increase of 28% on a per-share basis from $389 million, or $7.10 per share, in 2024. The largest drivers of the quarter-over-quarter increase were a $23 million pretax gain associated with a loss mitigation strategy, higher earnings from alternative investments, and lower loss expense. Full-year results in 2025 also benefited from a $103 million gain related to the resolution of the Lehman litigation, $15 million in fees related to workout credits, and a $20 million increase in the pretax contribution from the asset management segment. As you can see, 2025 was a big year for resolving several previously troubled exposures. In addition to the gain on the Lehman resolution, loss mitigation efforts resulted in the paydown of our largest below-investment-grade security, reducing the amount of loss mitigation securities in our investment portfolio by over $400 million. In addition, a commercially leased building that was part of a loss mitigation exposure was sold, removing another troubled asset from our balance sheet. The company was able to fully recover its losses through the negotiated settlements that were finalized in 2025. This further demonstrates the strength of our underwriting, our persistence in defending our rights, and our multifaceted approach to working with issuers and developing innovative solutions. Enhancing our investment returns is another strategy that yielded results this past year. As of December 31, 2025, our alternative investments had a fair value of over $1 billion, up from $884 million as of 12/31/2024. In the fourth quarter of 2025, alternative investments generated $47 million in pretax adjusted operating income and $160 million of pretax adjusted operating income for the full year, representing a year-over-year increase of 33%. Since we commenced the alternative investment strategy, we have consistently reported inception-to-date IRR of approximately 13%. As a point of comparison, our fixed-maturity portfolio average yield over the past three years has been 4.16%. In terms of capital management, we again reached $500 million in share repurchases, buying back 5.8 million shares, or almost 12% of the shares outstanding at the end of 2024, at an average price of $85.92. We are committed to prudent capital management and have continued to repurchase shares in 2026. Our remaining share repurchase authorization as of today is $204 million. As always, we actively assess the various opportunities to deploy our capital effectively and aim to invest in those that we believe provide the most attractive returns. Our holding company liquidity as of today is approximately $130 million, of which $48 million is at AGL. Last week, our board of directors also approved a 12% increase in our quarterly dividend per share from $0.34 to $0.38. Finally, I want to highlight the acquisition of Warwick Re, which launched our annuity reinsurance platform and which we expect to add another source of earnings separate from our financial guaranty business. We are actively progressing several promising opportunities in our pipeline to assume new blocks of annuity business and expect to make investments in this business over the next few years. We are excited to grow this business, which we have renamed Assured Life Reinsurance, and we will have an update for you on the first quarter earnings call. In the meantime, we have an annuity reinsurance presentation on our website. I will now turn the call over to our operator to give you instructions for the Q&A period. Operator: We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. At this time, we will pause momentarily to assemble our roster. Our first question comes from Marissa Lobo from UBS. Your line is now open. Please go ahead. Marissa Lobo: Good morning. Thanks for taking my question. Earlier in the quarter, you noted that issuance in BBB credits had come back from prior lower levels. How did this look in the fourth quarter, and what are your thoughts for the mix into 2026? Robert Adam Bailenson: We are seeing that come back, and we saw it in the fourth quarter. We are off to a very good start in the first quarter, so we believe that is going to continue. We have closed a number of transactions already in U.S. public finance as well as infrastructure finance in Europe, and so we continue to see that. We are very excited about 2026. Marissa Lobo: Okay. Thank you. And looking at the big exposures, could you give us an update on your outlook across the U.K. utilities and Brightline as well? Benjamin G. Rosenblum: Sure. I will start with that unless Dominic and Rob want to chime in. We are looking across, obviously, the U.K. utilities. When you look at what happened during the quarter, our U.K. water utility BIG exposure went down as we upgraded Southern Water. We feel pretty good about that upgrade at Southern Water. It was out in the market and had new equity introduced to it, so they raised debt and equity, making it really, in our opinion, an investment-grade credit. So for U.K. water, we are 100% focused now really on just Thames being the only problem exposure there. We are part of the creditors committee, as you know, on Thames, and we are actively looking to work with the U.K. government at a market-based solution, and we are hopeful to have an update on that relatively shortly. Do you want me to cover Brightline, or do you have any questions on that? Marissa Lobo: No. That is helpful. Thank you. Brightline, please. Except for Brightline, we remain confident. Benjamin G. Rosenblum: Our thesis when we went into Brightline was that there is a lot of subordination below us, over $4 billion below us, and that is a really good position to be in a capital stack of a troubled exposure. Their ridership is going up. I think they are on the way to recovery, and we are obviously happy to be part of any solution they have. But we remain committed to them as well as very confident in our position in that exposure. Marissa Lobo: Got it. Thanks for taking my questions. Thank you. Operator: Our next question comes from Thomas Patrick McJoynt-Griffith from KBW. Your line is now open. Please go ahead. Thomas Patrick McJoynt-Griffith: Hey, good morning. A question on your alternative investment portfolio. I tend to remember that it is largely CLOs that are in there, but can you just talk about the exposure there? Is there anything with private credit that we should keep on the radar? Benjamin G. Rosenblum: We do not really take direct, absolute direct exposure to private credit. Obviously, we are investing in the CLO market, and some of the names are in there as well. However, we do mark our portfolio to market, and we believe that any pain that probably has been experienced in the market today, for many of the names that have been in there, we have experienced. But we remain confident, and again, our exposure there is in good shape. We feel pretty good about it. Thomas Patrick McJoynt-Griffith: Okay. Thanks. In switching gears, to the extent that you allocate some capital into the annuity reinsurance market, would that preclude you from sticking with your $500 million annual buyback target, or should we think of those as two independent opportunities? Dominic John Frederico: You have to look at the entire capital stack as interdependent. We have a range of capital management opportunities this year in terms of stock buyback, but that range will be dictated by what other opportunities we see in the market, specifically the life and annuity reinsurance business. As we said when we made the acquisition, we have substantial excess capital there that allows us to write a substantial amount of new business. But as we have seen, we have gotten more inquiries than we were actually expecting, so we are pretty happy with the opportunities we see there. That might allocate some more capital that will dictate exactly where we will land in the range of our stock buyback. We are committed to capital management. We are committed to stock buybacks and repurchasing. We will just manage that throughout the year. Operator: Thank you. This concludes the question and answer session. I would now like to turn the conference back over to our host, Robert S. Tucker, for closing remarks. Robert S. Tucker: Thank you, operator. I would like to thank everyone for joining us on today's call. If you have additional questions, please feel free to give us a call. Thank you very much. Operator: This concludes today's conference call. Thank you all for attending. You may now disconnect your lines. Have a great day.
Operator: Please standby. Your program is about to begin. Welcome to the MBIA Inc. Fourth Quarter and Full Year 2025 Financial Results Conference Call. I will now turn the call over to Gregory R. Diamond, Managing Director of Investor and Media Relations at MBIA Inc. Sir, please go ahead. Gregory R. Diamond: Thank you, Chelsea. And welcome to our conference call for the full year 2025 MBIA Inc. financial results. Excuse me. Hold on. I have it on here, it just went away. You do not have it yet. We have a copy of it? I do not have it. I have a copy. Oh, that is good? Yes. It is buried underneath this Outlook problem. Apologies. After the market closed yesterday, we issued and posted several items on our websites, including our financial results, 10-Ks, quarterly operating supplement, and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation. We also posted updates to the listings of our insurance companies’ insurance portfolios. Regarding today’s call, please note that anything said on the call is qualified by the information provided by the company’s 10-Ks and other SEC filings, as our company’s definitive disclosures are incorporated in those documents. We urge investors to read our 10-K as it contains our most current disclosures about the company, its financial and operating results. The 10-K also contains information that may not be addressed on today’s call. The definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in our 10-Ks as well as our financial results report and our quarterly operating supplement. The recorded replay of today’s call will become available approximately two hours after the end of the call. Now for our safe harbor disclosure statement. Our remarks on today’s conference call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-Ks available on our website at mbia.com. The company cautions not to place undue reliance on any such forward-looking statements. The company also undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such statement is no longer accurate. For our call today, William Charles Fallon and Joseph Ralph Schachinger will provide introductory comments, and then a question and answer session will follow. I will now turn the call over to William Charles Fallon. William Charles Fallon: Thanks, Greg. Good morning, everyone. Thank you for being with us today. We had lower net losses for our full year 2025 financial results versus full year 2024 and comparable net losses for the 2025 and 2024. Comparing the two years’ results, National recorded a benefit from losses and loss adjustment expense in 2025 versus incurred losses in 2024. For both years, National’s losses and LAE resulted primarily from changes to loss estimates for its PREPA-related exposure. The 2025 benefit largely resulted from the sale of a custodial receipt associated with National’s PREPA bankruptcy claims at prices better than National’s loss estimates, as well as a favorably revised estimate for losses on National’s remaining $425 million of PREPA gross par outstanding. Our priority continues to be resolving National’s PREPA exposure. In that regard, there has not been much substantive progress since our last conference call in November. Until the legal issues related to the members of the Financial Oversight and Management Board are resolved, it is unlikely that substantive progress will be made. Regarding the balance of National’s insured portfolio, those credits have continued to perform generally consistent with our expectations. The gross par amount outstanding for National’s insured portfolio has declined by approximately $3 billion from year-end 2024 to about $22 billion at the end of 2025. National’s leverage ratio of gross par to statutory capital was 24-to-1 at the end of 2025, down from 28-to-1 at year-end 2024. As of 12/31/2025, National had total claims-paying resources of $1.4 billion and statutory capital and surplus in excess of $900 million. I will now turn the call over to Joseph Ralph Schachinger for additional comments about our financial results. Joseph Ralph Schachinger: Thank you, Bill, and good morning all. I will begin with a review of our fourth quarter and full year 2025 GAAP and non-GAAP results and then provide an overview of our statutory results. The company reported a consolidated GAAP net loss of $51 million, or a negative $1.01 per share, for 2025 compared with a consolidated GAAP net loss of also $51 million, or a negative $1.07 per share, for 2024. When comparing 2025 and 2024, there were a few offsetting items. Lower revenues in our Corporate segment, which were primarily due to a decrease in foreign exchange gains, were offset by lower interest expense on MBIA Insurance Corporation’s floating rate surplus notes and lower operating expenses related to consolidated variable interest entities, or VIEs, at MBIA Insurance Corporation. The company’s adjusted net loss, a non-GAAP measure, was $12 million, or a negative $0.24 per share, for 2025 compared with an adjusted net loss of $22 million, or a negative $0.48 per share, for 2024. The favorable change was primarily due to lower losses and LAE at National, largely related to its PREPA exposure. For full year 2025, the company reported a consolidated GAAP net loss of $177 million, or a negative $3.58 per share, compared with a consolidated net loss of $447 million, or a negative $9.43 per share, for full year 2024. The lower consolidated GAAP net loss for full year 2025 was driven by lower expenses and, to a lesser extent, higher revenues compared with full year 2024. Our lower expenses were primarily driven by a loss and LAE benefit on our PREPA exposure in 2025 compared with an expense in 2024. The benefit in 2025 primarily resulted from our sale of PREPA bankruptcy claims at an amount that exceeded National’s loss recovery estimate and the impacts of adjustments to our PREPA loss scenarios. Contributing to our higher revenues were lower losses related to VIEs at MBIA Insurance Corporation. In 2024, VIE losses resulted from the repurchase of VIE debt and the deconsolidation of a VIE, with no comparable activity in 2025. In addition, we recorded lower fair value losses in 2025 on assets acquired in connection with recoveries of paid claims related to the Zohar CDOs, offset by higher foreign exchange losses as a result of the dollar weakening and lower net investment income. The company’s adjusted net income was $23 million, or $0.46 per share, for full year 2025 compared with an adjusted net loss of $184 million, or a negative $3.90 per share, for full year 2024. The favorable change was primarily due to the loss and LAE benefit at National in 2025 related to its PREPA exposure. MBIA Inc.’s book value per share decreased $3.28 to a negative $44.27 per share as of 12/31/2025. This decrease was primarily due to our consolidated net loss for full year 2025. In addition, included in MBIA Inc.’s book value as of 12/31/2025 is a negative $53.35 per share of MBIA Insurance Corporation’s book value. I will now spend a few minutes on our Corporate segment balance sheet. The Corporate segment, which primarily comprises the activities of the holding company, MBIA Inc., had total assets of approximately $653 million as of 12/31/2025. Within this total are the following material assets. Unencumbered cash and liquid assets held by MBIA Inc. totaled $357 million, compared with $380 million as of 12/31/2024. The decrease was largely due to the repayment of MBIA Inc. 7% debt that matured in December 2025 and the payment of operating expenses, partially offset by a dividend received from National. In December 2025, National declared and paid an as-of-right dividend of $63 million to MBIA Inc. In addition to these unencumbered cash and liquid assets, the Corporate segment’s assets included approximately $183 million of assets at market value pledged to Guaranteed Investment Agreement contract holders, which fully collateralized those contracts. Now I will turn to the insurance companies’ statutory results. National reported statutory net income of $5 million for 2025 compared with a statutory net loss of $10 million for 2024. The favorable variance was driven by lower loss and LAE in 2025 related to National’s PREPA exposure. For full year 2025, National reported statutory net income of $88 million compared with a statutory net loss of $133 million for full year 2024. The favorable change was primarily due to a loss and LAE benefit of $35 million in 2025 compared with an expense of $196 million in 2024. The loss and LAE activity in both years were mostly related to National’s PREPA exposure. National statutory capital as of 12/31/2025 was $937 million, which was up $25 million compared with 12/31/2024. The increase was largely due to National’s statutory net income for full year 2025, partially offset by the $63 million as-of-right dividend paid to MBIA Inc. As of year-end 2025, claims-paying resources were $1.4 billion. Now I will turn to MBIA Insurance Corporation. MBIA Insurance Corporation reported a statutory net loss of $7 million for 2025 compared with statutory net income of $4 million for 2024. The net loss for 2025 was driven by losses reclassified from surplus related to the dissolution of MBIA Insurance Corporation’s Mexican subsidiary and higher losses and LAE compared with 2024. In last year’s fourth quarter, losses and LAE related to RMBS exposure were mostly offset by a benefit related to recovery estimates on the Zohar CDOs. For full year 2025, MBIA Insurance Corporation reported a statutory net loss of $26 million compared with a statutory net loss of $64 million for full year 2024. The lower net loss in 2025 was primarily driven by lower losses and LAE, largely related to estimating recoveries of paid claims associated with the Zohar CDOs. As of 12/31/2025, the statutory capital of MBIA Insurance Corporation was $79 million, down from $88 million at year-end 2024, due to its net loss for full year 2025 partially offset by an increase in the value of investments recorded directly to surplus. As of year-end 2025, claims-paying resources totaled $317 million. MBIA Insurance Corporation insured gross par outstanding was approximately $2 billion as of 12/31/2025, down about 13% from year-end 2024. The decrease in gross par outstanding was primarily driven by regular amortization of the insured portfolio. We will now open for questions. Operator: If you have a question at this time, please press 1 on your telephone keypad. If you wish to remove yourself from the queue, press 2. We ask that when posing your question, you please pick up your handset to allow optimal sound quality. We will take our first question from Thomas Patrick McJoynt-Griffith with KBW. Please go ahead. Thomas Patrick McJoynt-Griffith: Good morning. The fourth quarter often presents a time or an opportunity for a special dividend, and that is based off of the special dividend that we saw out of National in 2023. This most recent fourth quarter, did you explore the potential for a special dividend? Are you having conversations with your regulators about potentially distributing some of the capital beyond just the as-of-right dividend? William Charles Fallon: Tommy, with regard to a special dividend, first of all, there is nothing in particular about the fourth quarter. National, just given its history, has only actually requested and had one special dividend, which happened to be in 2023. It is something that we are looking at all the time, as you know, and can appreciate. As the portfolio runs off, and in particular as our PREPA exposure comes down, which it did substantially in the second half of last year, the likelihood and the amount of a potential special dividend goes up. So it is something that we are looking at all the time. There is no information we have at this point. The information that we would provide is that we have received approval for a special dividend and have distributed to the holding company. But it is something that, again, we are looking at all the time, and I think since the last special dividend, circumstances have improved in terms of the likelihood of a special dividend. Thomas Patrick McJoynt-Griffith: Thanks for that. The other important story that people are focused on surrounds the strategic process potentially including a sale of the company. What are the latest updates there in that process as you explore that opportunity? And I have asked this before, and I will ask it again. Do you think in a scenario where there is a sale, does the company just sell National and then take the proceeds and sort of wind down the rest of the operation? Or would the strategic action be to sell the entire holding company and its subsidiaries included? Thanks. William Charles Fallon: As you know, and as a reminder to other people, we did look at selling the company a few years ago. Based on the feedback during that process, we concluded it would be beneficial for our shareholders for us to go get a special dividend and then distribute money to the shareholders and also to hopefully further resolve or make progress with regard to the PREPA restructuring. We were successful with the dividend, properly reduced our exposure. I cannot say that there has been much real progress in terms of resolving PREPA, but we are optimistic that something will develop this year. With regard to whether to sell the entire company or whether we would sell just National and then, to your point, deal with all the other pieces, whatever is best for the shareholders is what we will do. So in a sense, all options are on the table. To sell the company, in a sense, is the cleanest way to do it. But, again, if there is more value for shareholders by doing it via its components, then that is what we will do. Thanks. Operator: Thank you. Our next question will come from John Adolphus Staley with Staley Capital Advisors. Please go ahead. John Adolphus Staley: Thank you. Bill, I have a couple of quick questions. First of all, with regard to PREPA and the bonds that you sold, is there a bid out there to sell the rest of your exposure, and if so, how would it compare to the price you got the last time? William Charles Fallon: With regard to the PREPA exposure that we sold last year, John, those were fully paid CUSIPs. We are now in a situation where we really do not have much left. In fact, we have a maturity coming up later this year. We have the $425 million of exposure. That is not something that can be sold via the custodial receipt that we did last year in the near term. John Adolphus Staley: Secondly, with some of the political trends that are happening—New York, California, all the nonsense up in Minnesota—are you getting any pressure from your auditors of a higher valuation of reserves related to non–Puerto Rican credits? William Charles Fallon: The short answer is no. As you can appreciate, we look at everything in the portfolio constantly. We are quite comfortable with the way everything is proceeding at this point, and there has been nothing that has been identified. I understand what you are talking about, but nothing has been identified with regard to specific credits that would cause us to take additional reserves because of those activities that you referred to. John Adolphus Staley: And with regard to MBIA Insurance Corporation, it is dwarfed, where its statutory capital is, by its guarantees that are still out there—whatever it was, $2 billion or something like that. What has to happen for you to wrap that up so that it is no longer a part of—You have Puerto Rico, you have that subsidiary in which there is no liability back to MBIA Inc. But why do you not just get rid of it? Wrap it, liquidate it, or whatever you have to do, or is it that regulators will not let you do that? William Charles Fallon: There is some of both of those things. The runoff has occurred sort of as we expected. To your point, there is $2 billion left. There is one major restructuring in there, which is referred to as Zohar, which was a deal that we had wrapped. That one is going to take a little bit of time. Once that is resolved, then, to your point, there is not much left with regard to the remaining runoff of that company, and so there may be ways after that to accelerate the runoff of MBIA Insurance Corporation. John Adolphus Staley: So you are still managing a recovery process related to collateral with Zohar? William Charles Fallon: That is correct. John Adolphus Staley: I know that Judge Swain, as I understand it, is pushing for the private parties to resolve things. What is keeping this thing from being wrapped up? Puerto Rico is still being denied access to the municipal market, and electricity is still going off. It just seems so crazy. They are sitting there with all that money down there. I do not understand what is stopping it. Is it just politics? William Charles Fallon: I think in the near term, as I referred to in my comments, you have the situation with the Oversight Board, which is the one negotiating the PREPA restructuring on behalf of the Commonwealth. There are four board members. As you know, there was the administration action last year to remove six of the board members. Three took it to court and were reinstated. Either the four existing board members need to take the initiative and start negotiating again with the bondholders or, when the administration names people to those open three spots, perhaps then that will be the catalyst to restarting negotiations. That is really what the creditors are waiting for. As soon as that happens, I think you will see some real progress. John Adolphus Staley: Is there political pressure that you are aware of to get those six seats filled? Is there somebody who is an advocate for that in Congress? William Charles Fallon: There are two parts to it. With regard to the three that challenged their termination in court, there are lawsuits ongoing to remove those three still. I think the administration is taking the position that they should be removed and, therefore, those three spots perhaps are a little uncertain for a period of time. With regard to the other three spots, I do not have an answer for you as to when the administration will fill those. Again, we would hope it would be sooner rather than later. John Adolphus Staley: So the issue gets down again to presidential authority. William Charles Fallon: The President needs to approve all appointments to the board. John Adolphus Staley: Yes. But he also required them and said somehow some guys figure out that they still should be on the board. It is amazing to me. It must be driving you nuts. William Charles Fallon: We understand your frustration. Trust me. John Adolphus Staley: Thank you, Bill, very much. Thank you. Operator: Thank you. As a reminder, that is star one to ask a question. Our next question will come from Patrick Stadelhofer with Kahn. Please go ahead. Patrick Stadelhofer: Good morning. Good morning. Just a question on this extraordinary dividend. It has been seven months since the custodial receipts were sold and kind of de-risked the whole PREPA exposure. I am just curious, what is the gating item to actually trying to get one, given that you have said the circumstances have improved and you are looking at it? What is it going to take you from looking at it to acting on it, especially with other progress somewhat stalled in PREPA? Thank you. William Charles Fallon: As I mentioned, with regard to the special dividend, it is something we are looking at all the time. We do not get into where we are in the process, whether we started a process, or feedback from the regulator. Our view is those are discussions between us and our regulator. We talk to our regulator about lots of issues on a regular basis. When we have approval for a special dividend and when it has been distributed, as I mentioned earlier, we will announce that that has taken place. Again, the things to look at are the runoff in the portfolio and, in particular, the reduction in the PREPA exposure. For those people who are familiar, it is a process you go through with the regulator, which does take some time. Operator: Alright. Patrick, your line is still open. Did you— Patrick Stadelhofer: No. Thank you. Operator: Thank you. At this time, I am showing no further questions. I would like to turn the floor back over to Gregory R. Diamond for any additional or closing remarks. Gregory R. Diamond: Thank you, Chelsea. And thanks to those listening to our call today. Please contact us directly if you have any additional questions. We also recommend that you visit our website at mbia.com for additional information about our company. Thank you for your interest in MBIA Inc. Good day and goodbye. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Welcome to Carter's, Inc.'s Fourth Quarter Fiscal 2025 Earnings Conference Call. On the call are Douglas C. Palladini, Chief Executive Officer and President; Richard F. Westenberger, Chief Financial Officer and Chief Operating Officer; and Sean McHugh, Treasurer. Please note that today's call is being recorded. I will now turn the call over to Mr. McHugh. Sean McHugh: Thank you, and good morning, everyone. We issued our fourth quarter 2025 earnings release earlier today. The release and presentation materials for today's call are available on our Investor Relations website at ir.carters.com. The statements on today's call about items such as the company's expectations and plans are forward-looking statements. For a discussion of factors that could cause actual results to vary from those contained in the forward-looking statements, please see our most recent SEC filings and the earnings release and presentation materials posted on our website. In these materials, you will also find reconciliations of various non-GAAP financial measurements referenced during this call. After today's prepared remarks, we will take questions as time allows. I will now turn the call over to Douglas C. Palladini. Douglas C. Palladini: Good morning and thank you for joining us as we share our fourth quarter and full year 2025 results. We are also going to offer some guidance for the year ahead. While we believe the recent news regarding tariffs will be net positive for Carter's, Inc., it will take some time for the proper level of detail to fully emerge. So our comments today will exclude that potential tariff impact. As I approach one year in role in April and reflect on 2025, it is becoming clear that several of the themes I have consistently highlighted are coming to life. As Carter's, Inc. returns to growth that is long-term sustainable and profitable, we continue to experience momentum in our business, doing what is right for our brands and consumers, which is yielding improved financial outcomes. As I characterize the kind of quality growth we want at Carter's, Inc., I am specifically talking about decreasing promotional activity over time, growing our ability to price up and to sell higher priced products overall, and balancing our transactional messaging with more emotion-driven product and brand storytelling that builds consumer connectivity and loyalty. We are creating new products that are truly resonating with consumers across all five brands led by the Carter's, Inc. namesake, embodying holistic value, including style and quality, not just price. In Q4, among our DTC channels, all apparel brands and all age segments grew versus last year. Our brands are increasingly attracting new consumers, particularly among Gen Z and millennial families, with new fans leaning into our better and best product offerings, with higher price points. We are validating what we believe are the equity and pricing power of our brands. Importantly, these newly acquired consumers are demonstrating the potential for higher lifetime value, an essential building block towards sustained positive results. Productivity has also been a consistent theme. We have taken necessary and decisive actions to rationalize our store fleet, rightsize our workforce, and reduce complexity throughout the organization. As we recognize the benefits of enhanced productivity, we return to investing where we can generate the greatest returns, including in product make, which provides the design and style consumers expect and appreciate, and in demand creation to drive store and ecommerce traffic. For the first time since 2021, Carter's, Inc. grew year-over-year revenue, even excluding the 53rd week of sales. We also executed our third consecutive quarter of retail comp growth, and we did so with higher AURs and less promotion. Consumer counts also continued to grow, as we attract new Gen Z fans who are selecting from our best product assortments at higher rates than existing consumers. These are all strong signals that our actions are generating results. We will continue to build upon our top line momentum, and profitability is expected to expand commensurately as productivity initiatives and demand creation investments generate returns. In 2026 and beyond, I believe both revenue and operating income will grow. We will get into the details around these things shortly, but first, let us hear about 2025 results from Richard. Richard F. Westenberger: Thank you, Doug. Good morning, everyone. I will cover our fourth quarter performance, and then we will share some perspective on 2026, including our outlook for the first quarter. Obviously, the developments over the last week have introduced new uncertainty regarding the topic of tariffs. There is a lot left to play out on this subject, including the potential to recover the significant additional tariffs we have already paid to date. Fourth quarter capped off a significant year at Carter's, Inc., one which included leadership transition, initiation of significant transformation and productivity initiatives, and response to the imposition of historic tariffs. As Doug said, while we have much work to do, there are many reasons to be encouraged about our path forward. Overall, we delivered good fourth quarter results. Sales, operating income, and earnings per share all exceeded our prior forecast. Industry data suggests it was a good holiday season for many companies; the consumer was clearly out shopping. We saw broad-based demand across our business in the fourth quarter, and achieved sales growth in each of our business segments. While we saw growth in sales, earnings were still down year over year, although at a lower rate than we saw through much of 2025. Improving our profitability remains one of our overriding priorities as a team. Now turning to the details of our fourth quarter and full year performance. Comments this morning will track along with the presentation materials posted to the Investor Relations portion of our website. On Pages two and three of the materials, we have included our GAAP basis P&Ls for the fourth quarter and fiscal year. On Page four, we have provided a summary of our non-GAAP adjustments for the fourth quarter and full year 2025. We had considerable non-GAAP charges last year, the most significant of which related to our operating model improvement work, organizational restructuring, leadership transition, and termination of two legacy benefit plans. In the fourth quarter, we also had charges related to our recent debt refinancing. At present, we do not expect any unusual charges in 2026. This morning, I will speak to our results on an adjusted basis, which excludes these adjustments. On Page five, we have our fourth quarter adjusted P&L. Fourth quarter was our largest quarter of the year with net sales of $925,000,000. We posted 8% growth in net sales over last year's fourth quarter. 2025's fourth quarter benefited from an additional week in the fiscal calendar, which contributed approximately $37,000,000 in net sales. On a comparable 13-week basis, which excludes the additional week, consolidated net sales for the fourth quarter increased 3% over last year. On our over $900,000,000 in net sales, gross margin was 43.2%, which was in line with our previous outlook. This represented a decrease of 460 basis points over last year's fourth quarter gross margin. As expected, our gross margin rate was pressured by tariffs, a gross impact of $40,000,000, which was roughly double the impact we experienced in the third quarter. Product costs were also higher due to investments in product make to improve the competitiveness and relevance of our product assortments. We continue to make progress on improving realized pricing, particularly in U.S. Retail and International. Fourth quarter AURs were up low single digits on a consolidated basis and up mid single digits in U.S. Retail. Fourth quarter adjusted SG&A increased 5% over last year to $315,000,000 driven by costs related to the 53rd week, as well as incremental investments in demand creation and improving consumer experiences in our stores. We also had higher costs related to inflationary pressures in wages and rent, in addition to higher provisions for performance-based compensation. As expected, growth in adjusted SG&A moderated in the fourth quarter from second and third quarters, and we achieved 90 basis points of spending leverage. Fourth quarter adjusted operating income was $89,000,000, with an adjusted operating margin of nearly 10%. Below the line, interest and other expenses were comparable to the prior year. Our effective tax rate in the fourth quarter was lower than we had forecasted at 15.4%, 340 basis points below last year. This lower year-over-year rate was broadly driven by a higher mix of our worldwide income outside the United States and, to a lesser extent, the delayed implementation of a new higher minimum tax in Hong Kong. The net of all this, on the bottom line, fourth quarter adjusted earnings per share was $1.90 compared to $2.39 last year. On Page six, we have a summary of our fourth quarter performance by business segment. As mentioned earlier, consolidated net sales increased over last year in all three of our segments. Adjusted operating income declined $26,000,000, resulting in an adjusted operating margin of 9.7% versus 13.4% last year. Our overall decline in profitability was driven by our Retail and Wholesale businesses, offset partially by lower corporate expenses and slightly higher profitability in International. In both the U.S. Retail and Wholesale segments, the lion's share of the decline in operating income was driven by the net negative impact of higher tariffs, as well as higher product costs related to investments in product make and spending deleverage. Also negatively affecting Wholesale's profitability were higher inventory provisions and a higher mix of excess inventory sales versus last year's fourth quarter. International maintained its operating margin reasonably well in the fourth quarter with higher product costs and spending deleverage that was offset by an improvement in product mix and higher pricing. Our lower corporate expenses compared to prior year were driven by lower charitable contributions and lower professional fees. Turning to some additional perspective on our business segment results beginning with U.S. Retail on Page seven. We are encouraged by the continued momentum in our business. Net sales increased 9% in the fourth quarter. Comparable sales increased 4.7%, our third consecutive quarter of comp sales gains. Comps were particularly strong in our ecommerce channel, driven in part by a double-digit increase in traffic in the quarter. We saw broad-based product strength in the quarter with sales growth across baby, toddler, and kid. All of our apparel brands also posted comp sales growth in the fourth quarter. Baby continues to be the strength in our product assortment. Q4 marked the sixth consecutive quarter of growth for Baby. As we have said, AURs improved in the mid single digits in the fourth quarter. Roughly half of this improvement was driven by reduced promotions, while the other half was driven by less clearance activity and increased penetration of the higher price portions of our product assortment. Our active consumer count continued to grow in the fourth quarter, building on the success we have had in this area earlier in 2025. Retail profitability was lower in the quarter for the reasons mentioned earlier: higher product costs reflecting incremental tariff pressure and product investments, which were partially offset by higher pricing. On Page eight, we have summarized the fourth quarter performance in our U.S. Wholesale and International businesses. In U.S. Wholesale, net sales increased 3% over last year. Wholesale benefited from the additional week in the calendar, which contributed $12,000,000 in net sales. Exclusive brand sales increased year over year based on continued strength of Child of Mine and Just One You. Sales of Simple Joys were down year over year in the fourth quarter, continuing the trend we have spoken of on previous calls. As I mentioned previously, profitability in the Wholesale segment was impacted by higher product costs, reflecting incremental tariff pressure and product investments, partially offset by higher pricing. We expect these pressures on Wholesale profitability will continue through 2026, especially the impact of incremental tariffs, which became effective around midyear in 2025. Operating margins are projected to be more comparable in Wholesale year over year in 2026. In International, reported net sales increased 10% over last year and by 8% on a constant currency basis. Our growth outside the United States was driven by our businesses in Canada and Mexico. Comps in Canada were roughly even. Last year's fourth quarter benefited from a government tax holiday, which did not repeat this year. Our team in Mexico continues to drive strong performance with net sales growth of nearly 30% driven by contributions from new stores, as well as another quarter of double-digit comp sales growth. As noted earlier, International operating profit increased slightly over the prior year. On Page nine, we have provided some balance sheet and cash flow highlights. Our year-end balance sheet was very strong. We ended the year with continued strong liquidity of more than $1,000,000,000, consisting of just under $500,000,000 of cash on hand, as well as the significant borrowing capacity available to us under our credit facility. In the fourth quarter, we extended the maturity of our debt through the issuance of $575,000,000 of new five-year senior notes with a 7.375% coupon. This new debt replaced our previously outstanding senior notes. We also replaced our previous cash flow revolving credit facility with a new $750,000,000 asset-based revolving credit facility, which also has a five-year tenor. Net inventories at year end were $545,000,000, up 8% over last year. Year-end inventory units were 4% lower than a year ago. Incremental tariffs continued to have a meaningful impact on inventory value, increasing year-end inventory by $50,000,000. Excluding the impact of higher tariffs, inventory dollars decreased 2% compared to last year. Exiting the year, our inventory quality was high with an improved seasonal mix compared to last year and lower overall excess inventory levels. We generated positive operating cash flow in the quarter and for the full year. Operating cash flow for 2025 was $122,000,000. The year-over-year decline in operating cash flow was due to lower earnings and higher inventories in part due to the impact of the higher incremental tariffs. We continued to distribute capital to our shareholders in 2025, paying $56,000,000 in dividends. On Pages ten and eleven, we have our full year 2025 adjusted P&L and business segment summary. This information is included for your reference. Now I will turn it back to Douglas C. Palladini for some thoughts on our business drivers for 2026. Douglas C. Palladini: I will spend a few minutes highlighting the direct actions we are taking to return Carter's, Inc. to growth in both sales and operating income in 2026, then hand the call back to Richard to wrap up our prepared remarks with guidance for Q1 and the fiscal year. Our primary goal in 2025 was returning to top line growth, which we accomplished, and this is growth we intend to sustain as we progress. In 2026, our objective is to grow both sales and operating income as we build on top line momentum from last year and realize the benefits of productivity and cost savings initiatives. I believe Carter's, Inc. possesses all the necessary building blocks to inspire consumers and reward shareholders. These elements include leading awareness and market share in children's apparel, iconic brands that are deeply trusted by families raising young children, a unique multichannel market model with best-in-class availability, and a talented and experienced team. We are organizing our efforts around three strategic pillars: consumer-led, brand-focused, and DTC-first. We believe renewed consumer connectivity, brand revitalization, and emphasis on a strengthened direct-to-consumer model will enable us to achieve our growth objectives in 2026 and beyond. We will continue to be focused on two key areas to drive our performance in 2026: demand creation and productivity. As it relates to delivering top line growth, we plan to continue to invest in demand creation. These investments are driving traffic to our stores and digital platforms, and we believe they are also helping us move the consumer past price-only messaging through product and brand engagement. Results continue to show this is a high-ROI investment. Our share of voice is expanding, and we are experiencing measurable demand and retention gains. We also saw evidence of demand creation impact in Q4 as traffic to our U.S. stores and websites grew year over year with both channels delivering notable improvements in the second half relative to the first. Traffic is a vital metric for us from a sales perspective and is also an important factor in improving productivity and margin in our direct-to-consumer business. Our demand creation efforts alongside product newness that is truly connecting with both new and existing consumers enabled us to grow our active consumer file in the U.S. in 2025, our first year of growth since 2021. Regarding productivity, we are addressing our cost structure across several fronts. On our last earnings call, we announced a portfolio optimization strategy to improve fleet productivity, including plans to close approximately 150 lower margin stores in North America through 2028. Last year, we closed approximately 35 stores, and in 2026, we intend to close roughly 60 stores. We believe these closings will reduce our fixed structure costs with the benefit of sales to other stores and our websites and be accretive to our profitability. In Q3 of last year, we took action to rightsize our office-based workforce, which we believe will yield approximately $35,000,000 in cost savings this year. Along with additional savings from discretionary spending reductions for 2026, we intend to maintain a disciplined focus on further cost containment, which frees up additional investment capacity. We are leveraging improvements to our operating model to drive productivity, including a three-month faster development cycle and a 20% to 30% reduction in product choices largely within Carter's, Inc. and OshKosh as we align to more global consistent brand lines. We are already seeing results with greater adoption of mainline product and reduced reliance on wholesale exclusives. We believe these actions will improve speed to market and assortment productivity, supporting both sales and margin. Our wholesale channel is expected to return to growth in 2026. Current sell-through rates across key accounts, as well as sell-in demand signals for future seasons, are strong. We plan to remain highly disciplined on capital investment spending overall, focus on what we have the most control over, discretionary spending, and hiring. We have largely halted deploying capital to adding new stores on our current format, but we are continuing to test new store concepts and experiences with the goal of attracting new consumer segments and driving loyalty. In that context, we are incredibly proud of the efforts demonstrated by our store associates as they continue to deliver engaging experiences and expertise that increase consumer satisfaction and differentiate Carter's, Inc. stores as true destinations. This is just one example of myriad initiatives that will further improve store-based productivity. We are also leveraging technology to drive the next phase of productivity and efficiency gains, including leveraging AI to pilot and test new consumer and product insight tools, and bringing a proprietary real estate market planning platform online this year to better guide fleet optimization. We are still very much in the middle of Carter's, Inc.'s transformation, and meaningful work remains. I remain confident that our talented and dedicated teams are focused on and aligned with the right things for Carter's, Inc. to generate durable growth and lasting success. Richard will now walk you through the details of our outlook for the first quarter and full year 2026. Richard F. Westenberger: Thanks, Doug. Turning now to our outlook for 2026 on Page 13 of our presentation materials. As Doug said, we intend to build on the progress we achieved in 2025. It continues to be a challenging time to forecast the business. Consumer spending appears to have held up well while other macro indicators such as consumer confidence and overall inflation are less positive. Tariffs continue to dominate the headlines. Our teams did a very good job in 2025 responding to and largely mitigating the new tariffs which were implemented. As we are still digesting the significant tariff news from last week, there continues to be a great deal of uncertainty about where all this will settle. In our outlook commentary today, we have not incorporated any developments related to last week's Supreme Court decision and subsequent action by the administration. In other words, our forecasts reflect the projected full-year impact of the significant additional tariff implemented last year. It is also worth noting that tariffs become part of inventory cost when inventory is added to our balance sheet. The inventory we are selling now reflects the higher tariffs we have paid on these products. So it will be some time before lower tariffs on new inventory receipts become a benefit to our P&L. Recall that the gross impact of higher tariffs on our P&L in 2025 was approximately $60,000,000. In our 2026 assumptions, this gross impact grows to over $200,000,000. We are assuming significant offsets to this increase in product costs from higher pricing, particularly in our U.S. Retail business, and the benefits of other supply chain mitigation actions and our productivity initiatives. Overall, we are planning good growth in the top line and in adjusted operating income in 2026. We are expecting net sales growth in the low to mid single digits over 2025. This growth reflects anniversarying the extra week in 2025. We are expecting growth in each of our business segments. In our U.S. Retail business, we are planning low single-digit sales growth with comp sales up in the mid single digits. In U.S. Wholesale, we are planning net sales up in the mid single digits driven by growth across most of our customer segments. Sales in our International segment are planned up in mid single digits, reflecting growth in each of the three principal components in our International business: Canada, Mexico, and international partners. On profitability, we are expecting adjusted operating income will also grow in the low to mid single digits over 2025. A few comments on our outlook for operating income in 2026. First, our plan is back-half weighted, with first-half profitability planned down and adjusted operating income and adjusted EPS planned to grow in the second half of the year. This planned pacing reflects, in part, the negative impacts of tariffs in the first half of the year. Tariffs overall are not comparable in the first half as the higher incremental tariffs were implemented midyear in 2025. Additionally, pricing is planned to be less of an offset in the first half, particularly in U.S. Wholesale, in part due to the timing of sell-in of first-half commitments in our Wholesale business. First-half profitability will also be weighed down by the timing of investment spending and higher interest costs due to our debt refinancing. In the second half, we planned for far less net impact from tariffs driven by additional planned progress in pricing, and product and customer mix improvements. Spending is also planned roughly comparable in the second half versus 2025. All of this nets to our full-year assumption that gross margin rate will decline somewhat versus 2025, and full-year spending will be roughly comparable to up slightly. We are expecting that our productivity initiatives, including store closures, will contribute strongly and will largely offset our investment in demand creation, select technology investments, and other cost inflation across the business. Below operating income, we expect net interest expense of just under $40,000,000. This increase reflects the higher interest and other costs associated with our debt refinancing late last year. The impact of higher interest costs on 2026 EPS is approximately $0.30. Our effective tax rate for 2026 is planned at approximately 22% compared to 19% in 2025. This increase reflects the implementation of a new global minimum tax rate in Hong Kong and our plan to generate a greater proportion of our worldwide income in the United States. The impact of these higher interest and tax effects results in adjusted earnings per share, which are expected to be down low double digits to down mid teens over 2025's adjusted earnings per share of $3.47. We are expecting good operating cash flow in 2026 in the range of $110,000,000 to $120,000,000. We are planning for CapEx in 2026 of approximately $55,000,000, with investments in new stores in Mexico, distribution center upgrades, and technology initiatives accounting for the majority of planned spend. Our expectations for the first quarter are summarized on Page 14. First quarter net sales are expected to increase in the mid single digits compared to last year. By segment, we are expecting in U.S. Retail growth in the high single-digit range with comparable sales planned up in the mid single digits. Easter falls earlier this year compared to 2025, which we expect will benefit the first quarter. First quarter-to-date sales in Retail have been strong, up in the mid single digits. The outcome of the quarter will be heavily influenced by business in March, which is historically one of the largest volume periods of the year, and represents about 50% of planned first-quarter U.S. Retail sales overall. In U.S. Wholesale, we are planning net sales down in the low single digits. We are expecting good growth with the exclusive brands offset by continued pressure in the Carter's, Inc. brand with department store customers. In International, we are planning double-digit net sales growth driven by growth in Mexico and Canada. We are planning first quarter gross margin will be down approximately 400 basis points over last year, principally due to the net unfavorable impact of tariffs, offset somewhat by a higher mix of U.S. Retail sales and lower sales of excess inventory than a year ago. Spending is planned up about 3% due to investments in demand creation, technology initiatives, and higher wage and rent costs. We are planning first quarter adjusted operating income in the range of $12,000,000 to $15,000,000. Below the line, we are expecting net interest expense of approximately $9,000,000 and an effective tax rate of approximately 37%. This effective tax rate is much higher than typical, driven by some negative tax effects related to stock-based compensation in the first quarter. As mentioned, we are planning a full-year effective tax rate of approximately 22%. First quarter EPS is projected in the range of $0.02 to $0.08. While we are projecting lower profitability in the first quarter, we are planning growth in adjusted operating income in each of the subsequent quarters of the year. Risks that we are tracking include overall macroeconomic conditions, as employment and consumer confidence metrics signal caution. And of course, there remains the potential for continued changes in tariff policies, which may significantly affect our business. That wraps up our prepared remarks. Before we open it up for questions, I want to take a moment and acknowledge Sean McHugh. Sean is retiring today after 15 years as our Treasurer and Head of Investor Relations. Sean has been a terrific leader here at Carter's, Inc. and a strong colleague to quite a number of you on the street. Sean, thank you for everything. We wish you and your family all the best in your retirement. And I would like to also welcome T.C. Robillard, who is joining us on the call today as our new Vice President of Investor Relations. T.C., welcome to Carter's, Inc. Glad to have you with us. And with all that said, we are ready to take your questions. Operator: Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press. Our first question comes from Paul Lejuez with Citi. Your line is open. Paul Lejuez: Hey, thanks, guys. Can you talk more about your full price realization? If there is any color you can give around that within the retail business? And maybe could you quantify the drag from tariffs specifically that you build into gross margin assumptions? It would be really helpful if we could get a sense of that by quarter, even beyond Q1. And maybe just along those lines, any other big moving pieces within the gross margin line and how that might look different in the first half or second half? Thanks. Douglas C. Palladini: I will start, and then Richard can jump in. Thanks, Paul. I would say, first and foremost, on full price realization, we are selling more clean-ticket product than we have and have less product on promotion than we have traditionally. If you look at an emerging brand like Little Planet, if you look at our best-in-class sleepwear, which we call Purely Soft as part of the Carter's, Inc. line, those are great examples of where we are pricing up in AURs, and more of that is selling out on less of a promotional cadence. Also, as you look at our AUR increase in DTC, to more let the quality, the style, and the total value of the product speak for itself, and we are seeing that. We are also seeing that especially with attraction of new consumers. So as we bring new consumers into the fold, they are mixing into these better and best buckets at a higher rate and accepting the higher AURs, and I will turn it over to Richard for further quantification. Richard F. Westenberger: Yeah, Paul, a lot in your question as it relates to the impact of tariffs. And so just a few thoughts on that. Recall, and on our last call, we referenced that we thought the potential of the higher tariffs would put us in a range of a gross effect of $200,000,000 to $250,000,000. We are at the lower end of that range. So for the full year, we are expecting the gross impact to be somewhat over $200,000,000. Now, that compares to the $60,000,000 that we incurred on a gross basis before pricing benefit in 2025. So that is about $150,000,000 of an increase that will hit gross margin across the year. I do not know if I will go by quarter by quarter, but by half. It is reasonably comparable. The gross effect is a bit more weighted to second half, but they are more even than not. And then offsetting that are significant assumed pricing increases across the business, across all of our channels, as well as other supply chain mitigation actions. Our supply chain team has done an extraordinary job using whatever levers they have, moving production around, negotiating with our vendors. Pricing is the most significant offset to the planned tariffs. So I think from a full-year gross margin point of view, the overall gross margin is planned to be more comparable in the second half, as I mentioned, down in the first quarter, down to a lesser extent in second quarter, but we are showing more stability in the second half of the year. As I think about the full year, because of the presumed successful pricing and the proof points that we have had in recent quarters have given us some confidence, to Doug's points around our brands are worth more, the consumer is recognizing the value, and so far, we have not seen resistance to the price increases that we have advanced. On a full-year basis, we more or less offset the impact of tariffs, and what flows through are some other things such as the investment in product make, which we think is going to be important to continue to improve the competitiveness of our assortments, particularly in the Wholesale channel. And we have got some other benefits as well from our productivity initiatives; those cost centers are planned in gross margin. So we would have had to price up even more to hold the rate, but there is substantial pricing that is reflected in this plan. So hopefully those comments are helpful. Paul Lejuez: They are. And then just to follow up on the Little Planet and Purely Soft, what is the percent of sales that those represent right now? And how much of a driver is that, and how much do you bake into the fiscal 2026 growth rate? Richard F. Westenberger: Little Planet just had an important milestone across $100,000,000 in sales. So it is still relatively small, but it is growing off a small base rather rapidly. So we do have good growth plans. I do not know that I have that stat right in front of me, but we do have growth planned in Wholesale and in our Retail channel for Little Planet for the coming year. Paul Lejuez: Thanks a lot. Operator: Thank you, Paul. One moment for our next question. Next question comes from Jay Daniel Sole with UBS. Your line is open. Jay Daniel Sole: Great. Thank you so much. Richard, I have two questions for you. One is can you give us a little bit more detail on the U.S. Wholesale margins in Q4? Maybe talk about the inventory provisions and what component of that was the 810 basis point change in the operating margin? And then just the guidance for SG&A for fiscal 2026, can you give us a little bit of a bridge, like how much of a benefit is the store closures in addition to the $45,000,000 cost saving program you all announced last quarter versus maybe other things that you are investing in to get to what it looks like flat SG&A dollar growth for the year? Thank you. Richard F. Westenberger: Right. So Jay, on Wholesale margins, the most dramatic driver and most significant driver was the net impact of tariffs. So that was, on a gross basis, probably $20,000,000 of the $40,000,000 that I referenced. There was less of a pricing offset there. So in terms of just basis point decline, that was the majority of it. We did have an opportunity just opportunistically to move some excess inventory coming out of the mass channel. That was 40 or 50 basis points of the rate deterioration in Wholesale. So it was not the most significant, but it was above what we had initially thought we would do for excess inventory, but it was good to move that inventory. So I would say the headline really on Wholesale profitability is just the net impact of the tariffs. Recall that when the tariffs were implemented, we had already sold in fall, the goods had been ticketed. We certainly had good partnership on the part of our Wholesale customers, but it was not our intention to be able to cover all of that. So that price coverage of tariffs in the Wholesale channel improves over time. As I said, once we get past the first half, there is more significant benefit from pricing in the Wholesale channel, but it will weigh us down. It weighed us down in the fourth quarter. It will weigh us down in the first half as well. On your question on SG&A, we have planned SG&A more or less flat for the year, perhaps up slightly. There is a significant benefit from productivity that is coming through the P&L, about $40,000,000, I would say, on the SG&A line. There is some portion of our productivity initiatives, the $35,000,000 that Doug referenced from organizational savings. A portion of that comes through SG&A and a portion comes through gross margin. We have some cost centers that are reported as part of gross margin. But about $40,000,000 in total of productivity benefit coming through, an element of that is the SG&A savings from closing stores. So if I had to parse it out from memory, it would be about $25,000,000 of the organizational savings in SG&A and about another $13,000,000 to $14,000,000 from the store closures. We are using those strong benefits from productivity to offset the investment spending that is in the plan. So the items that we have talked about, marketing is a big headline. We felt like we have under-indexed in the investment in marketing relative to other good brands. So we have made a conscious decision to ramp that up. We do have some select technology investments. I think we have done a good job focusing the investment on the areas that we think are going to be the highest impact and help us drive the business. And then you have some other costs coming back into the business just with growth plans, so variable expenses are up, merit and wage costs are up. So those are kind of the puts and takes. Good benefit from productivity, but a good amount being invested back to drive the business for the long term. Jay Daniel Sole: Got it. Okay. Thank you so much. Operator: One moment for our next question. Our next question comes from James Andrew Chartier with Monness, Crespi, Hardt. Your line is open. James Andrew Chartier: Hi. Thanks for taking my question. Can you talk about when the pricing at Wholesale takes effect? Are you going to see the full benefit of price increase at Wholesale in first quarter? Or does that come later in the quarter? And then at Retail, how does the 53rd week last year impact kind of sales by quarter? It looks like it is a benefit to the first quarter. Richard F. Westenberger: Well, pricing is planned up, I would say, across the year in each of our segments. It is planned up in Wholesale, including in the first quarter. We just have much more of a benefit offsetting the tariffs in the second half of the year versus the first half. So again, our spring sell-ins took place at a time where we just did not cover as much of the pricing as might have been desired, but that is kind of where we are, and it improves over time. The 53rd week is only a benefit and really a comparison issue in the fourth quarter. It was about $8,000,000 of sales from memory. And to be clear, the new Wholesale pricing is in effect. James Andrew Chartier: Okay. Alright. It looks like you are guiding for Retail sales low single digits for the year despite a mid single-digit comp. But I think for first quarter, you said high single-digit Retail sales growth on a mid single-digit comp. So what is the delta there then if it is not the shift of the weeks in the quarter due to the calendar, maybe the extra week in fourth quarter? Richard F. Westenberger: We have a benefit from pricing coming through, and we have the store closures, which is driving a delta as well, Jim. James Andrew Chartier: So those just come later in the year. It is more impactful later in the year, the store closings? Richard F. Westenberger: Well, and we also have good ecommerce growth that is planned as well. That may be part of the difference. And just to correct my comment on the 53rd week, it was worth about $12,000,000 at Retail, Jim. James Andrew Chartier: Okay. And then just in the fourth quarter, Wholesale pricing was down low single digits despite higher realized pricing. Other than the excess sales, any other drivers that impacted the pricing at Wholesale in fourth quarter? Richard F. Westenberger: Yeah. It was down low single digits in the fourth quarter, Jim. I think that clearance activity did have some impact on the realized pricing in that segment. And also, while we had raised some prices in the fourth quarter in Wholesale, it just was not enough to cover the tariff impact. So the clearance activity definitely had an impact on driving the AUR down a bit. James Andrew Chartier: Great. Thank you. Operator: Sure. One moment for our next question. Our next question comes from Ken with Bank of America. Your line is open. Ken: Hi, good morning. Thanks for taking my question. Curious, so while guidance today obviously does not assume any tariff benefits, curious if the new 15% universal rate were to hold, how should we think about the benefit to your business compared to the rates you are seeing today? And also, what would you expect from the broader marketplace and your ability to take price? Douglas C. Palladini: Yeah. So we are not going to offer much conjecture on what could happen. We are going to wait and see, get the details, and then talk about them once we have the facts in front of us. Beyond what we have already said about, we believe the total impact could be positive based on what we know today. I think that is work to come. So please be patient while we sort through and get the details of what we need. Ken: Okay. That is fair. Question was just on sales. Curious, on the guidance for full year up low to mid single digits. What is the assumption on AUR growth as you lap pricing from the prior year? And especially against the extra week last year and planned reductions in the store footprint, what are kind of the key drivers underpinning your confidence in the guide? Richard F. Westenberger: Yeah. The assumption is for a mid single-digit increase in full-year pricing. So we started raising prices more meaningfully in the second half of 2025. So we have to comp up against that. But for the entire year on a consolidated basis, it is up mid single digits. Some puts and takes by business, but that is what it is overall. Ken: It is okay. Thanks. Operator: Welcome. One moment for our next question. Our next question comes from Mike Bertrand with Wells Fargo. Your line is open. Mike Bertrand: Hey, good morning, everyone. And Sean, it has been a pleasure working with you. Best of luck. Welcome, T.C. Two from me. I was going to start with Retail. Maybe, Doug, is there any chance you could give us, or Richard, some kind of read on just your comps have obviously been getting better for the last couple of quarters. Any commentary quarter to date? Curious how weather and storms have impacted you. And then along with that, could you quantify the benefit that the early Easter is going to give you and conversely how that should hurt you in the second quarter? Douglas C. Palladini: Yeah. I will take the first part, and Richard can take the second part. I would start by saying that we are not going to worry about the weather. You know, it affects everybody exactly the same. It is winter. There are going to be storms. Some days are better than others. So we are just in line with the rest of the retail community when it comes to our stores and the weather. But what I would say is that, look, we are seeing the impact of better product, focus on newness, on style, reinforcing the quality of what we make. We are seeing the benefit of demand creation driving traffic and really bringing new consumers to the table. So more people coming in the stores, a better in-store experience, more product that is resonating with consumers, and that is elevating our ability to get price, to discount less, and to get more repeat traffic, I would say, as well as very important. The one thing that we are seeing is that we are ratcheting up our ability both in demand and retention as we develop the equity for these brands. So that, I think, is what is most important to reflect in those Retail results. Richard F. Westenberger: And, like, quarter to date, we are running positive mid single-digit comp in U.S. Retail. I would say sometimes it is hard to draw a lot of conclusions on business in January and February; it tends to be a clearance period. As we said in our remarks, it is all going to be about March. March is a kahuna month, and that is where half the volume will be for the quarter. I think the earlier Easter historically has been worth a point or two of comp when it has come earlier. So that would be kind of my best guess on that. Do not want to minimize just the strength of our ecommerce at the moment as well. That was a real driver in the fourth quarter. I think some of the investments we have made in demand creation have kind of naturally driven traffic to the ecommerce business, which has continued to be strong. We have good positive comps planned for second quarter. An element of that would be the pricing. So that might affect perhaps some of that early April business, but we have good growth planned in second quarter comps in the U.S. Mike Bertrand: Got it. Super helpful. And then just a follow-up on Wholesale. So first quarter down low single, full year up mid. Is there something, is there a timing or some issue in the first quarter to call out? Also, can you quantify the Simple Joys headwind and how that should play out? And I guess my main question with all that is, why the channel's growth rate is planned to improve so much out of Q1, especially with the Amazon changes kind of taking place? Thanks. Richard F. Westenberger: Yeah. I would say there are multiple things at play here. There certainly was some timing. We did have some earlier demand for spring product that benefited fourth quarter that is pressuring a bit of the growth rate on first-quarter Wholesale volume. I think also, we have been conscious in our comments to talk about the investments in product make. We think that there has been room to improve the assortment, the appeal. We plan that business collaboratively with our Wholesale customers. They provide very good input. To Doug's point, the reception to what we have been showing them for fall already has been tremendous. And so we have got more growth planned, more volume planned in the second half. That helps kind of the Wholesale sales and profitability equation as we get into the second half as well. So I think multiple things at work there. Spring bookings were not as strong as we might have hoped. I think a number of our customers are understandably being cautious in this tariff environment when they are facing price increases as well across probably everything in their assortment. We saw those commitments come in a little lower than we had anticipated. The bookings profile and demand profile improves as you get later in the year. Douglas C. Palladini: And I will talk about Amazon for a minute and give everybody an update. You recall on the last call, we talked about moving out of Simple Joys over time as the business model there has shifted, and moving into featuring our own brands, led by Carter's, Inc., on the Amazon platform. That is happening already, and you are seeing the shift is underway. You will see Simple Joys as a percentage of our total sales there come down over time, not disappear, but come down. You would see, and you will see, sales of our existing brands come up. That will be reflected over time in growth in both revenue and profitability on that platform. Mike Bertrand: Got it. Thanks so much, guys. Operator: One moment for our next question. Our next question comes from Jai Ki with Goldman Sachs. Your line is open. Jai Ki: Hi, guys. Thanks for the question. I was just wondering if you could fill us in on the cadence of marketing and demand build investments. How is that being spent specifically, and where you might be seeing early green shoots in the returns? And then also, in terms of the new customers you are acquiring, I guess from maybe a demographic or an income cohort perspective, you could help kind of fill in the gaps about where that is—like, because you guys mentioned pre-ICR that that was coming from a higher income cohort. I am just wondering how much that has continued or accelerated since the last comments. Thanks. Douglas C. Palladini: Yeah. Thank you, John. Yeah. The first part on marketing cadence, I would say that as our renewed investments have kicked in, we have seen our ROI increase. And, again, as I mentioned, that is happening both in terms of demand and retention. Specifically, the outsized impact is coming from places like paid social, and you are seeing those gains in share of voice and our equity rising. We do, as you know, have a pretty significant incremental investment planned in 2026. Still, we are still fairly—vis-à-vis our competitors—humble at marketing as a percentage of total spend. So there is a lot of upside for us as we move forward in how much we invest. That said, we are going to measure along the way. So we are, as long as we are continuing to see the kind of ROI that we are seeing today, we will keep leaning in and investing. But we are going to be careful and make sure that we measure the results every step of the way. On new consumers, yeah, we are seeing—continue to see—acceleration in acquisition of new consumers. And what we know is that they tend to come from higher income than our existing consumer base. Okay? So they are above the—if you just look at U.S. household median income—they are above that median, which is interesting and new for Carter's, Inc. And also, I think, speaks to when you see the AUR increases, when you see better selling in our better and best buckets of product, you are seeing that relative spending power come into the brand. I also would just want to make it clear that our intention is not to replace our existing consumer. We want to serve all of our consumers. And if you come in the door of a Carter's, Inc. store and immediately ask where the clearance rack is, we are going to take great care of you. And so if you are a more price-sensitive consumer, we have great value for you. We have great style, quality, and at a great price. So we are going to take care of those people as well. But as we bring new consumers in, we know that they are coming from higher income brackets, and they also potentially show higher lifetime value as a result. Hope that helps, John. Jai Ki: Yeah. Absolutely. Thank you. Operator: One moment for our next question. Our next question comes from William Reuter with Bank of America. Your line is open. William Reuter: Good morning. On your price increases at Wholesale, has this resulted in any changes to your shelf space? And are your Wholesale customers asking for you to demonstrate how the product may be improved or offering greater value versus previous offerings? Douglas C. Palladini: So the answer to the first part is no. The answer to the second part is that there are no surprises there because we work very closely with them to deliver exactly what they expect from us. So we come in with a clear point of view about what we think is working for our brands, and we work very collaboratively with our Wholesale partners to ensure that we are delivering exactly what they expect. Now, we are in a very fortunate position that we are the number one national brand in most, if not all, of our key Wholesale accounts. And so they are reliant on our continued improvements in what we make, and we are leaning in there to make sure that we continue to show up as the primary brand on their floors. William Reuter: Got it. And then just as one follow-up, I know that a handful of years ago, you booked some price increases. You then were kind of forced to push down prices a little bit subsequently because the feedback was not great. What are you seeing in terms of private label competition? What is the spread in your current pricing versus where the private label options are? Richard F. Westenberger: I would say we are seeing prices go up in the marketplace. Historically, Bill, we have been kind of in that 15% to 20% range. That is kind of a good sweet spot for us to sit next to private label. I think the wild card is just sort of the state of the economy, and if things are a little shaky, does the consumer have more propensity to trade down to private label? Today, we have not seen it. Private label has picked up some share broadly in the market, I would say, over the last year. But we think prices are going up kind of across the marketplace. And a lot of the private label brands that you see in the market were in the same factory. So I do not think we are disadvantaged from a cost structure or a sourcing point of view. Douglas C. Palladini: Yeah. I think we are very comfortable being the premium national brand in our key accounts, but we do want our pricing to remain competitive. So when we talk about being competitive, we are talking about it remaining relative. So, yes, we can price up. We can come across as the leading national brand, but it still has to be in the context of what we are selling by product category, and we take that very seriously, and we try to make sure that we are competitive everywhere we are on sale. William Reuter: Got it. So I guess, Richard, it sounds like the pricing gap with your products and private label, they are pretty similar to what they have always been on a percentage basis. Is that fair? Richard F. Westenberger: Yeah. I think so, Bill. William Reuter: Cool. Alright. That is all for me. Thank you. Richard F. Westenberger: Thanks very much. Operator: I am not showing any further questions at this time. I will turn the call over to Mr. Palladini for any further remarks. Richard F. Westenberger: Thank you, everyone, for joining us this morning. Douglas C. Palladini: As we said earlier, we are pleased with the progress we are making against our core initiatives, but also recognize that there is much work to do to achieve our goal of sustainable and profitable growth over time. We look forward to updating you on our progress on Carter's, Inc.'s next quarterly call. Thank you, and goodbye. Operator: Thank you, ladies and gentlemen. This does conclude today's presentation. We thank you for your participation. You may now disconnect, and have a wonderful day.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the 1stdibs.Com, Inc. Q4 2025 earnings call. After today's prepared remarks, we will host a question and answer session. If you have dialed into today's call and would like to ask a question, please press star 1 on your telephone keypad. To withdraw your question, press star 1 again. I will now hand the call over to Kevin LaBuz, Head of Investor Relations and Corporate Development. Kevin, please go ahead. Kevin LaBuz: Good morning, and welcome to the 1stdibs.Com, Inc. earnings call for the quarter and year ended December 31, 2025. I am Kevin LaBuz, Head of Investor Relations and Corporate Development. Joining me today are Chief Executive Officer David Rosenblatt and Chief Financial Officer Thomas Etergino. David will provide an update on our business, including our strategy and growth opportunities, and Thomas will review our fourth quarter financial results and first quarter outlook. This call will be available via webcast on our investor relations website at investors.firstdibs.com. Before we begin, please keep in mind that our remarks include forward-looking statements, including, but not limited to, statements regarding guidance and future financial performance, market demand, growth prospects, business plans, strategic initiatives, business and economic trends, and competitive position. Our actual results may differ materially from those expressed or implied in these forward-looking statements as a result of risks and uncertainties, including those described in our SEC filings. Any forward-looking statements that we make on this call are based on our beliefs and assumptions as of today, and we disclaim any obligation to update them, except to the extent required by law. Additionally, during the call, we will present GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in today's earnings press release, which you can find at our investor relations website, along with a replay of this call. Lastly, please note that all growth comparisons are made on a year-over-year basis unless otherwise noted. I will now turn the call over to our CEO, David Rosenblatt. David? David Rosenblatt: Thanks, Kevin. Good morning, everyone. 2025 was the year of accountability and focused execution. The hard work and operational rigor we applied across the organization throughout the year culminated in a landmark result. We exited 2025 as an adjusted EBITDA positive company. Looking ahead, our 2026 financial plan focuses on capitalizing on these gains while delivering sustained adjusted EBITDA profitability. In 2026, we expect to deliver a third consecutive year of positive year-over-year revenue growth alongside positive adjusted EBITDA and free cash flow. While we are not providing full-year GMV guidance, we anticipate a return to year-over-year GMV growth by the fourth quarter driven by the compounding impact of our product roadmap. Our confidence in this trajectory is rooted in the defensibility of the 1stdibs.Com, Inc. model. Even in an era of AI-driven content and commerce, we believe the high-trust, high-complexity world of one-of-a-kind luxury thrives on curation, scarcity, and the human expertise of our dealers. By leveraging AI to enhance discovery while maintaining the strength of our vetted seller network, the trust of our buyers, and our complex transactional infrastructure, we see AI not as a competitor, but as a catalyst that will help unlock the full potential of our unique catalog. In the fourth quarter, GMV was $90,200,000, at the low end of our guidance range. However, adjusted EBITDA finished above the high end of our range. This performance marks a major inflection point, our first quarter of adjusted EBITDA profitability as a public company. It is important to be clear: in 2025, we made a conscious trade-off to moderate near-term GMV growth in exchange for a significantly improved adjusted EBITDA profile. This shift to positive adjusted EBITDA is definitive proof that we do what we say. Reaching this milestone is the direct result of three specific commitments we made to you at the start of the year. First, organizational discipline. We exceeded our goal to hold headcount flat while rebalancing our talent base toward product and engineering. Second, operating leverage. In our initial 2025 outlook, we targeted generating leverage at mid-single-digit revenue growth. Despite a housing market at a 30-year low, our expense management allowed us to exceed our own leverage targets, proving that our asset-light model is now capable of delivering positive adjusted EBITDA even in a low-growth environment. Third, product velocity. By leaning into AI-assisted development, which now accounts for approximately 30% of our new code, we delivered our ninth consecutive quarter of conversion growth. With a profitable foundation now in place, we are turning our energy toward driving growth in 2026 while maintaining our rigorous expense discipline. Having continued to expand our market share in 2025, we enter 2026 from a position of strength. Our roadmap is designed to remove friction and modernize the platform across four pillars: discovery, pricing, shipping, and service. First, discovery. Our 2026 roadmap centers on transforming 1stdibs.Com, Inc. into a daily habit for design enthusiasts through a reimagined buyer experience. This plan includes deploying AI-powered semantic and image search to fundamentally change how buyers interact with our catalog. While many potential buyers have a deep appreciation for design, they often lack a collector’s specialized nomenclature. We are bridging this gap. Instead of needing an exact match, for example, “Hermès Birkin 25 bubblegum pink silver hardware,” a buyer can use natural language such as asking for “a Valentine’s Day gift for my wife.” While that query traditionally would have yielded limited results, our new AI-driven engine will understand the intent behind the request and surface rich, curated matches across categories, from jewelry to fine art. We are effectively removing the expert requirement from our search bar, making 1stdibs.Com, Inc. more intuitive for a broader audience. We are also initiating a major evolution of our personalization engine, centered on a reimagined home page and feeds that deliver curated recommendations across key buyer touchpoints. By synthesizing brand, maker, and price propensity data, we are creating a bespoke experience that anticipates intent, surfacing the right inventory at the right moment of inspiration, whether on our platform or through personalized emails. To amplify this work, we are launching 1stdibs.Com, Inc. Tastemakers, our first ever ambassador program and influencer network. This initiative anchors our transition toward a community-first content strategy. By partnering with a scaled network of authentic voices, from prominent collectors and designers to our own sellers, we are creating the emotional connections that drive daily engagement and fuel discovery. This program allows us to move at the speed of the zeitgeist. We have already seen the potential of this approach in early testing. This was the blueprint for our real-time response to Taylor Swift’s engagement. Within hours, we mapped the global interest in her vintage watch and unique Old Mine diamond ring to similar pieces in our inventory. By matching what the world is talking about with our one-of-a-kind supply, we are making 1stdibs.Com, Inc. more accessible and culturally resonant. Additionally, we are significantly expanding our sponsored listings program, which serves as a high-margin lever driving revenue growth. We believe there is headroom to scale coverage and increase ad density while maintaining our premium aesthetic. By providing sellers with more sophisticated tools to reach buyers, we are creating a more dynamic ecosystem while driving revenue growth that is independent of GMV fluctuations. In addition to expanding sponsored listings, we are exploring nascent advertising opportunities with external brand partners both online and offline. Second is pricing. We are focusing our efforts on helping buyers and sellers reach a shared understanding of value. Our goal is to foster faster consensus by providing both sides of the transaction with the data required for confident decision-making. Central to this effort is a fundamental investment in our negotiation and offer flows, our highest intent signal. We see significant opportunity to optimize the Make Offer experience, which is often the primary path to purchase for our highest value items. Our 2026 roadmap focuses on demystifying the negotiation process through better product marketing and more intuitive UI, ensuring that both parties can reach a deal with less friction. By streamlining these interactions, we are increasing marketplace liquidity and creating a more accessible and dynamic platform. Complementing this work is an initiative centered on price contextualization. Because our catalog is defined by rare, one-of-a-kind items, buyers often lack a clear benchmark for value. To address this, we are introducing historical price comps and market data directly into the buyer journey. By making this information more visible, we are providing the transparency required to validate an item’s value. Underpinning these initiatives is our expanded enforcement of price parity. In the fourth quarter, we made strides in increasing the volume of listings covered by our parity solutions, ensuring that our buyers find the most competitive prices on 1stdibs.Com, Inc. Looking ahead, we will incorporate AI to further automate and expand this coverage across our catalog. By leveraging technology to scale these protections and promoting our price match guarantee, we are ensuring that 1stdibs.Com, Inc. remains the definitive destination for value in luxury design. Third is shipping. We recognize that our current shipping program is too complex and costly, lacking the modern features such as flexibility, precise tracking, and reliable on-time delivery that our buyers expect. A primary source of friction is the lack of clarity around roles and responsibilities between 1stdibs.Com, Inc., our sellers, and our buyers. This ambiguity can add hidden cost to the transaction. To solve this, we are revamping our shipping experience to provide a clear, standardized framework for every participant in the value chain. We expect this move will allow us to streamline operations and lower shipping prices for buyers. This newfound efficiency will enable our move toward all-in price. By presenting a single, transparent, fully landed cost earlier in the funnel, we will remove the primary hurdle to conversion. We are also leveraging our historical data to develop dynamic shipping rates, providing instant and more competitive quotes globally. This is about eliminating sticker shock and elevating our shipping experience to match the premium nature of our inventory. Fourth is service. In 2026, we are evolving our service model through technology. Our plan involves integrating AI support to resolve routine inquiries. By offloading these high-volume, basic tasks, we can reallocate our client services team to prioritize more nuanced, high-value resolutions and increase our service levels. This shift ensures that our human expertise is focused where it has the most value, supporting our most loyal buyers and driving repeat purchases. We are also working to introduce an AI item upload assistant for our sellers. This tool will streamline the listing process and ensure that the most exceptional inventory hits our marketplace faster and with higher quality metadata, allowing us to scale our operations through technology rather than headcount. In summary, the story of 1stdibs.Com, Inc. right now is one of focused transformation. Reaching positive adjusted EBITDA this quarter was the culmination of a multiyear journey that began in 2022. We have spent four years reengineering our cost structure and refining our marketplace, and we have emerged with a financial foundation that allows us to focus entirely on driving GMV and revenue growth. As we look toward 2026, we are often asked about the risk of AI disintermediation. We believe that our position is uniquely protected. Our moat is built on a high-trust relationship and a physical collection of one-of-a-kind items—elements that cannot be replicated by an algorithm. We are leaning into AI to help our buyers discover the extraordinary rather than replacing the essential human expertise of our dealers. With a compelling roadmap in place, we are positioned for a GMV growth inflection point by 2026. We enter this next chapter as a more efficient, more resilient, and more ambitious company than at any time in our history. To discuss how this discipline is reflected in our fourth quarter performance and our expectations for the year ahead, I will now turn the call over to Thomas Etergino. Thomas Etergino: Thanks, David. Good morning, everyone. Our fourth quarter results marked a landmark inflection point for 1stdibs.Com, Inc., our first quarter of positive adjusted EBITDA as a public company. This achievement validates the strategic realignment we executed in September and proves that our asset-light marketplace is capable of delivering adjusted EBITDA profitability even in a constrained environment. A multiyear transformation is clear. We began reengineering our cost structure in 2022, accelerated that focus through 2023, and demonstrated early operating leverage in 2024. Today, we are exiting 2025 with fourth quarter adjusted EBITDA of $1,300,000 and a 6% margin, a 1,300 basis point expansion over the prior year. We have not only delivered on our commitment to reach adjusted EBITDA profitability, we have established a leaner, more resilient baseline for our future. This outcome is a direct result of the accountability David mentioned. Our 2025 plan centered on expanding operating leverage, and we have executed against that goal. We are exiting the year with a strong balance sheet and a business model optimized to generate positive adjusted EBITDA and free cash flow. To appreciate this inflection point, it is helpful to look at P&L transformation since 2022. Over the last four years, we have reduced annual operating expenses by 18%, or nearly $18,000,000, excluding one-time gains from the sale of Design, and lowered headcount by more than 30% from our peak. In a business with high operating leverage, the 7% revenue decline we experienced over this four-year period would typically lead to margin compression. At 1stdibs.Com, Inc., we have achieved a positive divergence. Comparing 2022 to 2025, gross margins have climbed from 69% to 73% and adjusted EBITDA margins improved by approximately 1,900 basis points. Significantly expanding margins during a period of revenue contraction is a significant operational feat, and we enter 2026 with the most efficient financial profile in our history. Turning to our fourth quarter funnel performance, GMV was $90,200,000, down 5%. While traffic headwinds increased across organic and paid channels, this was a direct result of our deliberate shift in marketing strategy. Starting in the third quarter, we aggressively tightened ROI thresholds, intentionally pruning lower-intent traffic to prioritize unit economics. This discipline resulted in order volumes declining 9%. However, this was partially offset by our ninth consecutive quarter of conversion rate growth and strong average order value expansion. The fact that GMV outperformed order volume by 400 basis points demonstrates that we are successfully capturing high-intent demand and higher-value transactions even with a significantly leaner marketing budget. Specifically, on-platform AOV reached nearly $2,600, up 5%, while median order value rose 4% to approximately $1,250. This performance was fueled first and foremost by returning buyers spending more per order than they did a year ago, along with a higher overall mix of orders from these repeat customers. We ended the quarter with over 80% of traffic from organic sources, up eight percentage points year over year. This organic strength is a critical competitive advantage, reflecting the enduring power of the 1stdibs.Com, Inc. brand. We saw a balanced performance across our buyer segments this quarter as both trade and consumer GMV declined at similar rates. Vertical performance varied by category. Jewelry showed the most resilience, with GMV down just 1%. Active buyers totaled approximately 60,700 at quarter end, down 5%. Regarding supply, we ended the quarter with approximately 5,700 unique sellers, down 4% as our seller base continues to normalize following our fourth quarter pricing adjustments. Importantly, while seller count consolidated, we saw listings grow 3% to nearly 1,900,000. Moving on to the income statement. Net revenue was $23,000,000, up 1%. Transaction revenue, which is tied directly to GMV, was approximately 73% of total revenue, with subscriptions making up most of the remainder. Take rates increased approximately 140 basis points year over year, driven by October’s pricing increases and continued growth in sponsored listings. Gross profit was $16,900,000, up 3%. Gross profit margins were approximately 74%, up one percentage point year over year. Sales and marketing expenses were $5,900,000, down 44%. This significant decrease is a direct result of the 2025 strategic realignment implemented in September, which reset our marketing organization and rationalized our performance marketing. Sales and marketing as a percentage of revenue was 26%, down from 46% a year ago. Technology development expenses were $6,000,000, up 9%, reflecting higher headcount-related costs as we rebalance our talent towards high-impact product and engineering roles. Within our flat headcount framework, we are reallocating resources to expand our product and engineering capacity, a transition set to conclude in the second quarter. We view this as our highest ROI lever, enabling us to deliver on our 2026 roadmap and deliver long-term conversion gains while maintaining a disciplined cost base. As a percentage of revenue, technology development was 26%, up from 24% a year ago. General and administrative expenses were $7,000,000, up 5%, due primarily to a one-time sales tax-related item. As a percentage of revenue, general and administrative expenses were 30%, up from 29% a year ago. Lastly, provision for transaction losses was approximately $400,000, 2% of revenue, down from 4% a year ago and at the low end of our historical 2% to 4% range. Total operating expenses were $19,200,000, an 18% decrease. This significant reduction is the direct result of the strategic realignment we completed in September and our previous cost-saving measures. We promised to fundamentally lower our cost base, and this quarter’s results prove that we have executed on that commitment. More importantly, this discipline has fundamentally improved our potential for operating leverage. We have lowered our breakeven threshold, allowing us to reach positive adjusted EBITDA despite the persistent macro headwinds in the luxury home category. Our ability to significantly reduce operating expenses while continuing to gain market share in 2025 demonstrates that we are not just running a leaner company, we are running a more productive one. This quarter represents a pivotal inflection point in our financial trajectory. Adjusted EBITDA was $1,300,000, a significant turnaround from a $1,600,000 loss in the prior year. This resulted in an adjusted EBITDA margin of 6%, representing an approximately 1,300 basis point expansion over last year. This is a direct outcome of the structural discipline we have embedded across the organization, allowing for any future top-line recovery to flow disproportionately to the bottom line. Moving on to the balance sheet. We ended the quarter with a strong cash, cash equivalents, and short-term investments position of $95,000,000, up from $93,400,000 sequentially. We maintain a robust cash position, and our future focus is on free cash flow generation. During the quarter, we repurchased approximately $1,600,000 of shares, with $10,400,000 remaining under our current $12,000,000 authorization as of December 31. Our continued execution of this program reflects our confidence in our long-term growth trajectory and our commitment to delivering value to our shareholders. Turning to the outlook, our guidance reflects quarter-to-date results and our forecast for the remainder of the period. We forecast first quarter GMV between $86,500,000 to $91,500,000, representing a year-over-year decline of 9% to 3%, net revenue of $22,100,000 to $23,100,000, or down 2% to up 2%, and adjusted EBITDA margin between breakeven and positive 4%. Our GMV guidance is driven by two primary factors: a deliberate strategic trade-off—the intentional impact of our sales and marketing reductions as we prioritize a structurally higher margin profile over short-term volume; quality-driven performance—while traffic remains a headwind, we expect continued growth in conversion and AOV. Our revenue guidance reflects the continued growth in sponsored listings and benefits of the seller subscription price increase, which took effect on October 1. Our adjusted EBITDA margin guidance reflects structural efficiency—realized gains from operating expenses following our September realignment; strategic reinvestment—a sequential increase in personnel expenses driven by the partial-quarter impact of annual merit increases effective in March and targeted hiring in product and engineering as part of our strategic realignment; gross margin expansion—we expect gross margins of 72% to 74%, an increase from our recent 71% to 73% range. While we are not providing full-year guidance at this time, our 2026 framework is centered on durable, profitable growth. We expect to deliver a third consecutive year of revenue growth, reflecting the resilience of our marketplace. We anticipate a return to positive year-over-year GMV growth by the fourth quarter, driven by the compounding impact of our product roadmap. We expect gross margins of 72% to 74%, up from 71% to 73% in 2025. We expect revenue take rates of 25% to 26%, up from 24% to 25% in 2025. We remain focused on high-quality, efficient growth, with a full-year 2026 outlook of positive adjusted EBITDA and positive free cash flow. Underpinning this plan is the assumption that macroeconomic conditions, particularly those impacting the housing market and consumer discretionary spending, remain stable. In closing, reaching this adjusted EBITDA inflection point is a landmark moment for 1stdibs.Com, Inc. This result marks the culmination of a four-year journey of rigorous expense management and strategic focus. We promised to reengineer our cost structure, remain disciplined on headcount, and prioritize technical velocity, and we have delivered. We enter 2026 with a leaner, more resilient, and more profitable foundation than at any time in our history. We appreciate your continued support and look forward to updating you on our progress in the coming quarters. Thank you. I will now turn the call over to the operator to take your questions. Operator: We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, press star 1 on your telephone keypad. To withdraw your question, press star 1 again. Please stand by now while we compile the Q&A roster. Your first question comes from the line of Ralph Schackart with William Blair. Your line is open. Please go ahead. Ralph Schackart: Good morning. Thanks for taking the question. First question, just maybe touching on your comments about accelerating growth through 2026. David, maybe you could just walk through the primary drivers as you see it to continue to turn the business around and to return back to growth, and will it continue to be a tough macro for you? And then I have a follow-up. David Rosenblatt: Sure. Hey, Ralph. So I think first, from September 2026 onward, we will be lapping what were pretty substantial reductions—almost 50%—in performance marketing spend. And then secondly, at the same time last September that we cut sales and marketing overall, we also increased our product and engineering investment, which obviously will result in a much bigger roadmap. So as you think about moving through 2026, what we expect is that the compounding nature of that product roadmap will provide a pretty clear path to year-over-year GMV growth by the fourth quarter. It is really the combination of those two things, lapping our performance marketing cuts and then also receiving the benefit of higher product and engineering investment. I think it is also important to note that for the full year, we are committed to delivering what will be our third consecutive year of revenue growth alongside positive adjusted EBITDA and free cash flow, as we did in the fourth quarter. And the last thing I would say, you made a reference to the market. We do not believe that this is dependent on a broader market recovery. We feel like we have all the tools needed to accomplish this even without that. Ralph Schackart: Great. And just touching on AI, it has been a big focus, obviously, this earnings season for investors, and you talked about you see it not as a competitor, but as a catalyst to unlock a catalog. If you could double click on that a little bit, in terms of why you potentially see disruption—it is just because you handle a lot of complex tasks in between the buyer and the seller and unique product categories, I guess, would be part of the reason there. But if you could touch on that a little bit more, I would appreciate it. David Rosenblatt: Yeah. I think in general, the way we see AI relative to our performance is that we view ourselves as a beneficiary of AI, really from the top of the income statement to the bottom. In terms of disintermediation specifically, though, I think that is likely more of a threat for commodity products. But we are the exact opposite of that. We have 2,000,000 one-of-a-kind pieces of inventory, and particularly when those items transact at the high price that we sell at, seller expertise and the integrity of the transaction itself are the primary components of value that we provide. So AI agents certainly can help with discovery. They can help buyers find products. But they cannot substitute for the buyer trust, the seller reputation, and all of the relatively complex logistical and payment infrastructure that is required to transact at our price points and with our kind of inventory. Ralph Schackart: Great. Thank you. Operator: Your next question comes from the line of Bobby Brooks with Northland. Your line is open. Please go ahead. Bobby Brooks: Hey. Good morning, team, and thank you for taking my question. As you think of returning to a consistent growth profile—I know this will be your third year of revenue growth—but across both GMV and revenue and maybe at a little bit higher clip, call it maybe high single digits, what are some of the most exciting initiatives that you are pursuing? David Rosenblatt: So, as I think you may be aware, we first of all have proven an ability to execute on our product roadmap and to drive conversion, which is the most important GMV lever as a result. We brought in a new head of product and marketing last August, and as part of that we recut our 2026 roadmap. So the 2026 plan is a combination of both evolutionary advancements relative to 2024 and 2025 and also new projects. I am super excited about each of them. Just to call out the four we expect to be highest impact, in no particular order: AI search is something that we are very optimistic about. Currently, searching on 1stdibs.Com, Inc. requires knowing the exact match of the products that one is interested in, which is a significant barrier for broader consumer demand, especially given the long-tail nature of the products that we sell. To address this in 2026, we are going to be introducing semantic search, which will make discovery much more intuitive and accessible to the average person. The second area that I am very excited about is shipping. Today, we have relatively unclear roles and distribution of responsibilities between sellers and 1stdibs.Com, Inc. That leads to higher costs, and also sometimes, just in terms of the operational workflow in getting an order converted, some confusion on the part of the buyer. We are reengineering our entire shipping framework to standardize those roles and responsibilities, which should have the impact of reducing complexity and also cost to the buyer. Pricing is number three. It is something we have talked about quite a bit in the past. We are not today always the lowest cost sales channel for a given item, and the second problem is that, again, given the long-tail nature of what we sell, it can be challenging for consumers to compare prices and evaluate and interpret them. To address this, as I think you are probably aware, we introduced a price parity enforcement mechanism last year. To expand this in 2026, we are going to be incorporating an LLM—it has not been AI-based to date—which will allow us to scale price parity across a much higher percentage of our inventory, which will eliminate the problem of individual items being listed at a higher price on 1stdibs.Com, Inc. than elsewhere. And then second, we are going to surface comps data much more broadly to both sellers and buyers to give them context. And then the fourth and last piece is, we are a little late to the party in developing a robust social strategy. Social has an especially important role to play for us, given our brand and the visual nature of the products we sell. To address this in 2026, we are in the process of implementing our first ever community-based approach, which really is just another way of saying we are launching an influencer network. It is something we have not done before, and we have high hopes for it. Bobby Brooks: Thank you very much. That is super helpful detail. For a follow-up on the pricing parity, definitely can see how helpful and beneficial that will be for the business. You mentioned incorporating the LLM to scale across a much higher percentage of inventory. I would be curious to hear how much of the inventory today listed has this price parity incorporated into it, and what are you looking to scale that to in 2026? David Rosenblatt: That is not data that we share primarily for competitive reasons. But it should roughly double the amount of product that is covered. It is actually, I think, from a behavioral point of view, more important to think about it in terms of number of sellers who are impacted rather than the percentage of items. Because once a seller understands that we have the ability and the intent to enforce this price parity feature of our contracts with them, they are less likely to be in transgression of that. And I think it is worth pointing out this is in the interest of both the buyer and the seller and 1stdibs.Com, Inc. Having a clean, well-lit, and regulated marketplace that is predictable and understandable to buyers ultimately has the effect of increasing confidence in us and our sellers on the part of the buyer, which benefits them. We do not think of this as a system of punishment, but more as a part of the process of creating, as I said, a clean, well-lit environment, which is to the benefit of all marketplace participants. Bobby Brooks: Got it. Appreciate it, David. And maybe one for Thomas. It has been really impressive, the margin expansion you have driven over the past few years, as you mentioned in the prepared remarks, despite some shrinking in the top line and GMV. As we think of 1stdibs.Com, Inc. returning to that steady growth rate on a GMV level, is it fair to think margin expansion would accelerate in that scenario? Thomas Etergino: Yeah, this is Thomas. I believe that what you have seen with our P&L, as you talked about, is that our gross margins have expanded from 73% to 74%. The contribution margin in particular has gone up from the 50% to 55% level to the 60% to 65% level. What I expect is that as you start to see GMV and revenue expansion, you will see a large portion of that additional revenue going to the bottom line because of the increase in contribution margin that we have put into the model at this point. Bobby Brooks: Very helpful. Exciting times. I will return to the queue. Operator: There are no further questions at this time. This concludes today’s call. Thank you for attending. You may now disconnect.
Operator: Thank you for your continued patience. Your meeting will begin shortly. If you need assistance at any time, please press 0, and a member of our team will be happy to help you. Thank you for your communication. Your meeting will begin shortly. Please standby. Your meeting is about to begin. Hello, and welcome, everyone. Joining today's Bain Capital Specialty Finance, Inc. Fourth Quarter and Fiscal Year Ended 12/31/2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. During the question-and-answer session, you will have the opportunity to ask questions. To register to ask a question at any time, please press star-1 on your telephone keypad. Please note this call is being recorded. We are standing by if you should need any assistance. It is now my pleasure to turn the meeting over to Katherine Schneider, Investor Relations. Please go ahead. Katherine Schneider: Thanks, Nikki. Good morning, and welcome everyone to the Bain Capital Specialty Finance, Inc. Fourth Quarter and Fiscal Year Ended 12/31/2025 Conference Call. Yesterday, after market close, we issued our earnings press release and investor presentation of our quarterly and annual results, a copy of which is available on Bain Capital Specialty Finance, Inc.’s Investor Relations website. Following our remarks today, we will hold a question-and-answer session for analysts and investors. This call is being webcast, and a replay will be available on our website. This call and webcast are the property of Bain Capital Specialty Finance, Inc., and any unauthorized broadcast in any form is strictly prohibited. Any forward-looking statements made today do not guarantee future performance; actual results may differ materially. These statements are based on current management expectations, but include risks and uncertainties, which are identified in the Risk Factors section of our Form 10-Ks that could cause actual results to differ materially from those indicated. Bain Capital Specialty Finance, Inc. assumes no obligation to update any forward-looking statements unless required to do so by law. Lastly, past performance does not guarantee future results. I will now turn the call over to our CEO, Michael Ewald. Michael Ewald: Thanks, Katherine. Good morning, and thanks to all of you for joining us on our earnings call today. In addition to Katherine, I am joined today by Mike Boyle, our President, and our Chief Financial Officer, Amit Joshi. In terms of the agenda for the call, I will start with an overview of our fourth quarter and 2025 full-year results, and then discuss the broader market environment and our positioning. Thereafter, Mike and Amit will discuss our investment portfolio and financial results in greater detail, and we will leave some time for questions at the end as usual. Beginning with our financial results, net investment income per share for the fourth quarter was $0.46, representing an annualized yield of 10.6% on equity. Our net investment income covered our base dividend of $0.42 per share by 110%. Q4 earnings per share were $0.43, representing an annualized return on equity of 9.9%. For the full year 2025, net investment income per share was $1.88, or an 11.1% return on equity. 2025 earnings per share were $1.53, representing a 9% return on equity. We are pleased to report that these results reinforce the consistency of our positive performance for our shareholders. Over the prior three-year and five-year periods, BCSF consistently delivered an annualized ROE of 10%, driven by strong earnings supported by healthy credit performance and fundamentals across our portfolio. Subsequent to quarter end, our Board declared a first quarter dividend equal to $0.42 per share, and payable to record date holders as of 03/16/2026. This represents a 9.8% annualized rate on ending book value as of December 31. Turning to the market today and how we are navigating the current environment, under the backdrop of some of the recent private credit headlines surrounding credit quality and software/AI disruption risk, we have been pleased to see new deal activity levels pick up throughout 2025 and into the fourth quarter, driven by higher new LBO activities and continued add-on activities, as underlying economic indicators have remained constructive for new investments. In today’s market, BCSF continues to benefit from Bain Capital’s private credit platform’s longstanding presence in the middle market. Consistent with our long-term focus, we have been staying active within our market segment in the core middle market where we believe we can demonstrate a greater spread premium and maintain tighter underwriting standards with control of our debt tranches. As the markets have continued to be competitive, our longstanding presence in this segment has positioned us well with our sponsor relationships to be a trusted partner and capital provider. We have been able to achieve a greater spread premium while maintaining conservative capital structures and tight documentation. The weighted average spread on our new first lien originations during the quarter was 535 basis points, with net leverage of 4.6 times. The weighted average spread on our new originations during 2025 was 560 basis points. Our spread levels compared favorably to the average sponsored middle market first lien loans, which were approximately 500 basis points both in the fourth quarter and throughout the year. Importantly, we have maintained discipline with our capital base across our private credit platform, which has allowed us to pick the spots where we want to invest across the market. The cornerstone of our investment philosophy continues to be rigorous, fundamental due diligence at the industry, company, and individual security level. BCSF benefits from not only our dedicated private credit investment team that brings deep experience and specialization across industries, regions, and capital structures, but also from expertise across our firm that drives collaboration and deeper industry insights to source, diligence, and underwrite investments, bringing the power of the Bain Capital platform to our investors. When underwriting and managing across our portfolio, this approach leads us to lean in and out of certain sectors over time, and not be left beholden to investing just in sectors that may be driving the highest new deal volumes in the market. For example, our investors may recall that BCSF has historically had lower exposure to healthcare investments such as physician practice management companies, as we shied away from many of these deals in the private credit markets during a period of high volumes, as these transactions typically came with less favorable terms and structures in our view. Today, software and technology have been top of mind given the increased volatility in the public sector due to potential AI disruption. It has also been one of the largest sector allocations across the private credit market and garnered a lot of recent private market headlines, so we wanted to spend some time touching on our exposure and approach. This is a sector that Bain Capital has been investing in for quite some time, but notably also one in which we maintain a selective underwriting approach. Bain Capital Credit has dedicated professionals that focus on technology within our private credit group, further supported by dedicated industry research resources across our broader credit team and the firm more broadly, as we seek to harness the insights and knowledge across other business units such as Ventures, Tech Opportunities, Private Equity, and more. High-tech industries is one of our top sector exposures; however, it only comprises approximately 11% of BCSF’s total portfolio. Our focus within the sector over the years has been on systems-of-record software and/or highly specialized vertical software. We generally look for and support tier-one enterprise software assets that provide mission-critical products that have demonstrated value propositions, exhibit strong growth on a recurring revenue base across a highly diversified customer base, have several viable exit strategies, and are led by talented management teams able to effectively grow the business. We also seek to partner with private equity sponsors with extensive tech and software expertise and clear value creation plans to generate positive cash flow through their ownership, and we tailor our loan terms and structure to mirror those plans. Software categories have always had wide variability in levels of certain types of risks or credit attributes. The discourse about AI disruption over the last few years is largely focused on LMMs, or large multi model multimodal models, which increasingly excel at summarizing and analyzing disparate sets of data. While this potential for AI disruption is not a new phenomenon, given the recent volatility across public software markets, we have reevaluated each of our portfolio companies by qualitative criteria regarding the risk of AI replacement. Overall, we believe our portfolio has low risk to AI disruption and is, in fact, more likely to be a natural beneficiary of AI functionality than other types of software, and has many of the positive credit attributes for which we have historically screened. Our software companies have demonstrated strong credit fundamentals, where we have seen healthy levels of earnings growth across our borrowers since underwriting. As of year end, median LTV is approximately 34%, even adjusting for current enterprise value multiples since close, and these borrowers have demonstrated healthy interest coverage of 1.7 times. Turning to our broader portfolio, credit fundamentals across our underlying companies have remained resilient. At year end, median net leverage across our borrowers was 4.7 times, unchanged from the prior quarter and stable from 4.8 times on a year-over-year basis. Median interest coverage is also healthy at 2.0 times. Watchlist names comprise approximately 5% of our overall portfolio at fair value, which is also consistent with recent quarters. These names have also remained relatively stable and include a handful of companies that have been facing ongoing challenges in recent years due to various headwinds such as navigating through certain end-market cyclicality, continued COVID headwinds, and various idiosyncratic underperformance. Our position in the process name is comprised largely of first lien loans, so we feel confident about our positioning within those capital structures. Nonaccruals remain low across our portfolio at 1.5% at amortized cost and 0.8% at fair value as of year end. This was stable quarter over quarter, and no new companies were added to nonaccrual during the fourth quarter. Taking all of this together, the overall health and credit quality of our portfolio remains on solid footing, and we believe there is a disconnect versus where the market trading valuations are today in the BDC sector, especially with regard to BCSF. Looking ahead, we believe the company is well positioned to drive attractive earnings for our shareholders given our platform’s positioning and investment discipline in the core middle market as well as stable credit performance. We believe BCSF can maintain its regular $0.42 per share dividend in the current environment. While we expect to face earnings headwinds ahead from a lower rate environment and the maturities of our lower-cost unsecured notes, we believe there are several future growth levers for the company to help offset this, including higher earnings from select joint venture and ABL investments and other types of income as new M&A deal volumes increase. We also have healthy levels of spillover income totaling $1.29 per share, equal to over three times our regular dividend level. I will now turn the call over to Michael John Boyle, our President, to walk through our investment portfolio in greater detail. Michael John Boyle: Thank you. Good morning, everyone. I will start with our investment activity for the fourth quarter and then provide an update in more detail on our portfolio. New investment fundings during the fourth quarter were $167.9 million into 93 portfolio companies, including $68.0 million into 11 new companies and $99.6 million into 82 existing companies. Sales and repayment activity totaled approximately $193.2 million, resulting in net sales and repayments of negative $25.3 million quarter over quarter. For the full year, investment fundings were $1.3 billion. Total sales and repayment activity for the year were $1.2 billion. As a result of this activity, the size of our portfolio is relatively stable year over year. Our investment activity was split between new and existing portfolio companies, with new companies representing 41% of our total fundings versus 59% to existing companies. This quarter, we remained focused on investing in first lien senior secured loans, with 89% of our new investment fundings in first lien structures, 1% in subordinated debt, and 10% in preferred and common equity. New investments during the quarter continued to benefit from Bain Capital’s deep industry expertise. We favored defensive industries such as healthcare and pharmaceuticals, business services, and other more niche sectors such as environmental industries and aerospace and defense. As Michael highlighted earlier, we continue to favor core middle market size companies given attractive terms and structure, combined with a large market opportunity of high-quality borrowers, consistent deal flow, and more favorable competitive dynamics versus other market segments. The median and weighted average EBITDA across our new companies during the quarter was approximately $31 million and $41 million, respectively. Turning to some more detail on the investment portfolio, at the end of the fourth quarter, the size of our portfolio at fair value was approximately $2.5 billion across a highly diversified set of 203 portfolio companies operating across 30 different industries. The average position size across our single-name portfolio companies is approximately 40 basis points. Our portfolio primarily consists of first lien senior secured loans, given our focus on downside management and investing at the top of capital structures. As of December 31, 64% of the investment portfolio at fair value was invested in first lien debt, 1% in second lien debt, 4% in subordinated debt, 6% in preferred equity, 9% in equity and other interests, and 16% across our joint ventures, including 9% into the International Senior Loan Program and 7% into the Senior Loan Program, both of which have underlying investments in those joint ventures consisting of first lien loans. As of 12/31/2025, the weighted average yield on the investment portfolio at cost and fair value was 10.8% and 10.9%, respectively, as compared to 11.1% and 11.2%, respectively, as of 09/30/2025. The decrease in yields was primarily driven by a decrease in reference rates across our portfolio, as 92% of our investments bear interest at a floating rate. Moving on to portfolio credit quality trends, fundamentals across the portfolio have remained healthy. Median net leverage across our borrowers was 4.7 times as of quarter end, consistent with the prior quarter. Median EBITDA was $44 million across the portfolio, versus $46 million as of the third quarter. Watchlist investments have also remained stable quarter over quarter as indicated by our internal risk rating scale. These investments include our risk rating three and four investments, which comprise 5% of our portfolio at fair value. Our portfolio companies within this category have remained relatively stable in recent quarters, and we have not seen a large migration of any new names onto our watch list. Investments on nonaccrual represented 1.5% and 0.8% of the total investment portfolio at amortized cost and fair value, respectively, as of December 31, compared to 1.5% and 0.7%, respectively, as of September 30. I will now turn it over to Amit to provide a more detailed financial review. Amit Joshi: Thank you, Mike, and good morning, everyone. I will start the review of our fourth quarter results with our income statement. Total investment income was $68.2 million for the three months ended 12/31/2025, as compared to $67.2 million for the three months ended 09/30/2025. The decrease in investment income was primarily driven by the decrease in reference rates during the quarter, which reduced the interest income. The quality of our investment income continues to be high, as the vast majority of our investment income is driven by contractual cash income across our investments. Interest income and dividend income represented 98% of our total investment income in Q4. PIK interest income represented 11% of our total income in Q4. Notably, the vast majority of our PIK income is derived from investments that were underwritten with PIK, totaling 88% of our total PIK income. Only a small portion of our PIK income is related to amended or restructured investments. Total expenses before taxes for the fourth quarter were $37.7 million, as compared to $37.2 million for the third quarter. The increase in expenses was driven by higher incentive fees resulting from our three-year lookback on our incentive fee hurdle rate, partially offset by lower interest and debt fee expenses. Net investment income for the quarter was $29.7 million, or $0.46 per share, as compared to $29.2 million, or $0.45 per share, for the prior quarter. Net investment income for the full year 2025 was $1.88 per share. During the three months ended 12/31/2025, the company had net unrealized and realized losses of $1.9 million. Net income for the three months ended 12/31/2025 was $27.8 million, or $0.43 per share. Moving to our balance sheet, as of December 31, our investment portfolio at fair value totaled $2.5 billion and total assets of $22.7 billion. Total net assets were $1.1 billion as of 12/31/2025. Our net asset value per share was $17.23 as of 12/31/2025, down $0.17 per share from the prior quarter, when it was $17.40 per share. This decrease was primarily due to a one-time special dividend from excess spillover income earned in the prior period. During the quarter, our Board of Directors declared a $0.15 per share special dividend payable to the record holder as of 12/31/2025, plus an additional $0.03 per share special Q4 dividend that was previously announced. Excluding the impact of these special distributions, which totaled around $0.18 per share, our NAV change quarter over quarter was relatively stable. As of December 31, approximately 59% of our outstanding debt was in floating rate debt, and 41% was in fixed rate debt. Subsequent to year-end, we issued $350 million in aggregate principal of 5.95% notes due in 2031. Our liability management efforts remain disciplined. By conducting an unsecured issuance last year and another issuance this year in Q1 2026, we have prefunded and mitigated our maturities in 2026, while simultaneously extending debt maturity and preserving financial flexibility. For the three months ended 12/31/2025, the weighted average interest rate on our debt outstanding was 4.6%, as compared to 4.8% as of the prior quarter end. The weighted average maturity across our debt commitments was approximately 3.6 years at 12/31/2025. At the end of Q4, our debt-to-equity ratio was 1.32 times, as compared to 1.33 times at the end of Q3. Our net leverage ratio, which is total principal debt outstanding less cash and unsettled trade, was 1.24 times at the end of Q4, as compared to 1.23 times at the end of Q3. Liquidity at quarter end was strong, totaling $690 million, including $604 million of undrawn capacity on a revolver credit facility, $58.9 million of cash and cash equivalents, including $32.7 million of restricted cash, and $26.7 million of unsettled trades, net of receivables and payables of investments. With that, I turn the call back over to Michael Ewald for closing remarks. Michael Ewald: Thanks, Amit. In closing, we are pleased to deliver another quarter and solid year of attractive net investment income and healthy credit fundamentals across our middle market borrowers. Bain Capital Credit brings over 25 years of experience investing in the middle market and has demonstrated solid credit quality with low losses and nonaccrual rates since our inception. We remain committed to delivering value for our shareholders by providing attractive returns on equity and prudently managing our shareholders’ capital. We will now open for questions. Nikki, please open the line for questions. Operator: Thank you. To leave the queue at any time, press 2. Once again, that is star-1 to ask a question. I will pause for just a moment to see if anyone would like to ask a question. And once again, if you would like to ask a question, please press star-1. We will pause for another moment. Michael Ewald: Great. It looks like there are not any questions on this call, but thanks, everyone, for your time and attention, and we will look forward to speaking with you all again soon. Thanks. Operator: Thank you. This brings us to the end of today’s meeting. We appreciate your time and participation. You may now disconnect.
Operator: Good day, and thank you for standing by. Welcome to the FTAI Infrastructure Inc. Fourth Quarter 2025 Earnings Conference Call. At this time, participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alan Andreini, Head of Investor Relations. Please go ahead. Alan Andreini: Thank you, Shannon. I would like to welcome you all to the FTAI Infrastructure Inc. earnings call for 2025. Joining me here today are Kenneth Nicholson, the CEO of FTAI Infrastructure Inc., and Buck Fletcher, the company's CFO. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including adjusted EBITDA. The reconciliation of those measures to the most directly comparable GAAP can be found in the earnings supplement. Before I turn the call over to Kenneth, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements by their nature are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. I will now turn the call over to Kenneth. Kenneth Nicholson: Thank you, Alan, and good morning, everyone. Welcome to the call. As we typically do, we will be referring to the earnings supplement, which you can find posted on our website. I am going to get right into it starting on page three. Adjusted EBITDA for the fourth quarter was a new quarterly record, coming in at $80,200,000, up from $70,900,000 for 2025, and $29,200,000 for 2024. The $80,200,000 of fourth quarter EBITDA excludes a $9,000,000 gain in the quarter from a write-up of one of our non-core investments in Clean Planet Energy. Since we do not necessarily expect that gain to continue in the periods ahead, we are excluding it for purposes of this discussion. For the full fiscal year of 2025, adjusted EBITDA was $232,300,000, up substantially from $127,600,000 in fiscal 2024. Reflecting on the 2025 year, it was an extremely active one for FTAI Infrastructure Inc., with many of the transactions we completed setting the stage for what we expect to be a highly productive 2026 ahead. It is important to note that as a result of the specific timing of closing of a number of investments during the year, our 2025 annual results reflect only a partial financial contribution from those events. In February, we purchased the 49% of Long Ridge that we did not previously own and started reflecting 100% of Long Ridge’s results. In August, we purchased the Wheeling and Lake Erie Railroad, a transformative transaction for our Rail segment. And in November, we commenced activity under a new 15-year ammonia export contract at our Jefferson terminal. As a result of these events, we exited the year at an EBITDA run rate of just over $320,000,000 annually, meaningfully higher than our reported figures. Flipping to slide four, I will briefly talk through the highlights at each of our segments. In our Rail segment, adjusted EBITDA was $41,300,000, with Q4 representing our first full quarter of ownership of the Wheeling. We took active control of the Wheeling at the end of December and have begun to integrate its operations into our existing Transstar business. Of the total $41,300,000 of adjusted EBITDA, $22,000,000 was attributable to Transstar and $19,300,000 was attributable to the Wheeling. I will talk more about the Wheeling and our integration process here shortly, but we are thrilled with the Wheeling’s early progress, and business continues to exceed our financial expectations. At Long Ridge, EBITDA for the quarter was $36,200,000, representing a new quarterly record. Q4 results included our planned October outage of 8.5 days as well as an additional one-time outage of 19 days in December for steam turbine repair. We estimate that the additional outage impacted EBITDA by approximately $3,500,000 for the quarter. Gas production for the quarter averaged approximately 105,000 MMBtu per day, also representing a new record for Long Ridge. The macro in the power space continues to be extremely strong, and we have been advancing several growth properties that should drive continued upside for the business in the years ahead. At Jefferson, EBITDA for Q4 was $13,600,000 and included approximately one month of results from our new ammonia transloading contract. Going forward, our results will include the full impact of that contract, so we expect Jefferson to continue to post growth in the first quarter ahead. And at Repauno, construction of our Phase 2 transloading project continues to progress on plan. Once Phase 2 is operational early next year, we expect 80,000 barrels per day of natural gas liquids generating approximately $80,000,000 of annual EBITDA. Moving to slide five and our capital structure. Yesterday, we announced the closing of a new term loan of approximately $1,300,000,000, net proceeds of which were used to repay in full the bridge loan we issued in connection with the Wheeling acquisition last year. The new term loan represents the only debt at our parent level and carries a coupon of 9.75%. The loan is prepayable at any time at a premium that reduces over its two-year term. And more importantly, any proceeds from the potential sale of Long Ridge, which we will discuss further in a bit, will be used for repayment of the loan at a lower premium than would otherwise be payable. The net result of the financing is a stable balance sheet with potential for meaningful deleveraging in the coming months and a path to more substantial free cash flow as we progress through the year. 2025 was a highly productive year. And now with the refinancing behind us, we have a handful of important priorities we are focused on, and we briefly list those on slide six. The integration of Transstar into Wheeling is off to a great start. We will provide some more detail on the specifics. Year to date, we have already implemented a little bit more than half of our total targeted cost savings of $20,000,000 annually. The remaining cost savings should be implemented over the course of the first half of this year. Second, our plans to monetize Long Ridge continue to progress. It is a great asset and a great market environment for exploring a sale. Given the sensitive nature of the sale process, I am not going to comment in detail other than to say that the process is continuing within our expectations. We plan to report additional information to the market on our progress in the coming months. And finally, we are focused on driving continued growth across our portfolio. Activity in the Rail M&A market is picking up. We are currently pursuing a total of four opportunities that represent very good fits for our existing Rail business. In addition, we have been advancing negotiations for new contracted business at Jefferson, which we expect to complete in the coming months and can contribute meaningfully to revenues and EBITDA with no additional capital requirements. And with development permits in hand for Phase 3 of Repauno, we are making good progress in advancing commercial activity and construction planning. Moving to slide eight, we will dig a little deeper into the quarterly results and the activity at each of our segments, and we are going to start with the Rail segment. We posted revenue of $86,400,000 and adjusted EBITDA of $41,300,000 in Q4, compared with revenue of $61,700,000 and adjusted EBITDA of $29,100,000 in Q3. At Transstar, carloads, average rates, and revenues for the quarter were stable. Coke volumes came in at slightly lower levels for the quarter, resulting from the incident at U.S. Steel’s Clairton production unit that required the unit to remain down for the entire duration of the fourth quarter. Clairton returned to full operations in January, and coke volumes have now recovered to normalized levels. Transstar’s operating expenses also continued to be stable, as fuel costs and other material cost items have been largely unchanged. But the story for the quarter was at the Wheeling, where revenue and EBITDA came in at levels exceeding our early expectations. Total Wheeling fourth quarter revenue of $43,000,000 was up 8% year over year, while Wheeling’s adjusted EBITDA for Q4 of $19,300,000 was up 34% year over year. We really just started our integration efforts after receiving FTB approval for control in the final days of December, so we plan to continue to see favorable year-over-year comparisons for the Wheeling in the quarters ahead. Looking to slide nine, I will talk a little bit more about our integration plans for the Wheeling. Integration of the two companies is underway, and I am pleased to say that we are off to a promising start. We expect the combination of the two companies to result in two sources of financial gains: first, cost savings, which we expect to impact our results in the near term, and second, new revenue opportunities, which we expect to occur over the longer term. In terms of cost savings, we have broken out the totals into two components: those that have already been implemented and those we plan to implement during the first half of this year. Implemented savings represent $10,000,000 of annual incremental EBITDA, while savings in process represent the remaining $10,000,000 of annual savings. More importantly, on the revenue side, we continue to grow the list of opportunities now that the two railroads are operating as one. At U.S. Steel’s Edgar Thompson Works facility, the first of a series of investments by Nippon Steel is underway with an announced $100,000,000 investment in a new slag recycling unit. While it is a small investment compared to the total $2,400,000,000 committed by Nippon and U.S. Steel’s Mon Valley complex, the new recycling unit is a rail-intensive one and will generate important incremental volumes and revenues for Transstar. Also, additional propane carloads are planned to start early next year when Repauno’s Phase 2 commences operations. Additional carloads of propane should be substantial, given the volumes originate on the Wheeling and move to Repauno. And finally, the list of additional revenue opportunities on the combined system continues to grow. In total, we are now estimating over $50,000,000 of incremental EBITDA potential from the various new sources of revenue manifesting in the future. Next, on to Long Ridge. Long Ridge generated $36,200,000 of EBITDA in Q4 versus $35,700,000 in Q3. Power plant capacity factor of 81% was impacted by the outages that I described earlier. But away from the outage, the fundamentals continue to be very strong, with power prices averaging $45 per megawatt hour for the quarter and capacity revenue continuing at historically high levels and unaffected by the outage. We averaged approximately 105,000 MMBtu per day of gas production versus the 70,000 MMBtu per day required at the plant, and we expect to maintain production significantly in excess of plant requirements and generate continued revenues from excess gas sales in the quarters ahead. Importantly, we continue to push forward a number of initiatives to drive further growth. The 20-megawatt upgrade in our power generation continues to advance. Adding 20 megawatts of generating capacity at today’s power prices adds $5,000,000 to $10,000,000 of annual EBITDA to the P&L. And with a strong macro environment driving historic demand for power against the limited supply of modern, efficient power plants, we are advancing a number of opportunities that can provide substantial upside. We continue in detailed negotiations with a potential purchaser of our land holdings, which represent value creation from the land monetization as well as potential new revenue streams from on-site generation. In addition, we have been approached by parties seeking long-term PPAs at prices well above the current market, and potential partners have invited Long Ridge to co-develop new plants on sites within our region. With so much activity underway, we are confident that during the course of the year ahead, we can act on one or more of these opportunities and drive incremental growth for Long Ridge. More importantly, these opportunities generate momentum for the sale process, which continues to progress. Jefferson, we reported $23,500,000 of revenue and $136,000,000 of adjusted EBITDA in Q4 versus $21,100,000 of revenue and $11,000,000 of EBITDA in Q3. Volumes at the terminal averaged 210,000 barrels per day, and revenue came in at a new quarterly record driven by the startup of the new ammonia export contract, which commenced in late November. We are in advanced negotiations for three new contracts with multiple parties to handle conventional crude and refined products as well as renewable fuels. Each of these three opportunities are with existing customers and involve expansions of services we currently provide. Our customers have been investing heavily in their nearby facilities to increase production and market reach, which would require more products to flow through Jefferson. We hope to execute on all three opportunities during this year and commence revenue shortly after execution. In total, the three opportunities represent in excess of $50,000,000 annual incremental EBITDA and utilize existing assets requiring little to no incremental investment or CapEx. In closing out with Jefferson, Phase 2 construction is proceeding as planned and toward our goal of construction completion by 2026, with revenue commencing shortly thereafter. We have long-term contracts in place for a substantial portion of our capacity and are seeing high demand for the remaining available space. Based on the conversations we are having, we expect to commence revenue in early 2027 at full capacity. In the aggregate, we can handle a total of just over 80,000 barrels per day, representing $80,000,000 of annual EBITDA for the combined assets Phase 1 and Phase 2. While completing construction and commencing services are a priority, we are quickly turning toward commercial discussions for Phase 3. Having received the permit during Q4 last year is a very big step toward advancing Phase 3 and achieving full build-out at Repauno. The permit allows for two storage caverns to be built, each capable of storing 640,000 barrels of liquids. So Phase 3 is currently planned to be twice the size of Phase 2. In conclusion, we are extremely happy with our team’s progress during the fourth quarter, and we are very enthusiastic about 2026 ahead. We look forward to reporting updates on each of our key priorities, and now I will turn it back to Alan. Thank you. Alan Andreini: Shannon, you may now open the call to Q&A. Operator: Thank you. Star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Giuliano Bologna with Compass Point. Your line is now open. Giuliano Bologna: Good morning, and congratulations on another great quarter of execution there. It is great to see Jefferson really starting to ramp up during the fourth quarter. Can you expand on the business development opportunities that you are seeing at Jefferson and the upside related to some of the contracts, like the ammonia contract that should flip to a full quarter of impact? Kenneth Nicholson: Yes, definitely. Good morning, Giuliano. Yes, it does feel like all cylinders are firing. We are excited about the year ahead, and Jefferson is an important cylinder. We really see a pickup in the commercial interest and activity level at Jefferson. What we particularly like about it, as I said, is these are all expansions of existing services. So these are opportunities that do not require the capital to build new infrastructure and take the time to build out new infrastructure. One of the stories with Jefferson has been timing-based, among other things, but this would be quick, no capital, and just incremental volumes through existing assets. They break into three categories. The first is more ammonia. The ammonia system now at Jefferson South is fully built out. The additional ammonia volumes that we are talking about would roughly double the quantities that we are currently handling. So that is somewhere between $10,000,000 and $15,000,000 of incremental EBITDA just for that opportunity. The second is for additional refined products leaving by rail. More gas stations are being built in Mexico, and therefore, there is more demand for gasoline and diesel, and we expect to increase volumes through that contract in the coming months. That could represent meaningful additional EBITDA, another $10,000,000 to $15,000,000. And then finally, Utah crudes. There is a lot of investment in the two major refineries in Beaumont in handling and producing various products for which Utah crudes are the ideal input. And so we expect to significantly increase inbound volumes of Utah crudes. We have expanded the existing contract. That could be substantial, another $25,000,000 of EBITDA. So we are very focused on it. It is certainly subject to execution, but having had a series of conversations with all these players over the years, we feel like the probability for each of these is as high as it has ever been. Giuliano Bologna: That is very helpful. It is great to see the progress on all fronts, and I will jump back in queue. Operator: Thank you. Our next question comes from the line of Brian McKenna with Citizens. Your line is now open. Brian McKenna: Hey. Thanks. Good morning, guys. Just a couple of quick questions on Repauno to start. I think Phase 2 was previously expected to be operational by the fourth quarter of this year. It looks like that has been pushed out a little bit here to 2027. So just kind of curious about some of the puts and takes there. And then on Phase 3, I appreciate the detail in your prepared remarks, but it would be great just to get some additional color on what is going on behind the scenes here in terms of planning. What are the next few major milestones in the process? And then can you remind us when you expect to break ground and when that construction is expected to be completed? Kenneth Nicholson: Good morning, Brian. The timing: we have always been end of this year for Phase 2. And whether we commence operations December 31 or January 15, it is not a precise science. There is going to be some commissioning of that whole system. If you went to Repauno today, you would see the tank largely built, so a lot of the important work that would typically cause any meaningful delays or cost overruns is behind us. All the geotechnical work and driving of piles is done. So we are at a point where I think we have de-risked a fair amount of that construction. I do not see a lot of risk in any meaningful delays, but we will need to commission it, and as we have been talking about it, we want our customers thinking about very early 2027 rather than late 2026, just to be a little cautious there. But no change. The good news is we are expected to be fully utilized when we commence operation. There has been significant demand, and this feeds into your second question—what is driving that demand? The simple answer is more supply and a need for accessing more demand markets. Natural gas production in the Marcellus and Utica continues to grow, and with the gas comes liquids. Demand for things like propane in the Northeast is stable but not growing as significantly as production. So producers are looking for more outlets, more demand markets. There are only two terminals in our area, Repauno and the Sunoco Logistics terminal at Marcus Hook, that these guys can really access for large volumes over time. And so we are getting a lot of interest, and it has caused us to really refocus and push on Phase 3. At this stage, there are a number of things we need to do to put a shovel in the ground on Phase 3. We are finishing up construction estimates and all of the planning around construction. We obviously have the permits in place. And then the commercial development—those conversations are underway. I do not see us starting construction and building Phase 3 on spec. We are going to want to have some anchor customers. So our goal would be to have some anchor customers over the next six months while in parallel we are advancing all the construction elements. And hopefully sometime later this year, potentially pretty late this year, we are starting construction. Brian McKenna: That is great. Thanks, Ken. And then just switching gears a little bit, going to the Rail segment. You highlighted you are actively pursuing multiple new additional M&A opportunities. I think you said there are four there. I think this makes sense longer term, and you have talked about transitioning FTAI Infrastructure Inc. to more of a pure-play freight rail company. But it is still early days of the Wheeling integration and driving synergies there. It sounds like there is great momentum. And then, looking at the balance sheet, you have made great progress there as well. But the capital structure still has some moving pieces. I think there are still some opportunities to enhance that. So why not focus entirely on execution and integration this year, start to drive EBITDA and cash flow even higher, deleverage with any excess capital, and then look to do some of this M&A in 2027 and beyond? Kenneth Nicholson: The M&A opportunities—good observation. We are a higher-leveraged business than we expect to be in the coming years, and we are very focused on deleveraging. I think there is a lot of equity value to create as we deleverage and reduce our cost of capital. We have a higher cost of capital than we hope to have in a couple of years, and deleveraging is going to drive that. The Long Ridge transaction, if successful, which we are expecting, will go a long way in deleveraging at the parent level. Make no mistake about it: priority number one is to maximize the benefits of the combined Wheeling and Transstar, for sure. And management is doing a phenomenal job every day focused on that. That said, M&A opportunities come to us. And when some of them are in the no-brainer category—and maybe they are smaller situations but even more accretive—we are definitely going to look at those. Something that is local, that is connected to the Wheeling or Transstar, where we think we can acquire assets at a five times, six times, seven times EBITDA multiple feels like we have a duty to do that because it is just so accretive. Double, triple EBITDA out of the targets. We agree with you. We have our priorities of deleveraging and optimizing the railroad we own today before we start growing. But we certainly are going to look at additional rail properties as they come up, particularly if we think they are a very good fit for us. Brian McKenna: Thanks so much. I will leave it there. Operator: Thank you. Our next question comes from the line of Sharif El Megravy with BTIG. Your line is now open. Sharif El Megravy: Hey. Good morning. Thank you. Sticking with Rail for a second, I think you gave some very nice color about your ideal acquisition targets. But can you talk about the M&A market for rail a little bit more broadly? How many opportunities are there that kind of bolt on geographically to your existing footprint? And could you look at anything else maybe a bit further away? I think there is a rail line in Texas, for example. Kenneth Nicholson: The M&A market in rail—we have been doing rail stuff here for 20 years. It comes in waves, and it feels like the wave is coming at us and not going away from us. We are looking at four opportunities. They are all very actionable. Three actually are smaller properties that are very natural fits for the Wheeling and Transstar, meaning they connect or are nearby. One is not connecting. I really hope we can be the best bidder on the things that are close to us because we can certainly perceive the most value. They are not huge dollars, but they are highly accretive, and so they are certainly worth doing. And they are easy to integrate. Management will not be distracted, and this is in their backyard, and so they are pretty much no-brainers. But as more opportunities come—there was a big transaction announced earlier this week and that was in a slightly different space, more like rail services and switching. A couple of great companies that we have a lot of respect for. My understanding was that transaction occurred at pretty sporty multiples. So if you can acquire businesses at single-digit multiples and own a portfolio that trades at mid–double-digit multiples, that has to be a smart thing to do. We are staffed up, and we are going at it. Our goal, as Brian said earlier, is to increase the scale of our rail portfolio over time at FTAI Infrastructure Inc., and I think we have a good shot at doing that. Sharif El Megravy: Got it. Very helpful. And then shifting gears a bit, the Sustainability and Energy Transition business contributed $9,000,000 of EBITDA this quarter. Do you have a sense of what is going on there, and if that business is something that will become a regular EBITDA contributor? Kenneth Nicholson: I am glad you asked, actually. The answer to your last question is yes. We have a handful of investments we do not talk about much in non-core entities. Some of the investments are minority stakes. Clean Planet Energy is a fantastic company that is in the waste-to-energy business. They are based in the U.K. It is a global company. Years ago, we invested in a U.S. subsidiary. We set up a JV to build waste-to-energy facilities in the United States. That market, no surprise, has slowed down. And so we had an opportunity to exchange our 50% interest in the U.S. JV to a 49% stake in the global company. That was a great transaction. It resulted in a write-up of our holdings in Clean Planet Energy. I am super bullish on Clean Planet Energy. They have a great management team, and I think they are focused on the right markets. Waste-to-energy is a huge business globally. It is not seeing a lot of activity in the United States right now, but across Europe and other regions, there is a lot to do there. And at Clean Planet, there is one facility under construction, two under advanced development. Yes, those will contribute EBITDA over the coming years, and we will record our portion of EBITDA. So I do think we will be reporting EBITDA. Given this single transaction, the exchange from an interest in the U.S. entity to the global parent, that is not going to happen again, and so when we were describing EBITDA for purposes of this call, we excluded that as a one-time gain. But I do think Clean Planet will be a contributor in the quarters ahead starting in 2027. Sharif El Megravy: Got it. Thanks for taking my questions. Operator: Thank you. Our last question comes from the line of Craig Shere with Tuohy Brothers Investment Research. Your line is now open. Craig Shere: Good morning. Thanks for taking the question and congratulations on the good quarter. To start with, is your asset sales process at Long Ridge impacting the data center discussions you are talking about? Obviously, if it can make progress there, it would certainly help with the value of any ultimate sale. Can you give us any more color about the timing of the monetization process? Would you expect any serious tax implications to it? If you had, you know, call it $4,500,000,000 in net proceeds, what are your thoughts about allocating something like that? Kenneth Nicholson: All good questions, and I am going to do my best within the limits of what we would like to say on this call as it relates to the sale process. Your first question about the level of activity in data developments: no, there is no impact. The parties that are looking at Long Ridge are all very well capitalized and interested in data center development and other land uses and on-site generation. And any party we are talking to about utilizing the land would be very comfortable were someone else to own Long Ridge, as long as it is a well-capitalized counterparty. So we are pushing hard to advance all the opportunities. I completely agree, of course. As those opportunities advance, the visibility of value creation at Long Ridge becomes that much more clear, and so it is nice to have commercial momentum when you are in the midst of a monetization process. In terms of timing, our goal would be to have an announced transaction in the first half of this year. In terms of what the transaction would mean, it would be significant for us, hundreds of millions of dollars of net proceeds. I am not going to go beyond that in terms of quantifying our expectations, but we set out with a certain expectation, and so far, we are certainly trending in line with those expectations. There would not be much of a tax drag on the sale. The beauty of being in the development business is, for better or for worse, you generate a fair amount of net operating losses over the time of developing assets. And so we do not expect there to be much tax leakage. So most of the gross proceeds, after debt repayment, should flow to FTAI Infrastructure Inc. And finally, what do we do with those proceeds? I think we will probably deleverage, mostly. It would be a really good thing for us. It may give us an opportunity to actually refinance this loan we put in place. We deliberately put a loan in place that is not of a very long-term duration and that limits the prepayment premium. And we negotiated an even lower premium with proceeds from the Long Ridge sale. So it gives us the flexibility to deleverage initially. Brian asked about some of the rail acquisitions, so obviously we will be—needless to say, we are focused on deleveraging. I think you should assume we use proceeds from the Long Ridge sale to deleverage high-cost debt. Craig Shere: Gotcha. And how far down does new Phase 3 underground storage cavern development have to go—how far down the road does it have to go—before thinking about monetizing that business as well? Kenneth Nicholson: I think the closer we get to operational completion, the more value any buyer would perceive. It is not a precise science. I think you certainly need construction underway and commercial contracts. Then you have the certainty. I think the team at Repauno has done a great job delivering on constructing, and I think any buyer of Repauno would give us credit for being able to get the job done. But at a minimum, we have to get through the next six to nine months and be under construction and at least have anchor customers for Phase 3 before we would be considering monetizing that asset. Craig Shere: Right. So if that is a 2026 goal, the idea that this could monetize, I do not know, by the first half of next year is not unthinkable. Kenneth Nicholson: Correct. Yep. I think that is a good way to think about it. Craig Shere: Great. Thank you. Operator: Thank you. I would now like to hand the conference back over to Alan Andreini for closing remarks. Alan Andreini: Thank you, Shannon, and thank you all for participating in today’s conference call. We look forward to updating you again after Q1. Operator: This concludes today’s conference. Thank you for your participation. You may now disconnect.
Operator: Welcome to TTEC Holdings, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. I would like to remind all parties that you will be in a listen-only mode until the question-and-answer session. This call is being recorded at the request of TTEC Holdings, Inc. I would now like to turn the call over to Bob Belknapp, TTEC Holdings, Inc.'s Group Vice President, Corporate Finance. Thank you, sir, and you may begin. Bob Belknapp: Good morning, and thank you for joining us today. TTEC Holdings, Inc. is hosting this call to discuss its fourth quarter and full year 2025 results for the period ended 12/31/2025. Participating on today's call are Kenneth D. Tuchman, Chairman and Chief Executive of TTEC Holdings, Inc., and Kenneth R. Wagers, Chief Financial Officer of TTEC Holdings, Inc. Yesterday, TTEC Holdings, Inc. issued a press release announcing its financial results. While this call will reflect items discussed in that document, for complete information about our financial performance, we also encourage you to read our Annual Report on Form 10-K for the period ended 12/31/2025. Before we begin, I want to remind you that matters discussed on today's call may include forward-looking statements related to our operating performance, financial goals, and business outlook, which are based on management's current beliefs and assumptions. Please note that these forward-looking statements reflect our opinions as of the date of this call; we undertake no obligation to update this information as a result of new developments that may occur. Forward-looking statements are subject to various risks, uncertainties, and other factors that could cause our actual results to differ materially from those expected and described today. For a more detailed description of our risk factors, please review our 2025 Annual Report on Form 10-K. A replay of this conference call will be available on our website under the Investor Relations section. I will now turn the call over to Kenneth. Kenneth D. Tuchman: Good morning, and thank you for joining us today. 2025 was a pivotal year for TTEC Holdings, Inc., one in which we met our financial commitments, improved our balance sheet, and fortified our position as the leader in AI-enabled CX. For the full year 2025, revenue was $2,136,000,000, exceeding the high end of our guidance. Adjusted EBITDA was $214,000,000, reflecting year-over-year growth of 5.6%. We generated $83,000,000 in cash flow and reduced our credit facility borrowings by $70,000,000. This reflects our continued focus on strengthening our balance sheet. Before moving on to our business overview, I would like to point out that our operating improvements and disciplined budget management were offset by a one-time noncash goodwill impairment in the fourth quarter on a portion of our TTEC Digital segment. This was due to the decline in our market capitalization and the annual fair value assessment. While impactful from a GAAP perspective, the impairment was a noncash expense and has no impact on our broader ability to execute our strategy, or the value of our CX technology solutions. Now on to some highlights from the year. We deepened our relationships with our largest clients, capturing an increased share of wallet as they expanded their use of our end-to-end consulting, technology, and managed services portfolio. Sales of new lines of business launched in 2025 to our base were strong in both our Engage and Digital segments, increasing year over year. Across the business, we attracted a substantial number of new clients with our AI-forward and vertical solutions approach. Several of these clients are new to having a CX partner, a shift driven by a data and AI landscape that has become too complex for clients to navigate alone. We grew our strategic technology partnerships as we collaborated on new client sales opportunities and innovative solution development. Our professional services with these technology partners grew 16% outside of our legacy CCaaS practices. We continue to increase the penetration of our AI-enabled solutions with our embedded base and are integrating this innovation functionality in every new TTEC Engage and TTEC Digital opportunity. We expect we will achieve near 100% AI adoption with our current clients by the end of this year. And importantly, we continue to invest in our global team of CX engineers, consultants, data analysts, and associates, earning Great Place to Work certification in 15 countries, several more countries than last year. Before we move into the discussion of our segment performance, I would like to share some thoughts on the current macro environment. Clearly, there is an AI overhang casting a shadow over valuations for CX, IT, and SaaS-based business services companies. We are fully cognizant that over time, there will be an impact on lower-value interactions which are part of the current $400,000,000,000 TAM. However, the opportunity is sufficiently large to support the companies serving the market today, let alone the new solutions that are emerging. Based on our experience, AI is not eliminating the need for CX; it is making it more effective. By automating routine transactions, it is enabling humans in the loop to focus on the high-stakes interactions that define a brand. But even as we navigate the fastest tech adoption curve in history, we must remain mindful that the promise of AI is only as good as its execution. Success lies in balancing this rapid innovation with the operational realities required to deliver a seamless, human-centric experience. Our point of view is shaped by several market realities. One, transformation requires a long runway. It took almost 30 years from the Internet’s debut to achieve total global integration. It demanded decades to build the infrastructure, technology, tools, and adoption to achieve worldwide ubiquity. Two, systems sprawl is massive. Today, the average Fortune 1,000 company operates hundreds of software applications and technology systems, both in the cloud and on premise. Although not all of them are required for CX, less than a quarter of them are integrated. Three, internal cultural adoption creates a bottleneck. According to a recent Bain & Company study, 88% of business transformations fail to achieve their goals because of lack of organizational readiness and employee alignment. Success requires businesses to rethink how they organize, empower, train, and measure the effectiveness of their people and AI counterparts. And finally, technology is only as valuable as the end consumer’s willingness to use and trust it. Just as the EV market shifted towards hybrid cars when consumers demanded the security of traditional engines alongside new tech, CX is entering a hybrid era where consumers appreciate the potential convenience and personalization of AI, but demand the trust and authenticity of a human in the loop for high-value complex interactions. In this environment, enterprises are seeking guidance and expertise like never before. They are looking to architect modern data estates, integrate disparate systems, and redefine workflows. In some cases, rather than struggling to do it themselves in-house, they choose to work with an end-to-end partner like TTEC Holdings, Inc. This convergence of complexity and urgency is exactly where we excel. We do not just provide the technology or the people. We provide the strategic CX bridge that turns AI potential into operational reality. With 42% of general AI initiatives failing due to lack of depth, companies are shifting budgets to CX specialists like us who do not just know AI but have the precious final mile CX experience to move fast, remove risk, and deliver brand differentiation. To achieve the full potential of our unique platform, we continue to build on our strong leadership foundation with new talent. I am pleased to announce several key appointments that will further accelerate our strategic road map. Alfredo Rizzo, a long-standing leader with our TTEC Digital organization, has moved into the newly created role of Chief Technology Officer of TTEC Holdings, Inc., reporting directly to me. His deep institutional knowledge, client-centric experience, and AI-first approach will be vital as he fast-tracks our efforts to deliver Generation AI solutions at scale. Joining him is Ramki Desai Raju, our new Chief Operating Officer at TTEC Digital. His deep domain expertise gained at IBM, among others, will help us further bridge the gap between operational excellence and technology-enabled transformation, ensuring our digital initiatives continue to deliver measurable impact for our clients. Now I will turn to a discussion of our business segments. Let us start with the digital CX segment Engage. As planned, we delivered solid progress this quarter as we continue to advance our transformation agenda with a disciplined focus on profitable and sustainable growth. We are seeing encouraging traction across the business as clients increasingly turn to us for modern, digital-first, CX solutions and operational excellence. We are expanding our role by introducing new vertical-specific solutions, increasing cross-sell of digital capabilities, and consistently delivering on the priorities that matter most to our clients. At the same time, our new client pipeline reflects healthy momentum, attracting world-class brands that are seeking AI-forward CX solutions to deliver the highest quality interactions. We remain disciplined in our pursuit of operating leverage and margin expansion. Our digital-first strategy is yielding significant efficiencies, and our strengthened leadership team has energized our frontline performance as well as continued to optimize our global delivery mix. We are focused on winning new business that meets our profitability expectations. In parallel, we are working to optimize a few underperforming contracts. While this creates a temporary revenue headwind in 2026, it secures a healthier client portfolio, superior margins, and a more resilient growth profile. Ultimately, these deliberate actions ensure we are not just growing, but growing profitably and sustainably. Turning to TTEC Digital. We continue to evolve our professional and managed services to meet the changing needs and priorities of the market. Clients are looking to us as experts to help them navigate their digital evolution because we specialize in building value through the strategic application of data, AI, and automation. We are helping ensure that every innovation translates directly into disciplined, measurable business outcomes. While these engagements may begin smaller than traditional CCaaS migrations, they are highly strategic and sticky. They leverage our expertise in the application of AI, data analytics, consulting, journey orchestration, and systems integration. Because of our fluency with all the major CX technologies, these engagements often benefit from the network effect where they expand into multiphase professional and managed services relationships. The shift is broadening our addressable market, increasing both our share of wallet in existing clients and attracting new ones. Our technology-agnostic approach, combined with our ability to rapidly pilot use cases across all major hyperscalers, is positioning us as a trusted partner for complex, multiplatform CX transformations. As a result, we are seeing growing demand for adjacent services and strong momentum in professional services pipelines and bookings. Our partnership with a global travel and hospitality brand is one example of how our ability to combine consulting, technology, and analytic insight is driving sustainable growth. Our relationship began when this enterprise was facing a critical end-of-life cliff with their on-premise contact center technology. They brought us in initially to mitigate risk and assess their path forward. Fast forward four years, that tactical engagement has evolved into a complete digital transformation that will persist well into the future. We have modernized their foundation by successfully migrating them to an integrated CCaaS/CRM platform. We have architected a modern data estate with a clean, unified data environment required for advanced CX. And we activated AI by deploying generative AI functionality to personalize guest interactions at scale. We fundamentally moved this client from a high-risk, high-cost legacy environment to a high-reward, AI-ready CX engine. Their CX operations are no longer a cost center. Today, they are primarily a driver of revenue growth and long-term customer loyalty. This is the blueprint that we are now scaling across multiple clients. Digital-first automation handles low-complexity tasks, reserving human expertise empowered with AI for authentic, empathetic, white-glove moments. It demonstrates what can happen when we change the conversation from managing cost to mastering outcomes. As a global consulting, technology, and managed services company delivering solutions at the intersection of data, AI, and customer experience, we are evolving our business to capitalize on the massive opportunity before us. Which brings me to our financial resilience. We expect to continue delivering EBITDA growth while revenue in each business segment is anticipated to be slightly down this year. As we codify the next generation of the CX playbook, we are proactively remixing our solutions, delivery models, and commercial constructs. Regarding our stock price, it is our view that the current valuation does not reflect the differentiation and value in our business. Obviously, entire sectors have been put under similar pressure and are being treated as though they have no terminal value. Our strategy remains focused on the factors that we control and on building an enduring business for the long term. While we are collaborating with financial advisers and our banking partner on our credit facility, the business performance continues to improve with a stronger balance sheet and cash flow. These efforts will enhance our long-term flexibility, supporting both our operations and innovation agenda. As we pivot to the year ahead, we remain focused on returning the company to its historic growth and margin profile, prioritizing high-yield complex client engagements with ample opportunity for growth, expanding our role as a strategic end-to-end transformation partner, driving differentiation through vertical solutions and proprietary IP, deepening our technology partnerships, continuing to improve efficiency through AI and automation, and investing in specialized talent with deep vertical CX operational and technical expertise. These priorities are the critical path for continued success. By leveraging our unique end-to-end solutions and investing in our people, platform, and strategic partnerships, we will continue to capture the demand for AI-enabled CX solutions well into the future. I continue to appreciate and value the dedication and support of our board and talented teams across the globe. I will now hand it over to Kenneth. Kenneth R. Wagers: Thank you, Kenneth, and good morning. I will start with a review of our fourth quarter and full year 2025 financial results before providing context into our 2026 full year financial outlook. In my discussion of the fourth quarter and full year financial results, reference to revenue is on a GAAP basis, while EBITDA, operating income, and earnings per share are on a non-GAAP adjusted basis. A full reconciliation of our GAAP to non-GAAP results is included in the tables attached to our earnings press release. On a consolidated basis for fourth quarter 2025 compared to the prior-year period, revenue was $570,000,000, a slight increase over the prior-year period of $567,000,000. Adjusted EBITDA was $62,000,000, or 10.9% of revenue, compared to $51,000,000 or 9%. Operating income was $48,000,000, or 8.4% of revenue, compared to $35,000,000 or 6.2%. And earnings per share was $0.47 compared to $0.19. Foreign exchange had a $4,000,000 positive impact on revenue and a $1,000,000 negative impact on operating income in the quarter compared to the prior-year period, primarily in our Engage segment. Now turning to our consolidated full year 2025 financial results. Revenue was $2,140,000,000 compared to the prior year of $2,210,000,000, a decrease of 3.2%. Adjusted EBITDA was $214,000,000, or 10% of revenue, an increase of 5.6% or 80 basis points over the prior year of $202,000,000 or 9.2%. Operating income was $155,000,000, or 7.3% of revenue, compared to $136,000,000 or 6.2% in the prior year. Earnings per share was $1.10 compared to $0.71 in the prior-year period. Foreign exchange had a $3,000,000 positive impact on revenue, and a $4,000,000 positive impact on operating income over the prior year, primarily in our Engage segment. At the company and segment level, our full year financial performance was in line with the guidance expectations previously communicated, with revenue exceeding the high end of full year guidance range, while profitability came in near the low end of guidance. Turning to our fourth quarter and full year 2025 segment results. In our Engage segment, fourth quarter revenue decreased 1.8% over the prior-year period to $444,000,000. Operating income was $36,000,000, or 8.1% of revenue, an increase of 62% or 320 basis points compared to $22,000,000 or 4.9% of revenue in the prior year. Engage fourth quarter revenue and operating income were in line with our expectations as healthcare seasonal volumes delivered $22,000,000 of additional revenue compared to the prior year. As mentioned in our previous earnings, a significant portion of the investments related to the seasonal ramps and certain other growth clients were made in the third quarter, resulting in fourth quarter year-over-year profitability growth and margin expansion. The healthcare growth was offset by a decline in the public sector portfolio due to the loss of a large client we had previously communicated, which was at lower margins and thus had a nominal impact on operating income. We are pleased with our Engage segment's fourth quarter financial results, and the profitability improvement that not only drove significant growth in the quarter, but more than offset the third quarter decline and resulted in overall second-half margin improvement compared to the prior year. On a full year basis, the Engage 2025 revenue was $1,670,000,000, a decrease of 4.6% compared to $1,750,000,000 in the prior year. Operating income was $101,000,000 or 6.1% of revenue compared to $85,000,000 or 4.9% in the prior-year period, representing an increase of 18.8% and margin expansion of 120 basis points. The Engage revenue exceeded the high end of our full year guidance. Our focus on increased profitability was reflected in the year-over-year operating income growth and margin expansion delivered despite the decline in revenue. The profitability improvement was a result of our deliberate actions taken over the last 18 months where we realigned our cost structure, improved operating efficiencies and effectiveness, and continue to increase our offshore revenue mix. We also added new leadership, which helped drive these accomplishments. The Engage backlog for the next 12 months is $1,480,000,000, or 92% of our 2026 revenue guidance at the midpoint of the range, down from 96% in 2025. The Engage last 12-month revenue retention rate is 95%, compared to 82% in the prior year. Now moving to our Digital segment. Fourth quarter revenue was $125,000,000, a 9% increase over the prior year of $115,000,000. Operating income was $12,000,000, or 9.4% of revenue, compared to $13,000,000 or 11% in the prior year. The Digital fourth quarter revenue increase was driven by product resale, which drove $15,000,000 of additional revenue over the prior year. The overall revenue mix, however, drove a lower operating income and margin as recurring revenue declined 5.6% and professional services were slightly down 1.6% in the quarter, compared to the prior year. On a full year basis, Digital's 2025 revenue was $469,000,000, compared to $459,000,000 in the prior-year period, an increase of 2.2%. Operating income was $54,000,000 or 11.5% of revenue compared to $51,000,000 or 11.2% in the prior year. The full year Digital revenue growth was largely attributable to product resale, which nearly doubled compared to the prior year, increasing $24,000,000. This increase was due to multiple deals with clients that have yet to migrate to cloud-based CX delivery solutions. We believe over time, these product resale opportunities will diminish in the market. This revenue also included the sale of IP software closed in 2025 for $4,000,000. Excluding the product resale, Digital revenue declined $14,000,000, or 3.2%. This reflects the ongoing market shift, which is moving away from traditional CCaaS point solutions to partners that provide end-to-end transformative CX solutions optimizing clients' existing platforms. As a result of this shift, Digital full year 2025 recurring revenue declined 4% compared to the prior year. Professional services were slightly down year over year by 1.5%. However, professional services related to our expanded partnership network grew 15.8% outside of the traditional CCaaS offerings. Although the revenue mix came in less favorable than forecasted over the prior year, we are pleased with the full year Digital operating income growth and margin as cost and utilization management were high priorities. Our Digital backlog for the next 12 months is at $287,000,000, or 67% of our 2026 revenue guidance at the midpoint of the range, up slightly from 66% in the prior year. Before I discuss other financial metrics, I will address the noncash goodwill impairment charge and the related tax adjustment recorded in the fourth quarter. In ordinary course, we perform goodwill impairment analyses in accordance with GAAP on an annual basis during the fourth quarter, unless a triggering event requires a more frequent analysis. During the annual goodwill impairment analysis, the company elected to perform a quantitative evaluation of all of its reporting units. Based on this analysis, which reflects upon financial projections and market-based metrics, the fair value of our Digital recurring reporting unit decreased below its carrying value and resulted in a $193,000,000 noncash impairment charge. This was primarily due to industry dynamics that are shifting our legacy recurring managed service offerings from point solutions related to contact center technology, to optimizing existing environments through AI-led consulting, journey orchestration, and data and analytics services. This type of impairment is a reality in the technology services sector where previously acquired technology-related companies are impacted by changing market conditions. Our Engage and Digital professional services reporting units' fair value remains in excess of their respective book values, and are not impacted by the impairment. The tax impact of the Digital impairment created a net incremental noncash charge of $12,000,000, further reducing the carrying value of the reporting unit and bringing the total impairment charge to $205,000,000. Please refer to our Form 10-K for more details on the impairment and related tax impact. As Kenneth mentioned, while impactful from a GAAP reporting perspective, the impairment and the tax valuation allowance were a noncash expense and do not impact our broader strategies and capabilities nor the value of our CX technology solutions. These charges are normalized in our non-GAAP reconciliation calculations. I will now share other 2025 metrics before discussing our 2026 outlook. Free cash flow was a positive $83,000,000 in 2025 compared to a negative $104,000,000 in the prior year, which, as previously discussed, was impacted by the discontinuation of the accounts receivable factoring facility. Normalizing for the prior year, the year-over-year improvement was $86,000,000. This was due to a $79,000,000 increase in cash flow from operations, and reduced capital expenditures of $7,000,000. The significant increase in cash generation reflects our keen focus on improving profitability and working capital management. Capital expenditures were $38,000,000, or 1.8% of revenue, for the full year 2025, of which 60% was growth related. This compares to capital expenditures of $45,000,000, or 2% of revenue, in the prior year. The 2025 growth-oriented spend was primarily driven by product development and technology and real estate investments in support of client growth and expansion. As of 12/31/2025, cash was $83,000,000, with $908,000,000 of debt, primarily representing borrowings under our recently amended $1,050,000,000 revolving credit facility. The net debt position of $825,000,000 represents a year-over-year decrease of $68,000,000. As defined under the credit facility, we ended 2025 with a net leverage ratio of 3.58 times, compared to 3.99 times at the end of the prior year. As demonstrated by our improved cash flow generation and reduction in net borrowings, deleveraging and strengthening our balance sheet remain top priorities. We are confident that our 2026 outlook provides the cash flow needed to further reduce our debt and invest in the business to meet our strategic objectives. Our full year normalized tax rate was 37.1% in 2025, compared to 40.9% in the prior year. The decrease is primarily due to the jurisdictional mix of income and the impact of valuation allowances globally. Now transitioning to our 2026 outlook. I will now provide some context supporting our full year financial guidance. Related to our Engage segment, we expect a decline in revenue of approximately 4%, primarily due to the rationalization of certain clients and lines of business that are underperforming to our target profitability and the ongoing initiative of moving and growing our revenue to offshore locations. We expect the year-over-year revenue declines to be concentrated in the first half of the year while flattening out in 2026. Engage profitability is forecasted to continue its growth trajectory, benefiting from the profit initiatives implemented over the last 18 months. Margin expansion will be further driven by the rationalization of certain client programs where we have or will wind down unprofitable revenue. We also continue to prioritize our shift of existing and new business to offshore geographies. Although these actions negatively impact our top line growth in the near term, they are essential to further improve profitability and continue our drive towards historical margins. In our Digital segment, we are forecasting a revenue decline of 8.4%, primarily driven by the decrease in product resale as fewer opportunities remain given the number of clients that we are transitioning to cloud-based CX delivery solutions. Although the revenue decline is significant, these lower-margin deals have less of an impact on profitability. Recurring revenue is expected to decline due to the managed services related to our traditional CCaaS partners, however, the revenue growth is less pronounced as a higher volume of this work is being delivered offshore. Turning to the midpoint of our 2026 guidance, as outlined in greater detail in our fourth quarter and full year 2025 earnings press release: GAAP revenue of $2,030,000,000, a decrease over the prior year of 5%; adjusted EBITDA of $230,000,000, an increase of 7.6% over the prior year and 11.3% of revenue, compared to 10% in the prior year; non-GAAP operating income of $169,000,000, an increase of 9% over the prior year and 8.3% of revenue, compared to 7.3% in the prior year; non-GAAP earnings per share of $1.19, an increase of 9% over the prior year. Other relevant guidance metrics include capital expenditures between 1%–2% of revenue, of which approximately 60% is growth oriented. A full year effective tax rate between 38%–42%. We expect the phasing of our profitability to be more weighted in 2026, with approximately 52% of our revenue coming in the second half of the year, based on our historical seasonal trends. Please reference our commentary in the business outlook section of the fourth quarter and full year 2025 earnings press release to obtain our outlook for the full year 2026 performance at the consolidated and segment level. In closing, we are pleased with our full year 2025 financial performance, increasing our profitability and expanding our margins across both segments, despite an overall modest decline in revenue. We also significantly increased our free cash flow and reduced our borrowings. This was accomplished against the backdrop of an evolving market in both our Engage and Digital segments. We are committed to continuing this performance in 2026 by further increasing our EBITDA and operating income, expanding our margins, and reducing our debt. We remain focused on higher-value transformational engagements across both segments and have the discipline and confidence to deliver on our 2026 full year outlook. I will now turn the call back to Bob. Bob Belknapp: Thanks, Kenneth. As we open the call, we ask that you limit your questions to one at a time. Operator, you may open the line. Operator: You would like to ask a question, please press star and then the number one. Please unmute your phone and record your name clearly when prompted. Your name and company name are required to introduce your question. To cancel your request, please press star and then the number two. Our first question comes from the line of George Frederick Sutton of Craig-Hallum. Sir, your line is open. George Frederick Sutton: Thank you. Ken, you said something interesting that you thought nearly 100% AI adoption by the enterprises you are working with by year-end 2026. And I am just curious if we could look at sitting here at the beginning of 2026 versus the beginning of 2027 and what kind of ongoing work do we have with those customers relative to helping them deploy the AI. Kenneth D. Tuchman: Good morning, George. Well, first of all, understand that when we use the term AI, it is so ambiguous. When we make that statement, what we are referring to in general is the AI that we are utilizing to enable our associates to do their job, AI that we are utilizing in our talent acquisition and recruiting, AI that we are using in quality assurance, AI that we are using overall to empower all of our AI that we are utilizing internally, to make ourselves more efficient, etcetera. So, ultimately, our goal is that every single client of ours is taking advantage of everything from accent neutralization technology to our language translation technology where we can translate in real time from any language to any language, etcetera. Where I think you are probably going is AI as we utilize it, not just only to assist the associate to be better, faster, and more proficient, but also the ability to provide certain aspects of interactions that are self-service. And so we are very diligently working with clients that are open to and interested in helping them with their low-value transactions versus interactions that add no real value in cross-selling, upselling, building trust, building loyalty, maintaining retention, increasing wallet share, etcetera, and automating those with what we call an agent or human in the loop that can come in at any point in time to assist should there be a need to assist, or if it moves to something that is more complex or more higher value, etcetera. And so we are very focused in this area. We have been working with these technologies, as you know, for frankly, before AI was there was even a hype cycle on AI. And now it is really just a matter of which clients are actually ready and willing to start to adopt some of the capabilities where we can provide this on the front end from a self-service standpoint, which leads us more to futuristically our goal of outcome-based pricing. So we will achieve 100% by the year end, which means that at minimum, our clients are taking advantage of all of the internal tools that we utilize to make our people better and to drive higher quality, more accuracy, etcetera. George Frederick Sutton: Understand. Thank you for the perspective. Kenneth D. Tuchman: Thank you, George. Thank you. Operator: Thank you. Our next question will be coming from Margaret Nolan of William Blair. Your line is open. Margaret Nolan: Thank you. Maybe to ask that a little bit differently, how do you expect the mix of revenue to shift between project-based and recurring revenue over the next couple of years? Kenneth D. Tuchman: That is a really good question, Margaret. I am not sure that I actually can give you a number with any level of precision. I guess are you asking me, is that another way of saying, what percentage of the business will be that we currently classify as Digital versus Engage? Or are you asking me, as it relates to the Engage business, what percentage of that business will be more AI focused? So maybe if you could just give me a little bit more direction on your question. Margaret Nolan: Yeah. The original thought was sort of there is probably likely a mix shift between Digital and Engage, but the second question is extremely interesting as well. So any and all of the above. Kenneth D. Tuchman: Well, look. Our focus on Digital is for the business to drive, on average, a 50% recurring revenue, and we are currently achieving that, maybe even a bit more than that. And so if that partially answers your question, that is certainly the focus. As far as I am not I just want to make sure that I am still tracking your question. As it relates to Engage, and how we see the future of where that business goes, we absolutely see the future over time where more and more technology is infused in Engage and where we are pricing our services as much more of a turnkey offering that is tied to solutions and definitive outcomes. The reality, Margaret, and I know I am guilty of maybe over pontificating, so I apologize, but the reality is that what we find because of the size of the clients that we deal with, which tend to be in kind of that Fortune 500 category, is that when you get past all the AI hype that it is going to eventually brush your teeth and do everything else, what our clients are realizing is that with the amount of systems that they have, and the overall amount of silos that they have and the amount of systems that do not actually even talk to each other, that there are only certain things that they can take advantage of with AI in order for it to be impactful. And so what we are doing is we are focusing on what we can provide them with technology that takes advantage of AI right now with their current situation while we are also trying to demonstrate to them how we can help them build a modern data estate so that they can ultimately take advantage of far more AI. And, again, I am not here to give a lecture or whatever, but what the Street is absolutely positively missing is that the time that it is going to take for these large companies to synergize, so to speak, or create synchronicity of their data, it is not going to be measured in months. It is going to be measured in years. And that is not according to Kenneth Tuchman. That is according to the CIOs of virtually every major client that we have. So that is my way of saying that we are going to attack the parts of their systems that we can and that they will allow us to have access to. But the reality is that the hope that the HAL 9000 is going to take the human out of the loop is, I think, more distant than many people might be estimating. So I am sorry if I dragged that out too much, but hopefully, I am answering your question. Margaret Nolan: Thanks, Ken. Kenneth D. Tuchman: Thank you. Operator: Thank you. Our next question will be coming from Jonathan Lee of Guggenheim Partners. Your line is open. Jonathan Lee: Great. Thanks for taking my questions. First question for me, you highlighted revenue headwinds from offshore mix shift. Can you help us size how much more of your current onshore revenue might still be at risk from that mix shift dynamic? Kenneth D. Tuchman: Well, first of all, we do not view it necessarily as a negative. We view it as a positive, and it is actually a focus of ours and an imperative to work with our clients and work with our especially our new clients in shifting to offshore. So, currently, 80% of our entire net new sales pipeline is all targeted offshore. As it relates to the embedded base that we currently have that is onshore, I would say that it is actually a fairly limited number, and it is not because we would not like it to be a higher number. But remember, we do a fair amount of public sector and federal work, healthcare work, and financial service work, and a lot of that work requires highly skilled licensed employees and it is not legal for them to operate outside of the United States. So what I would say is that it is really giving us other lines of business that we can focus on to move offshore. And there are certainly some clients that we currently have that are considering certain aspects of the business to potentially go offshore. But it is somewhat limited, just due to the nature of the segments that are currently onshore and the regulatory aspect. Jonathan Lee: Ken, thanks for that color. But I think we were trying to size the current onshore revenue that might still be at risk, not necessarily the net new portion of the work that you had highlighted earlier. Kenneth D. Tuchman: Well, I am sorry, I thought I answered that. What I am saying is you mean at risk to go offshore? Or what? Jonathan Lee: At risk to go offshore. Not necessarily the net new portion of the work that you had highlighted earlier. Kenneth D. Tuchman: Yeah. And what I am saying is that the majority of the revenue that we have onshore, we legally, we do not have the ability or the client does not have the ability to move offshore under the current regulations, which have existed for many, many years. So I thought I answered that. So the answer is, I cannot give you an exact number, but what I can tell you is that the healthcare clients, which is a significant portion of our business, and the federal and public sector business, the part that we do that is regulated, cannot and will not be moved offshore unless the laws were to change. And my guess is that is not happening. Jonathan Lee: Got it. Thanks, Ken. Just as a follow-up, you know, understand that you are obviously investing in AI. Can you help us understand how you are defending against enterprise clients that may be pushing you to pass on the AI efficiency savings to them. Kenneth D. Tuchman: Well, you know, thus far, that is actually not even that is not so far, we are not actually encountering that. That is not to say that over time as AI more or less commoditizes that we will not feel that. But right now, clients are in such need of advisory work on how to take advantage of AI and just our unique ability to integrate to their systems. Because for over 25 years, we have done deep systems integration into all of our client CCaaS systems, etcetera, that that has just not been a focus. But I think more importantly, maybe another way of putting it is we absolutely plan, as we start to demonstrate to clients how we can take low-value transactions, transactions that typically we do not even handle today, it is not part of our focus of our business, and how we can help them automate them, and how we can get rid of their IVR and install agentic capabilities on the front end to determine the purpose of the call, to gather information, etcetera. Our goal is absolutely to share some of the upside, or the benefit, of the cost. And frankly, I would expect the whole industry to be doing that because it is a way for us to garner net new business by us showing the industry or the client base that we can have an impact on their cost to serve, and that is a huge focus of ours: how can we demonstrate to them that we can deliver the highest possible call quality at a lower cost to serve. And so if you are asking me, are they pressuring us for that? No. If you are asking me, are we volunteering that as it relates to when we are showing them aspects of areas that are currently not being handled in an AI way that we believe can and will not diminish the loyalty or relationship of the customer, 100%. And what I want to just stress, and I know I sound like a broken record on this, but it is really important for people to understand this. This industry is still $400,000,000,000. Every single analyst report that has come out, whether you know, I am technically not supposed to use the analyst names, but you know who they are, the Gartners and the Forresters and so on and so forth, every single one of them has said that net human contact center agents over the next 36 months will increase, not decrease. Now, do we think over time they will decrease? We absolutely do. And, frankly, we are okay with that. And the reason why we are okay with that is we are a little $2,000,000,000 company. And when there is a $400,000,000,000 TAM, AI could have a significant impact on the human aspect of it and we as a company could still be multiples the size that we are. At the end of the day, there are really only five to eight players in the marketplace that are consistently being considered for the large deals that are out there. And those five to eight players make up well under $50,000,000,000. When you do the overall math, that there is a $400,000,000,000 TAM, the reality is we have a long way to go. Because right now, where the new business is coming from, for the most part, is captives that are letting air out of the tires and they are starting to release business from their captives. And captives right now is a $300,000,000,000 total addressable market. And none of that includes the size of the AI and data analytics market that we are focused on, which we estimate is somewhere in the $500,000,000,000–$600,000,000,000 range. So there is so much greenfield opportunity out there that we are embracing AI as absolutely something that is very positive for our business on a go-forward basis. Jonathan Lee: Thanks, Ken. Kenneth D. Tuchman: Thank you. Operator: Thank you. Our last question is from Vincent Alexander Colicchio of Barrington Research. Your line is open. Vincent Alexander Colicchio: Yeah. Ken, to what extent are you benefiting from consolidation, or do you expect to benefit from consolidation, given your expanded footprint and the increasing complexity of technology? Kenneth D. Tuchman: So do you mean consolidation of clients consolidating the number of partners that they have? Because if that is the question, going on for the last eight or 24 months, and we think that that is going to that is currently taking place. We think that is going to over time accelerate as clients realize that the concept of having 10 vendors makes very little sense, especially when of the 10 providers out there, most of them do not have deep technological capabilities. And we believe that the majority of all new business out there is going to require somebody that has the ability to provide various different aspects of technology to help them become more modernized. So if that is the question, do I think there is going to be more consolidation? I do. And I think that the marketplace is already really bifurcated to what I would call third-tier type, second-tier type companies out there that can only compete on price and lack capability, and the scale players that have the right geographies that clients are looking for, but also have, more importantly, the right technology to apply. Vincent Alexander Colicchio: You did answer the correct question, and, you know, I am assuming that some of the companies that lack scale cannot keep pace in terms of their technology capabilities, and I think you answered that. Kenneth D. Tuchman: Is there anything else I can add to that? Or Vincent Alexander Colicchio: No. You answered the question. Kenneth D. Tuchman: Alright. Well, thank you. Operator: Thank you for your questions. That is all the time we have today. This concludes TTEC Holdings, Inc.'s fourth quarter and full year 2025 earnings conference call. You may disconnect at this time.
Operator: Good day, and thank you for standing by. Welcome to the BrightSpring Health Services, Inc. Common Stock Fourth Quarter 2025 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. You will then hear an automated message advising you your hand is raised. To withdraw your question, please press 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, David Deuchler, Investor Relations. Please go ahead, sir. Good morning. David Deuchler: Thank you for participating in today's conference call. My name is David Deuchler with Investor Relations for BrightSpring Health Services, Inc. Common Stock. I am joined on today's call by Jon Rousseau, Chief Executive Officer, and Jennifer A. Phipps, Chief Financial Officer. Earlier today, BrightSpring Health Services, Inc. Common Stock released financial results for the quarter and full year ended 12/31/2025. A copy of the press release and presentation is available on the company's Investor Relations website. Please note that today's discussion will include certain forward-looking statements that reflect our current assumptions and expectations, including those related to our future financial performance and industry and market conditions. Forward-looking statements are not a guarantee of future performance. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. We encourage you to review the information in today's press release and presentation, as well as in our Annual Report and Form 10-Ks that we file with the SEC, including the specific risk factors and uncertainties discussed in our Form 10-Ks. Such factors may be updated from time to time in our periodic filings with the SEC, and we do not undertake any duty to update any forward-looking statements except as required by law. During the call, we will use non-GAAP financial measures when talking about the company's financial performance and financial condition. You can find additional information on these non-GAAP measures and reconciliations of our non-GAAP financial measures to their most directly comparable GAAP financial measures, to the extent available without unreasonable effort, in today's earnings press release and presentation, which again are available on the Investor Relations website. This webcast is being recorded and will be available for replay on our Investor Relations website. With that, I will turn the call over to Jon Rousseau, Chief Executive Officer. Jon Rousseau: Good morning, everyone, and thank you for joining BrightSpring Health Services, Inc. Common Stock's fourth quarter and full year 2025 earnings call. I would like to begin by expressing my and the company's appreciation to all of our BrightSpring teammates who work hard to deliver attentive and quality patient care and services to people in communities across the country. They drive the realization of our mission forward every day. 2025 was another productive and impactful year at BrightSpring Health Services, Inc. Common Stock in many ways. Overall, we saw continued success delivering revenue and EBITDA growth while achieving many milestones, all underpinned by the delivery of high-quality and compassionate services and care to patients. In the beginning of 2025, we announced our plan to divest the Community Living business, which will streamline the company's operations and create more focus on core patient populations in prioritized markets. Earlier this year, the Community Living divestiture transaction was approved by the and at this time, we expect the transaction to close at the end of the first quarter. The transaction is expected to result in net after-tax cash proceeds of approximately $715 million, which we intend to primarily utilize for debt pay down to further improve our leverage and further strengthen the balance sheet. Additionally, the acquisition of Amedisys in 2025 in a two-part transaction on December 1 and December 31. BrightSpring Health Services, Inc. Common Stock acquired 107 branches at a purchase price of $239 million, which was fully funded from cash on hand. The assets generated full-year pro forma revenue of $345 million in 2025, which includes the months throughout the year prior to the transaction close. These assets are very complementary to our existing home health business from a geographic perspective, while also being in the same markets as our hospice locations in many cases, and we are thrilled to have the Amedisys and LHC assets and colleagues integrated into BrightSpring Health Services, Inc. Common Stock, as we are already taking steps to bring new and improved company capabilities to these acquired operations. This is another example of thoughtful, logical, strategic, and accretive M&A that has defined our acquisitions history. Home health, of course, has a tremendous value proposition given its impact on clinical outcomes and cost, as it is shown to reduce ER visits and hospitalizations by 15% and 25%, respectively, and reduce mortality rates by 30% relatively. With an estimated 35% of patients referred to home health but who do not end up receiving the service, home health should continue to be an important solution in the future of health care. Some other accomplishments of note in the pharmacy and provider last year include continued LDD wins, strength in quality metrics, technology and people investments that resulted in ongoing efficiency gains across the organization, de novo expansions, and small tuck-in acquisitions. BrightSpring Health Services, Inc. Common Stock's operational and financial performance exceeded the high end of our guidance range for the year, and we believe that the company's performance is a reflection of the value of our patient-centric lower cost, timely, and proximal care, enabled by our people and culture who maintain an ongoing commitment to providing excellent and leading services. Moreover, our goal is to continue to build out a unique and scaled home and community health care platform that demonstrates leading quality outcomes and operational best practices, a platform that is best positioned to be a critical partner in solution in U.S. health care. Before discussing BrightSpring Health Services, Inc. Common Stock's fourth quarter and full year performance, I would like to remind you that the company's financial results and 2026 guidance pertain to continuing operations, and do not include results from the Community Living business and the effects of any future closed acquisitions. For the fourth quarter, BrightSpring Health Services, Inc. Common Stock's revenue grew approximately 29% and adjusted EBITDA grew approximately 41% versus last year's comparable quarter, resulting in full year 2025 total revenue and adjusted EBITDA that were above expectations. For the year, total company revenue was $12.9 billion, representing 28% year-over-year growth, which included Pharmacy Solutions revenue of $11.4 billion and Provider Services revenue of $1.5 billion, representing 31% and 11% year-over-year growth, respectively. Full year 2025 adjusted EBITDA was $618 million, which grew 34% year over year, and adjusted EBITDA margin for the company was 4.8%, a 20 basis point increase versus 2024, primarily driven by cost efficiencies from procurement and operational initiatives along with generic revenue mix shift in pharmacy. On cash flow, the company realized $490 million of cash flow from operations in 2025, and leverage was 2.99x as of 12/31/2025, which declined from 4.16x as of 12/31/2024. Overall, BrightSpring Health Services, Inc. Common Stock performed well in both the fourth quarter and full year 2025 across all business lines, and we are very pleased with the position of the balance sheet and expanded cash flow profile of the company this year. Today, we are initiating total revenue and adjusted EBITDA guidance for 2026. We expect total revenue to grow approximately 14% year over year at the midpoint of the provided range, and total adjusted EBITDA to grow approximately 25% year over year at the midpoint of the provided range. Included in total adjusted EBITDA guidance is an expected contribution of approximately $30 million from the Amedisys and LHC acquisition. We are excited for the year ahead, and Jen will discuss 2026 outlook in more detail shortly. Before I discuss our business performance, I would like to highlight BrightSpring Health Services, Inc. Common Stock's commitment to our employees and the communities, individuals, populations, and therapeutic areas that we support. Whether our people, seniors, youth, or other specialty patient populations, at the company, we continue to lean into helping individuals and organizations with access to resources and opportunities. For example, in supporting employees through difficult unforeseen circumstances through our SHARE program and college scholarships, in nursing school partnerships, and in partnering with many, many organizations, such as the Special Olympics for one. We currently operate a foundation through our hospice service line, and we have now started an enterprise foundation that will more formally carry on all of our community and patient support activities. We are hopeful that this BrightSpring Health Foundation can positively impact lives for decades to come. I would also like to briefly highlight our strong patient satisfaction and high-quality scores in the fourth quarter, which are driven by our delivery of attentive and skilled care to complex populations in a timely and relatively lower cost manner. In home health, we continue to see over 91% of our branches at four stars or greater, with timely initiation of care at an industry leading level of 99.4%. In hospice, our metrics remain well above the national average, with a top 5% ranked hospice program in the U.S. and a CAHPS overall hospice rating of 87%. In rehab, our patient satisfaction scores remain very strong, with 100% outpatient satisfaction and 98.4% home and community rehab satisfaction. In personal care, we have a client satisfaction score of 4.6 out of 5, compared to 4.5 in the third quarter, along with strong internal client records and quality indicators audit scores. In home and community pharmacy, dispensing accuracy was 99.99%, order completeness was 99.3%, and on-time delivery was 96.8%. In infusion, our patient satisfaction score was 94%, and we were one of only two providers in the country to receive the ACHC IG Distinction award based on our clinical and operational commitment to the IG patient population, 92.4% in the quarter, along with time to first fill of 4.1 days, both much stronger than the national average. In 2025, Onco360 ranked first and CareMed ranked second in the MMIT physician and office staff satisfaction survey. BrightSpring Health Services, Inc. Common Stock continues to demonstrate very strong service and quality metrics across all businesses. Turning to BrightSpring Health Services, Inc. Common Stock's financial results by segment. Total Pharmacy Solutions revenue grew 32% in the fourth quarter and adjusted EBITDA grew 44% versus the prior year. Total pharmacy script volume was 10.8 million in the quarter, driven by total pharmacy census growth. Total pharmacy volumes declined 1% due to a slight decline in home and community pharmacy volumes from the previously mentioned unwinding of a large customer going through bankruptcy and our decision to exit specific uneconomic customers. Specialty and infusion script growth was 30% year over year in Q4. In the specialty and infusion business, performance throughout the year exceeded expectations, with fourth quarter revenue growth of 43% year over year driven by market adoption of existing LDDs, new LDD wins, fee-for-service growth, and strong commercial execution in the field. BrightSpring Health Services, Inc. Common Stock saw strength in the quarter from both brand LDDs and generic volumes, our total LDD portfolio now standing at 149 LDDs, including five launches in the quarter and 24 total launches in 2025. Moving forward, we expect 16 to 20-plus limited distribution drug launches over the next 12 to 18 months. We believe that our growth will continue to be driven by new LDD launches, generic utilization, commercial execution with referral sources, and expanding fee for service. We are excited to have been chosen as the preferred specialty partner for additional new innovative therapies this quarter, which include infusible LDD therapies to treat a range of oncology, rare, and complex diseases. In infusion, the business performed in line with expectations in the fourth quarter with solid script volume growth. Adjusted EBITDA in the quarter grew in double digits driven by the benefits of operational initiatives and process improvements. We expect to continue to see improved profitability in infusion from our operational and growth initiatives moving forward. In home and community pharmacy, we are pleased with the progress throughout the year. We have executed consistently across several end markets, including in behavioral, assisted living, hospice, and skilled nursing. As we have entered 2026, we continue to enhance our go-to-market strategy, invest in growth resources, and look forward to driving expansion in each of our end markets while we execute against the 2026 set of process, technology, and automation work to drive ongoing efficiency improvements. Turning to Provider Services. We are very pleased with the overall performance in the quarter and the year. In the fourth quarter, segment revenue grew 13% year over year, and segment adjusted EBITDA grew 16% year over year, with an adjusted EBITDA margin of 16.4% in the fourth quarter, a 50 basis point expansion year over year primarily driven by economies of scale and efficiency. Home health care, which represents approximately 55% of revenue in the provider segment, grew 19% year over year. Average daily census grew 15% to almost 35,000 in the quarter, driven by strong quality metrics, de novos, execution on partnerships and preferred MA contracts, and strategic tuck-in acquisitions in target markets. In home-based primary care, we are excited by the large opportunity that exists, especially with ACO payment strategies. We continue to invest in resources in this strategic area, and we believe we can further expand our home-based primary care business to benefit payers and their members and better connect patients to other integrated services that they need. In rehab care, which represented approximately 20% of provider revenue in the fourth quarter, revenue growth was 8% year over year. We are pleased by strong person-served growth of 13% and hours billed growth in the core neuro rehab services of 17%. Growth in the fourth quarter was driven by neuro rehab de novo additions and very high patient satisfaction scores, along with continued expansion of our Rehab in Motion program into ALF and home settings. We are excited by momentum in rehab Part B for seniors and look forward to driving additional de novo locations this year. Turning to personal care, which represented 25% of provider revenue in the fourth quarter, revenue remained steady to up and grew 4% year over year. Personal care persons served grew 2% to 16,175 in the fourth quarter. In the quarter, and throughout 2025, we saw steady operational performance as we continue to provide high-quality supportive care to seniors and assist with activities of daily living in the home. Overall, I am pleased with our operational performance throughout 2025, leading to excellent business performance across BrightSpring Health Services, Inc. Common Stock's enterprise. We now have a seven-year CAGR of 22% on revenue and 18% on adjusted EBITDA. 2026 is off to a consistent and good start, as we remain focused on leveraging our leading complementary and differentiated service capabilities and leveraging our scale, operational efficiencies, and best practices to deliver high-quality coordinated care to complex patients. We will be hosting an Investor Day on March 17 and look forward to discussing the BrightSpring Health Services, Inc. Common Stock platform and strategy that enables high-quality, lower cost, timely care delivery to approximately one-half million senior and complex patient individuals every day. We will provide information on the operations, end markets, and growth drivers of each of our business units, and we will discuss our long-term company vision and strategy, and the reasons why we have never been more excited about BrightSpring Health Services, Inc. Common Stock's future. With that, I will turn the call over to Jen. Jennifer A. Phipps: Before I discuss our financial results for the fourth quarter and full year of 2025, I would like to remind you that in 2025, we began to record the Community Living business in discontinued operations, as indicated in the press release and 10-K, to adhere to accounting standards required for annual reporting. As such, all BrightSpring Health Services, Inc. Common Stock financial results and forecasts that I will discuss are related to continuing operations and exclude Community Living and any acquisitions that have not yet closed. Management believes the presentation of the non-GAAP financials from continuing operations is a useful reflection of our current business performance. In 2025, total company revenue was $3.6 billion, representing 29% growth from the prior year period. Pharmacy Solutions segment revenue in the quarter was $3.2 billion, achieving 32% year-over-year growth. Within the pharmacy segment, infusion and specialty revenue was $2.6 billion, representing growth of 43% from prior year, and home and community pharmacy revenue was $593 million, representing a decline of 1% year over year. Home and community pharmacy revenue declined year over year due to the associated with the customer that declared bankruptcy and our decisions to exit specific uneconomic customers. This particular customer's bankruptcy process is still ongoing, and our forward-year guidance contemplates a variety of scenarios. However, we do not anticipate any changes to the year under any scenario. In the Provider Services segment, we reported revenue of $394 million in the fourth quarter, which represented 13% growth compared to the prior year. Within the Provider Services segment, home health care reported $217 million in revenue, growing 19% versus last year. Rehab revenue was $75 million, growing 8% versus last year, and personal care revenue was $102 million, representing growth of 4% year over year. For the full year 2025, total company revenue was $12.9 billion, representing 28% growth from 2024. Pharmacy Solutions segment revenue was $11.4 billion, representing 31% growth from the prior year, and Provider Services segment revenue was $1.5 billion, representing 11% growth from the prior year. Moving down the P&L, fourth quarter company gross profit was $413 million, representing growth of 22% compared with the fourth quarter of last year. For full year 2025, company gross profit was $1.5 billion, representing growth of 20% compared to 2024. Adjusted EBITDA for the total company was $184 million in the fourth quarter, an increase of 41% compared to 2024. For full year 2025, adjusted EBITDA for the company was $618 million, representing 34% growth compared to 2024. Adjusted EPS for the total company was $0.33 for the fourth quarter and $1.00 for the full year. Throughout 2025, we continued to implement procurement initiatives and have invested in and deployed new technologies to enhance operational efficiencies across the company. This has contributed to ongoing people and growth investments as well as net profitability growth and margin results for the fourth quarter and full year of 2025. In 2026, we anticipate our procurement and operational programs to result in additional gains through cost efficiencies, best practices, and streamlining across all business lines. Turning back to segment performance, in the fourth quarter, Pharmacy Solutions gross profit was $255 million, growing 25% compared with the fourth quarter of last year. Adjusted EBITDA for Pharmacy Solutions was $102 million for the fourth quarter, an increase of 44% compared to last year, representing an adjusted EBITDA margin of 5.1%, which was up approximately 40 basis points versus last year. Provider Services gross profit was $158 million, growing 17% versus the fourth quarter of last year. Adjusted EBITDA for Provider Services was $64 million for the fourth quarter, growing 16% versus last year, representing an adjusted EBITDA margin of 16.4%, up approximately 50 basis points versus last year. Community Living continued to show strong operational and financial performance throughout the year. We are pleased with the year-over-year revenue and EBITDA growth we achieved in this business in 2025. On a total company basis, cash flow from operations was $232 million in the fourth quarter and $490 million for 2025, exceeding our annual run-rate operating cash flow expectations for the year. Our adjusted EBITDA growth combined with our cash flow generation during the quarter has led to a leverage ratio of 2.99x at December 31, 2025, which we successfully decreased from 4.16x as of 12/31/2024. At the time we provided our fourth quarter 2024 results in March, our leverage ratio target was 3.0x to 3.5x pro forma for the Community Living transaction, and as of year end, we have now reached a leverage ratio of just under 3.0x and below that expected range. Our view of year-end 2025 leverage pro forma for the Community Living transaction is 2.6x. We are pleased to have exceeded our leverage target for the year, driven by both growth and very strong operating cash flows exiting the year. BrightSpring Health Services, Inc. Common Stock is well positioned with a strong balance sheet, enabling increased capital allocation flexibility in 2026 and beyond. Longer term, with continued execution, growth, and cash flow generation, we remain on track towards a leverage target of 2.5x or below, which at current trends could be realized by midyear, excluding acquisitions or other uses of cash. As of December 31, net debt outstanding was $2.5 billion. We continue to actively evaluate our capital structure to ensure that we are best positioned moving forward. As mentioned previously, in January, we expect to receive approximately $715 million of net cash proceeds from the $835 million of gross cash consideration in the pending Community Living sale, which at this time we expect to close by the end of the first quarter. Given various moving parts with regards to the use of Community Living proceeds, we are not providing interest expense guidance at this point in time. Turning to guidance for 2026, which excludes the Community Living business, as well as any acquisitions that have not yet closed. Total revenue is expected to be in the range of $14.45 billion to $15.0 billion, including Pharmacy Solutions revenue of $12.6 billion to $13.1 billion and Provider Services revenue of $1.85 billion to $1.9 billion. This revenue range reflects 11.9% to 16.2% growth over full year 2025, excluding Community Living in both years. Total adjusted EBITDA is expected to be in the range of $760 million to $790 million for full year 2026. This would reflect 23.1% to 27.9% growth over full year 2025, excluding Community Living in both years. Included in total adjusted EBITDA is expected contribution from the Amedisys and LHC acquisitions of $30 million. I will now turn it back to Jon. Thanks, Jen. Jon Rousseau: And thank you for your time today to go through BrightSpring Health Services, Inc. Common Stock's fourth quarter and full year 2025 results. We will now open up the call for questions. Operator? Operator: Thank you. Star 1-1 on your telephone and wait for your name to be announced. In fairness to all, we ask that you please limit yourself to one question and one follow-up. One moment for our first question. Our first question is going to come from the line of A.J. Rice with UBS. Your line is open. Please go ahead. A.J. Rice: Thanks. Hi, everybody. Obviously, a lot of things are going well for the company at this point. When you look at your '26 outlook, I wonder if you could— Jon Rousseau: —sit here right now. Yes. We see a lot of consistency that is playing out in Q1, as we look at 2025. So we do not see a whole lot of changes and are continuing to try to execute against the strategies that we have been driving for a while. I mean, as we look out for the year and try to ensure execution, continuing to drive volume growth in each of the businesses is going to be important. We are making sales investments, really as always, and in all of the businesses in particular, and a couple of them, like home health, hospice, and infusion and in home and community in select markets like IDD and ALS. So seeing those sales investments take hold, as always, we have a wholesome list of Lean Sigma tech and now increasingly AI projects that are slated to roll out through the company this year. We expect benefit from those as well. And then as we integrate the Amedisys and LHC acquisitions, those will be important to do well this year. So, look, I think it is just continued execution from a quality standpoint, and with that quality, investing more and more in sales to drive to our volume targets, and then on the cost side, continuing to drive lean initiatives through technology and through our procurement team. Obviously, there is some margin expansion in what we are expecting for this year, but all of those items are things we have been executing against for a long time, and I think we want to take the consistency we are seeing right now and just continue to execute from a volume and a margin perspective. A.J. Rice: Okay. And then maybe for the follow-up, I know you said that over the next twelve to eighteen months, you are looking at 16 to 20 new LDD introductions. I wondered if you could give us some comments about the landscape from a generic conversion, biosimilar conversion, and what that looks like for you at this point. Jon Rousseau: Yes. We 24 LDDs we won last year, and 16 to 20 is our guidepost. We have been beating that the last year or two. We feel like that is a really good number as we look out twelve to eighteen month payment, doing a great job. Again, from a quality and service level perspective, that is something we focus on immensely to try to be the best partner we can. I think importantly, we are winning rare and orphan and some LDDs outside of oncology as well. We will have probably three or four infusion LDDs, for example, that we are going to be winning here in Q1 or early Q2, and that is an area we are really focusing on. And then even a very meaningful cardiac drug here recently that we picked up too. So our LDD and specialty strategy is continuing to, would say, expand, leveraging on the core capabilities that we have. And that is deciding. From a biosimilar perspective, with Solara mostly in the rearview mirror, a little bit of residual impact for us this year, but we really do not have any exposure there just given the nature of the therapies and the drugs that we supply. A.J. Rice: Okay. Thanks a lot. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Whit Mayo with Leerink Partners. Your line is open. Please go ahead. Whit Mayo: Hey, thanks. Good morning. Jon or Jen, can you talk about just EBITDA and margins for each of the segments expected for this year? Jon Rousseau: Yes, sure. I will go ahead and turn that over to Jen in a second. I would just say, as you are seeing EBITDA in our guide thus far for 2026 outpace revenue, obviously there is some margin expansion there. From a revenue perspective, some things that were expected, you have got IRA, you have got some branded generic conversions, you have got a little bit of residual impact from a customer or two in home and community pharmacy that we either fired or they went bankrupt, and so that is at play in some of our revenue numbers, notwithstanding that really strong growth rate numbers for the year that we are really confident in. I think some of the EBITDA drivers, as I said before, is going to be some product mix and then these operational efficiencies that we continue to drive. Provider has got a really good growth number for 2026. That is a 17% margin business as well. So, Jen, any other commentary at the segment level? Jennifer A. Phipps: Yes. I would say from a segment standpoint, we do expect broad-based margin expansion from the initiatives that we deployed in late 2025 and continuing into 2026. So we will see, we do expect some of that. We have favorable mix both in terms of product and services that is benefiting that. Jon mentioned some of the revenue impacts that also is causing expansion from a margin perspective, from an EBITDA standpoint. But just with all of that, we continue to invest for future growth. So in our plan for 2026, we will continue our investments in AI and technologies and other operational processes and sales investments, as Jon has mentioned. So we are going to be covering that in this revenue guide as well. Yes, I think that is an important point. I mean even sort of with the EBITDA guide for '26, which I think it is 27%, 28% at the high end, there is a lot of continual investment we are making in the company as we look out to one-, three-, and five-year growth, which we are really excited about. Whit Mayo: Okay. And then, I am curious just your views on the future of the temporary and permanent behavioral adjustment cuts for home health now that you have really doubled down on the industry. There is some debate whether or not CMS will in fact move forward to implement any further cuts. And then you may have kind of called bottom here on the rate environment in some ways. So I am just curious how you are looking at the rate environment. Jon Rousseau: Yes. We like home health a lot. I mean, that deal was such an incredible fit from a geographical perspective. Our baseline view of home health rates, just to be conservative, is flat. I think there has been a lot of constructive conversations even here recently around the future and the value of home health. So we do remain optimistic, and just given the landscape of what has happened with some of the providers, I mean, we see an unbelievable runway in home health over the next five to ten years. And our base case is flat, and I think if certain things occur in the future, there could be positivity there and back to normal and expected and justified rate increases. Remember, home health for us is sort of still sitting around 10% or so of the company. And then hospice has obviously had a ton of support and has been a phenomenal performer for us. Both of those teams in our company have best-in-class management. We continue to add sales. We continue to drive technology into those businesses, and I am super excited about their prospects. Operator: Thank you. And due to time, we ask that you please limit yourselves to one question. One moment for our next question. Our next question comes from the line of David Michael Larsen with BTIG. Your line is open. Please go ahead. David Michael Larsen: Hi. Congratulations on the great year. Can you talk a little bit about the earnings impact on specialty when drugs launch generic? It is my understanding that even though the price can decline, your margins would improve with generic launches. You are able to negotiate better margins across product classes when that happens. Numbers around that would be very helpful if that is the case. Thank you. Jon Rousseau: Hey, David. Yes. Look. In the specialty pharmacy business, that growth is multifactorial, and it has been working for a decade now. You have got brand LDDs. We continue to win about 20 of those a year. We are continuing to actually expand outside of oncology in a lot of rare and orphan conditions, which is exciting. The pipeline out there in pharma continues to never be more innovative and bigger. These therapeutics are amazing for what they can do for people. But you have got brand LDDs. You have got a healthy stream of brands converting generic over time. That is a great thing for everybody. We drive generic utilization as much as we can. Obviously, the cost on the buy side of procurement comes down, and that is helpful. And then we have a really growing fee-for-service business. We have a lot of data agreements and other service agreements with pharma. We are up to over 30 hubs now. We are the hub for pharma. And so just a terrific business in terms of the fee-for-service side, and that is obviously a higher gross profit margin as well. So we like the multifactor nature of growth in that business, and we continue to lean into all of them. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Charles Rhyee with TD Cowen. Your line is open. Please go ahead. Charles Rhyee: Yes. Thanks for taking the questions, guys. Maybe just follow-up from Luke's question and just at least thinking through for the segments related to the overall EBITDA guidance, obviously, with the provider segment, we are going to add in sort of the $30 million contribution from the Amedisys transaction here. But beyond that, if we look at sort of either the 2025 full-year performance for the segments versus maybe fourth quarter, anything that would suggest that the trends that we are seeing that we should take account in our modeling as we think about the proportions of the overall EBITDA between the segments? Jennifer A. Phipps: We expect consistency with what we saw in 2025, so we will continue to see volume growth and EBITDA growth is our expectation, organically across both of our segments. Operator: And one moment for our next question. Our next question will come from the line of Jared Haas with William Blair. Your line is open. Please go ahead. Jared Haas: Yes. Hey, guys. Thanks for taking the questions, and good morning. Just wanted to drill in a little bit more. Just wanted to understand the margin profile of the Amedisys assets that you acquired. From your comments, it sounds like that is a high single-digit margin if I use the pro forma revenues and then the $30 million EBITDA contribution, which I guess seems to be a little bit on the lower side compared to peers in the space and the rest of your legacy provider segment. So just wanted to kind of understand, make sure we are thinking about margins for that asset correctly. And I am wondering if you are sort of absorbing any integration or transformation-related costs post that acquisition in the near term? Jon Rousseau: Hey, Jared. I will let Jen speak in a second. Good morning. No, look, I think you are largely doing that math correctly in terms of what we acquired. It is what it is. But, as we look out for the year, that would be something that we would hope to integrate very soundly, and as we step through the year, we will see how it is going. We have a margin that is higher than that, and our goals will be to drive to our margin over time, and I think we will look to see how quickly we can do that. Jennifer A. Phipps: I would agree. There is a lot of integration work, some technology investments that we are making, ensuring everyone is on consistent platforms and systems. A number of travel initiatives and other things. So we are really excited about that asset and what that will bring, and again, as Jon mentioned, we are very excited about moving that towards our overall profile. Jon Rousseau: I think the only question hopefully will be the timeline of that. And if it moves up, it moves up, and that is a good thing. Operator: Thank you. One moment for our next question. Our next question comes from the line of Brian Gil Tanquilut with Jefferies. Your line is open. Please go ahead. Brian Gil Tanquilut: Hey, good morning and congrats on the quarter, guys. Maybe, Jen, as I think through the year, any callouts especially with the AMED transaction coming in and kind of like a margin ramp expectation there? Any callout on how we should think about the cadence of the quarters for 2026? Jennifer A. Phipps: Yes. A really great question, Brian. Thank you. Just as a reminder, Q1 is the shortest quarter from a days perspective, so that tends to be, from an annualized perspective, our lowest quarter. We would expect sequential growth in each of our quarters throughout 2026, consistent with what we saw in 2025. And from a margin perspective, that will be driven really kind of throughout the year as well as we have different products coming online. We have a generic launch that will happen in Q2, so that will increase throughout the year from a margin perspective. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Pito Chickering with Deutsche Bank. Your line is open. Please go ahead. Pito Chickering: Hey, good morning, guys. Great quarter here. Looking at the 2026 pharmacy revenue guidance, can you give us the moving parts between sort of core growth of existing drugs plus new LDD wins and then the offsets from generic conversions? And, obviously, generics is obviously revenue, obviously not EBITDA. But if you can just give how we think about core growing plus LDD wins, minus generics to help get to the pharmacy revenue guidance. Thank you. Jennifer A. Phipps: Yes. So maybe I will just start with a couple of unfavorable impacts. I think that will be helpful context. So as you think about IRA in specialty and infusion, we do have a revenue headwind of approximately $200 million, and then brand-to-generic conversions, as we have talked throughout 2025, we typically are trying to increase our sales in advance of a launch. And as we know, when there is a brand-to-generic conversion, revenue does come down, and then ultimately, that is good for everyone. It is beneficial from an EBITDA standpoint for us. The total impact in specialty and infusion is a little over $400 million between those two items. And then home and community IRA impact from a revenue standpoint is approximately $175 million. So we do have headwinds of approximately $100 million in 2026. Despite that, we obviously have strong growth. We do expect growth across all of our different business lines. We will absolutely have LDD growth. That is the, you know, that in specialty. We have strong script growth in home infusion and specialty plans. We mentioned in Q3 that home and community script growth will be challenged because of the year-over-year lapping of some of the customers that we offboarded or branches associated with that customer that went through bankruptcy and those locations. So in home and community, we will have script challenges until about Q3, but outside of that we are having really strong volume growth across each of our pharmacy businesses. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Ann Hynes with Mizuho. Your line is open. Please go ahead. Ann Hynes: Great. Thank you. Can you provide an update on the infusion business? I know it has been a big focus of investment and growth. Maybe how much that grew within specialty, what the margin profile is, and maybe what it contributes now as a percent of total specialty. Thanks. Jon Rousseau: Yes. Hey, Ann. Good morning. We are pleased with where the infusion business is at. We have really high aspirations for it this year and going forward. The acute business, we are really a top-two provider there, and in a lot of markets, have a leading market share. That growth has been in the double digits, and we expect that will occur again this year. On the specialty side is, I think, where we have a big opportunity. We have been underweight on specialty. We are creating specialty hubs right now and really separating those two businesses out to create the focus that we want. We have invested in a lot of resources there. We are going to be further investing in resources. We have plans to significantly expand our AIS presence. We have got about 30 right now. We are going to be retrofitting those and upgrading them and moving locations all this year and trying to make them extremely consumer friendly in all the right kind of strip malls and places. So, super excited about it. As you look at our balance sheet, that gives us a lot more flexibility in the future as well. And then just kind of broadly, just touching back on Pito's question, when you think about the numbers Jen put out there, sort of those one-time impacts, that otherwise is calculating to a revenue outlook at this time for 2026 of at 20% or a little bit over 20% when you adjust for those items. So really robust, broadly outside of a couple of those external items. And then I just wanted to circle back on Brian's note on the cadence of the year. It is a great question. I mean, as Jen said, we do expect the quarters to increase throughout the year. As I sort of mentioned to AJ, the continual sales investments we are making, all in the back of quality, de novos that we are investing in, and then our operational projects, these things are all ongoing throughout the year. And as such, those are some of the growth drivers we see throughout the year as we sit here today. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Matthew Dale Gillmor with KeyBanc. Your line is open. Please go ahead. Matthew Dale Gillmor: Thanks for the question. I wanted to ask about the Onco360 sales force. Seems like a pretty unique asset within the specialty pharmacy platform. Can you remind us the role they play, especially with LDD launches or with generic conversions? And what are the priorities for that part of the business as you are thinking about 2026? Jon Rousseau: Yes. No. That is an area that we have continued to invest in. A lot of longstanding relationships both with pharma and with prescribers, which we take extremely seriously and are very honored to have. But it is an area that we give a lot of attention. We have increased our investments in that field force every year. We will do it again this year. We are essentially, at this point, covering, I think, every geography in the United States from a referral standpoint. And, again, it is the service levels that are really pulled through behind the commitments by the field force that are so important, and those were all reflected in the net promoter scores that we have, which typically range between 95 to 100. So everything starts with service, and from there, it is just trying to offer the best education and support for all of the stakeholders out there in the market that we can. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Joanna Sylvia Gajuk with Bank of America. Your line is open. Please go ahead. Joanna Sylvia Gajuk: Good morning. If I may ask the same question a little bit differently about the segment for that. So I appreciate the $600 million revenue headwind in the pharmacy segment. So if I look at, you know, 2025 pharmacy segment margins, right, they improved actually a little bit year over year, to 4.7%, call it, in '25. Is that the, you know, to think about 2026 margins for that segment, you know, how, I guess, will revenue headwinds translate into the margin for that segment? Thank you. Jennifer A. Phipps: Yes. Thank you, Joanna. Yes. It would be mix shift. It would be operational improvements and offset by the investments that we are going to be making, as mentioned, in each of the different segments and at corporate in those areas. So, again, we would absolutely expect an improvement in margin. You see that coming through in the in. You see that margin move up. We will expect a small improvement of that that is continuing through 2026. And, again, for those particular reasons. Jon Rousseau: Yes. In addition to the mix shift and the operational initiatives, you have got economies of scale just from really robust, just core growth. Operator: Thank you. And one moment for our next question. Our next question will come from the line of Raj Kumar with Stephens. Your line is open. Please go ahead. Raj Kumar: Maybe just kind of expanding upon the integration milestones with Amedisys, LHCG, and thinking about that beyond 2026 and maybe kind of flushing out the embedded value you see with the asset integration and then cross-integration of services and products between both segments, considering the deeper kind of geographical overlap post deal, kind of would be helpful to kind of see or frame the overall kind of story there. Jon Rousseau: Yes. So I think there was an earlier question about the margin structure that we acquired. Our provider margins, you can look at what they are. That is what our hope is for the business, and I think we just have to see how quickly we can get there. I would say we are very optimistic about the top-line growth and the volume and ADC growth as well, and the potential that we have in the business. The assimilation so far has gone incredibly well. From a cultural standpoint, fantastic, and so we are really excited about it. There is margin opportunity there, but we are as excited and even more excited about what we can do from a growth perspective in some of these really terrific markets. I would say that there is also overlap with our hospice branches, and so there is going to be a lot of integrated care opportunities there as well, and benefits for our hospice business too. I would note that we funded that deal entirely with cash on hand, and I think that is just a little bit of a callout to where our balance sheet and our cash profile is today. We ended up the year at almost $500 million of operating cash flow. We also did a repurchase later in the year. And as we look at our balance sheet under three times now, and pro forma for the Community Living close 2.6x, so the ability to execute against that transaction entirely funded with cash on hand was a helpful benefit of where we have come as a company from a balance sheet perspective and where we sit today. And as mentioned, I think that is going to give us some flexibility as we go forward, particularly later in the year and certainly into '27 and '28. Operator: Thank you. And one moment for our next question. Our next question comes from the line of Steven Beck with Wells Fargo. Your line is open. Please go ahead. Steven Beck: Yeah. Hi. Yes. So I am looking at the growth rates here, and I think that actually includes, potentially stepping over a fairly large headwind in the LTC business that is coming off the changes that are being made around the IRA. I was wondering if you could update us maybe on the magnitude of the headwind there that you are stepping over? And then any update on your efforts to maybe offset that headwind through reimbursement changes or additional fees or things like that? Thank you. Jennifer A. Phipps: Yes. So as we discussed last quarter, we continue to work and continued through Q4 to work productively with our payers regarding an enhanced dispensing fee that we have worked to achieve, which has helped us to mitigate some of the impact. We absolutely do have an impact. We continue to work through that from a payer perspective. But through all of the other growth initiatives, the volume growth, the efficiencies, we have growth planned, as we had discussed, healthy growth planned in the home and community business. So we continue to work again with our payers to ensure that we have an appropriate enhanced dispensing fee. Our government relations team is also active, making sure that everyone understands the impacts to the pharmacy business. But again, our scale platform and our operational improvements that are hallmark really to how we are approaching every single year, I think, have helped us in this year, for 2026. Jon Rousseau: Yes. I think hopefully we have been clear on the growth drivers for specialty across LDDs, brand generic, fee for service, infusion. You have got acute, you have got specialty. You have got a growing LDD business there, rollout of more AISs. In home and community pharmacy, outside of this IRA, which we will work through constructively, and you have got one or two customer situations, unfortunately, which will be in the rearview mirror probably by about Q3 or Q4. I mean, the name of the game in that business is driving as much volume as you can in these other attractive end markets and being the most efficient scale provider in the industry. So you look at assisted living, you look at hospice, you look at behavioral, you look at the PACE market we are entering, and then the skilled nursing market with a segment of that market, all extremely attractive. I mean, we are adding some 30 reps this year to grow and penetrate across all those markets further. And then this is where we are leaning into AI and technology the most, for starters. You look at the whole pharmacy intake and revenue cycle process, and there are some seven or eight projects this year. So super excited about continuing to build out the biggest scaled independent provider in that space in these attractive end markets, and providing a set of operations that produce the highest service levels possible and with a continued focus on cost per script there. Operator: Thank you. One moment for our next question. Our next question comes from the line of Sean Dodge with BMO Capital Markets. Your line is open. Please go ahead. Sean Dodge: Yes. Thanks. Good morning. Maybe just going back to the— Jon Rousseau: —margin comments on the pharmacy side. You mentioned some of the key drivers having been your efficiency efforts and then product mix. Could you just give us a sense of the margin expansion you drove over the last year? How much of that was from generics versus how much of that was from those cost initiatives? And then we think about the '26 guidance, the improving margins you are embedding there. Is that proportionality expected to change at all? How big of a role do you expect incremental efficiencies to play into that, again, versus lift from the generics? Thanks. Yes. I mean, well, look, the good news on operational efficiencies is a lot of them occurred in the back half of last year, so they are just sort of flowing through at this point and will be year-over-year tailwinds. And then in addition to that, we are always looking at the next thing and launching new projects. I would say on the pharmacy side, home and community and infusion is where we have the most projects from an operational excellence perspective going on and will be going on this year. But from a margin perspective, I mean, yes, economies of scale from pretty aggressive growth targets that we like to put out there and go try to achieve. But, look, across all the different businesses, you have got brands and generics in each. You have got a lot of different end markets, a lot of different payers. I mean, there is just a lot going on. But the net effect of it every year, if you focus on strong, strong double-digit growth, market share gains, targeting the most attractive therapeutic areas, and doing all of that with the best quality and the most operational efficiency, that has always been out to a really good place. The hallmarks of the company now for ten years has been volume and efficiency, and then accretive M&A. And so that story has really never been more intact, and you see all that play through in 2026, we think, as we sit here today. Operator: Thank you. I am showing no further questions. I would like to hand the conference back over to Jon Rousseau for closing remarks. Jon Rousseau: Thank you, everybody, for joining. We really appreciate it. Appreciate your questions, as always. Have a great day, and we look forward to talking with you soon. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone have a great day.
Operator: Thank you for your continued patience. Your meeting will begin shortly, and a member of our team will be happy to help you. Thank you for your continued patience. Your meeting will begin shortly, and a member of our team will be happy to help you. Please standby. Your meeting is about to begin. Good morning, ladies and gentlemen, and welcome to the Arcosa, Inc. Fourth Quarter and Full Year 2025 Earnings Conference Call. My name is Chloe, and I will be your conference call coordinator today. As a reminder, today's call is being recorded. Now, I would like to turn the call over to your host, Erin Drabek, Vice President of Investor Relations for Arcosa, Inc. Ms. Drabek, you may begin. Good morning, everyone, and thank you for joining Arcosa, Inc.’s Fourth Quarter and Full Year 2025 Earnings Call. Erin Drabek: With me today are Antonio Carrillo, President and CEO, and Gail Peck, CFO. A question-and-answer session will follow their prepared remarks. A copy of the press release issued yesterday and the slide presentation for this morning's call are posted on our Investor Relations website, ir.arcosa.com. A replay of today's call will be available for the next two weeks. Instructions for accessing the replay number are included in the press release. A replay of the webcast will be available for one year on our website under the News and Events tab. Today's comments and presentation slides contain financial measures that have not been prepared in accordance with GAAP. Reconciliations of the non-GAAP financial measures to the closest GAAP measure are included in the appendix of the slide presentation. In addition, today's conference call contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. Please refer to the company's SEC filings for more information on these risks and uncertainties, including the press release we filed yesterday and our Form 10-K expected to be filed later today. I will now turn the call over to Antonio. Antonio Carrillo: Thank you, Erin. Good morning, everyone, and thank you for joining us for a discussion of our fourth quarter and full year 2025 results and 2026 outlook. 2025 was an outstanding year for Arcosa, Inc., demonstrated by our exceptional financial performance and significant advancement of our strategic transformation. Our key growth businesses, Construction Materials and Engineered Structures, grew year-over-year, supported by cyclical expansion in both barge and wind towers. For the full year, we achieved record revenues of $2.9 billion, up 12%, record adjusted EBITDA of $583 million, up 30%, and record adjusted EBITDA margin of 20.2%, up 280 basis points. Importantly, we accomplished these results safely, recording the lowest annual safety incident rate in Arcosa, Inc.’s history. Our expanded disclosures further highlight the momentum underpinning our key growth businesses. Within Construction Products, we began separately disclosing revenues and unit statistics for the aggregates business. Representing approximately 60% of our Construction Materials revenues, aggregates achieved 10% growth in cash unit profitability in 2025, led by strong pricing gains and the accretive impact of Stavola. Within Engineered Structures, we separated the revenue and backlog disclosures for utility and related structures and wind towers. This better highlights the underlying strength within utility structures where backlog levels remained at or near record highs throughout the year, supported by robust end market demand. We exited 2025 with great momentum. Fourth quarter adjusted EBITDA increased 13% and margin expanded 90 basis points, with all segments contributing. Our earnings strength and positive cash flow enhanced our balance sheet, and we ended the year comfortably within our long-term leverage target. Overall, I am extremely proud of the dedication and contribution of the entire team. Earlier this week, we announced we entered into a definitive agreement to sell our barge business for $450 million in cash. With a strong backlog that provides production visibility deep into 2026, and market fundamentals supporting a healthy replacement cycle, we believe this is the right time to transition the barge business to an owner aligned with its long-term growth plans. We expect the sale to close in 2026, subject to regulatory approval and other customary closing conditions. I want to thank our talented leadership team, dedicated employees, and long-standing customers for their significant contributions to Arcosa Marine. The barge transaction further reduces portfolio complexity and cyclicality, raises our overall margin profile, and enhances the long-term resiliency of the company. Upon completion of the divestiture, Arcosa, Inc. will be fully focused on Construction Materials and Engineered Structures, both well-aligned to benefit from long-term infrastructure and power market tailwinds in the U.S. Before Gail goes over our financials in more detail, I want to acknowledge Jess Collins. Jess, who has served as Group President of Arcosa, Inc. since our spin-off, will be retiring in a few weeks, and his strategic insight and commitment have helped shape our success and strengthen our foundation for the future. We thank him for his outstanding service and congratulate him on his retirement. I will now turn the call over to Gail to discuss our fourth quarter segment results in more detail. Gail Peck: Thank you, Antonio, and good morning. Starting with Construction Products, fourth quarter segment revenues decreased 2%. Excluding freight, which is a pass-through in our Construction Materials business, revenues increased 4%. Adjusted segment EBITDA grew 3%, and margin expanded 140 basis points. On a freight-adjusted basis, adjusted segment EBITDA margin was roughly flat. As a reminder, segment performance this quarter is all organic, as Stavola hit its one-year anniversary on October 1, at the start of the quarter. For aggregates, freight-adjusted revenues increased roughly 8%, driven by 5% pricing growth and 2% volume improvement. Two consecutive quarters of volume growth give us optimism on continued volume recovery in 2026. Adjusted cash gross profit increased 6% and adjusted cash gross profit per ton increased 3%. Many of our regions had double-digit growth in unit profitability, particularly our natural aggregates and stabilized sand operations in Texas and our aggregates operation in the East Region. This performance, however, was partially offset by lower unit profitability in our Gulf Region, which was impacted by less favorable product mix, and the West Region, which had lower cost absorption on declining production volumes as we align inventory levels to demand. For the full year, volumes increased 6% due to the inorganic contribution from Stavola, and organic volume improvement in the back half of the year partially compensating for first half weather challenges. Full year freight-adjusted sales price grew 8% and adjusted cash gross profit per ton increased 10%, led by the accretive impact from Stavola. Turning to Specialty Materials and Asphalt, revenues decreased 5% primarily due to lower freight revenue for asphalt. Excluding freight, revenues were roughly flat, while adjusted EBITDA and margin declined slightly. Within Specialty Materials, strong profitability gains in lightweight aggregate were offset by volume-related decline in our specialty plaster business. In our asphalt business, revenues increased slightly as solid pricing gains offset lower volumes, resulting in modest unit profitability gains. Finally, revenues and adjusted EBITDA for our trench shoring business saw a double-digit increase year over year and had strong margin expansion driven by higher volumes and improved operating leverage. Moving to Engineered Structures, segment revenues increased 15% led by a 20% increase for our utility and related structures businesses, while wind tower revenue increased 3%. For utility structures, volumes increased double digits while pricing was up high single digits. Steel pass-through was roughly flat year over year. Adjusted segment EBITDA increased 22% and margin expanded 100 basis points to 18.5%, driven by strong revenue growth and operating efficiencies in utility structures. This business executed well throughout the year, resulting in sequential margin improvement in each quarter of 2025. For wind towers, adjusted EBITDA was roughly flat as we focused on rightsizing the business for lower production levels in 2026, resulting in a slight decline in margin year over year for the business. We ended the year with backlog for utility and related structures of $435 million, up 5% from the start of the year, providing solid visibility for 2026. Customer reservations for utility structures that have not yet hit backlog remain strong, providing additional confidence in the demand outlook. For wind towers, we received orders of $190 million during the quarter, primarily for 2027 delivery. We ended the year with backlog of $628 million and expect to recognize 42% in 2026 and 53% in 2027. Turning to Transportation Products, revenues were up 19% and adjusted segment EBITDA increased 24% primarily due to higher tank barge volumes and a more favorable mix, resulting in 90 basis points of margin expansion, building on the meaningful improvement delivered in the prior year. I will now provide some comments on our cash flow performance and improved balance sheet position. During the quarter, we generated $120 million of operating cash flow. As expected, this is down from last year's fourth quarter, which benefited from significant customer deposits in our wind tower and barge businesses for shipments delivering in 2025. Excluding advanced billings, which can be uneven, net working capital days have improved sequentially each quarter in 2025 as we remain very focused on cash management. CapEx for the fourth quarter was $64 million, resulting in full year CapEx of $166 million, which was above the high end of our guidance range. The increase was driven by deposits placed on some long lead-time equipment and the timing of spend on the wind tower plant conversion within our utility structures business. Free cash flow for the quarter was roughly $60 million and was $22 million for the full year. Our strong free cash flow generation in the second half of the year allowed us to repay $164 million of term loan debt during the year, which is prepayable at no cost. We ended the year with net debt to adjusted EBITDA of 2.3x, comfortably within our target leverage range. This is down from 2.9x at the start of the year. Our liquidity remains strong at $915 million, including full availability under our $700 million revolver, and we have no material near-term debt maturities. We are pleased to have achieved our leverage goals quarters ahead of schedule and are focused on balanced capital allocation. For the full year 2026, we expect CapEx to be between $220 million and $250 million. Our guidance includes $70 million to $80 million of growth CapEx and $150 million to $170 million of maintenance CapEx, including approximately $25 million of plant moves and IT-related initiatives in Construction Materials. Within the growth category, we have a good mix of projects within Construction Materials and Engineered Structures, the largest of which is the conversion of our Illinois wind tower plant. We anticipate the cadence of spending to be more first half–weighted based on the expected project timelines. I will wrap up with a few final comments for modeling purposes. For the full year, we expect depreciation, depletion, and amortization expense to range from $230 million to $240 million, slightly ahead of the annualized fourth quarter run rate as we expect to complete and capitalize large projects. Net interest expense is expected to range from $88 million to $90 million, down from $102 million last year, primarily reflecting debt reduction that occurred in 2025 and opportunistic debt paydown in 2026. For 2026, we expect an effective tax rate of 17.5% to 19.5%. We will update this guidance as needed following the anticipated close of the barge divestiture. I will now turn the call back to Antonio for more discussion on our 2026 outlook. Antonio Carrillo: Thank you, Gail. For 2026, we anticipate revenues to be in the range of $2.95 billion to $3.1 billion and adjusted EBITDA to be in the range of $590 million to $640 million, excluding any impact from the barge divestiture. As outlined in the earnings press release, our guidance for barge includes full year revenues of $410 million to $430 million and adjusted EBITDA of $70 million to $75 million. We will update our full year guidance once the divestiture closes. Our 2026 guidance incorporates another record year for our growth businesses, Construction Materials and Engineered Structures, with combined double-digit adjusted EBITDA growth and margin uplift. At the same time, we expect a short-term step-down in wind towers before recovering in 2027. In our outlook comments today, we will focus on the Construction Materials and Engineered Structures segments. Beginning with our first quarter 2026 results, we expect to eliminate segment reporting for Transportation Products and report results for the barge business as discontinued operations. In Construction Products, we anticipate another record year of revenues and adjusted EBITDA. In our guidance range, we anticipate mid- to high single-digit adjusted EBITDA growth. For the aggregates business, we anticipate low single-digit volume growth and mid single-digit price improvement. With our cost expectations generally in line with inflation, we anticipate solid gains in aggregate unit profitability. Our outlook is supported by solid infrastructure demand, which drives roughly 45% of our segment revenues. IIJA funding combined with strong state fiscal health is expected to support volume growth in 2026. Roughly half of the IIJA funding has not been spent, and there is progress on advancing a multiyear surface transportation reauthorization. Our shoring products business has record backlog, a positive indicator of the underlying infrastructure demand. In Texas, our largest natural aggregates and liquid market, public infrastructure demand remains fundamentally healthy. While highway lettings have been trending off peak levels, the outlook for state spending growth over the next several years is very positive and remains at historically elevated levels. In New Jersey, our second largest regional exposure, the demand outlook is also favorable as both the Department of Transportation and the Transit Authority approved budget increases for 2026. As a reminder, Stavola operations are highly skewed to infrastructure and replacements. Our Stavola operations performed very well in 2025, and we anticipate a solid year of growth in 2026. Stavola has added additional seasonality to our results, particularly in the first quarter. We anticipate that impact to be slightly more pronounced this year as the Northeast has been affected by very cold temperatures and significant snowfall in the first quarter. Turning to private nonresidential market, volumes continue to benefit from data center development, reshoring activity in certain areas, and overall demand for new power generation. Additionally, we are optimistic about future LNG opportunities. Residential remains challenged by affordability, and our outlook incorporates flat residential volume in aggregates. While we continue to experience positive activity in Texas, particularly in the Houston market, residential volumes remain weak overall, notably in the Phoenix and Florida markets. In our specialty plaster business, which serves multifamily construction, we anticipate a stronger second half of the year based on customer backlog and sentiment. Even though we are in an attractive state for residential development, we expect our businesses to benefit when the housing market recovers. Moving next to Engineered Structures. Our businesses play a pivotal role in strengthening American infrastructure, from wind towers that support much-needed new power generation, to utility structures that connect energy to the grid, and lighting, traffic, and telecom structures that address basic infrastructure needs of our expanding nation. I have said before, we believe our Engineered Structures platform is strategically positioned to capitalize on attractive long-term trends. Turning to the U.S. power industry, the expansion of data centers and the rising electricity consumption across the U.S. continues to drive a significant and sustained increase in power demand. Multi-year capital plans underscore our utility customers' commitment to significant power investments along with ongoing efforts to modernize the grid. During 2025, we maintained at or near record backlog levels for our utility structures, and the outlook remains very positive. Industry capacity is constrained, lead times are extended, and we are optimizing pricing and focusing on operational excellence. We are making solid progress on the conversion of our idled wind tower facility in Illinois to produce large utility poles and expect to be operational in the second half of 2026. Additionally, we have placed deposits on long lead-time equipment to maximize output in our existing plants. Our new galvanizing facility in Mexico will complete its first dip this quarter, which will allow us to improve our cost structure and help offset start-up costs in Illinois for this year. For 2026, we anticipate another year of strong double-digit adjusted EBITDA growth and higher margins. Meeting expanded U.S. power needs will require leveraging all available sources of power generation. Cost-competitive wind energy can play a critical role in meeting future energy needs quickly and efficiently. We remain optimistic about the long-term demand for wind towers despite near-term policy uncertainty impacting our anticipated volume for 2026. During the fourth quarter, we received wind tower orders for $190 million, primarily for 2027 delivery. Coupled with orders we received in 2025 and the shift forward of 2027 backlog, we have solid production visibility in 2026, albeit with reduced volumes from 2025. At December 31, our wind tower backlog scheduled for 2026 was $260 million, indicating a decrease of roughly 25% in anticipated wind tower revenues. Importantly, we expect to return to growth in 2027, supported by our current backlog for that year of $330 million. There is still time remaining in the year to book additional 2026 orders, though our customers are focused on 2027 and beyond. Factoring in competitor announcements and the potential for additional moves, third-party research estimates a capacity shortfall existing in 2027 for utility structures. The flexible and strategically located network of facilities within our Engineered Structures platform provides us with the ability to adapt and increase capacity quickly without significant capital investments. As a result, we are currently preparing for a transition of our Tulsa, Oklahoma facility from wind towers to utility structures. At Tulsa, our wind tower backlog stretches through 2027, and we have the ability in that facility to roll both product lines in parallel. As wind tower orders are being finished, we will be moving our people to produce utility poles. Reducing our wind tower capacity to two facilities right-sizes the business and redirects our resources to the higher multiple, higher margin utility structures with a sustained runway for growth. As it relates to our capital allocation priorities, we are focused on investing in our growth businesses, both organically and through acquisitions. We have an active pipeline of additional bolt-on opportunities, both in natural and recycled aggregates, and expect to deploy capital towards the highest value opportunities. We also anticipate reducing debt in the interim to lower interest expense. Our unused $700 million revolver provides ample additional liquidity. In closing, we enter 2026 as a more resilient company. The divestiture of our barge business is a significant milestone in our company's evolution and will sharpen our focus on our key growth businesses, Construction Materials and Engineered Structures. We will now move from our transformation phase to being completely focused on growth as we look to create additional value for our shareholders. We are now ready for your questions. Operator: Thank you. Press 1 on your keypad. To leave the queue at any time, press 2. Once again, that is 1 to ask a question. We will move first to Ian Zaffino with Oppenheimer. Your line is open. Ian Zaffino: Hi. Great. Thank you very much. Congratulations on the barge sale. Thank you. Now as far as the proceeds, how are you thinking about redeploying those, what areas and maybe geographies, or any other kind of color you could give us on that, and the multiples you are seeing out there? Do you have to use that for any—I mean, that is why. Thanks. Antonio Carrillo: Let me give you color on that. As Gail mentioned in her script, first, once we close this transaction—and we expect it to be in the second quarter—there might be some debt reduction in the short term. After that, we have a very active pipeline of opportunities for M&A. Right now, we are looking at mostly within our current footprint, but we do have some opportunities that take us to some new MSAs where we are not present. M&A, as mentioned in the past, has no timing because these things sometimes take time and are mostly family-owned businesses. It takes time to get there. We have a really active pipeline in both our current MSAs and a few new ones. That would be our primary focus to try to accelerate our M&A pipeline, mainly bolt-on acquisitions. These are not enormous things. I have mentioned before, bolt-ons are where we really get excited about margin expansion. We also have significant organic CapEx going on. Gail mentioned a few plant movements within our aggregates business, more reserves, finishing the Illinois facility, the galvanizing facility. I just announced that we are transitioning our Tulsa facility from wind towers to transmission over time as we finish our wind tower orders. That facility is very large and has the ability to do both product lines. The big message here is now that we are a simpler company, we will focus our full attention on deploying the capital to generate additional value for our shareholders through both inorganic and organic opportunities. Ian Zaffino: Okay. We are losing you. What should we expect there? I know we are pretty close to being almost exclusively noncyclical at this point, but any other kind of moves that you intend to do or not do? What should we expect going forward? Thanks. Antonio Carrillo: The cyclical business that we are left with is the wind tower business. As you know, current policy uncertainty creates noise. I mentioned in my remarks that we are very optimistic about the future of the wind industry because, for the first time since we have been building wind towers, we actually need them. The power demand increase is real. I am optimistic about wind. We expect a slower 2026 and a return to higher volumes in 2027. As we enter 2028, that is where we need to start focusing on 2028 and beyond. At the same time, we recognize the policy uncertainty. We have another business that is growing fast, which is utility structures. That is why the transition of our Tulsa facility to more utilities. There is some uncertainty. As we get into 2027, let us see. I am very optimistic about 2028 and beyond for wind. Rightsizing the business to two facilities really reduces our exposure. If the wind industry recovers fast, we will see what we do. For the moment, we will be very focused on growing in utility structures. Long answer to your short question. Ian Zaffino: That is really helpful. Thank you very much. Good quarter. Thank you. Operator: We will move next to Trey Grooms with Stephens. Your line is open. Ethan Roberts: Hey, Antonio and Gail. This is Ethan on for Trey. Thanks for the question. Starting off with utility structures, clearly expected to be a pretty large growth driver in 2026. Revenue was up 20% in the fourth quarter. The magnitude of growth here is pretty impressive, and guidance seems to imply pretty solid double-digit EBITDA growth. So just curious if this may help offset what is expected to be lower volume in wind in 2026, and perhaps any more color on the growth or demand expectations for utility structures in 2026? Thanks. Gail Peck: Good morning. I will take the first part of that question. You are correctly identifying a lot of underlying strength within utility structures. As we look to 2026 and think about our guidance for the Engineered Structures segment, we do see a path to that strong utility compensating for the step-down in wind. We gave a rough estimate for where we are right now for wind backlog, which translates to revenues for 2026. You do see roughly a 25% step-down in wind revenues. Given where we are with utility and the strength of the double-digit volume increases and pricing increases that we have had—and as I said in my script, we saw margin expansion for utility in every quarter year over year throughout 2025—we have strong expectations for the business next year, and we see a path to flat to maybe slight growth within the segment for next year. Antonio Carrillo: From the industry perspective, the numbers reflect what we are seeing in the industry. We are seeing very solid demand. We are seeing very long lead times. We are seeing a move towards larger utility poles, and that is why we are moving our wind tower facilities to utility poles. The big picture for us is we are very excited about the industry. Perhaps how should we think about the implications of our new galvanizing facility in Mexico starting this quarter? The facility already has orders and customers assigned to it. We are going to be ramping up with relative certainty around 2027 being a year where the facility starts contributing to the bottom line. The other facility is a longer-term process. We have orders until 2027, so this is a 2028 and beyond impact. The ramp-up in that facility will be a lot smoother because the first facility was idle, so we have to hire and train people and everything. The other facilities are a much easier transition because we already have people. People are the hardest thing to get and the most important resource for any one of our facilities. Moving people that already know how to weld and produce wind towers to transmission structures is a lot easier than hiring new people. Ethan Roberts: Got it. That is all very helpful. Thanks so much for the color, and I will pass on. Operator: We will move next to Garik Shmois with Loop Capital. Your line is open. Garik Shmois: Thanks. Just on the first quarter, I was wondering if you could maybe follow up a little bit more on the observations around weather in the Northeast impacting Stavola. Any additional perspective on Q1 and from a production standpoint, or the impact there—whether we should think about the percentage of EBITDA in the first quarter relative to the full year and how that is looking this year versus historicals? Gail Peck: Good morning, Garik, and thanks for the question. It has been a cold and snowy quarter up in the Northeast, which will likely impact the cadence of our Q1 as a percent of the total. If you look at last year, Q1 EBITDA for the segment within Construction was about 16% or so of the year. It certainly is a smaller contributor to EBITDA for the year. With the weather and the snow here recently, we will see that percentage share drop just a little bit. You will not see the same contribution as a percent of the whole as you saw last year. Garik Shmois: Okay. Makes sense. Thank you. And then maybe just on gross profit per ton expectations in aggregates for 2026. I know Q4 had some headwinds due to fixed cost absorption in some of the Western markets. How should we think about gross profit per ton for the segment overall for this year? Gail Peck: As I said in my comments, with mid single-digit price and low single-digit volume, and where we sit here today with expectations that costs are generally in line with inflation, we do see solid unit profitability gains for 2026. The cadence of that is always a little bit uneven with the seasonality. Q1 will likely have a tough comp in unit profitability year over year, but for the full year, we expect solid gains in gross profit per ton. Garik Shmois: Understood. Thank you very much. Operator: We will move next to Julio Romero with Sidoti & Company. Your line is open. Julio Romero: Good morning, Antonio and Gail, and congratulations to Jess on his retirement. I wanted to ask about the slope of the accelerating demand in utility structures. You are allocating resources there—Illinois in 2026, Tulsa in 2027. Could you dive a bit deeper into whether the acceleration in demand is being driven by a particular product line or geography? And then from an end use perspective, you said you are seeing demand skew towards larger utility poles. Should we infer that to mean that demand is being driven primarily by new transmission work versus substation? Antonio Carrillo: The slope we have seen over the last couple of years has become more pronounced. As we look at backlog, order intake, and customer reservations that are not yet in backlog, we see the need to accelerate our capacity expansion because our customers need it. In this industry, like in every other one, if we do not do it, someone else is going to do it. We need to be there for our customers. We are a company that has a significant share of our revenues tied to longer-term contracts, and we have had very long-term relationships with our customers, so we have the obligation to respond to their needs, and that is really exciting to us. It is not a regional thing. We see it all over the country. That is why one plant in Illinois and one plant in Tulsa give us further coverage. The overall sentiment is very positive. We did not do this just on hopes of good demand. We had a market study by a third party analyze utility investment over the next five to ten years, and we see this slope continuing to accelerate at least from here to 2030. We have to acknowledge it, plan for it, review it frequently, and make sure that every step we take has the basis to make the right choices and the right capital allocation. We do not do it just based on our gut feeling. We have solid data behind our thinking. On those customer reservations, our customers are mostly utilities. We have a few customers that are EPCs, and for the most part, we do not sell to a hyperscaler. Our customers are the people who supply power to developers and hyperscalers. It might take years. If someone is trying to build a data center right now, it might take two to three years for us to start seeing any noise around it. The move to larger poles that we have seen over the last couple of years has to do with that increase in loads in certain areas. It has to do with permitting, and it has to do with rights of way. It is easier to put a big pole rather than a lot of small poles. It takes less space. You see it also in the conversation on the 765 lines, the very large lines. Bigger lines with higher voltage add resiliency to the grid. The whole country is reconfiguring to people who have higher loads and higher demands, and everyone is trying to adapt to that. We are part of the mix, but it might take us years to see the orders from the time someone develops a data center. Julio Romero: Excellent. Very exciting. I will pass it on. Thank you. Operator: We will move next to Brent Thielman with D.A. Davidson. Your line is open. Brent Thielman: Thanks. On Engineered Structures, you have been in a pretty tight range of margin throughout 2025. I want to get a sense of whether those sorts of levels are sustainable into 2026. It sounds like you could have a bit of a different mix within the segment. Does that have a material impact through the year? Maybe just help us understand that piece. Gail Peck: Good morning, Brent. Great question. There are two different stories going on within Engineered Structures for 2026. We feel very comfortable with the visibility we have in wind, but with that revenue step-down, and some lost absorption, we will see a margin impact on the wind side. Does utility fully compensate for that margin impact? There is a chance. We do see utility with good year-over-year progression in margin. The way I would say it right now is wind is going to have an impact for sure. A path to flat margins for the segment looks achievable, but we will have to see how the year progresses. Antonio Carrillo: To add some color, there is a path to compensate for that big of a drop in wind. The quality of our EBITDA in 2026 is going to be a lot better than 2025 because we are changing tax credit EBITDA for utility structures EBITDA. The quality of our EBITDA is going to be better in 2026 and beyond as utility structures grows. Brent Thielman: As a follow-up, you have been a patient seller with respect to the barge assets. It has been something that has been discussed for a long time. Congrats on getting something to the finish line here. Could we presume that you built up an M&A pipeline that you really want to act on, and now was just the right time to get this done? I am just trying to think around what finally got this to the finish line. Antonio Carrillo: I have mentioned M&A has its own timing, and we needed to get the barge to a point. I am convinced that the buyer, Winchurch Capital, is going to do very well with this asset because it is at the right spot to sell it. The backlog is there. The trends in the industry are really good. The replacement cycle is coming. They are going to have a really good business to run. I am very excited for our team and for them to buy this business. The timing is right to sell it. Could it have been better six months ago or a year from now? I cannot tell you. Right now, it is as good as we have seen it, and that is why we waited to do it at the right time. There is a long runway for it. At the same time, we have been building our pipeline, and we are excited about some of the opportunities we have going on. I am excited about all these opportunities. At the same time, you have seen us act in the past. The money is not going to burn a hole in our pocket. We are not going to deploy capital to things that we do not think are the best that generate value for our investors. We are not going to pay incredibly high multiples that we cannot afford. We are going to be very disciplined in our capital allocation. The goal is to build a pipeline that we can act on while staying disciplined with our capital allocation. We are going to be a disciplined capital allocator going forward, focused on growth. Brent Thielman: One more if I could. With some of the investments you are making on the utility structure side, including the conversion of the wind facility, could you level set us on how much revenue capacity comes on in 2026 or into 2027? Just trying to think about what you are doing internally and what that adds for you in terms of thinking about growth rates for utility structures. Gail Peck: In terms of 2026, as we have said on the conversion for the wind tower facility, that is the second half of the year where that is going to start contributing. From a steel structure perspective, that would be our seventh steel utility pole plant. That gives you a sense of what type of capacity it is adding. We would see that as more of an impact from a full-year perspective in 2027. The other investments we are making, as Antonio said, include a new galvanizing line down in Mexico. That is not a top-line impact; that is a cost saving as we are bringing galvanizing in-house down in Mexico. From a P&L perspective, as we ramp the Clinton facility in the U.S., the benefits from that galvanizing cost savings should offset that ramp impact in 2026. So, half-year benefit from the top-line perspective for the Clinton plant in 2026, and then you get the full-year impact in 2027. Antonio Carrillo: Okay. Thanks, Gail. I appreciate it. Thanks all. Operator: Thank you. This does conclude the Q&A portion of today's event, and this also brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.
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